Commissioners’
Prefatory Note
The
need for uniform laws on partnerships as more and more interstate businesses sprouted
up. These businesses not only did
business in multiple states, but also had owners in multiple states. The commissioners also wanted to eliminate
much of the uncertainty and theoretical inconsistency in the cases from
different states. Finally, the committee
wanted to provide authoritative guidance on how partnerships were to lawfully run
their affairs, and how to properly end the partnership when the time comes.
Part
I. The Intro and the Outro
§ 2
– The relevant terms are defined pretty broadly.
§ 3
– (1) “Knowledge” is given a broad meaning with an additional bit that I’m a
little unsure of: a person has knowledge when “he has knowledge of such other
facts as in the circumstances shows bad faith.”
(2) “Notice” can be in person or by mail.
§ 4
– (1) Don’t use the common law anymore! This is the law now! We’re overhauling the common law! (2) Common law estoppel is still good (like
promissory estoppel...uh, them other kinds of estoppel too). (3) The law of agency is still good, so check
your Restatement. (4) When you interpret
these statutes, do it in a way so that they’ll be uniform! That’s the
point! (5) This act is prospective
only! We won’t screw up existing
arrangements.
§ 5
– If we don’t say anything about something, use the common law.
Part
II. Just what is a partnership?
§ 6
– (1) A partnership is:
1. an association
2. of two or more persons (and notice how person is defined in § 2: “individuals, partnerships, corporations,
and other associations”…a “person” could be another partnership! You could have partnerships of partnerships!)
3. to carry on as co-owners
4. a business (“every trade, occupation, or profession”)
5. for profit.
(2)
Caveat! If you become a partnership
under some other statute or some other authority other than
the enacting state, then you’re not a partnership as far as this act
goes. But, if you would have been a partnership before this act was
passed, then this act applies to you. And the act applies to limited
partnerships except where the statutes are inconsistent.
§ 7
– So does a partnership exist?
(1) If A and
B aren’t partners to each other, then they can’t both be partners to C, except
under § 16 below.
(2) Common law co-ownership type
stuff like joint tenancy, tenancy in common, tenancy by the entireties and so
on doesn’t automatically a partnership make.
(3) Sharing gross returns doesn’t make a partnership.
(4) But,
if you get a share of the profits, then that’s evidence you’re a partner,
unless:
a. The profits were going to
pay a debt.
b. The profits were paid as wages
or rent.
c. The profits were paid out to
a representative of a deceased partner as an annuity.
d. The profits were paid out as
interest on a loan.
e. The profits were paid as consideration
for the sale of a “good-will”…huh?
§ 8
– Just what belongs to the partnership?
(1) Everything the partnership
has when it’s formed and everything it buys on its own account thereafter is
considered partnership property.
(2) If you buy something with
the partnership’s money, it will belong to the partnership.
(3) The partnership can get real
estate, but it must be conveyed in the name of the partnership.
(4) We presume a fee simple
absolute will be granted to the partnership in a conveyance unless it says
otherwise.
Part
III. Doing deals with the partnership
§ 9
– When does the action of some partners bind the whole partnership?
(1) Every partner is an agent of
the partnership and can exercise agency power unless they’re otherwise not
allowed.
(2) But if a partner does
something that doesn’t seem consistent with carrying on the business of the partnership,
it’s not binding on the other partners unless they all agree.
(3) You need authorization from
all the partners to be able to do these things:
a. Put the partnership property
in trust to satisfy creditors
b. Dispose of the “good-will”
of the business…huh again? (Black’s
suggests that a business is more than just the sum of its assets, and “goodwill”
is that something on top of the raw ability of the “stuff” to make income over
time. This would include stuff like
reputation, prestige, and things like that.
c. Do something that would make
it impossible to carry on the business
d. Confess a judgment
e. Go into arbitration to
settle a claim or liability
(4) If a partner is restricted
from doing certain things, and makes a deal that they’re not supposed to with a
third party who knows better (i.e. that the deal can’t be any good for lack of
authority by that partner), then the deal doesn’t bind the other partners.
§
10 – Conveying real property!
(1) Any partner can convey title
to real estate. But, the partnership can get it back unless the whole partnership
is bound to the conveyance under § 9 or unless the real estate has subsequently
been conveyed to somebody else entirely who paid money for the real estate and who
had no idea that the partner didn’t have the authority to convey (sort of
protecting an innocent bystander).
(2) The equitable interest in
real estate can be transferred by any partner, except if the partnership isn’t
bound by § 9.
(3) Guh…if some of the partners own land, but it’s not clear, the partners can
get it back unless they’re bound by § 9 or there’s an “innocent bystander”.
(4) Same deal
as (2), except in this one…wait, what’s the difference? It says something about being held by a third
party in trust. But I don’t see how this
and (2) are different, and if they are, they seem inconsistent. I dunno.
(5) This one isn’t bad…if title
to property is in the names of all the partners and the conveyance is executed by all the partners then all the partners are
bound. If you really want to convey
stuff, this seems like the cleanest way to do it.
§
11 – When a partner admits stuff that has to do with the partnership, and it’s
within the scope of his authority, it becomes evidence that binds the whole
partnership. So watch out!
