Summary
In Equity Investors, Ltd. v. West, 245 Va. 87,, 425 S.E.2d 803 (1993), the Supreme Court of Virginia held that a Virginia statute that holds general partners personally liable for unsatisfied partnership debts abolished the defense of merger.
Summary of this case from United States v. SohnOpinion
48412 Record No. 920260
January 8, 1993
Present: Carrico, C.J., Compton, Whiting, Lacy, Hassell, and Keenan, JJ., and Poff, Senior Justice
Code Sec. 50-8.1 does nothing to affect the initial individual liabilities a partner may have for acts specified in Code Sections 50-13 and -14, so that, if a judgment is entered against a partnership, the judgment creditor can file a subsequent action against individual partners without being subject to the defense of merger.
Creditors' Rights — Practice and Procedure — Merger of Actions — Partnerships — Notice — Individual Liability of Partners — Judgments — Joint Liability — Statutory Construction — Uniform Partnership Act
A creditor filed a motion for judgment against a Virginia general partnership, seeking to collect the outstanding balances on six promissory notes executed for the partnership by two of the general partners. None of the partners was named as a defendant in the lawsuit. The creditor obtained a judgment against the partnership. The clerk of the trial court refused to docket the judgment against the debtor's general partners individually. Subsequently, the creditor filed a motion for judgment against certain solvent general partners of the partnership. The partners filed demurrers, asserting that the creditor's causes of actions had been merged into the judgment against the partnership. The trial court sustained the demurrers and the creditor appeals.
1. At common law, a judgment recovered by a creditor against one of two or more persons on a joint contract was a bar to a subsequent action against other obligors who were not party defendants in the original action and the entire cause of action merged in the judgment. The joint liability of obligors against whom the judgment was not rendered was extinguished.
2. The rationale behind the merger doctrine is that the judgment establishes what was unsettled and the cause of action is said to merge into the judgment. The cause of action can never again become the basis of a suit between the same parties.
3. A judgment recovered against one of several joint makers on a note constituted a discharge of all the other makers from all suits by the same plaintiff and all persons in privity with him.
4. The Uniform Partnership Act states that partners shall be liable for a judgment and subject to execution to the extent and in the manner provided by law.
5. Where the legislature has used words of plain and definite meaning, the courts cannot put upon them a construction which amounts to holding that the legislature did not mean what it has actually expressed.
6. The last sentence of Code Sec. 50-8.1 changed the common law because it specifically makes each partner of a partnership liable for a judgment that is entered against a partnership.
7. Code Sec. 50-8.1 abolished the doctrine of merger as it relates to partners and even though the creditor's cause of action on the notes merged in the judgment it obtained against the partnership, the right to enforce the judgment against the individual partners did not merge.
8. Pursuant to Code Sec. 50-8.1, individual partners are liable for debts and obligations of the partnership and once the debtor obtained its judgment, Code Sec. 50-8.1 rendered the partners liable for judgment in the manner provided by law.
9. If a judgment is entered against a partnership, a partnership judgment creditor can file a subsequent action against individual partners without being subject to the defense of merger.
10. Code Sec. 50-8.1 gives all partners in a partnership constructive notice that partners shall be liable for the judgment as provided by law.
Appeal from a judgment of the Circuit Court of the City of Virginia Beach. Hon. Kenneth N. Whitehurst, Jr., judge presiding.
Reversed and remanded.
Ann K. Sullivan (Crenshaw, Ware Martin, on brief), for appellant.
Peter S. Lake (Heiling, McKenry, Fraim Lollar, on brief), for appellees Mickey Ballance, Thomas L. Goodwin, Jr., Paul A. Lorency and George Ray Bunch, Jr.
No brief or argument for appellee Herman C. West.
In this appeal, we consider whether Code Sec. 50-8.1 permits a creditor to obtain a judgment against a partnership and, in a subsequent proceeding, collect the judgment against individual partners who were not parties to the initial action.
Equity Investors, Ltd., a Virginia general partnership, filed a motion for judgment against Super Seven, a Virginia general partnership, seeking to collect the outstanding balances on six promissory notes executed for Super Seven by two of its general partners. None of Super Seven's general partners was named as a defendant in this lawsuit. Equity Investors obtained a judgment against the partnership in the amount of $126,626.20 with interest, attorneys fees of $31,669.05, and costs.
The clerk of the trial court refused to docket Equity Investors' judgment against Super Seven's general partners. Equity Investors requested a corrective order from the trial court so that the judgment could be docketed against the partners individually. The court refused Equity Investors' request.
Subsequently, Equity Investors filed a motion for judgment against certain solvent general partners of the partnership — Mickey Ballance, Thomas L. Goodwin, Jr., Paul A. Lorency, and George Ray Bunch, Jr. (collectively, the partners). The partners filed demurrers, asserting that Equity Investors' causes of action against the partners on the notes had merged in the judgment against Super Seven. The trial court sustained the demurrers, and we awarded Equity Investors an appeal.
Equity Investors argues that the trial court erred by sustaining the demurrers because, it says, the General Assembly abolished the doctrine of merger as applied to partners when it enacted Code Sec. 50-8.1. The partners assert, and the trial court held, that Code Sec. 50-8.1 does not abolish the doctrine of merger, but merely allows a creditor to recover against a partnership as a legal entity, which was not permitted at common law.
