PART ONE COMMENTARIES Chapter I. Partnership Associations, Limited. PART TWO THE ANNOTATED ACT Chapter II. The Act for Partnership Associations, Limited. DIVISION II SYSTEM OF DOMESTIC PARTNERSHIP PART ONE-Commentaries CHAPTER I. PARTNERSHIP ASSOCIATIONS, LIMITED. $282. Historical. $283. Status of Partnership Associations, Limited. $282. Historical. This anomalous act was borrowed by Michigan in 18771, from the Commonwealth of Pennsylvania, where it had been enacted in 18742. It came to us free from constructions". Michigan adopted the act itself, but our judiciary has declined, in some important particulars, to follow the interpretation afterwards. placed upon the act by the Pennsylvania courts'. 1. The Pennsylvania law was copied almost verbatim. The same law was enacted by Virginia in 1875, by New Jersey in 1880 and by Ohio in 1881. New York had adopted a similar law in 1849. 2. Laflin & Rand Powder Co. v. Steytler, 146 Pa. 434, 14 L. R. A. 690. 3. Rouse, Hazard & Co., v Donovan, 104 Mich. 234, 27 L. R. A. 577. 4. Staver & Abbott Mfg. Co. v. Blake, 111 Mich. 282-289; Wood v. Sloman, 150 Mich. 177-187. In Pennsylvania these associations are held to be modified partnerships. There, failure to comply with the terms of the statute gives rise to full, common law, partnership liability. "Each partner is liable unless saved by statute. If the partners have not complied with the statutory requisites, a limited partnership has not been formed." Vanhorne v. Corcoran, 127 Pa. 255, 4 L. R. A. 386-389; Rehfuss v. Moore, 134 Pa. 462, 7 L. R. A. 663-665; Sheble v. Strong, 128 Pa. 315; Eliot v. Himrod, 108 Pa. 569; Maloney v. Brue, 94 Pa. 249; Imperial Refining Co. Ltd. v. Wyman, 38 Fed. 504, 3 L. R. A. 503. The same doctrine prevails in Massachusetts.-Edwards v. Warren, etc. Works, Ltd., 168 Mass. 564, 38 L. R. A. 791. In Pennsylvania, the partnership associations, limited, act is said to have been the result of a gradual evolution". In 1836 the legislature of that state passed an act enabling the formation of a type of partnerships then new to the law. The act provided for general partners having general liability, and for special partners having limited liability, and was similar to the later Michigan act for the formation of limited partnerships. The act of 1836 was amended in 1838, by the Pennsylvania legislature, by addition of a provision enabling sale of the interest of partners without working a dissolution. Another amendment, passed in 1858, provided for increase of capital and number of members. In 1865, and again in 1868, the act was further broadened, permission being given to contribute capital in goods at an appraised valuation, to be fixed by an appraiser appointed by the court of common pleas. It was also provided that the words "and Company" might be a part of the firm name, the names of all partners being required to appear upon the firm sign. This was the state of the Pennsylvania law when the act of 1874-the act afterwards adopted in Michigan-was passed'. It is instructive to note how, step by step, during a period of thirty-eight years, the provisions typical of the ultimate statute were evolved. Beginning in 1836, by enabling the organization of firms differing but slightly from common law partnerships, the course of legislation moved persistently forward, until, in 1874, it has resulted in an act enabling the formation of associations having all of the salient characteristics of corporations. 5. In Laflin Powder Co. v. Steytler (ante), Justice Mitchell, of the Supreme Court of Pennsylvania, said: "The Limited Association Act of 2d June, 1874, was a wide departure from the principles of the common law governing partnerships and the liability of individual partners to the firm creditors. It was not the first, nor has it been the last of such changes. On the contrary, it is but one step in the line of concessions to the business views and habits of a commercial age and community, and it should be considered in the spirit of its enactment." 6. C. L. 1897, Chap. 159 (Sec. 6055 et seq.). 7. Laflin & Rand Powder Co. v. Steytler, Id. In this case Justice Mitchell said of the Pennsylvania act of 1836: "The influence of the common law ideas of partnership is apparent throughout the act. It was manifestly regarded as an experiment to be entered upon cautiously and hedged about with restrictions. But the act met the needs of the community, and, in the language of the present hour, it had come to stay. After more than half a century, it is still on our statute book as the basis of the system, and every change since has been a step forward in the same direction, and not backward." 8. Liverpool & London L. & F. Ins. Co. v. Oliver, 77 U. S. 566, 19 L. ed. 1029. In Pennsylvania, Section 4 of the Act of 1874, was amended in 1885, providing that, there being no rules to the contrary, change of ownership of an interest in such an association would be inoperative to confer membership upon the transferee, in the absence of an election to membership". In 1903, the Michigan legislature amended section 4 of the Michigan act of 1877 in a like manner1o. Thus, in the acts of these two states, as to essential provisions, similarity, amounting almost to identity, has been preserved. During more than a quarter of a century, the partnership associations, limited, act of Michigan, remained practically unchanged11. It seems to have been overlooked and neglected by the legislature. Not so, however, by incorporators and promoters. Until 1903 these associations were not required to file their articles of association with the Secretary of State, and hence they were not within the terms of the statute requiring payment of franchise fees112. Companies, both legitimate and illegitimate, having large authorizations of capital stock, found organization under this act a matter of economy-a direct saving of fifty cents upon each thousand dollars of capital stock authorized. There were other advantages. The "statement in writing," as the articles were called in the statute, was recorded with the register of deeds, and did not run the gauntlet of scrutiny by the Department of State. Moreover, property could be put in as payment of subscriptions "at a valuation to be approved by all the members," and no annual reports to the state were required. As a result of this looseness of procedure, these associations became the common vehicle of "wildcat" schemes. Gross overcapitalizations "paid up" in shadowy assets taken at overvaluations may be said to have been the rule. Then came the amendments of 190313 and the popularity of the "limited law" passed away like an April snow. The light of publicity fell upon the dark places. The articles were now required to be recorded in the office of the Secretary of State, and in the office 9. Carter v. Producers' Oil Co., 182 Pa. 551, 39 L. R. A. 100. 10. Act 244 Pub. Acts 1903, p. 398. 11. Sec. 4 of the act was amended by Act. 26 Pub. Acts 1881, p. 258 and again by Act 21 Pub. Acts 1885, p. 16. 12 C. L. 1897, Sec. 8574. 13. Act 244 Pub. Acts 1903, p. 398. Section 10 of the law was slightly changed by Act 188 Pub. Act, 1905, p. 278. There were no changes in 1907 and 1909, except that in the latter year the benefits of the cumulative voting law were extended to these associations. |