Professor Freeman—Fall 2005
DEFINED—A partnership is an association of two or more persons to carry on as co-owners of a business for profit. UPA § 6.1.
KEY: The facts of a particular situation determine whether a partnership does or does not exist. Whether a partnership existed therefore rests with the trier of fact, specifically juries.
Important: “Close counts.” When there are close questions of liability, specifically depending on whether a partnership exists, having the question in the hands of a jury is not favorable for a business.
NOTE: A partnership is the “default” form of the business entity. Thus, “a partnership is formed it two or more persons go into a co-owned business without any thought or planning or understanding of what the relationship is. Co-ownership does not need to be express. An oral agreement to share profits in some agreed-upon ratio may be sufficient to establish the existence of a general partnership even though initial financial contributions are unequal.”
Joint Venture Distinguished—A joint venture is different than a partnership because it is formed by two or more people to carry on a certain, specific task and share the profits. All of the laws and rules of a partnership apply to the joint venturers with respect to that specific task.
Example: When two law firms join together to litigate a specific case. They are partners with respect to that task—not in everything they each do business on.
RULE: Denying you have a partnership does not mean there is not a partnership if the facts support the existence of a partnership.
B. Written Agreements
RULE: The partners in a partnership want a written agreement for a number of reasons (mostly because it makes their lives easier):
1) It makes it easier for one partner to meet their burden of proof when suing another partner,
2) Forces the parties to think about problem issues before starting the business enterprise,
3) Makes it easier to prove profit and loss allocations for tax purposes,
4) Establishes the method for partners to buy other partnership interests or to sell their own interest to the partnership or third persons,
5) Makes it clearer as to who owns what property in the partnership (thus making it easier for one partner to “walk away”),
6) Fulfills the requirements of the Statute of Frauds.
Statute of Frauds and Partnerships—The formation of a partnership is a contract just like any other agreement and therefore must meet the requirement of the Statute of Frauds. In Gano v. Jamail, a court found that a partnership agreement was unenforceable for failing to meet the Statute of Frauds one year requirement. The law firm was engaged in litigation that “almost always” took more than a year to finish and required the partnership to exist for more than a year. The agreement was therefore invalid because it was not in a signed writing.
RULE: The partnership agreement is binding as to the partners, but not as to third persons.
B. Sharing Profits and Losses
Default Rule: Partners share equally in the profits of a partnership. UPA § 18.
Note: If there is an agreement be
the agent manifests, assent or otherwise consents so to act. [Restatement 3rd of Agency] § You cannot contract to make agency go away. The relationship itself will determine whether agency exists.
WHAT IS THE ROLE OF “NOTICE”: Notice is a critical concept needed to bind the principal. Although notice given to the agent can be imputed to the principal, it certainly exists where the principal knows a fact, has reason to know a fact, should have known a fact, or received effective notification of a fact.
ANALYSIS – When is the principal liable for the agent’s actions? (when does the agent bind the principal?):
1) Express Authority – Written or verbal (actually transmitted) authority
2) Implied Authority – Principal gives an instruction, but does not tell the agent how to go about achieving the instructed duty. (Ex. “do what it takes to sell my house.”)
3) Apparent Authority – Exists where a third party reasonably believes that the agent has the authority to do something even where he doesn’t.
4) Inherent Agency Power [Actual Authority of Partners under §9(1)] – Exists where a general agent is doing something that is normal. Third parties have no reason to believe that an agent’s authority is limited in a manner preventing him to act in a normal way.