Ba--Partner--Relationship Of Partners To 3P And To Other Parties

Front 1

[A] Generally

Back 1

• Liability of all partners for acts of one partner is based on agency principles
• Absent an agreement limiting the scope of a partner’s power, the crucial question is whether the partner is acting within the scope of the partnership business

Front 2

[B] Relations to 3rd Parties

Back 2

• Ever partner has power to act for partnership in conduct of business – partner can bind partnership in its dealings with 3rd parties so long as acting within scope of authority
• To determine scope of authority, look to type of business and partnership agreement
• An agreement limiting partner’s authority is not effective as to 3rd parties who do not have knowledge of the limitation and deal with the restricted partner
• Partner’s implied authority is measured by what the ordinary and customary powers of partnership in that type of business
• Third party may have duty of inquiry a

Front 3

[C] Acts of Partners (Actual and Apparent Authority)

Back 3

• Partnership agreement may grant individual partner sole authority to act for business
• Only that partner has actual authority to bind partnership
• Other partners may still be able to bind thru apparent authority

Front 4

[D] Borrowing Money

Back 4

• Partners have power to borrow money for partnership (unlike in common law)

[1] Burden of Proof
• If partnership is trading business, borrowing for business is natural consequence and there is no need for additional proof that the borrowing was to conduct business
• If non-trading, 3rd party must establish that the borrowing was for business purposes and that the partner executing the instrument was authorized to act.
[2] Alley v. Bowen-Merrill (law books) (non-trading)
• G and A were law partners. G signed firm name to buy books from P.
• RULE: each partnership must stand largely on the nature of its particular business; question is whether such purchase was within scope of business

Front 5

[E] Hiring Employees

Back 5

• Each partner has power to hire necessary employees
• Authority may extend to hiring a clerk, but not a manager
• Includes power to fire and make reasonable compensation agreements
• However, when management has been delegated to 1 partner, that partner has sole authority to hire and fire.

Front 6

[F] Payment, Collection,

Back 6

Compromise of Claims
• Partner has authority to pay from partnership assets, collect debts, and settle claims against partnership (differs from ordinary agent)

Front 7

[G] Waiver of Statute of Limitations

Back 7

• Partner acting within authority can waive statute of limitations for partnership obligation

Front 8

H] Guarantees

Back 8

• No one partner can bind the partnership to answer for obligations of another unless that partner is specifically authorized to act by agreement of all other parties
• However, when giving of guarantees or surety bonds is in usual course of business, individual partner can act without specific authorization.

Front 9

[I] Ratification

Back 9

• Where partner acts outside scope of authority, partnership will be liable if other partners ratify those acts
• Ratification can be express or implied
[1] Lester v. Berman (crazy law partners)
• A partner is entitled to be repaid his capital contributions; partner has fiduciary duty
• Partner has right to formal accounting and inspection of partnership books and records (partner’s right is pretty much unlimited, unlike shareholders who have limited right of inspection of books)

Front 10

[J] Limitations on Authority

Back 10

[1] Assignment of Benefit of Creditors
[2] Disposal of Goodwill
[3] Acts Making Partnership’s Ordinary Business Impossible
[4] Confess a Judgment
[5] Submit Claims to Arbitration

Front 11

[1] Assignment of Benefit of Creditors

Back 11

• A partner cannot assign partnership property to a trustee or creditor for the benefit of a partnership creditor
• Such assignment can be voided by a court
• All partners must agree

Front 12

[2] Disposal of Goodwill

Back 12

• Definition – Goodwill – a business’s reputation, patronage, and other intangible assets that are considered when appraising the business, esp. for purchase

Front 13

[3] Acts Making Partnership’s Ordinary Business Impossible

Back 13

• Requires a determination of what is the ordinary business of the partnership

Front 14

[4] Confess a Judgment

Back 14

• Partner does not have authority to voluntarily submit to a judgment being entered and received against the partnership
• Every partner has authority to collect and prosecute claims and to pay/defend suits; however no implied or inherent authority to bind other partners to judicial decrees
• Partner cannot (1) submit another partner to the jurisdiction of the court (2) confess a judgment and bind a co-partner (3) allow attachment of partnership property

