Chapter 2: Partnerships
Elements of partnership
1- Intention –
2- Right to share profits – – % split doesn’t matter
3- Obligation to share losses –
4- ownership and control of partnership property and business –
5- community of power in administration –
6- langauge of the agreement – doesn’t matter what partners call themselvs
7- conduct toward third persons –
8- rights upon dissolution –
9-Sharing in liability (cummings added)
1. Agreement – law will assume or presume a partnership if it appears there is one
Corporation v. Partnership
Corporation faces double taxation – as corporation and individual
– stringent formation features
– cumbersome and expensive
– allows unfettered liability protections
– single taxation
– no liability protection
– provides tax protection
– easy to establish
– flexible – agreements – UPA controls all aspects of partnership
· Page 181–probably on the bar –assets in order paid out in order : (section 40(b))
Those owing to creditors other than partners
Those owning to partners other than for capital and profits (loans)
Those owing to partners in respect of capital
Those owing to partners in respect of profits
Section 1: What is A partnership? Who Are the Partners?
A. Partners Compared with Employees
Fenwick v. Unemployemnt Comp.:(Chesire, a secretary, and Fenwick entered into partnership agreement, pursuant to which Fenwick provided all capital investments, possessed exclusive control over the management of the business, and bore the risk of all business losses. Ms. Chesire was just receiving part of the profits as her payment, not as a co-owner.)
* RULE: A partnership is an association of two or more persons to carry on as co‐owners of a business for profit.
– Chesire was merely an employee.
B. Partners Compared with Lenders
Martin v. Peyton:(P sued D and others as allegef partners of a firm that owed P mone, when the defendants entered into an elaborate loan agreement with the firm)
*RULE: A partnership is created by an express or implied contract between two persons with the intention to form a partnership.
– in this case, the loaners of the money were simply protecting their investment. They were not taking control of the partnership. All they risked was their 2.5 mil they had lent. If they had been partners, they could have actually been liable.
C. Partnership By Estoppel: THE RELIANCE ON REPRESENTATIONS AS A PARTNERSHIP
Young v. Jones: (P and others invested moneyt in reliance upon a fraudulent audit statement propared by Price Waterhouse-Bahamas)
*RULE: A person who represents himself, or permits another to represent him, as a partner in
an existing partnership or with others not actual partners, is liable to any person to whom such a
representation is made who has, in reliance on the representation, given credit to the actual or apparent
– There was no partnership by estoppel because there was no proof that Plaintiffs relied upon any acts or statements by Defendants that a partnership existed between PW-Bahamas and PW-US. Plaintiffs never made any assertions that they extended the credit based upon a perceived partnership between Defendants and therefore can not rely upon the doctrine of partnership by estoppel.
SECTION 2: THE FIDUCIARY OBLIGATIONS OF PARTNERS
Meinhard v. Salmon:(D terminated a lease belonging to his joint venture with P to enter into a new lease on behalf of his solely owned business)
*RULE: Like partners, joint adventurers owe one another the duty of loyalty.
– “The duty of loyalty is unrelenting and supreme.”
– Partnership Opportunity Doctrine – Partners cannot secretly arrange for opportunities that would benefit the partnership.
– A partner must hold as trustee a partnership opportunity.
If offer came a day after the lease ended, the court would need to determine the intent of the partnership.
· Include a right of first refusal on future business ventures
· If you are the moneyed partner, you get the provisions you want.
B. After Dissolution
Bane v. Ferguson: (P’s pension payments were terminated when his former firm’s management council devided to merge with another law firm, which ultimately resulted in dissolution)
*RULE: The fiduciary duties owed by one partner to another terminate when the partnership
no partner is responsible for expenses incurred without majority approval.
The facts are very similar to National Biscuit Company v. Stroud with a different result. However, in this case the partner’s decision was for his own benefit, and the decision was contrary to the status quo.
– Contingencies must be addressed in the partnership agreements – particularly deadlocked decisions when there are an even number of partners.
Distinguishable from National Biscuit:
1) NB involved a third party – policy states Nabisco should recover
2) NB involved “ordinary matters”
Moren v. Jax Restaurant: (A partner’s son was injured while his mother (the partner) worked in the business’s kitchen on partnership businesss)
*RULE: A partnership may not be indemnified by a partner for liability caused by the partner acting in the ordinary course of partnership business.
– Partnership must bear the cost of liability when an actionable injury occurs as the result of a partner carrying on the ordinary course of business for the partnership.
Day v. Sidley & Austin: (P sued Sidley and Austin for breach of K, fraud, and breach of fiduciary duty after he resigned due to the defendant’s decision to merge with another law partnership)
*RULE: Managing partners have no fiduciary duty to disclose changes in the partnership’s internal structure if the changes do not generate a profit or loss for the partnership. (in reality there was a partnership agreement here… rights were given up.)
– Members of a partnership do not violate a fiduciary duty to one partner simply because that partner believes that their position was de-valued in any manner. If the other partners are following the agreement provisions and they are exercising their rights in a manner that is beneficial for the partnership over their personal interests, then they are meeting their duty.