On appeal from the Superior Court, Law Division, Morris County.
Before Judges R.s. Cohen and D'Annunzio.
[274 NJSuper Page 526] The opinion of the court was delivered by
A person admitted as a partner into an existing general partnership is liable for all partnership obligations arising before his admission, but, in the absence of contrary agreement,*fn1 this liability may be Satisfied only out of partnership property. N.J.S.A. 42:1-17. Partnership obligations arising after the new partner is admitted may be satisfied out of the personal assets of any partner, including the new one. See N.J.S.A. 42:1-18; 42:1-40d.*fn2
The question presented by this case is whether a new partner is liable to pay, out of personal assets, interest on a preexisting partnership promissory note accrued for periods of time after admission into the partnership. We hold that such personal liability exists, and we therefore reverse the summary judgment granted to defendant.
Both plaintiff and defendant moved for summary judgment. The facts necessary for decision were simple and not in dispute. In 1986, a general partnership called Longview Estates was formed to purchase a piece of property from Conklin Farm and to develop it for residential condominiums. In connection with the purchase, Longview Estates executed a $9 million promissory note to Conklin Farm, secured by a mortgage bearing interest at agreed rates.
One of the partners in Longview Estates was Joel Leibowitz. On March 15, 1990, he transferred his thirty percent partnership
share to his wife Doris, defendant in this case.*fn3 She owned the share until August 30, 1991, when she transferred it back to her husband. During the seventeen and one-half months of her participation, interest greater than $1 million accrued on the $9 million note and was not paid. Defendant was sued late in 1991 for thirty percent of the interest, or more than $300,000.*fn4 Longview Estates and the other partners have already been through bankruptcy, and the debt has been discharged as to them.
The question whether current interest on preexisting debt is part of the preexisting debt or is new debt for the purposes of N.J.S.A. 42:1-17 has not been answered in a reported case in New Jersey or, to our knowledge, in any other jurisdiction.*fn5 The reason may be either that the answer is clear, or that the problem is normally resolved by agreement in advance. For example, a financing party might reserve the authority to approve transfers of partnership shares or to require express assumptions of preexisting partnership debt as a price for release of a withdrawing partner.
The $9 million promissory note was a preexisting debt. As to that the parties agree. The whole outstanding principal of a partnership debt incurred before admission of a new partner is a partnership obligation arising before admission, no matter that some or all of the principal payments may not be due until after admission of the new partner. Plaza Realty ...