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and 122 New York Stato Reporter the assets of the old firm. To protect those assets, it was essential that the debts of the old firm should be paid, and there is no allegation that the assets of the old firm were not more than sufficient to pay its obligations, and furnish the capital which the general partners were bound to contribute by a transfer of the assets of the old firm to the new; and, to protect those assets, the members of the new firm had the right to apply the capital contributed by the special partner as his contribution to the new firm. Neither the defendant bank nor the special partner was liable for any misappropriation of the special capital so contributed by the general partners, if there had been a misappropriation; but the evidence in this case, as I view it, is undisputed that there was no such misappropriation. They applied a portion of the capital contributed to the new firm to the payment of the debts of the old firm, as they were bound to do as assignees of the assets of the old firm; and, as a result of such a payment, they acquired the assets of the old firm, discharged from the obligation to pay that sum. When, therefore, they withdrew from the account of the new firm the sum of $60,000, and deposited it to the credit of the old firm, to meet in part an indebtedness of the old firm to the defendant bank, on the afternoon of June 22, 1892, and subsequently applied the balance thus deposited to the credit of the old firm in meeting the obligations of the old firm, there was no misappropriation of the capital contributed, but, on the contrary, a payment by the new firm on account of an indebtedness of the old firm, and which discharged the assets which they received from the old firm from the obligation to pay such indebtedness. The evidence is undisputed that this new firm subsequently received all of the assets of the old firm, paid all its obligations, and continued the business with the capital and assets that it had received from the old firm to August 11, 1893, when it was found that the new firm had become insolvent, and that all of this $60,000 was used in paying the indebtedness of the old firm. The account of the old firm shows that this deposit of $60,000 was made on June 22d, leaving a balance due the old firm, after paying the drafts presented to the bank during the day, of $9,406.21; and this balance was subsequently drawn out of that account by the old firm, and the account was finally balanced and closed. The referee has found, and it is not disputed, that the bank acted in good faith in the usual course of business in paying these checks drawn upon it by its depositors; and in all the transactions there is not the slightest evidence to show that this capital contributed by the special partner was used for any other purpose than in paying the debts of the old firm, and which the new firm was bound to pay if it received the assets of the old firm, and that it was with the assets of the old firm that the business was transacted that the new firm was organized to conduct. Upon no principle can this defendant be liable to the new firm, or to its surviving partners, for the deposit that it received on the 22d of June to the credit of the new firm, and which it has paid out upon checks of the new firm.

It is true that the limited copartnership was to commence on the 23d day of June, and to continue for 10 years, and that fact was stated in the certificate which was duly filed on the morning of June 23d. Assuming that notice of that fact was given to the bank when the deposit of

$200,000 was made, I can see no authority for holding that such a notice tied up that deposit until the special copartnership had been actually performed. I assume that if, for any reason, the certificate had not been filed on the following day, somebody would have been entitled to this money, and the bank would not have been justified in refusing to pay it out upon a check signed by the firm in whose name it was deposited. The bank owed these individuals who had associated themselves together to carry on this business. When the deposit was made there was no limitation of the power of the depositors to withdraw the amount to their credit in the bank, and, when they drew that amount to pay an indebtedness of the old firm, the assets of which had been transferred to the new firm, the new firm certainly could not recover the amount so paid from the creditors upon the ground that it was a misappropriation of the capital of the new firm; and the fact that such a sum had been paid the night before the new firm was to commence business could not at all affect the question.

The rule that property or money of a copartnership cannot be given to discharge the individual indebtedness of one copartner, or for any other than copartnership purposes, has no application to this case, for here the money that was paid was to discharge the indebtedness of the old firm, whose assets had been transferred to the new firm, and whose successor in business the new firm was. Assuming that on the morning of the 23d of June this deposit of $60,000 to the credit of the old firm had not been made, and that the old firm was indebted to the bank in the sum of $60,000 for overdrafts which the bank had paid, on the morning of June 23d, when the new firm took over, under the copartnership agreement, all of the assets of the old firm, and applied them to its own use, the new firm would have been bound to pay to the bank the amount of the indebtedness of the old firm. If it would, then the fact that there was a credit on the books of the bank to the old firm, and a debit on the accounts of the new firm on the night of the 22d, could not affect the rights of either of the parties. The new firm ratified the act of the bank in accepting the check on the 23d of June, by acquiescing in the balancing of the account of the new firm in the bank in which the check for $60,000 was charged as a debit, and was returned to the new firm as a proper charge upon its account. If the bank was entitled to demand of the new firm the payment of the old firm's indebtedness to it on the 23d day of June, the fact that the members of the new firm paid the debt to the bank on the day before, and that the new firm subsequently ratified that act by receiving without objection the voucher for that payment which had been charged to the new firm in the account of the bank, discharged the bank from any obligation to the firm for the money of the new firm which it had received and applied to the payment of an indebtedness for which the new firm was liable. The new firm got all the benefit of this payment. It received the assets of the old firm, discharged from its obligations to pay the indebtedness to the defendant; and, having received the benefit of the payment, it is precluded, while retaining that benefit, from questioning the validity of that payment.