Front 15

[5] Submit Claims to Arbitration

Back 15

• Not binding on partnership or other partners, nor can it be enforced by partnership
• However, the individual partner may be bound

Front 16

[K] Admissions of Partners

Back 16

• Admissions or representations of a partner are admissible as evidence against the partnership so long as they are made within the scope of the partner’s authority
• An admission made by a partner outside scope of apparent authority doesn’t bind partnership or other partners, but does bind partner making admission
• An admission after dissolution doesn’t bind partnership if: (1) partner making admission is not charged with winding up business, and (2) 3rd party knows that partner isn’t charged
• After dissolution, only partner(s) charged with winding up have authority to act on its behalf

Front 17

[L] Knowledge or Notice to Partner

Back 17

• Notice can only be given to a partnership by giving notice to 1 or all partners
• Notice must relate to business for it to bind partnership

[1] Knowledge
• Knowledge of partner is imputed to partnership under certain circumstances – such as when the partner with knowledge is actually engaged in the matter to which the knowledge relates or when he could have reasonably conveyed the knowledge to the person acting in that manner
• Difficulties arise when knowledge was acquired before becoming a partner
• Such knowledge is imputed to partnership if it is the knowledge of the partner acting in the particular transaction
• Knowledge of non-acting partner is imputed to partnership if that partner could reasonably be expected to communicate with the acting partner
• Partner with the knowledge must have reasonable opportunity to communicate it

Front 18

[M] Liability of Partners to Third Parties

Back 18

[1] Generally
[2] Contract Liability
[3] Tort Liability
[4] Breach of Trust
[5] Actions Against Partnership and Partners
[6] Effect of Judgment

Front 19

[1] Generally

Back 19

• Liability of the partnership and individual partners is governed by agency law
• Liability arises from 2 sources: (1) contracts (2) torts

Front 20

[2] Contract Liability

Back 20

• If partner had authorization to enter into the contract, all other partners are personally liable

[a] Joint Liability of Partners
• Partners are jointly liable on contract obligations
• Thus, all partners must be joined in an action by a 3rd party unless statute permits suit in partnership name or less than all of partners
• UPA – an individual partner can take a partnership debt as his own by agreeing to be personally liable on it (liability will be several)
• UPA – all obligations of partnerships are joint and several

[b] Individual Liabilities
• Partnership not liable for debts or obligations of an individual partner unless it has assumed such obligations

Front 21

[3] Tort Liability

Back 21

• Partnership liable just as any other principal for torts committed by partners and others acting on its behalf

[a] Joint and Several Liability of Partners
• The various partners are jointly and severally liable for torts of partnership

[b] Scope of Employment
• For partnership to be liable, tortfeasor must have been acting in ordinary course of business or within authorization of other partners
• Scope of actual or apparent authority
• Tortfeasor also personally liable (separate from liability as partner)

[c] Torts of Employees
• Law of agency applies – partnership may be held liable for torts of non-partner agents or employees

Front 22

[4] Breach of Trust

Back 22

• Partnership liable when 1 partner receives and misapplies money or property of 3rd party
• Partner who receives money must be acting with apparent authority to bind partnership

Front 23

[5] Actions Against Partnership and Partners

Back 23

[a] Joint Liability
• Where liability of partners is joint and not all partners are joined, D’s can by proper objection prevent enforcement of judgment against them until all partners have been joined. Even though liability is joint, the individual partners are liable for entire obligation;

[b] Several Liability
• Where liability is several, individual partners can be sued without joined of the other parties who are also liable; and

[c] Joint and Several Liability
• Where the liability is joint and several, P may proceed by joining all partners and proceed severally against an individual partner

Front 24

[6] Effect of Judgment

Back 24

• Judgment against one joint debtor releases all other joint debtors from liability for obligation
• Where obligation is joint and several, judgment against one partner does not release other partners on their several obligations
• Recovery can only be had once!

