Madison National Bank v. Newrath

Finan, J., delivered the opinion of the Court. In this appeal we are called upon to determine the nature of the interest which Robert B. Weiss, one of the defendants below, had in Pike Associates, styled as a joint venture (Pike Associates) and which owned a leasehold estate improved by the Pike Shopping Center, Montgomery County, Maryland. At various times Weiss pledged his interest in the leasehold estate and in Pike Associates as security for loans. The question now becomes important as to whether Pike Associates was a partnership or something less, and, as corollary to this issue, whether the interest used as security represented property owned by Weiss as a tenant in common or whether it was partnership property.

As the facts are developed it will likewise become apparent that the determination of what type of commercial creature Pike Associates is, has a bearing on whether we must consider, in relation to other issues in the case, certain aspects of the Uniform Partnership Law and the Uniform Commercial Code. The Circuit Court for Montgomery County held that Pike Associates was not a partnership. In this we think it erred. ³²⁴ The land on which Pike Shopping Center is located is leased on a long term basis to Messrs. Haft, Weiss and Wine, trading as “Pike Associates, a Joint Venture.” The joint venture was formed by agreement on July 9, 1965, whereby Haft, Weiss and Wine agreed “to invest, as their respective shares of the capital of the Joint Venture herein created, all of their respective rights, titles and interests in and to the aforesaid leasehold interest in the Property.” The agreement also provided for the management and operation of the shopping center for a period of 25 years during which period the parties would share equally in the profits and losses of the business.

The agreement provides that if the joint venture is terminated for certain specified reasons, then “Each member [of the joint venture] shall be the owner of an individual interest in the property formerly owned by the joint venture as a tenant in common with the other surviving or remaining members of the joint venture.” In July, 1967, Fidelity Associates, Inc. (Fidelity) made Weiss a loan in the amount of $150,000however, apparently to avoid the usury law, the maker of the note was the W. & W. Corporation, a corporation controlled by Weiss. Although the loan was for $150,000 the note was for $165,000 with interest at 7%. Weiss individually endorsed the note. Also, to secure this debt, Weiss and his wife executed a deed of trust to Walter D. Newrath and Henry S. Snyder, as trustees for the benefit of Fidelity, conveying “all of their rights, title, and interest” in the leasehold estate.

This is the same interest which had previously been conveyed as Weiss’ contribution to the Pike Associates Joint Venture. The deed of trust refers to the interest as “all of the rights, titie and interest of the parties of the first part [Robert B. Weiss, Alma B. Weiss, his wife] (being an undivided one-third interest as a member of the joint venture known as Pike Associates) in the leasehold estate of the hereinafter described property * * This deed of trust was dated July 19, 1967, and recorded among the land records of Montgomery County the following day. ³²⁵ Fidelity had previously sought to insure the validity of this deed of trust with the Capitol Title and Escrow Corporation. Capitol Title refused to insure this trust instrument (apparently because the leasehold was owned by the joint venture and not individually by the parties to the joint venture agreement). Fidelity sought to fortify its position by obtaining a security interest in Weiss’ interest in Pike Associates.

It did this by obtaining an assignment in trust dated July 19, 1967, of that interest. It should be noted that the parties to this appeal agree as to the validity of this last mentioned security interest; however, it was not perfected by the filing of a financing agreement as required by the Uniform Commercial Code (U.C.C.), Maryland Code (1964 Repl. Vol.), Art. 95B, § 9-302. Prior to the closing, Fidelity was advised by the title company that this assignment in trust was not in recordable form; however, it took no steps to have a financial statement executed, and consummated the loan.

We now turn to the part played by the Madison National Bank (Madison), one of the appellants, in the rather involved financial dealings of Weiss. In 1965, Madison lent $150,000 to W. & W. Corporation. The debt was extended by several renewal notes. On March 20, 1968, the debt was again extended to March 20, 1969.

In consideration of this extension, Weiss (and his associate Wine) executed security agreements giving Madison a lien on their interests in Pike Associates. Each of these liens was perfected under the Uniform Commercial Code by the filing of the financing statement. On November 1, 1968, Weiss and Wine made an assignment in trust to trustees for the benefit of Madison of “all the rights, title and interest which each of the said assignors had in and to the Joint Venture known as Pike Associates.” This assignment of trust was also perfected by the filing of a financing statement in the office of the Clerk of the Court for Montgomery County on November 15, 1968. Accordingly, at the time of the trial Madison had two liens on Weiss’ interest in Pike Associates, one securing a debt of $151,017.11 and the second securing a ³²⁶ total debt of $806,818.31, which last figure includes the aforementioned debt of $151,017.11 as well as other debts owed by Weiss to Madison which are not relevant to. the case at bar.

