Fortugno v. Hudson Manure Company

Superior Court of New Jersey, Appellate Division · 1958 · Corporations

144 A.2d 207 (1958)

Updated August 22, 2026

CorporationsPartnershipsDissolutionCorporate entityFiduciary dutypartnership propertycorporate veilfamily corporation

Facts

After their father died, his widow and seven children orally formed, and later reduced to writing, an equal family partnership called Hudson Manure Company. Over time, several corporations were formed or acquired with partnership money and used as instrumentalities of the family manure and mushroom enterprise, while one corporation, Hudson Farms, Inc., was created by Anthony after Arthur objected to changes and was funded with partnership money without consent of all partners. Upon dissolution, Arthur objected to receiving only stock in the corporations because that would leave him a minority shareholder in continuing family-controlled companies rather than permit an effective withdrawal. The trial court held four corporations were not partnership assets and ordered stock distributed, but held Hudson Farms had been fraudulently formed with partnership funds and ordered it sold.

Issue

Whether corporations formed or acquired with partnership funds and used as part of a single integrated family enterprise should be treated as assets of the partnership upon dissolution, notwithstanding their corporate form. If so, whether the 1940 partnership agreement requiring division of remaining assets 'in specie' required distribution of corporate stock rather than liquidation and cash distribution.

Rule

Under the Uniform Partnership Act, property acquired on behalf of a partnership, and absent contrary intent property acquired with partnership funds, is partnership property. In determining whether property is partnership property, courts look chiefly to the partners' intent, the conduct of the parties, the source of funds, and the use of the property; where corporations are merely mechanical devices or instrumentalities for carrying on the partnership enterprise, equity may disregard the corporate form as between the partners and treat the corporate assets or stock as partnership assets. A dissolution clause requiring division 'in specie' does not compel distribution of corporate stock where that would inequitably force a partner to remain a minority shareholder in continuing family corporations.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Four siblings operate a landscaping partnership based in Columbus, Ohio. Using partnership funds, they form Greenline Storage, Inc. to hold equipment sheds and trucks used exclusively by the partnership, and they treat the corporation as one department of the overall business. After dissolution, one sibling objects to receiving stock because the other three plan to keep operating together.

How should a court most likely classify Greenline Storage, Inc. in winding up the partnership?

Explanation. The majority treated property acquired with partnership funds and used as part of a single integrated enterprise as partnership property in substance, even when placed in corporate form. The key inquiries are source of funds, use of the property, and the parties' intent and conduct. Where the corporation is merely a mechanical device or instrumentality for carrying on the partnership business, equity may disregard the form as between the partners.