Front 25

[N] Relations Between Partners

Back 25

[1] Profits and Loss
[2] Return of Capital
[3] Interest
[4] Indemnity
[5] Compensation for Services
[6] Management and Control
[7] Majority Rule
[8] New Partners – Consent of All
[9] Partnership Books
[10] Duty to Give Notice and Convey Knowledge
[11] Fiduciary Accountability

Front 26

[1] Profits and Loss

Back 26

• In absence of partnership agreement, partners share profits and losses equally
• If profits are shared other than equally, losses are shared on same basis

Front 27

[2] Return of Capital

Back 27

• Each partner must be repaid his capital following dissolution and payment of all creditors

Front 28

[3] Interest

Back 28

• Partner is entitled to interest on invested capital retained by partnership after the date its supposed to be returned to him
• Also entitled to interest on advances to partnership or payments in excess of contribution (partner treated as any other creditor)

Front 29

[4] Indemnity

Back 29

• Partner has right of indemnity from partnership for payments made and personal liability incurred in ordinary conduct of business

Front 30

[5] Compensation for Services

Back 30

• Partner generally has no right to compensation, other than his share of income (can agree otherwise)
• Partner is entitled to compensation for services in winding up partnership
• However, where 1 partner is left with management of business and other partners pursue other interests, managing partner is entitled to reasonable compensation

Front 31

[6] Management and Control

Back 31

• Every partner has equal right to manage, unless agreement says otherwise
• Each has equal right to control and possess partnership property

Front 32

[7] Majority Rule

Back 32

• Regarding conduct of ordinary business, action is by majority vote
• Where proposed action violates partnership agreement, must be unanimous

Front 33

[8] New Partners – Consent of All

Back 33

• New partner admitted to partnership only with consent of all partners (unless agreement says otherwise)

Front 34

[9] Partnership Books

Back 34

• UPA assumes accounts are maintained, requires that they be kept at principal place of business, and allows each partner reasonable access to review and copy books at all times

Front 35

[10] Duty to Give Notice and Convey Knowledge

Back 35

• Burden particularly heavy on managing partners
• Duty to disclose does not apply to info readily available to all partners (no duty where no demand from other partners)

Front 36

[11] Fiduciary Accountability

Back 36

• Partners must deal with each other in utmost trust, confidence, and good faith – and cannot make secret profits or obtain personal advantages from use of partnership property
• Doctrine of Equitable Tracing – partner holds as trustee any property or money received in violation of his fiduciary duty; partnership can claim this money and property

Front 37

[N] Accounting

Back 37

• Appropriate action by a partner for wrongs in partnership relationship is an “accounting”
• Detailed financial investigation and review of business transactions
• Can be made either on demand or periodically
• Instigated by partners or court order
• Failure to account is breach of contract
• Equitable action

Front 38

[O] Partner’s Property Rights

Back 38

[1] Rights in Specific Property
[2] Interest in the Partnership
[3] Right to Participate in Management

Front 39

[1] Rights in Specific Property

Back 39

• When partner dies, his interest in specific partnership property passes to surviving partners
• Property not subject to claims of heirs, etc.
• Each partner has equal possession of partnership property
• Cannot assign rights in specific partnership property absent agreement by all other parties
• Personal creditors of partner cannot attach on partner’s interest in partnership property

Front 40

[2] Interest in the Partnership

Back 40

• Partner’s right to receive and share profits and surplus
• Assignable – assignee entitled to share of profits and surplus, however no right to partnership property or management
• Charging Order – when creditor charge’s partner’s interest in firm toward payment of debt

Front 41

[3] Right to Participate in Management

Back 41

does