Madison initiated action in the lower court by a suit to enjoin the foreclosure of the deed- of trust held by Fidelity and further sought to have the court declare its own lien superior to that of Fidelity. The chancellor summed up his findings below by stating: “* * * The principal contention of the plaintiff is that the deed of trust [Fidelity’s security interest] is invalid because a sale of a partnership asset on behalf of the one partner without the approval of the other partners is contrary to [Art. 73A], Section 25 (2) (b) of the Uniform Partnership Act which says that ‘a partner’s right in a specific partnership property is not assignable except in connection with the assignment of the rights of all partners in the same property.’ The defendants contend that the defendants, Weiss and wife, are not partners in the property described in the deed of trust but are joint venturers. A careful reading of the agreement between Haft, Wine and Weiss satisfies the Court that they are not partners but are joint venturers. See Vol.

VIII, Maryland Law Review, page 22 to 40. Since the security agreements referred to in the Bill of Complaint were used for the sole purpose of additional security and no action has been taken under the same, it will not be necessary for the Court to pass upon its validity as such. The Court is, therefore, of the opinion that the deed of trust and note secured thereby are valid and subsisting liens on the property described in the deed of trust. * * We disagree with the lower court’s finding that Fidelity’s deed of trust was a valid and subsisting lien on the ³²⁷ leasehold property. The lower court erred not only in failing to find Pike Associates to be a partnership, but it begged the question in finding it a joint venture.

There is ample authority, including past decisions of this Court, holding that a joint venture and a partnership are indistinguishable ; however, we would prefer to say that they may be indistinguishable and are in this case. Hobdey v. Wilkinson, 201 Md. 517, 525-527 , 94 A. 2d 625 (1953) ; Brenner v. Plitt, 182 Md. 348, 355-356 , 34 A. 2d 853 A. 285 (1927) ; J. Mullen, Joint Adventurers, 8 Md.L. (1943) ; Atlas Realty Co. v. Galt, 153 Md. 586, 590 , 139 Rev. 22, at 34-35, 38 ; see also McBriety v. Phillips, 180 Md. 569, 573-574 , 26 A. 2d 400 (1942) ; Morgart v. Smouse, 103 Md. 463, 467-468 , 63 A. 1070 (1906). In Atlas, Judge Oifutt writing for the court tacitly demonstrates the ephemeral nature of any distinction between a joint venture and a partnership by suggesting that there may be a distinction but immediately thereafter dispelling the illusion thus created, stating: “* * * while a joint adventure may be distinguished from a partnership [failing to indicate in what manner], nevertheless they are both so much alike that it is often very difficult to differentiate them.

And to establish either it is necessary to do more than show that the persons said to be so associated are to share in the profits of a transaction. Clark v. Muir, 298 Ill. 548 ; Manker v. Tough, 79 Kan. 46 , 33 C. J. 844. But it is essential to show that they have a joint proprietary interest, or that they are to share losses as well as profits, or that they have a joint control over the subject matter of the adventure or of the manner in which it is to be carried out. In fine, there seems to be no ‘real distinction between a joint adventure, and what is termed a partnership for a single transaction.’ Rowley on Partnership, par. 975.” (Emphasis supplied.) 153 Md. 590 .

Later, in Hobdey, supra, this Court tied the knot a bit ³²⁸ tighter between a joint venture and a partnership, Sobeloff, C. J., observing: “* * * But the self-characterization of the parties as ‘joint adventurers’, and their agreement to share both profits and losses, coupled with the evidence of a course of conduct which the appellees permitted Murdock to engage in with respect to this real estate development strongly indicate a joint adventure, which is really in law a partnership for a single transaction or for a limited number of transactions. Southern Can Co. v. Sayler, 1927, 152 Md. 303 , 136 A. 624 ; Atlas Realty Co. v. Galt, 1927, 153 Md. 586 , 139 A. 285 . See also 36 Virginia Law Review, 425.” (Emphasis supplied.) 201 Md. 525 -526. And in McBriety, supra, we said: “If parties enter into a contract such as the law considers to be a partnership, they become partners, whether they call themselves such or not.” 180 Md. 573 -574.

Mr. Mullen’s article in 8 Md.L.Rev. 22 (1943) points out at page 25 some distinctions between a joint venture and a partnership. We recite them to illustrate the technical character of the distinctions when they do exist. The writer of the article points out that a joint adventurer can sue a co-adventurer at law but a partner cannot sue another partner until their mutual accounts have been liquidated; a corporation may engage in a joint adventure where the enterprise is within its chartered powers, though it can not become a member of a partnership 1 ; two corporations may engage in a joint adventure or a corporation and an individual may engage in a joint adventure but they may not become partners. The article also points out that upon the insolvency of a partnership, firm creditors have priority against firm property over ³²⁹ obligations of the separate partners and that this should not be true in the case of a joint adventure for the reason that no credit would be given to the joint debtors upon the strength of joint property.