I agree with Mr. Justice HATCH that under the pleadings the defendant was entitled to prove this defense, and that it was error for the

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and 122 New York State Reporter referee to hold that, to be available, this defense must be separately pleaded. I do not agree, however, that upon this record there is no proof that the balance of this check for $60,000, after payment of the amount due the defendant on June 22d, was not applied to the indebtedness of the old firm. On the contrary, it appeared from the account between the bank and the old firm, introduced in evidence by the plaintiff, that on the 22d and 23d of June the bank had paid out on checks of the old firm an amount which, after crediting the old firm with this $60,000, left it indebted to the bank on July 24th in the sum of $331.48, which was made good by the deposit on that day of another check of the new firm for that amount, and then the account was closed. This proof being offered by the plaintiff, it was sufficient to show that the bank had paid out on account of and on the order of the old firm an amount exceeding the sum of $60,000 that was deposited by the firm to the credit of the old firm on the night of June 22d. Upon the undisputed facts, therefore, I think the plaintiff failed to establish any cause of action against the defendant, and that the defendant was entitled to judgment; and, in this state of the record, it seems to be unnecessary to send the case back for a new trial.

The judgment should therefore be reversed, and judgment directed for the defendant, dismissing the complaint, with costs in this court and in the court below.

O'BRIEN and McLAUGHLIN, JJ., concur.

HATCH, J. (dissenting). This is an action at law, brought by the general partners of a limited partnership against the defendant, a national banking association, to recover the sum of $60,000, alleged to be due from the defendant as a balance of deposits made by the plaintiffs. The facts are as follows: On and prior to June 22, 1892, three of the plaintiffs, Edward La Montagne, Jr., Herman Clarke, and Wallace B. Smith, were carrying on business as brokers, under the firm name of La Montagne, Clarke & Co. On the 22d day of June, 1892, the three plaintiffs above named, together with Elisha M. Fulton, Sr. and Elisha M. Fulton, Jr., entered into written articles of copartnership for the formation of a limited partnership, under the laws of the state of New York, to do a general brokerage business. The articles recited the facts that the members of the old firm, together with Fulton, Jr., were to be general partners, and Fulton, Sr., a special partner; that the limited partnership should begin upon the 23d day of June, 1892, and, unless sooner dissolved, would continue for the term of 10 years; that the special partner should contribute as his share of the capital of the limited partnership $200,000; that the partners La Montagne, Clarke, and Smith should contribute to the capital of such limited partnership the sum of $100,000, which should be so contributed by transferring to said limited partnership all of the property, assets, and good will of the former partnership of La Montagne, Clarke, & Co., and in these articles the three members of the old firm covenanted that such property and assets so transferred by them were worth, and within one year would yield in cash, over all the liabilities of the old firm, the sum of $100,000. On the same day all the partners of the new firm

