This is a mortgage foreclosure action. Defendant Marine National Bank contests plaintiff's right to foreclosure on the basis that plaintiff, A.T.E. Financial Services, Inc., being a limited partner of defendants-mortgagors at the time the mortgage was given, is proscribed from the taking of such a security by the terms of N.J.S.A. 42:2-17. This defendant seeks summary judgment to that effect. The sole issue on this motion concerns itself with construction of N.J.S.A. 42:2-17.
For the purposes of this motion, it appears that plaintiff-mortgagee was in fact a limited partner of defendants-mortgagors at the time the mortgage was given. This relationship,
as a matter of fact, seems to have sprung from the financial transaction then occurring, which included the lending of money by plaintiff to defendants-mortgagors. Whether defendants-mortgagors at the time of this transaction had sufficient assets to discharge their other liabilities remains as a fact question.
The statute involved, enacted in New Jersey as a part of the Uniform Limited Partnership Law, is N.J.S.A. 42:2-17, and is as follows:
42:2-17. Loans and other transactions with limited partner
1. A limited partner also may loan money to and transact other business with the partnership, and, unless he is also a general partner, receive on account of resulting claims against the partnership, with general creditors, a pro rata share of the assets. No limited partner shall in respect to any such claim
a. Receive or hold as collateral security any partnership property, or
b. Receive from a general partner or the partnership any payment, conveyance, or release from liability, if at the time the assets of the partnership are not sufficient to discharge partnership liabilities to persons not claiming as general or limited partners.
2. The receiving of collateral security, or a payment, conveyance, or release in violation of the provisions of paragraph "1" of this section is a fraud on the creditors of the partnership.
Defendant's contention is that subparagraph (a) is absolute. Plaintiff contends that it is limited, with subparagraph (b), by the last clause of subparagraph (b). Neither counsel nor the court has found any illuminative New Jersey cases.
We are persuaded by the reasoning of Hughes v. Dash , 309 F.2d 1 (5 Cir. 1962), and agree with it that the qualification in question was designed by the Legislature to limit ...