These distinctions (enumerated in Mr. Mullen’s article) notwithstanding, it is clear that the Maryland cases which have dealt with the subject have not seen fit to observe any distinction between a joint adventure and a partnership and certainly there is nothing peculiar to the facts of the case at bar which recommend that it be given different treatment. The Uniform Partnership Act, which has been in effect in Maryland since 1916, defines a partnership as “an association of two or more persons to carry on as co-owners a business fora profit.” Maryland Code (1970 Repl. Vol.), Art. 73A, § 6. Of similar import is the definition of a partnership found in 40 Am.

Jur. Partnership, § 2, p. 126, which relies on the classic definition of Chancellor Kent who defined a partnership “as a contract of two or more competent persons to place their money, effects, labor and skill, or some or all of them, in lawful commerce or business and to divide the profit and bear the loss in certain proportions.” We think Pike Associates, serving the purpose of several individuals, who had contributed personal assets to bring it into being, for the building, financing, leasing, managing and' operating for mutual profit a major shopping center over a period of 25 years or more, comes within the ambit of the Uniform Partnership Act. This being the case, the lower court’s theory that Weiss’ interest in the leasehold was that of a tenant in common and that he could convey it by way of a deed of trust as individually owned property does not hold water. Weiss’ interest in the leasehold was contributed by him as his share of the capital contribution to Pike Associates and, as such, it became partnership property.

Section 8 of the Uniform Partnership Act (Art. 73A) provides: “(1) All property originally contributed to or ³³⁰ subsequently acquired by purchase or otherwise on account of the partnership is partnership property.” Section 25 provides in subsection 1 that: “A partner is co-owner with his partners of specific partnership property holding as a tenant in partnership.” The same Section 25 consistently provides that “a partner’s right in specific partnership property is not subject to attachment or execution except on a claim against the partnership” and that “on the death of a partner his right in specific partnership property vests in the surviving partner or partners, except where the deceased was the last surviving partner, when his right in such property vests in his legal representative” and “a partner’s right in specific partnership property is not subject to dower, curtesy, or allowances to widows, heirs, or next of kin.” 2 In Kay v. Gitomer, 253 Md. 32 , 251 A. 2d 853 (1969), this Court held that an association was a partnership though there was no formal agreement and, accordingly, that land held by the parties to the agreement as tenants in common was in fact property held as tenancy in partnership under the Uniform Partnership Act, regardless of the fact that the title appears as a tenancy in common on the land records. We further held that the signature of one of the two partners was sufficient to convey title to partnership property and that the wives of the partners did not have to join in the contract or deed. We further determined that the purchaser could obtain specific performance of the contract executed by one partner to convey partnership real estate. This Court had earlier discussed the same question in Williams v. Dwell, 202 Md. 351 , 96 A. 2d 484, 487 (1953).

In that case the partners bought property and took title ³³¹ as joint tenants, but had agreed that upon the termination of the partnership the property should be held in tenancy in common. The court upheld the agreement with respect to title effective upon dissolution of the partnership. (It is interesting that the Pike Associates Agreement also provides for such a result after termination of the partnership.) In Williams the Court stated: “* * * With that exception [purchase for value without notice], the legal title of individual partners is an empty technicality. The legal title to partnership property cannot be conveyed, devised or inherited as the individual property of any of the partners either as joint tenant or as tenant in common.

In so far as the beneficial individual interests of the partners are concerned, it is immaterial whether they are regarded technically as joint tenants or as tenants in common. The partner’s; interest in the partnership, which is a personal chose in action, is all that he may assign or bequeath, and upon his death intestate that interest passes to his administrator as personal property.” 202 Md. 357 . Cf. Vlamis v. De Weese, 216 Md. 384, 394 , 140 A. 2d 665 (1958), a case in which one Malin owned real estate.

He conveyed a one-half interest to Diebert as tenant in common. The court found a partnership from surrounding circumstances. After Malin’s death, his executor assigned all assets of the partnership to Diebert. It was held that Malin’s wife did not take by devise any interest in the land recorded of record as a tenancy in common.

Since the land was partnership property, Malin’s interest was personalty, regardless of the record title, and all interest in the land passed by assignment of Malin’s executor. In view of what we have expressed, the deed of trust given by Weiss to Fidelity in July of 1967 to secure the ³³² $165,000 note is invalid, as he sought to convey, as individually owned property, that which was partnership property. The chronology of the facts would indicate that Fidelity viewed this deed of trust with skepticism, and apparently in contemplation of Capitol Title’s not insúring the trust instrument, Fidelity sought additional security. This brings us to the consideration of the assignment in trust made by Weiss to Fidelity of his interest in Pike Associates.

Fidelity