partnership archive
Week 6: 24-28 September 2007
We will start on Tuesday with the question whether the result in Page v Page would be different under RUPA. According to the syllabus for this week we should be reading CB pp 197-231, however we only reached page 163 on Friday, so we’re unlikely to get quite this far this week. I’d like to get to page 187 on Tuesday and start on limited liability on Thursday.
New Zealand is currently working on the adoption of a Limited Partnerships Bill. The New Zealand Parliament states:
The purpose of this bill is to repeal the special partnership provisions of the Partnership Act 1908 and to establish a modern regulatory regime for limited partnerships that –
* gives the business community in New Zealand the option of a flexible and internationally recognised business structure similar to limited partnerships in use in overseas jurisdictions; and
* facilitates the development of the venture capital industry in New Zealand.
Interestingly the competitive legislation seems to include the control rule which is in the process of being eliminated in the US (the 2001 RULPA does away with the control rule in s 303). This statute has been adopted in Arkansas, California, Florida, Hawaii, Idaho, Illinois, Iowa, Kentucky, Maine, Minnesota, Nevada, New Mexico, North Dakota, and Virginia.
COMMENTS:
cjallo – September 24, 2007: Kovacik v. Reed seems to be specifically contradicted by RUPA §401(b), where Kovacik holds that when one partner contributes money and another labor, neither party is liable to the other for contribution for any loss sustained. Thus, upon losses, the party who contributed it is not entitled to recover any part of it form the party who contributed only services. Whereas RUPA states that share in losses should be in proportion to the partner’s share of the profits. Am I reading the Act correctly.
Bradley – September 25, 2007: Under RUPA if partners intend the result in Kovacik they would need to contract for that result.
cstruluck – September 25, 2007: Is the amendment of the Uniform Partnership Act (1997) from the (1914) version, removing the accounting of goodwill in determing the value of the dissolved partnership, a penalty to the offending partner? Or is it possibly the result of changes in the legal development of the concept of “goodwill”in caselaw over the past century reflecting a more appropriate accounting in the (1997) version?
Frank Menendez – September 26, 2007: cstruluck, based on what I have learned thus far, RUPA is basically an attempt to stabilize the fragile state of partnerships that is created by UPA (i.e., UPA did not imagine a partnership with more than a couple of people). RUPA on the other hand, acknowledges that a partnership can compromise hundreds of people (see e.g., RUPA § 201 re: entity) and as such, trying to figure out how much “goodwill”one particular individual is entitled to would be a difficult task for the courts to determine.
Brandon Forgione – September 27, 2007: In G & S Investments v. Belman, how could the court dissolve the partnership and allow the plaintiffs to carry on the business based on UPA Section 38? The defendant breached the partnership agreement, but did not cause wrongful dissolution. UPA Section 38(b) expressly applies to cases of wrongful dissolution and UPA Section 32 only provides for dissolution, not buyout. It makes sense that the plaintiffs should be allowed to buyout the wrongful/non-cooperative partner, but there must be a source of authority more on point.
Bradley – September 27, 2007: Between the filing of the complaint seeking judicial dissolution and the decision we are reading the partner whose actions might have justified judicial dissolution died so the provision in the partnership agreement which provides for a buyout of a deceased partner’s interest comes into play.
WEEK 5: 17-21 September 2007
We reached page 125 on Friday. The recording for Thursday’s class is here. The digital recording for Friday’s class did not work. CDs should be available in the library.
For this week the syllabus asks you to read through to page 196, which is the end of the partnership material. We probably won’t get that far, but on the other hand I think that some of the cases shouldn’t take too long either, so I’d like you to read through to page 196 anyway.
Here are some partnership capital slides with sample clauses.
And here is a Comparison of UPA and RUPA.
Comments
Brandon Forgione, September 17, 2007: Is it possible to reconcile National Biscuit Company v. Stroud and Summers v. Dooley?
In the former case, the court held that one partner could not unilaterally prohibit the other from binding the partnership to matters within the ordinary course of the partnership business because one out of two partners was not a majority of partners. In the latter, the court held that one partner could not unilaterally bind the partnership to matters within the ordinary course of the partnership business because one out of two partners was not a majority of partners.
The two cases seem almost identical. In both cases, one partner was acting within the usual course of the partnership business over the objection of the other. Both cases involved the acting partner entering into a contract with a third party, although one is for employment and the other the sale of goods.
I can see how the UPA provision could be read either way, so the incongruity in results seems to be, I think, a difference of policy. In effect, the difference between the two cases concerns which side gets the default “tie-breaker”vote, those opposing or those advocating. If one partner cannot unilaterally prevent another (assuming a two-person partnership) from acting within the usual course of the partnership business, then the advocate of the action prevails in a tie (i.e. binds the partnership). If one partner cannot unilaterally act in binding the partnership over the objections of the other partner, then the person opposing the action prevails.
Sheenam22, September 18, 2007: I believe that the key difference between National Biscuit Company v. Stroud and Summers v. Dooley is the scope of the partner’s act.
