8182 Maryland Associates, Ltd. Partnership v. Sheehan
14 S.W.3d 576, 2000 WL 253649, 2000 Mo. LEXIS 34 (2000)
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Rule of Law:
When a partner withdraws from a partnership, the partnership dissolves, but the withdrawing partner remains personally liable on pre-existing contractual obligations, such as a lease agreement they signed, under privity of contract unless expressly released. Incoming partners are generally liable for pre-existing obligations only to the extent of partnership property and are personally liable under privity of estate for lease obligations only during their period of actual occupation of the premises.
Facts:
- On April 5, 1984, the Missouri general partnership Popkin, Stern, Heifitz, Lurie, Sheehan, Reby & Chervitz (a law firm) entered into a 120-month lease agreement with 8182 Maryland for two floors and parking space in a yet-to-be-constructed office building.
- Richard J. Sheehan, a general partner, signed the lease along with thirteen other general partners, and the lease was silent on liability for incoming or withdrawing partners and required written landlord consent for assignment.
- In October 1985, Sheehan withdrew from the partnership, and on December 31, 1985, he assigned his interest to the remaining partners.
- In January 1986, Sheehan's resignation became effective, and the remaining partners formally adopted the name "Popkin & Stern"; the lease was not expressly assigned in writing to the new partnership, nor did the new partnership assume the obligations in writing.
- On or before April 26, 1986, Popkin & Stern began occupying the leased premises.
- Between January 1, 1985, and January 1, 1986, Timothy Noelker, Douglas Burdette, Barbara Lageson, and Jeffrey Klar became partners of Popkin & Stern; none of these partners signed the lease agreement or any assumption agreement.
- On or before December 1, 1989, Noelker, Burdette, Lageson, and Klar all withdrew from the firm, and none entered into a withdrawal agreement with any Popkin & Stern partnership or 8182 Maryland.
- In September 1991, Popkin & Stern defaulted on its lease obligation to 8182 Maryland and subsequently filed for bankruptcy in 1992, leading 8182 Maryland to allege damages for past-due rent and future lease obligations.
Procedural Posture:
- 8182 Maryland filed a third amended petition on January 13, 1993, naming as defendants all past and present general partners of the firm since April 4, 1984, seeking damages for unpaid rent and future lease obligations.
- Defendants Noelker and Klar filed partial motions for summary judgment, seeking to limit any recovery of damages to partnership assets, not their individual assets.
- The trial court entered an order of partial summary judgment in favor of Noelker on January 22, 1993, and in favor of Klar on February 10, 1993.
- Defendants Sheehan, Noelker, Klar, Burdette, and Harris later filed separate motions for summary judgment, requesting the circuit court to dismiss, in all respects, the third amended petition against each of them.
- The trial court granted these summary judgment motions in separate orders, dismissing the claims against all these defendants.
- 8182 Maryland appealed the granting of these summary judgment motions.
- On February 20, 1998, the trial court certified its judgment as final for appeal purposes under Rule 74.01(b).
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Issue:
Does a withdrawing partner remain personally liable under privity of contract on a long-term lease signed by the original partnership, and are incoming partners personally liable under privity of contract or privity of estate for lease obligations of the partnership they join, particularly after their withdrawal, in the absence of an express agreement?
Opinions:
Majority - William Ray Price, Jr.
Yes, a withdrawing partner like Sheehan remains personally liable on a long-term lease signed by the original partnership under privity of contract. The court reasoned that liability on a contractual agreement attaches at the moment it is executed, not at its commencement or breach. When Sheehan signed the lease, he became jointly and severally liable for all existing and future obligations. While his withdrawal dissolved the original partnership, the Uniform Partnership Law (UPL) explicitly states that dissolution does not, by itself, discharge a partner's existing liability (Section 358.360.1). This liability extends to contingent obligations, such as those under a long-term lease. Sheehan could have protected himself by forming an agreement with the partnership and 8182 Maryland to release his personal liability (Section 358.360.2), but no such express or inferred agreement was shown in the record. Therefore, the trial court erred in granting Sheehan summary judgment. No, incoming partners Noelker, Burdette, Lageson, and Klar are not personally liable under privity of contract for the pre-existing lease obligations of the partnership they joined, and their personal liability under privity of estate was limited to the period of their partnership's occupation. The court explained that under Missouri's UPL, the admission of a new partner universally dissolves the old partnership and creates a new one. Section 358.170 limits an incoming partner's liability for obligations arising before their admission to partnership property, not personal assets. The court distinguished between privity of contract and privity of estate, noting that a lease has a dual nature. The new partnerships formed by the incoming partners did not sign the original lease or expressly assume its obligations, thus lacking privity of contract. However, by occupying the premises and paying rent, a presumed assignment occurred, establishing privity of estate. Privity of estate makes the occupants liable for rent and covenants running with the land, but only during the period of actual possession. Since Noelker, Burdette, Lageson, and Klar withdrew from the partnership before the breach, their respective partnerships ceased to exist and occupy the land, ending their privity of estate and thus their personal liability for rent accruing after their withdrawal. Therefore, the trial court correctly granted them summary judgment.
Analysis:
This case significantly clarifies the distinction between privity of contract and privity of estate in the context of partner liability for long-term lease agreements under Missouri's Uniform Partnership Law. It establishes that an original signatory partner's personal contractual liability persists despite partnership dissolution and withdrawal, emphasizing the need for explicit release agreements. Conversely, the ruling limits the personal liability of incoming partners for pre-existing contractual obligations to the period of their firm's actual occupation, offering protection against debts they did not personally assume. This decision highlights the critical importance for partners to secure express agreements for release or assumption of liabilities when there are changes in partnership composition, particularly concerning long-term financial commitments like real estate leases.
