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La Mar-Gate Inc. v. Spitz

Decided: December 4, 1991.


On appeal from the Superior Court of New Jersey, Law Division, Cape May County.

King, Dreier and Gruccio. The opinion of the court was delivered by Dreier, J.A.D.


Dr. Eugene B. Spitz appeals from a directed verdict holding him responsible for a partnership note signed by him as a general partner. We here examine the responsibility of a partner for the contractual obligations of the partnership, and the necessity to join or attempt to join all responsible partners if any is to be held individually liable. We hold such joinder or attempted joinder is required.

Dr. Spitz is a pediatric neurosurgeon who in the early 1980's formed a partnership known as CS Associates. The other original equal*fn1 partners were Drs. Nicholas Canuso, Raymond Silk and Abraham Cohen. The partnership intended to build and operate a nursing home. In 1983, the partners needed additional financing for the nursing home; however, their bank withdrew its letter of credit. The partnership turned to plaintiff, La Mar-Gate, Inc., a corporation wholly-owned by Dr. Canuso, which agreed to advance the funds. La Mar-Gate in turn borrowed the million dollars from the bank, additionally pledging as security a motel that it owned. The note in question, with interest to the date of judgment, had a balance due of $1,329,789.

The indebtedness to La Mar-Gate was represented by a note of CS Associates, signed by three of the four partners, Dr. Canuso, Dr. Cohen and Dr. Spitz, as general partners. Dr. Spitz also was requested to sign a form of guarantee which additionally provided for his wife's guarantee of the obligation. The guarantee in turn was to be secured by certain mortgages on property owned by Dr. and Mrs. Spitz.*fn2

Dr. Spitz asserted that the guarantee was signed by him on the express (and allegedly untrue) representation by Dr. Canuso that he and Dr. Cohen had already signed such guarantees, and that Dr. Silk would be signing a similar guarantee in the near future. Furthermore, Dr. Spitz contended that Dr. Canuso represented that Dr. Spitz would be responsible solely for one-quarter of the loan, in proportion to his 25% partnership interest, and that in any event the guarantee was a mere formality and would never be used against him. He sought exoneration from all of his obligations under the note and guarantee by reason of Dr. Canuso's fraud in making these representations.

When CS Associates became insolvent and filed for bankruptcy, plaintiff determined to institute this action solely against Dr. and Mrs. Spitz. As noted, the jury accepted Dr. Spitz' representation that Mrs. Spitz had not signed or authorized the signing of the guarantee and accompanying mortgage documents. When plaintiff moved for a directed verdict against Dr. Spitz, however, the judge determined that notwithstanding his factual assertions concerning his personal liability on the guarantee and accompanying security, there were no defenses to his liability on the note. The judge reasoned that since any liability on the note would be coextensive with any liability on the guarantee, there was no reason for plaintiff to press both

theories. The court, therefore, directed a verdict against Dr. Spitz solely on the note, and the issue of his liability on the guarantee and his fraud defenses concerning the guarantee and accompanying security were never submitted to the jury.

Dr. Spitz moved for a new trial or in the alternative reconsideration of the directed verdict. At first the motion was denied on procedural grounds, but was then renewed with a showing that procedurally the motion was properly before the court. The earlier order denying the motion was vacated and the court afforded counsel oral argument, after which the judge adhered to his original determination. The then-pending notice of appeal was amended to encompass the denial of the motion for a new trial.

The trial judge at both the motion for a directed verdict and at the motion for a new trial clearly stated that Dr. Spitz' signature on the note, rather than the guarantee, obligated him on a joint and several basis to pay the partnership obligation. Since we here determine that this statement of the law was incorrect and the jury had never been given the opportunity to pass upon Dr. Spitz' fraud claim, we must reverse and remand for a new trial concerning Dr. Spitz' liability on the guarantee and accompanying security. If the joinder issue, discussed later, is resolved, Dr. Spitz' liability on the note as a partnership obligation may also be resolved.

N.J.S.A. 42:1-15 provides:

All partners are liable:

a. Jointly and severally for everything chargeable to the partnership under sections 42:1-13 ...

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