Upon a state of acts, such as the plaintiff’s evidence tended to prove, a case would be made creating a liability against the defendant, as a general partner, for all the debts of the firm of Merrifield & McDowell.
By the eighth section it is declared that no partnership, under the statute, shall be deemed to have been formed until all the requirements of the statute are complied with, and if they are not, and any false statement is contained in the affidavits, then all the persons interested in the partnership shall be liable for all its engagements as general partners. If, after the formation of the company in strict conformity to the statutory requirements, any effects of the concern are transferred in violation of the provisions of section 20 or 21, with the assent of the special partner, then he is made liable in the same manner and to the same extent.
There is also a provision that no part of the sum which any special partner shall have contributed to the capital stock shall be withdrawn by him, or paid or transferred to him in the shape of dividends, profits or otherwise, at any time during the continuance of the partnership, but he is permitted to receive lawful interest on the sum contributed by him, if the payment of such interest shall
By the next section it is provided, if it shall appear that by the payment of interest or ■ profits to any special partner the original capital has been reduced, the partner receiving the same shall be bound to restore the amount necessary to make good his share of the capital with interest. The statute omits to declare that a violation of the provisions just mentioned shall have the effect to make the special partner liable, and to remit him to his common-law liability as- a general partner, but it was held in the case of the Madison Gownty Bank v. Gould (supra), that such consequences are visited upon the special partner for violating the restraints imposed by sections 15 and 16, it being the manifest intention of the statute that the sum contributed by the special partner shall remain unimpaired until all the debts and obligations of the copartnership are discharged. (See, also, Haviland v. Ghaoe, 39 Barb., 283.)
It is only by force of the statute that the liability of the special partner is limited, and the existence of the copartnership, in a legal sense, is continued until its affairs are wound up, although the period through which the copartnership was to continue has expired.
All the facts and circumstances upon which the plaintiff now relies as creating a liability on the part of the defendant, as a general partner, existed, when the action was commenced in the Superior Court to charge the defendant as a general partner. All the proper and necessary parties to recover the plaintiff’s debt against the copartnership were made defendants and served with process, and the issues were so framed that the plaintiff had the light to recover against the defendant as a general partner, if he was liable as such for having violated any of the provisions of the statute. It must therefore be held that that action constitutes a bar to this, so far as the plaintiff seeks a recovery, based upon any liability which the defendant has incurred as a general partner.
The proposition seems so plain that it is unnecessary to follow it any further with argument or illustration, or to cite authorities in support of this view of the case.
It was understood by the court on the argument, that the learned counsel for the plaintiff did not contend against this view of the case and conceded that a recovery could not be had, and none was
ITpon the averments contained in the complaint a good cause of action in equity was stated against the defendant, entitling, the plaintiff to relief; requiring the defendant to account for the' moneys improperly withdrawn, and which he holds as trustee for the benefit of the judgment-creditors of the company.
Upon the trial the plaintiff failed to prove the issuing of the execution and a return thereon unsatisfied. If these facts had been proved as alleged, then, with the evidence which the plaintiff did give, the complaint ought not to have been dismissed, and the jury should have been discharged and the action tried as a suit in equity.
The money and assets which were transferred to the defendant being owned by the copartnership and transferred to him, with the consent of all the parties having the legal title 'thereto, the defendant acquired a perfect title, except as to the judgment-creditors of the partnership.
If the assets transferred to the defendant had been personal property subject to levy and sale on execution, or real estate upon which the judgment would have become a lien, then the plaintiff could have reached them by execution and there would have been no necessity for resorting to an equitable action to set aside the transfer and compel an accounting. But as the property transferred to the defendant was money, or choses in action, it was necessary for the plaintiff to have an execution upon the judgment issued and returned unsatisfied before he could reach the money and assets in the hands of the defendant.
There are a class of cases holding that where a limited copartnership becomes insolvent that any creditor of such insolvent firm may file a bill in equity, in behalf of himself and all the "other creditors of the limited copartnership, to restrain the insolvent partner from disposing of the property and effects of the concern, contrary to the provisions of the statute, and ask that -a receiver be appointed of the copartnership assets, although the creditor has not obtained judgment upon his debt.
Actions of this nature are supported with a view of producing a distribution- of the assets of the' company ratably among all its creditors. The proceeding is based upon the legal proposition that
Similar actions may be maintained by any member of the copartnership firm, for the purpose of placing the assets in the hands of a receiver, to prevent waste and to secure a just and equitable distribution among the creditors. Where the members of the firm omit to take this step, then any general creditor can step in and prosecute the suit for his own protection. (Van Alstyne v. Cook, 25 N. Y., 489.)
This case is plainly distinguishable from those cited, for the reason that by the act of the general partners, which was lawful, so far as they were concerned, and of which they cannot complain, the title to the funds and assets which the plaintiff seeks to reach, became vested in the defendant, and as his title is perfect against all persons, except the creditors, he may insist upon the requirement that there be an execution issued against the property of the general partners, and returned unsatisfied, before he is called upon to account for the moneys which he has received.
Where the judgment-creditor pursues his remedies at law against the insolvent special partnership, by causing execution to be issued upon the judgment and returned unsatisfied, he thereby secures a prior special lien upon the assets which have been transferred in violation of sections 20 and 21. Without taking these steps he secures no priority whatever.
By section 21, it is declared that every sale, assignment or transfer of any of the property or effects of a general or special partner, made by a general or special partner, when insolvent, or in coirtemplation of insolvency, with the intent of giving to any creditor of the partnership a preference over creditors of the partnership, and every judgmént confessed, lien created, or security given by any such partner, shall be void against the creditors of the copartnership. The object and purpose of these sections is to hold the copartnership assets for equal distribution among all the creditors.
If the plaintiff be allowed, in this action, without proving the issuing and returning of an execution unsatisfied, to recover the assets transferred to the defendant, it would be to defeat the very object and purpose of the statute.
The judgment appealed from is affirmed, with costs.
Judgment affirmed, with costs.