§
12 – Basically, what one partner knows, every partner is imputed to know.
§
13 – If one partner does something wrong, all the partners are liable.
§
14 – If one partner breaches a duty as a trustee for a third party, the whole partnership
is liable.
§
15 – The partners are liable jointly and severally for stuff under § 13 and §
14, but only jointly for everything else.
§
16 – If you act like a partner, and hold yourself out as someone in the
partnership (in public), and you make a deal with someone and they believe you rely
on your statements and then you screw them over, you and the people you claimed
to be your partners will be held liable by estoppel!
§
17 – When you’re a new partner, you can be held liable for debts and judgments
that arose before you became a partner, but you won’t be liable out of your own
property, but only out of the partnership’s property.
Part
IV. The relationship between the
partners
§
18 – Lots of stuff here. (a) Basically,
the partners must share and share alike in good times and in bad, whether there
be profits or losses. (b) If a partner
spends personal money to do the partnership’s business, the partnership
basically promises to pay that partner back.
(c) & (d) If the partner makes a loan to
the partnership, the partner must be paid back with interest. (e) All the partners get equal rights in
managing the partnership. (f) No partner
is entitled to get paid for what they do for the partnership. They just get a share of the profits. (g) No one can join the partnership unless
all the partners agree. (h) In ordinary
matters, it’s majority rules among the partners, but if there’s a previous
agreement among them, it can’t be violated without the consent of all the partners.
§
19 – You have to keep the books of the partnership at its place of business and
all the partners must be allowed to look at them.
§
20 – All the partners must freely share all information about the partnership
with other partners or their legal representatives.
§
21 – The partner has a fiduciary duty to the partnership to make sure the partnership
gets all the benefit from any use of any of its property. In other words, if an individual partner has
cash in hand from the partnership, it still belongs to the partnership.
§
22 – A partner can get a formal accounting of the partnership in three specific
cases and when justice otherwise requires.
(a) You can get an account if you’re wrongfully kicked out of the partnership. (b) You can get one by agreement (contractually). (c) You can get one by § 21. (d) And when justice requires it!
§
23 – If you originally established the partnership for a fixed period of time
or for a certain purpose, but then you keep acting like a partnership after
that time or after the completion of the project, then the partnership will
keep going under the same rules as a partnership at will, and the partnership
keeps going!
Part V. Just what does a partner own?
§
24 – A partner owns three things: (1) a share of the partnership’s specific property,
(2) a share of the partnership itself, and (3) the right to be a part of the
management of the partnership.
§
25 – A partner co-owns the specific partnership property as a tenant in partnership. Each partner can possess partnership property
for partnership use only. But with the
consent of all the other partners, any one partner can use partnership property
for other purposes. (I’m imagining if
the partnership owned a beachfront condo for entertaining clients, but one of
the partners wanted to use it in the offseason for
personal use. They could if all the partners
agreed to let them.) Individual partners
can’t assign their interest in the ownership of specific partnership property. You can’t attach or execute a partner’s right
in specific property. You can only
attach property as to the partnership as a whole. When a partner dies, the right to the
specific partnership property is divided up among the surviving partners. The partner’s right in specific partnership property
isn’t subject to various personal encumbrances.
§
26 – The second thing a partner owns, an interest in the partnership, is the
right to the profits and “surplus” of the partnership. This is considered personal property as
opposed to real property.
§
27 – The partner can convey their interest in the partnership and that doesn’t
dissolve the partnership. But the
partner can only convey the right to receive profits, not the right to
participate in management of the partnership.
If the partnership dissolves, the assignee can then get an account of
the partnership and whatever their interest is.
§
28 – An individual partner’s interest can be foreclosed upon. Something like
that. I think you can take their share
and receive their profits to satisfy a debt they owe. I don’t think this would affect the other partners.
Part
VI. Putting the bad boy to bed
§
29 – The definition of dissolution is broad and generally indicates a
continuing process rather than a discrete event. Whenever any of the partners stops doing partnership
business and switches into shutdown mode, then dissolution is going on.
§
30 – But…dissolution doesn’t terminate the partnership all at once! The partnership isn’t terminated until it’s
totally “wound up”.
§
31 – Lots of different things that cause dissolution, like (1)(a) the end of
the agreed upon term, (b) the will of any one partner when it’s a partnership
at will, (c) consent of all the partners, (d) if one of the partners gets
kicked out, (2) if the agreement between the partners is broken, (3) if
something makes it illegal to carry on with the partnership, (4) if any partner
dies, (5) if any partner or the partnership itself goes bankrupt, or (6) if a
court says so under § 32 below.
§
32 – A court can dissolve a partnership several ways upon the request of any of
the partners: (1)(a) if a partner is declared crazy, (b) a partner can’t
perform their part of the partnership agreement anymore, (c) a partner is guilt
of wrongdoing that hurts the business such that it can’t go on, (d) a partner
breaks the partnership agreement willfully, (e) the business would only be able
to go on at a loss, (f) whenever it’s just & fair. (2) Something!
§
40 – Lots of stuff about distribution of assets when the partnership goes
kaput!