There is no question that buying bread is completely within the scope of the partnership in National Biscuit Company. It is a necessary act, without which the business could not operate. Also, buying bread does not change the partners’ relationship.
In Summers, however, the hiring of an additional employee could arguably be considered outside the scope of the partnership, because it is not necessary to the existence of the trash collection business. The business was operated and run exclusively by Summers and Dooley, so the hiring of an employee essentially changes the business relationship and the partnership agreement. First, hiring an employee creates an additional expense that might not have been contemplated at the time of the agreement. Second, hiring an employee changes the way the business operates, because previously, a non-working partner was responsible for providing a replacement at his own expense, whereas now, there is a permanent employee who would stand in for an absent partner. Lastly, it seems as though the partners entered the partnership agreement with the intention of having a two-person business, so expanding the business might not have been within their original plan.
The Court in Summers v. Dooley seems to hold that, if the act of a partner essentially changes the partnership relationship, or is outside the scope of usual business as it was originally contemplated, then the act of one partner cannot bind the other.
Frank Menendez, September 18, 2007: In my opinion, in NABISCO, by stopping the purchase of bread (which was well within the “ordinary and legitimate business of the partnership”), Stroud changed the pattern of business; In Summers, Dooley wanted to keep things the same!
Bradley, September 18, 2007: The status quo prevails unless there is sufficient voting power to change things. In a 2 person partnership with equal voting rights no-one has a majority so all changes must be agreed on by both partners.
WEEK 4: 10-14 September 2007
Please read to page 139. I will arrange to have the classes on Thursday and Friday taped because of the holidays.
The recording for Thursday’s class is here. CDs of Friday’s class should be available in the library.
Comments
lsrobert, Sept. 7: Using the court’s rationale in Fenwick v. Unemployment Compensation Commission, it could be argued that the defendants, in Martin v. Peyton, were in fact partners in the firm Knauth, Nachod & Kuhne. The court in Fenwick cites the Uniform Partnership Act in defining partnership as “an association of two or more persons to carry on as co-owners of a business for profit.”Given the terms of the agreement in Martin, it would seem that the elements of co-ownership were present.
The agreement in Fenwick was to share the profits resulting from a business owned by Fenwick. Similarly, in Martin, as compensation for the loan the respondents were to receive 40% of the profits of the firm until the return was made, accruing a total profit of between $100,000 and $500,000. Fenwick contributed all the capital, managed the business and took over all the assets on dissolution. Likewise, the trustees contributed $2.5 million of good securities to keep the firm afloat during its financial crisis. The trustees managed a large part of the financial interests of the firm in that they advised as to the conduct of the business, consulted on important issues, inspected the books, possessed the power to veto any business and to initiate any transaction. Ownership was conclusively shown to be in Fenwick. Also in Martin, each member of K.N. & K. assigned the trustees their interest in the firm.
I agree with the court’s decision in Martin, that a partnership was not formed, especially in light of the provisions in loan agreements today. However, I think this illustrates the weakness of the court’s rationale in Fenwick, and highlights the fact that sexism played a greater role in the decision than the court let on.
Brandon Forgione, Sept. 9: I agree that the rationale in Fenwick creates a reasonable argument that a partnership existed in Martin and agree that, ultimately, there was no partnership in the latter, but disagree that this highlights the role sexism potentially played in Fenwick.
If you agree that the Martin decision was correct, then it would seem a fortiori that there was no partnership in Fenwick because there are more “partnership elements”and a higher degree of an overall partnership relationship in Martin.
In Fenwick, the intention of the parties, as determined by the agreement and their testimony, seems rather clear. Fenwick wanted to give Mrs. Chesire a higher salary, but wanted to ensure that this was feasible. Also, most of the other partnership elements are lacking. Even if sexism did play a role in the courts decision, that does not mean that there was a partnership taking sexism out of the equation.
Julie Young, Sept. 13: In the Fenwick case, I think that the court actually revealed the role sexism played in their rationale, because they did call Mrs. Chesire ‘the girl’ as well. After simply reading the case, it didn’t look to me as if a partnership had been formed. However, after listening in class to the fact that the parties are able to form a partnership in which they may choose to derogate from certain provisions in the statutes which define a partnership, I think the court should have found a partnership.
As to the Reading v. Regem case, I think that as a matter of policy, the company should be able to recover for the money made whether the work he was doing was helping goods to move by use of his uniform, or if he was making a public appearance as ‘An All-American Hero’. This is because in general I think we want to ensure that an employee of a company has incentive to work for his company, and this lessens the risk that he will deviate from his normal course of duty in order to serve someone other than his company. Even if it does in some way serve his company, we want employees to focus on the task they’ve been given. If an issue comes up regarding the possibility of doing another job or expanding one’s duties, I believe this should be a matter which the employer is informed and has the power to approve or disapprove of, because we don’t want to leave the discretion to each individual employee to make these types of decisions