united in a certificate as required by the laws of the state of New York to form a limited partnership—that the same would commence upon the 23d day of June, 1892, and terminate upon the ist day of July, 1902. Elisha M. Fulton, Jr., also made an affidavit upon the same day, which was filed with the certificate, that the sum of $200,000, specified in said certificate to have been contributed by Elisha M. Fulton, Sr., had actually been paid in in cash. Upon the same day all the partners of the new firin met at the office of the old firm, which office was thereafter to be the office of the new firm; and Elisha M. Fulton, Sr., the special partner, delivered his certified check for $200,000, payable to the order of La Montagne, Clarke & Co., to Mr. Clarke, who indorsed it, “For deposit," and signed the firm name thereto. Thereafter, and about 2 o'clock in the afternoon of this day, Clarke and Fulton, Jr., went to the banking house of the defendant, taking the certified check with thein, and they there had an interview with Mr. Mason, the cashier. The old firm had a running account at the bank, and Mr. Clarke introduced Mr. Fulton, Jr., to the cashier as a new member of the firm, and said to Mr. Mason that the $200,000 check was the capital of the special partner, Mr. Fulton's father. An account was then and there opened with the new firm by depositing the check to its credit, and the cashier informed one of the bookkeepers that the new firm was to take the place of the old firm, and that the latter's account would be eventually closed out. The signature book was then brought in, and Mr. Fulton, Jr., signed therein the firm and his name also. Mr. Fulton, Jr., then said to Mr. Mason that they were making the deposit that day, although the firm did not expect to commence business until two or three days thereafter; that they had just signed the papers, but that the certificate could not be filed until the next day, as it was too late, and the firm really would not commence to do business until several days thereafter. Mr. Fulton, Jr., also told Mr. Mason that he was going in as a general partner, but that his father, whose check they had just deposited, was to be merely a special partner. At the close of banking business upon the same day, June 22, 1892, the old firm had overdrawn its account $50,593.79, and a messenger from the bank was sent to the place of business of the old firm, who notified the firm to make good its account. Thereupon one of the general partners of the new firm, other than Fulton, Jr., drew a check upon the new firm for $60,000, which was sent to the bank with a deposit slip, made out by the general partner, Smith, and a deposit made of it to the credit of the old firm, thereby giving the old firm a balance on hand in its account of $9,406.21. In August, 1893, the new firm made an assignment of all its assets to the plaintiff Fulton, Jr., in trust, to collect the same and pay the debts of the firm; and in such assignment they authorized him in such collection to use the name of the firm, and to maintain and continue the bank account in the name of the firm, and otherwise to absolutely control the same. The account was finally closed on October 16, 1893. The passbook had been balanced and vouchers returned therewith by the bank 15 different times between the time of opening and closing the account. The $60,000 check was not found by the plaintiff Fulton, Jr., with any of the returned vouchers, although it was shown to have been returned, and Fulton, Jr., did not learn of the

and 122 New York State Reporter giving of the $60,000 check until several years after he had closed the account. After June 22, 1892, the account of the old firm was carried for three days, and was then closed, the balance being checked out.

The principal question between the parties hereto is whether the defendant bank is entitled to credit for the $60,000 paid to it upon the 22d day of June, 1892, and deposited to the credit of the old firm of Clarke, La Montagne & Co., under the circumstances above stated. The learned referee found that the bank was not entitled to such credit, and found in favor of the plaintiffs, and from the judgment entered thereon this appeal is taken.

We agree with the learned referee that the bank was chargeable with notice of the fact that the certificate for the formation of the limited partnership would not be filed until the day after the deposit of the $200,000 check made by the special partner, and, having notice of such fact, the bank was not authorized to pay out, either upon the order of the special partnership, or any member of it, the moneys on deposit to the credit of the special partnership, in the absence of the assent of the special partner to such act. The bank was chargeable with notice of the fact that any depletion of the fund of $200,000 contributed by the special partner prior to the filing of the certificate would have the effect of rendering the statement contained therein that the contribution in cash by the special partner had been fully paid in in cash untrue, and, as a consequence, its legal effect would be to make the special partner liable as a general partner for the payment of the firm debts. The law in relation to limited partnerships, as it existed at the time of this transaction (Rev. St. pt. 2, c. 4, tit. 1, § 8; Banks & Bro.'s Ed., vol. 2, p. 1845), provided that, “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." The interpretation which the courts have placed upon this statute is that the statement must be true at the time when the certificate and affidavit are filed. White v. Eiseman, 134 N. Y. 101, 31 N. E. 276. The legal effect, therefore, which flowed from the transaction by which the fund was depleted to the extent of $60,000, was to make the special partner liable as a general partner for the firm debts. All persons, therefore, taking part in the depletion of this fund without the knowledge or consent of the special partner, did so at the peril not only of making good the fund to the extent of the depletion, but also were liable for such damages to the special partner as flowed from the act. If, therefore, this case is to be considered as one in the interest of the special partner, solely, to make good the depletion of the fund, or to charge the bank with liability for damages sustained by the special partner in consequence of the diversion of a part of the deposit, the judgment is clearly right, as the bank not only had notice of the character of the deposit and the purpose for which it was placed in its hands, but it also had notice that it must remain intact until tlie certificate and affidavits required by law were filed. Having such notice of the legal results which flowed from a diversion of the fund, the payment operated as a fraud upon the special partner, and the consequences for such act would be properly chargeable upon the bank in paying the check. We also agree with the learned referee, and for the reasons assigned by him,

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