(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for
the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please
note that, in the interests of brevity, portions of any opinion may not have been summarized).
Argued February 28, 1995 -- Decided June 14, 1995
GARIBALDI, J., writing for a unanimous Court.
The issue on appeal is whether an incoming partner is personally liable for interest that accrues on a
partnership debt that arose before the incoming partner's admission into the partnership. Under section 17
of New Jersey's Uniform Partnership Law (the Act), an incoming partner is liable for preexisting debt only
to the extent of partnership property; the incoming partner is not personally liable for preexisting debt. The
parties differ over whether the interest on a preexisting debt that accrues after the incoming partner's
admission is a new debt or part of the preexisting debt.
In December 1986, Paula Hertzberg, Elliot Leibowitz, and Joel Leibowitz formed, under the Act, a
general partnership, LongView Estates (LongView), to acquire from Conklin Farms (Conklin) approximately
100 acres of land in Montville Township. Paula Hertzberg owned forty percent of LongView; Elliot and Joel
Leibowitz each owned thirty percent. The partnership intended to build a residential condominium complex
on the property.
On the same day that the partners formed LongView, LongView executed a promissory note in favor
of Conklin for $9 million. The three LongView partners signed the note as partners and also guaranteed the
note personally. The note was secured by a mortgage on the land. The terms of payment of the principal
and accrued interest were provided for in the promissory note.
On December 16, 1987, LongView executed another promissory note, signed by the general partners,
in the maximum amount of $78 million to a predecessor of Chemical Bank. That note was also secured by a
mortgage on the property and was personally guaranteed by the three general partners. Interest was payable
monthly at an annual rate of one percent over the Bank's prime lending rate.
On March 15, 1990, Joel Leibowitz assigned his thirty percent interest in LongView to his wife,
Doris Leibowitz (Doris), who agreed to be bound by all terms and conditions of the partnership agreement.
Seventeen months later, Doris assigned her interest back to her husband. During those seventeen months,
the entire principal of the Conklin note of $9 million remained outstanding and interest accrued at an annual
rate of nine percent.
LongView's project failed and LongView defaulted on both the Chemical and Conklin notes. The
bank exercised its rights under the note and declared the entire amount on the note due. In March 1991,
Longview went into bankruptcy. Eventually the three original general partners filed for personal bankruptcy
protection and all three were discharged of any personal liability on the Chemical and Conklin notes.
Conklin looked to Doris for payment of thirty percent of the interest that had accrued on the note
over the seventeen months during which she had held her husband's interest. Conklin sued Doris in
November 1991, asserting that she was liable for $547,000 in accrued interest because she was a partner and
because the accrued interest arising during Doris' partnership was a new debt not governed by section 17 of
the Act. Chemical Bank filed a similar complaint against Doris and Paula Hertzberg. Both matters were
consolidated.
Doris filed a motion for summary judgment, alleging, among other things, that as an incoming
partner, she was not personally liable under section 17 of the Act for LongView's preexisting debt, including
interest. The trial court granted Doris' motion, finding that the interest was part of the preexisting debt, not
a new debt. The court also held that section 17 of the Act limited Doris' liability to her interest in
partnership property, which by then was worthless. Accordingly, the court ruled that Doris was not
personally liable.
Conklin appealed. The Appellate Division reversed, ruling that the interest on a preexisting debt is
a new debt. Therefore, the court found that Doris was personally liable for the interest that accrued on the
note while she was a partner of LongView.
The Supreme Court granted Doris' petition for certification.
HELD:Contractual interest is not a new debt; it is an integral part of the debt itself. Accordingly,
LongView's obligation to pay interest on the Conklin note is a preexisting debt under N.J.S.A. 42:1-17,
arising when LongView executed the note, long before Doris Leibowitz became a partner. Hence, Doris
Leibowitz is not personally liable for its payment.
1. The plain language of section 17 of the Act and its legislative history compel the conclusion that Doris, as
an incoming partner, is liable for the debt to Conklin only to the extent of her interest in partnership assets.
