Seventy-Three Land, Inc. v. Maxlar Partners

• Decision Date: 07 February 1994
• Docket Number: SEVENTY-THREE
• Citation: 270 N.J.Super. 332,637 A.2d 202
• Parties: LAND, INC., Plaintiff-Respondent, v. MAXLAR PARTNERS, a New Jersey Partnership and Larry Levy, Jane Levy, Nancy Levy, Defendants, and Max Odlen, Defendant-Appellant.
• Court: New Jersey Superior Court — Appellate Division

Page 332

270 N.J.Super. 332

637 A.2d 202

SEVENTY-THREE LAND, INC., Plaintiff-Respondent, v. MAXLAR PARTNERS, a New Jersey Partnership and Larry Levy Jane Levy, Nancy Levy, Defendants and Max Odlen, Defendant-Appellant.

Superior Court of New Jersey Appellate Division.

Argued Dec. 14, 1993.

Decided Feb. 7, 1994.

Ira Rabkin, Camden, argued the cause for appellant (Molotsky, Rabkin & Schwartz, attorneys; Mr. Rabkin, on the brief).

Frank H. Wisniewski, Cherry Hill, argued the cause for respondent (Blank, Rome, Comisky & McCauley, attorneys; Mr. Wisniewski and James Alan Kozachek on the brief).

Before Judges BRODY, STERN and KEEFE.

The opinion of the court was delivered by

BRODY, P.J.A.D.

We hold that a contract creditor of a partnership may in a single action sue the partnership and its general partners for the debt. Judgment for a sum certain, which shall be deemed final, may be entered only against the partnership. Initially, judgment against the partners shall be limited to liability only, and shall not be entered as a final judgment for a sum certain until there is proof that the partnership cannot satisfy the judgment.

Plaintiff brought this action for the balance due on a note it holds that was made by defendant Maxlar Partners, a partnership. The other defendants are Maxlar's general partners, all of whom but Max Odlen have filed for bankruptcy. Odlen appeals from a judgment in the amount of $800,274.72 that was entered without opposition against Maxlar, him and another partner who later filed for bankruptcy. The trial court had previously denied Odlen's motion to strike the complaint, rejecting his argument that the complaint failed to state a claim upon which relief may be granted against him because plaintiff did not allege that the note was uncollectible from the partnership. Plaintiff had successfully argued on the motion that a general partner is liable for a partnership's contract debt even in the absence of proof that the debt cannot be collected from the partnership.

We begin with the Uniform Partnership Act (UPA), adopted by our Legislature as the Uniform Partnership Law, N.J.S.A. 42:1-1 to -43. The section dealing with the liability of partners, N.J.S.A. 42:1-15, reads as follows:

All partners are liable:

a. Jointly and severally for everything chargeable to the partnership under sections 42:1-13 [partnership bound by partner's wrongful act] and 42:1-14 [partnership bound by partner's breach of trust] of this title.

b. Jointly for all other debts and obligations of the partnership; but any partner may enter into a separate obligation to perform a partnership contract. [Emphasis added.]

A promissory note is evidence of one of the "other debts and obligations of the partnership" for which a partner is liable jointly and not jointly and severally. La Mar-Gate, Inc. v. Spitz, 252 N.J.Super. 303, 308, 599 A.2d 928 (App.Div.1991).

The distinction between "joint and several" liability and "joint" liability in the present context has not been treated in any reported New Jersey opinion, but it has in other jurisdictions that have adopted the UPA. We must regard those cases as authority. "This chapter shall be so interpreted and construed as to effect its general purpose to make uniform the law of those states which enact it." N.J.S.A. 42:1-4.4.

The Alabama legislature modified the UPA by rendering partners jointly and severally liable for all partnership debts. In explaining the effect of that modification its Supreme Court said:

The major impact of making partners not merely jointly liable but also severally liable is that if a creditor chooses to bring an action against one of the partners, that partner is liable for all of the partnership debts, regardless of whether the creditor first attempted to recover the debt from the partnership or prove that the partnership had no assets.... The individual liability associated with partners that are jointly liable is not separate and distinct from the liability of all the partners jointly. Rather, the individual liability arises only after it has been shown that the partnership assets are inadequate. No direct cause of action may be maintained against the individual partners until the above condition is met.

Head v. Henry Tyler Const. Corp., 539 So.2d 196, 199 (Ala.1988). Although the Arizona legislature also modified the UPA to render partners liable jointly and severally for their partnership's contract debts, its Supreme Court recognized that the UPA preserved the common law rule by requiring a partnership contract creditor to exhaust partnership assets before resorting to a partner's assets:

If a partnership's debt is contractual in nature, common law required creditors to resort to and exhaust partnership assets before reaching the partners' individual assets. At common law, a partner is only jointly liable for the partnership's contractual debts ... As adopted in most states, the Uniform Partnership Act (UPA ) preserves this common law rule.

Catalina Mortg. Co., Inc. v. Monier, 166 Ariz. 71, 800 P.2d 574, 575 (1990) (citations omitted).

The Utah legislature, as did ours, adopted the UPA provision without modification. Its Supreme Court held that Utah's counterpart to N.J.S.A. 42:1-15 required a contract creditor of a partnership to exhaust partnership assets before resorting to the assets of partners. McCune & McCune v. Mountain Bell Tel., 758 P.2d 914 (Utah 1988). Cases in other states have arrived at the same result. E.g. Commonwealth Capital Inv. Corp. v. McElmurry, 102 Mich.App. 536, 302 N.W.2d 222, 225 (1980); Diamond Nat. Corp. v. Thunderbird Hotel, Inc., 85 Nev. 271, 454 P.2d 13, 15 (1969); Moseley, Hallgarten, Estabrook & Weeden, Inc. v. Ellis, 849 F.2d 264, 271 (7th Cir.1988) (construing Illinois law).

Thus N.J.S.A. 42:1-15 draws a distinction generally between tort creditors and contract creditors of a partnership. Tort creditors may proceed against partners, who are jointly and severally liable, without first proceeding against the partnership; contract creditors may not proceed against partners, who are jointly liable, until after exhausting partnership assets. The distinction may be explained, if not entirely justified, by the opportunity contract creditors have to require as part of the contract that partners waive their right to insist that the creditor exhaust partnership assets before resorting to partner assets, an opportunity not available to tort...