Stroebel-Polasky Co. v. Slachta

• Decision Date: 20 May 1981
• Docket Number: Docket No. 51632,STROEBEL-POLASKY
• Citation: 308 N.W.2d 273,106 Mich.App. 538
• Parties: CO., a registered Michigan copartnership, Plaintiff-Appellant, v. Gene B. SLACHTA and Marianne L. Slachta, Defendants-Appellees. 106 Mich.App. 538, 308 N.W.2d 273
• Court: Court of Appeal of Michigan — District of US

Page 273

308 N.W.2d 273

STROEBEL-POLASKY CO., a registered Michigan copartnership, Plaintiff-Appellant, v. Gene B. SLACHTA and Marianne L. Slachta,

Defendants-Appellees.

Docket No. 51632.

106 Mich.App. 538, 308 N.W.2d 273

Court of Appeals of Michigan.

May 20, 1981.

Released for Publication July 24, 1981.

[106 MICHAPP 539] Albert C. Reinert, Saginaw, for plaintiff-appellant.

Walter Martin, Jr., Saginaw, for defendants-appellees.

Before CYNAR, P. J., and J. H. GILLIS and ALLEN, JJ.

J. H. GILLIS, Judge.

Plaintiff appeals as of right from [106 MICHAPP 540] the lower court's denial of injunctive relief to prevent the defendants from proceeding with a mortgage foreclosure.

The property in question was originally the principal asset of T & T Land Development, a partnership formed on May 3, 1974, by Duane L. Tinkis and Howard L. Tessman. On April 18, 1975, Tinkis sold his interest in the partnership to defendant Gene B. Slachta. The sale was approved by Tessman, who executed a new partnership agreement with Slachta.

On July 10, 1975, T & T Land Development gave a first mortgage on the property to the Second National Bank of Saginaw to secure repayment of $99,700. Eventually, that mortgage was found to be in default, and the property was purchased by the bank at a December 20, 1978, mortgage sale. On July 20, 1978, the partnership interests in the property were conveyed to Robert J. Stroebel and Frank Polasky, the principals of the plaintiff company. Stroebel and Polasky redeemed the property from the Sheriff's deed by payment of $105,796.30.

On October 1, 1976, Slachta sold his interest in T & T Land Development to Victor Dominguez for $52,000. Dominguez paid for the purchase in part with a promissory note for $37,500. The note was secured by a purchase money security agreement and financing statement and a second mortgage on the property. Slachta and Tessman terminated their partnership agreement, and Tessman entered into a like agreement with Dominguez. Tessman was present when Slachta and Dominguez executed the mortgage but voiced no objections.

The defendants commenced foreclosure proceedings on August 9, 1979. At that time, $29,609.44 was due and owing on the mortgage. Shortly afterward, plaintiff filed the present suit, alleging that [106 MICHAPP 541] the mortgage from Dominguez was null and void as an assignment of partnership property. The lower court denied injunctive relief on the grounds that plaintiff stood in the shoes of Tessman, who had evidently approved of the mortgage.

This case requires us to determine the effect of a mortgage of partnership property given to secure the personal debt of one of the partners. ¹ Plaintiff argues that the mortgage was a nullity, citing § 25(2)(b) of the Uniform Partnership Act, M.C.L. § 449.25(2)(b); M.S.A. § 20.25(2)(b). ² Defendants insist that the mortgage be given full effect, pointing to copartner Tessman's implicit consent to the transaction.

Pursuant to the Uniform Partnership Act, a partner is co-owner of partnership property as a tenant in partnership. M.C.L. § 449.25; M.S.A. § 20.25. Defendants contend that the mortgage was not an "assignment" by Dominguez, prohibited by M.C.L. § 449.25(2)(b); M.S.A. § 20.25(2)(b), but rather the use of the property for a nonpartnership purpose, permissible with the consent of the other partner. M.C.L. § 449.25(2)(a); M.S.A. § 20.25(2)(a). Defendants point out that while an assignment constitutes an absolute transfer of property, a mortgage is merely a conditional transfer through which the mortgagor retains an equity of redemption.

While a mortgage is obviously a limited transfer [106 MICHAPP 542] of property, we believe such transfers are included within the term "assignment" as used in the partnership act. An assignment is generally defined as a "transfer or setting over of property, or of some right or interest therein, from one person to another, and unless in some way qualified, it is properly the transfer of one's whole interest in an estate, or chattel, or other thing". Allardyce v. Dart, 291 Mich. 642, 644-645, 289 N.W. 281 (1939). (Emphasis supplied.) A mortgage of partnership property can have the same detrimental effect on partnership operations and interests as an unconditional transfer.

It is apparent that M.C.L. § 449.25(2)(b); M.S.A. § 20.25(2)(b) prohibits the transaction to the extent that it is an assignment of Dominguez' rights in the specific property. Nonetheless, it does not follow that the attempt should be considered void and without effect. Instead, we view the mortgage as effecting a transfer of that interest in the property that Dominguez could have transferred. In the Matter of Decker, 295 F.Supp. 501, 511 (W.D.Va.1969); Shapiro v. United States, 83 F.Supp. 375, 377 (D.Minn.1949). A partner is free to convey his interest in the partnership itself, defined as his share of the profits and surplus. M.C.L. §§ 449.26-449.27; M.S.A. §§ 20.26-20.27. Therefore, defendants have a security interest in the mortgaged property to the extent that it represents that interest. As stated in 9 Thompson on Real Property (1958), § 4685, p. 140:

"A mortgage made by a partner of his interest in partnership real estate, to one who knows it to be such, is not a mortgage of the partner's undivided interest in such real estate but of his interest in the portion mortgaged after the payment of the firm debts upon a settlement of the partnership accounts. The mortgage is [106 MICHAPP 543] not available until the partnership debts have been paid and the partnership accounts have been discharged, if the other partner chooses to assert his equity, or if subsequent partnership mortgagees assert their priority, or if creditors of the partnership attach the property or levy an execution upon it as belonging to the partnership." (Footnotes omitted.)

Here, the portion of property effectively mortgaged is one-half of its value after the settlement of partnership accounts. We do not construe copartner Tessman's consent as an agreement that the entire partnership interest in the property be mortgaged, but rather that the debt...