The original partners are personally liable for preexisting debt; an incoming partner's liability for preexisting
debt is limited to partnership property. Accordingly, the Appellate Division's conclusion that section 17 of
the act only incidentally protects incoming partners is unjustified. (pp. 6-8)
2. Because the Conklin note was a preexisting debt, and because Doris was an incoming partner, under
section 17 of the Act, Doris is not personally liable for the debt. Contractual interest is created by the
contract and is inseparable from the contractual debt. Conklin's rights, LongView's obligations, and the
entire schedule of interest payments were part of the original note. Moreover, Conklin's own claim
demonstrates that interest is part of the contractual debt and that the obligation to pay interest arises, if at
all, at the time the parties execute the debt instrument. (pp. 9-12)
3. Because there is no obligation to pay interest independent of the promissory note, the rent analogy fails.
The obligation to pay interest arises only as a result of the original loan instrument; thus, interest, unlike
rent, cannot be a new debt. In addition, all obligations and entitlements related to a loan are generally fixed
at the time of executing the debt instrument. The same is not true of a lease. An obligation to pay under
the lease is contingent on the landlord fulfilling the continuing obligation to allow occupancy by he tenant.
Rent, even under a lease, may not arise as debt until it is due. A promissory note is different. LongView's
obligation to pay interest was not contingent on any further performance by Conklin. (pp. 12-17)
4. There is no prejudice to Conklin in holding that it can only look to the original partners for payment of
the preexisting debt and interest. In executing the note, Conklin considered the personal credit of only the
original three partners; Conklin did not rely on Doris' personal credit. If need be, lenders can protect
themselves by providing in the note that if new partners enter the partnership, the partnership will terminate
and the note will be accelerated unless the new partner agrees to sign or guarantee the note. (pp.17-18).
Judgment of the Appellate Division is REVERSED.
CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, O'HERN, STEIN and
COLEMAN join in JUSTICE GARIBALDI'S opinion.
SUPREME COURT OF NEW JERSEY
A-
99 September Term 1994
CONKLIN FARM,
Plaintiff-Respondent,
v.
DORIS LEIBOWITZ,
Defendant-Appellant.
Argued February 28, 1995 -- Decided June 14, 1995
On certification to the Superior Court,
Appellate Division, whose opinion is reported
at
274 N.J. Super. 525 (1994).
Michael M. Rosenbaum argued the cause for
appellant (Budd, Larner, Gross, Rosenbaum,
Greenberg & Sade, attorneys; Mr. Rosenbaum
and Michael V. Gilberti, on the brief).
Howard C. Trueger argued the cause for
respondent (Mr. Trueger, attorney; Marisa A.
Taormina, on the brief).
The opinion of the Court was delivered by
GARIBALDI, J.
This appeal addresses whether an incoming partner is personally liable for interest that accrues on a partnership debt that arose before the incoming partner's admission. Under section 17 of New Jersey's Uniform Partnership Law, N.J.S.A. 42:1-1 to -43, (the Act), an incoming partner is liable for preexisting debt only to the extent of partnership property; the incoming partner is not personally liable for preexisting debt. The parties to this appeal differ over whether the interest on a
preexisting debt that accrues after the incoming partner's
admission is new debt or part of the preexisting debt.
On the same day that Paula Hertzberg, Elliot Leibowitz, and Joel Leibowitz formed LongView, LongView executed a promissory note in favor of Conklin for $9 million. The three LongView partners signed the note as partners, and also guaranteed the note personally. The note represented a portion of the purchase price for the land, and was secured by a mortgage on the land. The note provided for monthly payments of interest only -- to accrue at eight and a quarter percent annually for the first year and nine percent thereafter -- with the principal and any unpaid interest due on January 15, 1992. Certain interest that accrued would remain unpaid because each month's actual interest payment was limited to half the proceeds that LongView had realized from the sale of fill from the purchased land. The final payment on January 15, 1992, was to include any unpaid interest and the
principal amount of $9 million. The note provided that LongView
would be liable for any collection costs, including attorney's
fees.
On December 16, 1987, LongView executed a Promissory Note,
signed by the general partners, Paula Hertzberg, Elliot Leibowitz
and Joel Leibowitz, in the maximum amount of $78 million to a
predecessor of Chemical Bank. That note was also secured by a
mortgage on the property and was personally guaranteed by the
three general partners. Those funds were to be used for the
construction of the residential condominium complex on the
Conklin land and advances were to be made as needed to pay
construction expenses. Interest was payable monthly at an annual
rate of one percent over the bank's prime lending rate.
On March 15, 1990, Joel Leibowitz assigned his thirty
percent interest in LongView to his wife, defendant Doris
Leibowitz, who "agree[d] to be bound by all the terms and
conditions of the Partnership Agreement dated December 22, 1986."
Seventeen months later, on August 30, 1991, Doris assigned the
interest back to her husband. During those seventeen months, the
entire principal of the Conklin note of $9 million was
outstanding, and interest accrued at an annual rate of nine
percent.
