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Schultz v. Ziegenfuss

Decided: May 13, 1969.


Conford, Kilkenny and Leonard. The opinion of the court was delivered by Kilkenny, J.A.D.


Is a judgment against two defendants, as individuals, a lien upon entry of the judgment against partnership real estate conveyed to and owned by the partnership in the partnership name, if the individuals are the members of the partnership? That is the basic legal question involved in this appeal.

There is no substantial dispute as to the facts. Plaintiff purchased 44 acres of vacant land from a partnership known as Erick G. Tobiason and Harold G. Tobiason, partners trading as Erick G. Tobiason & Son. The lands had been conveyed to the partnership as such, in its designated partnership name, and was so owned of record by said partnership for 14 years prior to the purchase by and conveyance to plaintiff.

Title closed on November 14, 1967 by deed of conveyance out of the partnership to plaintiff, at which time plaintiff paid over the balance of the purchase price of $31,500 to the partnership for the partnership's warranty deed concurrently delivered. Plaintiff acted in good faith and without any actual knowledge that on November 13, 1967, just one day before the title closing, defendant had obtained a judgment by default in the Superior Court against Erick G. Tobiason and Harold G. Tobiason in their individual names. The default judgment was based on a promissory note executed by

the Tobiasons in their individual names only. Neither the complaint nor any other papers in that suit indicated that the action was for a partnership debt. The amount of the note was $2,788.09. It was dated June 15, 1966 and makes no reference to the partnership. It purports to be solely a note signed by the two individual makers and is payable to the order of defendant herein, Robert Ziegenfuss.

Defendant sought to levy execution under his judgment and sell the lands purchased by plaintiff from the partnership. Plaintiff sued to restrain this execution sale on the ground that defendant never obtained a lien on these lands purchased by plaintiff. A temporary restraint obtained by plaintiff was thereafter vacated and judgment was entered denying the relief sought by plaintiff. And now plaintiff prosecutes this appeal from the judgment denying a restraint of an execution sale of the lands purchased by him from the partnership, as such.

The trial court took the view that while the judgment was against the individuals only, the obligation was a debt of the partnership and, since the partners were sued, albeit as individuals and without any recital that it was an action based upon a partnership obligation, the judgment was valid against the partnership and constituted a lien against land in the name of the partnership. The court relied upon an affidavit by defendant in the present cause that the judgment arose out of a partnership obligation. The trial court concluded that a judgment search should run against the individual partners, whenever title is owned by a partnership as such, on the theory that "transactions which appear to be in the partners' individual capacity may result in liability to the partnership." It held that, if the debt sued upon was that of the partnership, the resulting judgment is "valid against the partnership."

The trial court also laid stress upon the common law rule that in order to sue a partnership it was necessary to make all the partners parties defendant, citing 68 C.J.S. Partnership, § 209. It also quoted from 40 Am. Jur., Partnerships, §

434, to the effect that, in the absence of statute, "partners cannot be sued in the firm name, but must be sued in their individual names." It then stated that no reference was made to any change in the common law rule "and no authority has been found in New Jersey which changes the rule." From this finding it concluded that "the partnership was correctly sued and the judgment was valid" and a lien against the partnership realty.

We disagree. Our present rules of court, which control in matters of practice and procedure, Winberry v. Salisbury, 5 N.J. 240 (1950), have changed the common law rule that all legal actions concerning partnership matters must be maintained by and against the individual partners. X-L Liquors, Inc. v. Taylor, 17 N.J. 444, 455 (1955). The common law rule has yielded to the fact that partnerships "came to be widely regarded as separate entities by men in their business affairs and legislatures and courts began to make inroads into the common-law doctrine. Although the Uniform Partnership Law (R.S. 42:1-1 et seq.) did not make partnerships jural persons for all purposes, it did treat them as such for many purposes." Id., at p. 455. The court concluded in X-L Liquors that plaintiffs may maintain actions against partnerships "without necessarily naming the individual partners as defendants." (At p. 456). Reference was made to R.R. 4:4-4(e), which provides unconditionally that summons and complaint may be served "upon a partnership" by serving a partner or a managing agent or an officer. Thus, for procedural purposes "all partnerships may be considered as entities suable in their firm names." Ibid.

The separate jural entity of a partnership is well recognized with reference to partnership realty under the Uniform Partnership Law. R.S. 42:1-8(1) notes that all property acquired by purchase or otherwise on account of the partnership "is partnership property." Unless the contrary intention appears, "property acquired ...

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