At common law, a judgment recovered by a creditor against one of two or more persons on a joint contract was a bar to a subsequent action against other obligors who were not party defendants in the original action. The entire cause of action merged in the judgment, and the joint liability of obligors against whom the judgment was not rendered was extinguished.
[2-3] We discussed the rationale underlying the merger doctrine in Beazley's Adm'r. v. Sims' Adm'r., 81 Va. 644 (1886):
The judgment establishes in the most conclusive manner, and reduces to the most authentic form, that which had hitherto been unsettled. The cause of action thus established, and permanently attested, is said to merge into the judgment establishing it upon the same principle that a simple contract merges into a specialty. The cause of action, though it may be examined to aid in interpreting the judgment, can never again become the basis of a suit between the same parties. It has lost its vitality; it has expended its force and effect. All its power to sustain rights and to enforce liabilities has terminated in the judgment. It is drowned in the judgment and must hence forth be regarded as functus officio. Id. at 648 (emphasis in original). Applying this doctrine, we held in Beazley that a judgment recovered against one of several joint makers on a note constituted a discharge of all the other makers "from all suits by the same plaintiff and all persons in privity with him." Id. at 650.
Code Sec. 50-8.1, a part of the Uniform Partnership Act enacted by the General Assembly in 1985, states:
Any partnership organized under the laws of this Commonwealth or of another jurisdiction shall have the capacity, with or without the joinder of one or more of its partners, to (i) sue in the courts and agencies of the Commonwealth as a separate entity under the name specified in its recorded certificate of partnership; and (ii) be sued in such courts and agencies under such name or, if there is no recorded certificate, under the name by which it does business. All judgments and executions against any such partnership shall bind its real and personal property. Its partners shall also be liable for judgment and be subject to execution to the extent and in the manner provided by law.
(Emphasis added).
Familiar principles of statutory construction govern our interpretation of this statute.
While in the construction of statutes the constant endeavor of the courts is to ascertain and give effect to the intention of the legislature, that intention must be gathered from the words used, unless a literal construction would involve a manifest absurdity. Where the legislature has used words of a plain and definite import the courts cannot put upon them a construction which amounts to holding the legislature did not mean what it has actually expressed.
Grillo v. Montebello Condominium Owners Assoc., 243 Va. 475, 477, 416 S.E.2d 444, 445 (1992) (quoting Watkins v. Hall, 161 Va. 924, 930, 172 S.E. 445, 447 (1934)); Barr v. Town Country Properties, 240 Va. 292, 295, 396 S.E.2d 672, 674 (1990).
[6-7] We must read Code Sec. 50-8.1 to give meaning to all words used by the General Assembly. We cannot read the statute to render any words meaningless. The last sentence of Code Sec. 50-8.1 changed the common law because it specifically makes each partner of a partnership "liable for judgment" that is entered against a partnership. Thus, we hold that Code Sec. 50-8.1 abolished the doctrine of merger as it relates to partners. Even though Equity Investors' causes of action on the notes merged in the judgment it obtained against Super Seven, the right to enforce that judgment against the individual partners did not merge.
The partners argue that Code Sec. 50-8.1 "only limits the liability of the partners for a judgment against the partnership to the extent and in the manner provided by law" and this statute does not negate the doctrine of merger. We reject this argument. This interpretation of the statute would permit a judgment against a partnership as a legal entity, but would not allow the judgment creditor to realize upon the judgment by filing a subsequent action against the partners. Such an interpretation would require us to hold that the last sentence in Code Sec. 50-8.1 is meaningless, without any legal efficacy.
Furthermore, Code Sec. 50-15 states:
All partners are liable: (a) Jointly and severally for everything chargeable to the partnership under Sections 50-13 and 50-14; (b) Jointly for all other debts and obligations of the partnership; but any partner may enter into a separate obligation to perform a partnership contract.
Pursuant to Code Sec. 50-15, individual partners are liable for debts and obligations of the partnership. A judgment entered against a partnership is a partnership debt. Once Equity Investors obtained its judgment, Code Sec. 50-8.1 rendered the partners liable for judgment "in the manner provided by law." Here, Equity Investors, as permitted by law, filed an independent action against the solvent partners to recover upon the judgment debt.
The partners argue that the above interpretation of Code Sec. 50-8.1 would make it incompatible with Code Sections 50-13 and -14. These code sections deal with the individual liability of partners for various partnership obligations in the first instance. Here, however, we are concerned with Code Sec. 50-8.1, which preserves the partners' individual liabilities from the common-law defense of merger.
Code Sec. 50-13 states:
Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership, or with the authority of his copartners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act.
Code Sec. 50-14 states:
The partnership is bound to make good the loss: (a) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and (b) Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership.
In our opinion, Code Sec. 50-8.1 does nothing to affect the initial individual liabilities a partner may have for acts which are specified in Code Sections 50-13 and -14. Thus, if a judgment is entered against a partnership, a partnership judgment creditor can file a subsequent action against individual partners without being subject to the defense of merger.
Finally, the partners argue that they "should not be liable for a judgment for which they might not have been notified." We reject this argument. Code Sec. 50-8.1 gives all partners in a partnership constructive notice that partners "shall be liable for judgment and be subject to execution to the extent and in the manner provided by law."
Accordingly, we will reverse the judgment of the trial court and remand this case for a trial on the merits.
Reversed and remanded.