LongView's condominium project failed, and LongView
defaulted on both the Chemical Construction note and the Conklin
note. The bank then exercised its right under the note to
accelerate payment and declare the entire amount of the note due. In March 1991, LongView filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code. The partnership continued operation initially as a debtor in possession, and subsequently under a trustee. 11 U.S.C.A. §§1107, 1108. In June 1993, the Bankruptcy Court ordered the case to be converted from Chapter 11, reorganization, to Chapter 7, liquidation. Eventually, Paula Hertzberg, Elliot Leibowitz, and Joel Leibowitz filed for personal bankruptcy protection, and all three were discharged of any personal liability on the Chemical and Conklin notes.
similar complaint, suing both Doris Leibowitz and Paula
Hertzberg. The cases were consolidated.
Doris Leibowitz filed a motion for summary judgment on two
grounds: first, that she had never been a LongView partner; and,
second, that even if she had been a partner, she had been an
incoming partner who, under N.J.S.A. 42:1-17, was not personally
liable for LongView's preexisting debt, including interest.
Conklin and Chemical Bank filed cross-motions for summary
judgment. For the sole purpose of determining liability for the
interest, the parties stipulated that Doris Leibowitz had been a
partner.
Accordingly, the sole issue became whether Doris Leibowitz,
as an incoming partner, was personally liable for the interest
that had accrued on the preexisting debt while she had been a
partner. The trial court held that the interest was part of the
preexisting debt, not new debt. The trial court found that
N.J.S.A. 42:1-17 therefore limited Doris Leibowitz's liability to
her interest in partnership property, which, of course, was by
then worthless. Holding that Doris Leibowitz was thus not
personally liable for the interest, the court granted her motion
for summary judgment and denied the plaintiffs' cross-motions.
Conklin filed a Notice of Appeal. Chemical Bank did not
appeal, and is no longer a party in this action. The Appellate
Division reversed.
274 N.J. Super. 525. Ruling that the
interest on preexisting debt is new debt, the Appellate Division
held that Doris Leibowitz was personally liable for the interest
that accrued on the note while she was a partner of LongView.
We granted Doris Leibowitz's petition for certification,
138 N.J. 269 (1994), and now reverse.
A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred, except that this liability shall be satisfied only out of partnership property.
Under this statute, although the original partners are personally liable for preexisting debt, the incoming partner's liability for preexisting debt is limited to partnership property.
The source for that statute is section 17 of the Uniform Partnership Act, which New Jersey adopted in 1919. L. 1919, c. 212, §§ 1-43 (codified at N.J.S.A. 42:1-1 to -43). One of the primary goals of the Uniform Partnership Act, and of the New
Jersey Legislature in adopting it, was to define the rights of
creditors. The rule at common law was that an incoming partner
was not liable at all for preexisting debt, and that the entry of
the new partner terminated the old partnership and created a new
one. Official Comment to Uniform Partnership Act § 17,
6 U.L.A. 208 (1969). As a result, creditors of the new partnership had
priority over creditors of the old partnership, even though the
partners were operating the same business with the same assets.
The inequitable character of this result has
led the courts, where no notice of change of
membership is had by the creditors, to be
diligent in finding an assumption of
liability on the part of the new partnership
of the debts of the old partnership.
. . . .
. . . So as to preserve the present law
as nearly as possible it is declared that the
liability of the incoming partner shall be
satisfied only out of partnership property.
It, therefore, results that existing and
subsequent creditors have equal rights as
against partnership property and the separate
property of all the previously existing
members of the partnership, while only the
subsequent creditors have rights against the
separate estate of the newly admitted
partner.
Thus, section 17 of the Uniform Partnership Act struck a compromise: It made incoming partners personally liable for preexisting debts, but only to the extent of their investment in the partnership. As noted in Citizens Bank of Massachusetts. v.
