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Statement of the Case.
ances of land, be filed in the office of the clerk of the county court of every county in which the partnership shall have places of business, and be recorded at large in each of such counties, in a book to be kept for that purpose, open to public inspection. With the original certificate and the evidence of its acknowledgment must be filed an affidavit of one or more of the general partners, stating that the sums specified in the certificate to have been contributed by each of the special partners to the common stock have been actually and in good faith paid in cash. Arts. 3446, 3447, 3448. "No such partnership shall be deemed to have been formed until a certificate shall have been made, acknowledged, filed and recorded; nor until an affidavit shall have been filed as above directed; and if any false statement be made in such certificate or affidavit all the persons interested in such partnership shall be liable for all the engagements thereof as general partners." Art. 3449. "The partners shall publish the terms of the partnership, when registered, for at least six weeks immediately after such registry, in such newspapers as shall be designated by the clerk in whose office such registry shall be made, and if such publication be not made the partnership shall be deemed general.” Art. 3450. The affidavit of the publication, by the publisher of the newspapers in which the notice is published, filed with the clerk, is evidence of the facts therein contained. Art. 3451. "Every alteration which shall be made in the names of the partners, in the nature of the business or in the capital or shares thereof, or in any other matter specified in the original certificate, shall be deemed a dissolution of the partnership; and every such partnership which shall in any manner be carried on after any such alteration shall have been made shall be deemed a general partnership, unless renewed as a special partnership according to the provisions of the last article." Art.
"The business of the partnership shall be conducted under a firm in which the names of the general partners only shall be inserted, without the addition of the word 'company,' or any other general term; and if the name of any special partner be used in such firm, with his privity, he shall be deemed a general partner." Art. 3454. Art. 3454. "Suits in relation to
Statement of the Case.
the business of the partnership may be brought and conducted by and against the general partners in the same manner as if there were no special partners." Art 3455. "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 character of dividends, profits or otherwise, at any time during the continuance of the partnership; but any partner may annually receive lawful interest on the sum so contributed by him, if the payment of such interest shall not reduce the original amount of such capital; and if, after the payment of such interest, any profit shall remain to be divided he may also receive his portion of such profits." Art. 3456. "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." Art. 3457.
Article 3460, which is the subject of much discussion by counsel, is in these words: "Every sale, assignment or transfer of any property or effects of the partnership made by such partnership when insolvent or in contemplation of insolvency, or after, or in contemplation of insolvency of any partner, with the intent of giving a preference to any creditor of such partnership or insolvent partner over other creditors of such partnership; and every judgment confessed, lien created or security given by any such partnership under the like circumstances and with like intent shall be void as against the creditors of such partnership." Article 3463 is as follows: "In case of the insolvency or bankruptcy of the partnership, no special partner shall, under any circumstances, be allowed to claim as creditor until the claims of all other creditors of the partnership shall be satisfied."
The revision of 1879 was adopted by an act passed March 17, 1879, the latter act going into effect July 24, 1879. It should be here stated that chapter 68 of the Revised Statutes is a reproduction, without material change, of the provisions of the act of May 12, 1846, entitled "An act for the regulation of limited partnerships." Laws of Texas, 1846, 279.
Statement of the Case.
On the 24th of March, 1879, the legislature passed an act, entitled "An act in relation to assignments for the benefit of creditors, and to regulate the same, and the proceedings thereunder." Gen. Laws, Texas, 1879, 57. The first section of that act provides: "That every assignment made by an insolvent debtor, or in contemplation of insolvency, for the benefit of his creditors, shall provide, except as herein otherwise provided, for a distribution of all his real and personal estate, other than that which is by law exempt from execution, among all his creditors in proportion to their respective claims, and, however made or expressed, sha have the effect aforesaid, and shall be so construed to pass all such estate, whether specified therein or not, and every assignment shall be proved or acknowledged and certified and recorded in the same manner as is provided by law in conveyances of real estate or other property." The second section requires the debtor to annex to the assignment an inventory showing a full and true account of all his creditors, their place of residence, the sum due each, the nature and consideration of each debt, any existing judgment, mortgage, or security for such debt, and the character of the debtor's estate of every kind. (excepting such as the law exempts from execution) with the incumbrances thereon. To this schedule must be annexed the affidavit of the debtor that it is a just and true account to the best of his knowledge and belief.
