#8794 - Operation Of A Partnership - Agency and Other Unincorporated Businesses

OPERATION OF A PARTNERSHIP

CONTRACTUAL POWERS OF PARTNERS

Partners are regarded as agents of their p’ship when dealing obo the firm (RUPA §301)

Actual authority, apparent authority, estoppels, and inherent agency power concepts apply to the actions of partners, who are general agents, as well as to EMPLOYEES of a p’ship

DO LEGALLY WHAT YOU WANT TO DO ECONOMICALLY!

RUPA §303:

It provides a p’ship the option of filing a “statement of authority” w/ the secretary of State of the state where the p’ship is located.

Distinguishes btwn authority concerning transfers of real prop held in name of the p’ship and other transactions

The real import of the “statement of authority is to grant extraordinary authority, or to limit the ordinary authority of any given partner. (but doesn’t operate at constructive notice to 3^rd parties unless is real prop cause then they are supposed to check anyways)

RUPA provides for constructive notice from filed statements in 2 other situations:

1. 90 days after a statement of dissociation is filed

2. 90 days after a statement of dissolution is file

Summers v. Dooley

2 man p’ship and 1 wanted to hire new employee to help with his trash route, but the other partner said no. The one did it anyways and then tried to come after his partner for part of the employment expenses. (hiring was not w/in the scope or kind of business of the trash co. so couldn’t just do on own over the dissent of his partner)

RULE: In a 2 man partnership majority rules & so must be unanimous:

If majority didn’t consent the majority can still bind the dissenting partner IF it is in the ordinary course of the business but the dissent rules if outside the ordinary course of business.

RUPA 401 (all about issues btwn partners) (can contract around)

Management right is limited to stuff in the ordinary course or stuff agreed to by Majority Rule. (can’t be a material change)

Management right is equal and voting right is per capita (doesn’t depend on share %)

So, there is not really such a thing as a “silent partner” cause cant forbid equal management of that partner even if he doesn’t choose to manage

RUPA §301 (cant be changed by contract)(all about binding p’ship w/ 3^rd parties)

Each partner is an agent (and a principal) of the p’ship for the purpose of its business. An act of a partner, including the execution of an instrument in the p’ship name, for apparently carrying on in the ordinary scope of p’ship business or business of the kind carried on by the p’ship, in the geographic area in which the p’ship operates, binds the p’ship unless the partner had not authority to act for the p’ship in the particular manner and the person with whom the partner was dealing knew or had received notification that the partner lacked authority.

National Biscuit v. Stroud (3^rd pty suit)

2 person p’ship in grocery store

Stroud tells Nabisco no more bread

Nabisco keeps selling bread to other partner

P’ship dissolves, bread not paid for, Nabisco sued Stroud to recover

Ct. concludes Stroud must pay for bread, cause buying bread was in the ordinary course of that business and the business of that kind & any partners then w/ authority can continue on the business. RUPA 301 (and got the benefit of selling the bread, Admiral Oriental)

Have actual authority simply by creation of the p’ship & have equal rights of management under RUPA 401

A majority cant change things w/in the ordinary course of the business or that kind of business (unless notify all customers & creditors with actual notice)

PARTNER LIABILITY BY ESTOPPEL

Royal Bank v. Weintraub, Gold & Alper

“acts of a partner in apparently carrying on the p’ship business in the usual way are binding on the p’ship unless that partner has no authority to act, AND the person dealing w/ that partner knew of this”

If p’ship is liable- all the partners are personally liable for 100% of the liability individually

Act of Partner was opening an escrow account which ct. says under RUPA 301 was ordinary course of this kind of business

Defendants say P’ship was dissolved & so not liable but the 3^rd parties were still under the impression that they were still operating as partners

Estoppel Theory: if act like,look like, smell like a firm (p’ship) we will treat you as a p’ship & you are estopped from denying you are a p’ship.

When is a partner allowed to dissolve a p’ship?

Whenever want to by express manifestation of termination, but then must act as such

Dissolution ends the ongoing relationship, but doesn’t mean the business is completed

Termination-occurs when the business is actually wrapped up/completed.

J & J Builders Supply v. Caffin

Guy brought Caffin with him to a meeting and introduced him as his partner, then later the guy said “I call everybody I do bus w/ my partner”

A reasonable person would not have just sat there and let the plaintiff rely on the statements if it wasn’t true

Case where silence actually creates liability

RUPA 308 Purported Partner

If a person, by words or conduct, purports to be a partner, or consents to being represented by another as a partner…is liable to a person to whom the representation is made, if that person, relying on that representation, enters into a transaction with the actual or purported partnership.

RIGHTS AND DUTIES AMONG PARTNERS

*Each partner is deemed to have accepted the risk that the other partners may be negligent

*Partners don’t owe each other a duty of care (unlike agents) so can sue each other for negligence

Duty of Loyalty:

Meinhard v. Salmon (very famous in business)

Big building in NY case

Original relationship was a joint venture (now a days means p’ship w/ specific term)

Salmon- did all day to day operations (managing partner)

Meinhard- only supplies $ but not lender cause bears risk & shares losses

Salmon held to have breached the fiduciary duty of loyalty:

“by engaging in business w/ Gerry w/o disclosing it to his partner”

The business opportunity came to Salmon because of the P’ship & was the same kind of business

Shld have offered it to p’ship & if Meinhard turned down then could take it

(cause if voted & he dissented- then in a tie the dissent wins & he could do it cause not in ordinary course of business)

RUPA 404 provides partners duties to each other & to the p’ship

Think of fiduciary duties in common sense terms and you will usually get the right result

Meehan v. Shaughnessy

Lawyer leaving the firm case and taking cases with him and not DISCLOSING!

They lied about the plans to leave the firm and this gave them an unfair competitive advantage.

DUTIES:

*Well settled that partners owe each other a fiduciary duty of “the utmost good faith and loyalty”

*Partner has a duty to “render on demand true and full info of all things affecting the partnership or any partner” and (but actual disclosure duty only under old act not RUPA)

*every partner must “account to the p’ship for any benefit, and hold as trustee for the p’ship any profits derived by him w/o consent of the other partners for any transaction connected with the formation, conduct, or liquidation of the p’ship

Walter v. Holiday Inn, Inc

Duty of disclosure of material facts under old act not new RUPA (but duty tell partners info when asked and right to info of each partner)

If there...