Parkham-Woodman Medical Ass'n,
874 F. Supp. 705, 709 (E.D. Va.
1995),
Decisions before and after adoption of
the UPA suggest the reason why the law
restricts an incoming partner's personal
liability, a restriction maintained by the
Act. Specifically, where a partnership
undertakes a debt before a new partner is
made, "[t]he credit of [the] new . . . member
does not enter into the consideration of the
creditors of the old firm, and it would be
manifestly unjust to hold the new partner
liable." Stephens v. Neely,
161 Ark. 114,
255 S.W. 562,
45 A.L.R. 1236, 1240 (1923).
In addition, section 41(a) of the Uniform Partnership Act, adopted by New Jersey and codified at N.J.S.A. 42:1-41(1), provides that when a new partner is admitted and the business continues, the creditors of the previous partnership are also creditors of the partnership continuing the business. The result is that preexisting creditors are protected, but incoming partners are not exposed to personal liability to cover preexisting debts. Accordingly, we find unjustified the Appellate Division's conclusion that section 17 of the Act only incidentally protects incoming partners. 247 N.J. Super. at 530.
parties agree that the principal of the note was preexisting
debt. However, while Doris Leibowitz argues that the interest
that accrued while she was a partner was part of that preexisting
debt, Conklin argues that it was new debt that arose each month
as it became due. Thus, according to Conklin, Doris Leibowitz is
personally liable for the interest that accrued while she was a
partner. We disagree.
Other than the opinion below, no reported New Jersey case
exists that deals specifically with whether or not interest on a
preexisting debt is new debt for purposes of determining an
incoming partner's liability under N.J.S.A. 42:1-17. However,
there are reported New Jersey cases that address the nature of
interest, and the trial court adopted the reasoning of those
cases.
In rejecting Conklin's argument that interest is new debt,
the trial court observed that Conklin's rights, LongView's
obligations, and the entire schedule of interest payments were
part of the original note. Thus, the trial court noted:
There is no case authority of this
jurisdiction of which the Court is aware that
says that interest should be recognized as
having a debt status independent of the
underlying obligation to repay which gives
rise to the right to claim interest in
accordance with the terms of the original
note. Based upon the wording of the
instruments themselves, it is clear that
interest is not a separate and distinct
obligation, but rather arises from the
written obligation which evidences the debt.
Thus, the trial court reasoned that the preexisting debt
encompassed repayment of both the principal and the interest, and
that LongView's obligation to pay interest arose when LongView
executed the note. Because LongView did so before Doris
Leibowitz became a partner, the trial court held that the
interest on the note was preexisting debt under N.J.S.A. 42:1-17.
Conklin argues, however, that interest is new debt that
"arises" at the time it becomes due, rather than at the time that
the borrower assumes the original debt. The Appellate Division
agreed and, based on that characterization of interest as new
debt, held that N.J.S.A. 42:1-17 did not apply and that Doris
Leibowitz was personally liable for the interest that had accrued
while she had been a partner.
The Appellate Division based its decision on two grounds.
First, the court found that the main purpose of section 17 of the
Uniform Partnership Act was to protect preexisting creditors and
that any protection for incoming partners was merely incidental
to that main purpose. 274 N.J. Super. at 530. However, as
detailed in III, supra, that conclusion is unjustified. Section
17 struck a compromise that offered protections to both groups.
Accordingly, we find that ground unpersuasive. Second, the court
adopted Conklin's argument that interest is analogous to rent.
We turn now to that analogy.
Contractual interest is created by the contract, and is therefore inseparable from the contractual debt. In Consolidated Police & Firemen's Pension Fund Commission v. City of Passaic, 23 N.J. 645, 656 (1957), we described contractual interest as "an integral part of the debt itself." Indeed, contractual interest does not exist absent provision for it in the debt-creating instrument. As the Appellate Division has noted, "Interest is no part of a debt unless so stipulated in the contract." Grober v. Kahn, 88 N.J. Super. 343, 350 (1965), modified on other grounds, 47 N.J. 135 (1966). The interest obligation cannot be a separate debt from the principal obligation because, independent of the contract establishing the principal obligation, there is no obligation to pay interest.
That the interest is not an independent or "new" debt is reflected in the method Conklin used to calculate the claimed liability: Conklin referred to the promissory note executed prior to Doris Leibowitz's admission as a partner. Conklin referred to the preexisting note because no other source exists to define the
interest obligation. Conklin's own claim demonstrates that
interest is part of the contractual debt, and that the obligation
to pay interest on a loan arises, if at all, at the time that the
parties execute the note or other debt instrument.
Aside from the opinion below, no reported New Jersey cases
consider whether the concept of rent as new debt should apply to
other obligations under N.J.S.A. 42:1-17. However, in
interpreting New Jersey's version of the Uniform Partnership Act,
it is appropriate to refer to the application of the statute in
other states. N.J.S.A. 42:1-4(4) ("This chapter shall be so
interpreted and construed as to effect its general purpose to
make uniform the law of those states which enact it.").
