The issue here is whether a provision in a partnership agreement between plaintiff's intestate and the defendant is valid and binding, or void because testamentary in nature. The plaintiff's intestate and the defendant were partners without a written agreement from July 1, 1941, until July 12, 1946, on which date they entered into formal articles of partnership, which provided that the partnership "shall continue for such time as may be mutually agreeable." The clause which is the subject of the litigation is as follows: "It is further agreed, in the event of the death of either partner before the termination of the partnership by mutual consent, that the surviving partner shall pay to the legal representatives of the deceased partner the sum of One Thousand ($1,000) Dollars, that said sum shall represent the deceased partner's entire interest in the partnership and that upon such payment the surviving partner shall become the sole owner of the partnership business."
The plaintiffs' intestate died on February 17, 1948. The defendant has tendered the sum of $1,000 to the plaintiffs, who have refused to accept the same and have filed a complaint praying for dissolution of the partnership, an accounting and the appointment of a receiver. Thereupon, an order to show cause was entered. The defendant has resisted the application and filed an answer.
There is no dispute as to the facts. The plaintiffs claim that the clause in question is testamentary in nature and void, because not drawn in conformity with the statute of wills,
while the defendant claims it is valid and enforceable. Both counsel seem to be of the impression that the precise question is res nova in this State. While my research has not discovered any reported case in this State on the identical facts and issues, nevertheless I am of the opinion that controlling principles are to be found in the adjudicated cases in this State.
Similar provisions in partnership agreements are common and have uniformly been declared valid and enforceable in the vast majority of states. 40 Am. Jur., Partnership , § 310, p. 346; § 312, p. 347; 47 C.J., Partnership , § 653, p. 1067; Notes , 73 A.L.R. 983; 1 A.L.R. 2d 1265. Of course, if the provision is testamentary in nature, it is void, because not executed in conformity with the statute of wills. Reed v. Bonner , 91 N.J.L. 712 (E. & A. 1917); United States Trust Co. v. Giveans , 97 N.J.L. 265 (E. & A. 1921); American University v. Conover , 115 N.J.L. 468 (E. & A. 1935).
"The confusion results from the attempt to attach to the transaction characteristics of both a will and a contract. These characteristics are, however, entirely distinct. A contract operates immediately to create a property interest in the premises while a will is revocable, or, more properly speaking, inoperative or ambulatory until the death of the testator, at which time it operates to create a property interest in the beneficiary." Yale Law Journal, Vol. 27, Part 1, p. 542; 57 Am. Jur., Wills , § 15, p. 48. The undertaking of a party under a contract is made in consideration of something to be paid or done by or on behalf of the other party, so that the obligation to and the right to require performance are reciprocal. A contract creates a present, enforceable and binding right over which the promisor has no control without the consent of the promisee, while a testamentary disposition operates prospectively. 57 Am. Jur., Wills , § 40, p. 67. An instrument which does not pass any interest until after the death of the maker is essentially a will. But not every instrument which provides for performance at or after death is testamentary in character. If the instrument creates a right in the promisee before the death of the testator, it is a contract. "A will is dispositive; a contract promissory. A will is
gratuitous; while a contract * * * requires consideration." 1 Page, Wills, (Lifetime Ed.) , § 83, p. 179. "There is nothing in the Statute of Wills that prevents the creation by contract of a bona fide equitable interest in property and its enforcement after the death of a contracting party, even though the date of death is agreed upon as the time for transfer of the legal title." Legro v. Kelley , 311 Mass. 674, 42 N.E. 2d 836 (Sup. Ct. Mass. 1942).
The great weight of authority is to the effect that "an otherwise sufficient contractual instrument, based on consideration, by which the promisor agrees, in substance, that ownership of or a designated right in property owned by him shall pass to the promisee at the promisor's death, is not rendered testamentary in character merely because of a provision naming the death of the promisor as the time for the transfer of the legal title to the promisee. If the instrument does invest him, in proesenti , with an irrevocable contractual interest in the property, it is not testamentary." Note , 1 A.L.R. 2d 1207. Specifically, "a provision in a partnership agreement that on the death of one of the partners his interest in the partnership shall become the property of the other partners is not invalid as testamentary in nature, and therefore inoperative because of failure to conform to the requirements of the Statute of Wills." 73 A.L.R. 980; 1 A.L.R. 2d 1265; McKinnon v. McKinnon , 56 Fed. 409 (C.C.A. 8 th Mo. 1893). Howe's Estate , 31 Cal. 2d 395, 189 P. 2d 5, 1 A.L.R. 2d 1171 (Cal. Sup. Ct. 1948); Faggelle v. Marenna , 131 Conn. 277, 38 A.2d 791 (Conn. Sup. Ct. Errors 1944); Casey v. Hurley , 112 Conn. 536, 152 A. 892 (Conn. Sup. Ct. Errors 1931); More v. Carnes , 309 Ky. 41, 214 S.W. 2d 984 (Ct. App. Ky. 1948); Murphy v. Murphy , 217 Mass. 233, 104 N.E. 466 (Sup. Ct. Mass. 1914); Hale v. Wilmarth , 274 Mass. 186, 174 N.E. 232, 73 A.L.R. 980 (Sup. Jud. Ct. Mass. 1931); Kavanaugh v. Johnson , 290 Mass. 587, 195 N.E. 797 (Sup. Jud. Ct. Mass. 1935); Ottaviano v. Lorenzo , 169 Md. 51, 179 A. 530 (Ct. App. Md. 1935); Ireland v. Lester , 298 Mich. 154, 298 N.W. 488 (Sup. Ct. Mich. 1941); In re Mildrum's Estate , 177 N.Y.S. 563 (Sur. Ct.
1919); In re Eddy's Estate , 26 N.Y.S. 2d 115; affirmed, 30 N.Y.S. 2d 848; affirmed, 290 N.Y. 677, 49 N.E. 2d 628; In re Karlinski's Estate , 38 N.Y.S. 2d 297 (Sur. Ct. 1942); In re Eisenlohr's Estate , 258 Pa. 438, 102 A. 117 (Sup. Ct. Pa. 1917); 50 Yale Law Review (1940) 202; ...