59th and Park Associates v. Inselbuch

• Decision Date: 20 March 1979
• Citation: 68 A.D.2d 838,414 N.Y.S.2d 537
• Parties: 59TH AND PARK ASSOCIATES, Plaintiff-Appellant, v. Elihu INSELBUCH, as Executor of the Estate of John M. Dryfoos, et al., Defendants, Dryfoos & Co., et ano., etc., et al., Defendants-Respondents.
• Court: New York Supreme Court — Appellate Division

Page 537

414 N.Y.S.2d 537

68 A.D.2d 838

59TH AND PARK ASSOCIATES, Plaintiff-Appellant, v. Elihu INSELBUCH, as Executor of the Estate of John M.

Dryfoos, et al., Defendants,

Dryfoos & Co., et ano., etc., et al., Defendants-Respondents.

Supreme Court, Appellate Division, First Department.

March 20, 1979.

L. Liner, New York City, for plaintiff-appellant.

C. Haydon, J. Z. Epstein, New York City, for defendants-respondents.

Before BIRNS, J. P., and EVANS, FEIN, SULLIVAN and LUPIANO, JJ.

MEMORANDUM DECISION.

Order, Supreme Court, New York County, entered December 9, 1977, denying plaintiff's motion for summary judgment and granting defendant Lamm's cross-motion for summary judgment, severing and dismissing the action and directing entry of judgment in favor of said defendant is modified on the law to grant, on the issue of liability only, partial summary judgment against defendants Dryfoos & Co. and Herbert Swarzman in his individual and agency capacity as liquidator, and in favor of defendant Klineman, summary judgment dismissing the complaint as to him, and is otherwise affirmed, without costs or disbursements.

The plaintiff leased two floors of its building to a partnership brokerage firm in 1969 for a 15 year term which allowed the tenant to sub-let one floor. The lease was signed for the partnership by defendant Herbert Swarzman. Over the years new partners joined and other partners withdrew. The partnership was finally dissolved on September 30, 1973, and on March 1, 1974, the liquidating partners entered into a surrender agreement with landlord who reserved all rights under the 1969 lease and did not, by accepting surrender of the premises, release the defendants from the terms and conditions of the lease. The landlord also had the right to collect rents from the subtenants and credit them to the account of the defendants.

Defendant Klineman was a partner at the time Swarzman negotiated the lease for the partnership and Lamm later became a general partner in February 1970. Klineman withdrew from the partnership in January 1972 and Lamm did likewise in August 1973.

The action concerns rent allegedly due after March 1, 1974, and by amended complaint, plaintiff seeks recovery of rent through July 1977. The complaint names as defendants, the original and six successor partnerships as well as 21 former general partners.

Defendants Lamm and Klineman occupy similar positions with respect to the plaintiff: they both withdrew from the partnership before the default. But, they differ in that only Lamm joined the partnership after the lease was entered. Lamm cross-moved for dismissal on the theory that he had withdrawn from the partnership prior to default, and the trial court correctly granted the motion citing § 28 of the Partnership Law which reads as follows: "A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred, except that his liability shall be satisfied only out of partnership property." Thus, any obligation Lamm might have as a partner could not be satisfied by proceeding against his personal assets which plaintiff here seeks to do.

Plaintiff cites Barbro Realty Co. v. Robert L. Newburger, 53 A.D.2d 34, 385 N.Y.S.2d 68, as dispositive. Plaintiff's analysis is not quite accurate. There is a distinction in that Lamm and Klineman had withdrawn, and in Barbro the five defendants had not withdrawn from the partnership. In Barbro the court said: "We find that the obligation to pay rent does not constitute a preexisting debt. The lease agreement may have been executed prior to the entry of the defendants into the partnership, but the rent as a debt arose only when it became due (Matter of Ryan, 294 N.Y. 85, 95, 60 N.E.2d 817, 821; Glassman v. Hyder, 23 N.Y.2d 354, 358-359, 296 N.Y.S.2d 783, 785, 244 N.E.2d 259, 260), and accordingly, the defendants who were partners at the time of the default, may be held personally liable therefor . . ."

Herbert Swarzman was the only defendant in active partnership at the time of default and is thus personally obligated. In Ryan, supra, 294 N.Y. p. 95, 60 N.E.2d p. 821, the court concluded that the covenant to pay rent creates no debt until the time stipulated for payment arrives, and that the obligation to pay rent is "altogether contingent". (See also Kottler v. New York Bargain House Inc., 242 N.Y. 28, 150 N.E. 591). Here defendants Lamm and Klineman had withdrawn from the partnership before the time stipulated for payment; hence, there was no debt at time of withdrawal. The remaining partners may elect to continue the business, but no future obligation may serve to bind the withdrawn partners.

To go further, when Klineman withdrew from the partnership the partnership was dissolved and the partnership certificate was amended to reflect his withdrawal and to reflect the fact that the partnership was succeeded by a new partnership. The withdrawal agreement also indemnified Klineman against any claims attributable to any matter occurring after his withdrawal. Plaintiff was given a copy of the withdrawal agreement, and to make certain plaintiff was on notice, Klineman sent a copy of the withdrawal agreement along with a notice of his withdrawal to plaintiff. Klineman now argues that pursuant to the indemnification agreement he became, at most, a surety for the debts of the partnership as against any creditor with knowledge of his withdrawal. In 1974, plaintiff and the liquidating partners entered into a "surrender agreement" embodying several material changes in the relationship of the parties. Klineman was never consulted with respect to this agreement, was not advised of its existence and never consented to its execution. Here again, if the court could find that Klineman had an obligation, his liability would be clearly limited by statute. Section 67(3) of the Partnership Law reads: "Where a person agrees to assume the existing obligations of a dissolved partnership, the partners whose obligations have been assumed shall be discharged from any liability to any creditor of the partnership who, knowing of the agreement, consents to a material alteration in the nature or time of payment of...