Conklin relies primarily on Ellingson v. Walsh, O'Connor &
Barneson,
104 P.2d 507 (1940), in which the California Supreme
Court held that an incoming partner was personally liable for
rent due after his admission, even though he was not a partner
when the partnership signed the lease. Significantly, however,
the court did not hold that the incoming partner was personally
liable for the preexisting lease obligation. Rather, the court
held that section 2411 of California's Civil Code (adopting
section 17 of the Uniform Partnership Act) did not shield the
incoming partner from personal liability for the common-law
obligation to pay rent based on current tenancy. That common-law
obligation arises with each period of tenancy, and it arises even
in the absence of a lease. The court reasoned: "Tenancies in
property need not necessarily be created by valid leases. . . .
Such tenancies carry with them the incidental obligation of rent,
and the liability therefore arises not from contract but from the
relationship of landlord and tenant. The tenant is liable by
operation of law." Ellingson, supra, 104 P.
2d at 509. Hence,
the common-law obligation to pay rent -- entirely independent of
the contractual obligation under the lease -- arose as a new debt
each time the rent became due. See Housing Auth. of East Orange
v. Leff,
125 N.J. Super. 425, 434 (Law Div. 1973) (holding that
liability for rent "may arise from occupation under proper
circumstances").
What Conklin overlooks is the Ellingson court's explicit
distinction between rent and interest. The court pointedly
contrasted rent with a transaction in which "the only obligation
of the partnership . . . was one which arose prior to the
[incoming partner's] admission to the firm." Ellingson, supra,
104 P.
2d at 508. The court offered contractual interest as the
paradigm of such a purely preexisting debt: "For example, if a
promissory note had been executed by the partnership for a
consideration then passing to it, the obligation would have
arisen at the time of the execution of the note and the case
would plainly be within" section 17 of the Uniform Partnership
Act. Ibid. Ellingson's ruling rested purely on the common law
obligation to pay rent; absent such a common law obligation to
pay the debt, the debt arises only at the execution of the note.
Because there is no obligation to pay interest independent
of the promissory note, Conklin's rent analogy fails. Since the
obligation to pay interest arises only as a result of the
original loan instrument, interest, unlike rent, cannot be "new"
debt. Conklin also relies on Barbro Realty Co. v. Newburger,
385 N.Y.S.2d 68 (1976), in which the holding of the New York Supreme
Court, Appellate Division, was substantially similar to that in
Ellingson. The Barbro court cited Ellingson, as well as an
earlier New York case, In re Ryan,
60 N.E.2d 817 (N.Y. 1945).
Ryan raises another crucial difference between rent and
interest: Whereas all obligations and entitlements related to a
loan are generally fixed at the time of executing the debt
instrument, the same is not true of a lease. The lease at issue
in Ryan explicitly provided that the landlord could cancel the
lease at any time if the building were sold, and that the tenant
would thereafter be relieved of the obligation to pay rent. Id.
at 821. Thus, in some situations, "the stipulated rent payable
in the future by a lessee for the right to occupy the leased
premises might never become due." Ibid. Although the Ryan court
restricted its holding to the facts before it, it is
uncontestable that the obligation to pay rent under a lease is
contingent on the landlord's fulfilling the continuing obligation
to allow occupancy by the tenant. As the Law Division has held,
"a lease, whether it be for a residence or for commercial
purposes, is a set of mutually dependent covenants; i.e. the
tenant's covenant to pay rent is dependent (among other things)
on the landlord's covenant permitting the tenant the quiet
enjoyment of the leased premises." Westrich v. McBride,
204 N.J.
Super. 550, 556 (1984). That characteristic of leases justifies
the view that rent, even under a lease, may not arise as debt
until its due date.
That characteristic also significantly differentiates a
lease from a promissory note. The note from LongView in favor of
Conklin provided for only one obligation on Conklin's part: the
conveyance of the property in return for LongView's promise to
pay $9 million plus interest. On execution of the deed, Conklin
had fulfilled its obligations. LongView's obligation to repay
principal and to pay interest thus arose at the time that the
note was executed. Unlike a tenant's obligation to pay rent,
LongView's obligation to pay interest was not contingent on any
further performance by Conklin.