The third section, upon which the assignment involved in this suit rests, is in these words:
"SECTION 3. Any debtor, desiring so to do, may make an assignment for the benefit of such of his creditors only as will consent to accept their proportional share of his estate, and discharge him from their respective claims, and in such case the benefits of the assignment shall be limited and restricted to the creditors consenting thereto; the debtor shall thereupon be and stand discharged from all further liability to such consenting creditors on account of their respective claims, and when paid they shall execute and deliver to the assignee for the debtor a release therefrom." Gen. Laws, Texas, 1879, 57, 58.
Argument for Plaintiffs in Error.
The ninth section declares that "all property conveyed or transferred by the assignor, previous to and in contemplation of the assignment, with the intent or design to defeat, delay or defraud creditors, or to give preference to one creditor over another, shall pass to the assignee by the assignment, notwithstanding such transfer."
The remaining sections of the act prescribe the duties of the assignee, and regulate the administration of the trust.
The third section of the act of 1879 was amended by an act approved April 7, 1883, so as to provide that "such debtor shall not be discharged from liabilities to a creditor who does not receive as much as one-third of the amount due and allowed in his favor as a valid claim against the estate of such debtor." Gen. Laws, Texas, 1883, 46.
Mr. George Hoadly (with whom was Mr. Frank S. Burke on the brief) for plaintiffs in error.
I. The defendant in error, Louis Tuffly, is, I respectfully submit, in this dilemma. He brings this suit as assignee of W. T. Tuffly, a special partnership composed of W. T. Tuffly, general partner, and Christine E. McLin, special partner, but he is in this dilemma. If he assert that he is the assignee of a special partnership, then the assignment is void under section 3460 of the Revised Statutes of Texas. If he claim as assignee of a general partnership, he is confronted with these difficulties: first, that only one of the partners executed the assignment, the other being enrolled as a creditor to a large amount; and secondly, that the rulings of the court proceeded upon the theory that the partnership was special, not general, and cannot be sustained, if the conclusion be reached that this was really a general partnership.
II. The question of the legality of the assignment was presented by the general demurrer. The assignment is incorporated into the petition, and is upon its face illegal. The demurrer should have been sustained on the ground that the plaintiff counted on an assignment, which was expressly forbidden by the laws of the State of Texas. It admits the in
Argument for Plaintiffs in Error.
solvency of the firm, that is, that it is unable to pay its debts in the ordinary course of-business. Toof v. Martin, 13 Wall. 40; Buchanan v. Smith, 16 Wall. 277. It provides for a preference of a part of the creditors (those who shall become parties to it) over the others in the distribution of the assets. This is expressly forbidden by section 3460 of the Revised Statutes of Texas relating to limited partnerships, which is not repealed or affected by the act of March 24, 1879. The former relates to limited partnerships; the latter to general partnerships.
It may or may not be reasonable and just to require the creditors of an individual or of a general commercial partnership, for whose benefit an assignment has been made, to elect between taking the benefits of the assignment with release of debtor, or retaining the liability of the debtor and giving up all claim upon the assigned fund. Clearly, this would not be just where no such choice is given to the creditor. To render this fair to the creditor, he must have the right to elect between the two resources; either to take his share in the fund, or to hold the liability of the debtor. In case of a limited partnership he has no such alternative, for, in the first place, he originally trusted, so far as the special partner is concerned, only the fund. He never has had and cannot retain the liability of the special partner. His alternative is not between a share in the fund and retaining the liability of the partners, but between a share in the fund which has already been pledged to him, and retaining the liability, not of the partners, but of the general partner only. For this reason it may well be supposed that when the legislature of Texas undertook to pass a general assignment law, they did not provide in express words, or otherwise, for the case of limited partnership. This had already been done, and, therefore, needed words of express amendment or repeal, if it were their intention to make a change. As they did not intend to make a change, they used no such language.
The act of March 24, 1879, contains no repealing clause. It is true it was passed on the 24th of March, 1879, while the Revised Statutes were reënacted on the 21st of February, 1879,