Consistent with our analysis, two federal district court
cases have specifically disapproved the analogy of rent to
payments on a promissory note for the purpose of deciding what is
new debt under section 17 of the Uniform Partnership Act. In
Plaza Realty Investors v. Bailey,
484 F. Supp. 335 (S.D.N.Y.
1979), the court specifically rejected the plaintiff's attempt to
apply the logic of Barbro, supra,
385 N.Y.S.2d 68, to a case
involving a promissory note. The lender in Plaza Realty argued
that the obligation to repay a promissory note arose as a debt
not when the note was executed but when the payment became due.
The court observed that the lender had cited Barbro, "wherein the
court held that rent as a debt 'arose' when it became due, not
when the lease was signed, but plaintiff has cited no cases which
have extended this principle to payments made on promissory
notes." Plaza Realty, supra, 484 F. Supp. at 352. As Conklin
points out, Plaza Realty is not directly on point because it
deals with repayment of principal, not interest. Nonetheless, we
note the Plaza Realty court's refusal to extend the Ellingson and
Barbro reasoning beyond the rent context.
In Citizens Bank, supra,
874 F. Supp. 705, the court held
that the concept of rent as new debt could not be extended to
repayment of advances on a loan that the lender had made after
the admission of the incoming partners. Under the terms of the
$2 million construction loan at issue, the lender was to make
advances from time to time during the construction. The lender
advanced almost $1.5 million before the new partners' admission,
and about $0.5 million after their admission. The partnership
defaulted, and those who had been partners when the note had been
executed filed for personal bankruptcy. Arguing that the
incoming partners were personally liable for the advances made
after their admission, the lender relied on Ellingson and on the
opinion below. The court in Citizens Bank rejected the rent
analogy, and correctly articulated why the Appellate Division in
Conklin had erred in accepting that analogy:
The Conklin Farm court missed the
important point of Ellingson. It may be that
interest on a note in a general sense is
similar to "rent" for money. However, there
is no principle of negotiable instruments law
that creates an obligation to pay that "rent"
independent of the contract. Moreover, the
fact that a new partner receives a benefit
from a contract entered before her admission
does not affect the time at which the
contractual obligation arose. For these
reasons, the logic of Conklin Farm is
unpersuasive.
Although Citizens Bank involves repayment of advances of principal -- rather than payment of interest -- the case focuses on the decisive issue before this court: Payment of interest, like repayment of advances, is an obligation that arises at the time the debt instrument is executed. The Citizens Bank court aptly noted the inappropriateness of the analogy to rent: "in Ellingson, the [rent] liability imposed on the incoming partner was created not by the contract, which predated his admission, but by operation of basic principles of property law that impose liability for tenancy with or without a contract." Citizens Bank, supra, 874 F. Supp. at 709. We likewise find the analogy of rent to contractual interest to be unpersuasive.
Moreover, there is no prejudice to Conklin in the fact that it may look to only the original partners for payment of the preexisting debt and interest. In executing the note, Conklin considered the personal credit of only Paula Hertzberg, Elliot
Leibowitz, and Joel Leibowitz, all of whom guaranteed the loan.
Conklin did not rely on the personal credit of Doris Leibowitz.
When lenders loan money, they rely on the financial statements of
the general partners, and not of some future, unknown general
partner. Furthermore, lenders can protect themselves by
providing in the promissory note that if new partners enter the
partnership, the partnership will terminate, and the note will be
accelerated unless the new partner agrees to sign or guarantee
the note.
We find that contractual interest is not new debt. It is not a separate and distinct obligation, but is an integral part of the debt itself. Consolidated Police, supra, 23 N.J. at 656. Accordingly, LongView's obligation to pay interest arose when it executed the Conklin note, before Doris Leibowitz became a partner. Hence, the interest on the note was preexisting debt under N.J.S.A. 42:1-17, and Doris Leibowitz is not personally liable for its payment.
The judgment of the Appellate Division is reversed.
Chief Justice Wilentz and Justices Handler, Pollock, O'Hern, Stein and Coleman join in Justice Garibaldi's opinion.
NO. A-99 SEPTEMBER TERM 1994
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
CONKLIN FARM,
Plaintiff-Respondent,
v.
DORIS LEIBOWITZ,
Defendant-Appellant.
DECIDED June 14, 1995
Chief Justice Wilentz PRESIDING
OPINION BY Justice Garibaldi
CONCURRING OPINION BY
DISSENTING OPINION BY
Footnote: 1 As the opinion below noted, "It is unclear from this record why plaintiff sought only thirty percent of the interest from defendant." 274 N.J. 525, 528 n.4. If the interest at issue is indeed new debt, Doris Leibowitz is personally liable for 100" of it under N.J.S.A. 42:1-15(b).