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Agency _ Partnership.ppt


									Agency & Partnership
  Professor Donald J. Kochan

           Class 20
Today’s Materials

       n   Partnership Operation

               n   Pages 581-616
  Partnership Generally
 n   Why enter into a partnership?
            n  Pooling of assets
           n Pooling of Expertise

           n Specialization Issues

             n Liability Controls

  n Third Part Confidence – Reputational
     n Taxation and Bankrupty Issues

n Saleability/Alienability/Depersonalization
           Types of Authority
      n What are the types of authority?
            n Why do they matter?

           n Who do they matter to?

    n How do authority issues relate to the
       incentives to create a partnership?
n   How is the Question related to Control or
           the Surrender of the same?
          n Know concepts on p. 581
                 Elle v. Babbitt
n   Implied Actual Authority Case
    n   Authority created by acquiescence
n   Ordinary Course of Business
n   BUT, decisions to end the partnership, in
    effect, require unanimity – i.e. not
    ordinary course of business
             Summers v. Dooley
n   Deadlock case – partners equally divided
n   UPA sec 18(e) and (h) (same principles as RUPA 401(j))
n   UPA 18(h) – “Any difference arising as to ordinary
    matters connected to the partnership may be decided by
    a majority of the partners.” -- here have 2 partners and
    one objects -- focus on word “decided” which does not
    clearly state need a majority to act
n   Court interprets as Ordinary matters decision requires
    approval by majority of partners and ½ is not a majority
    – “If the partners are equally divided, those who forbid a
    change must have their way.”
n   Consider the indemnification issues separately
    National Biscuit Co. v. Stroud
n   Focus on first rule – generally, ABSENT restrictions in the
    partnership agreement, a partner has the power to bind
    the partnership in any matter legitimate to the business.
    Alternative phrasing re “ordinary” matters
n   Deadlock case
n   Unpaid creditor/partner objects to continued purchase of
n   Court interprets as – unless a majority OBJECTS,
    ordinary matters may be conducted
    n   Probably the better interpretation than Summers as it
        encourages business to continue in an orderly way AND
        objecting partner can seek dissolution
          Apparent Authority and
            Burns v. Gonzalez
n   Partners have apparent authority to conduct ordinary
    business and carry on business in the usual way
n   “Usual way” defined according to industry, customs,
    practices, etc. -- fact specific and context specific;
    reference to evidence of other firms in the same
    business is focused on by court
n   Note the parallels with apparent authority in agency
    discussed on pp. 591-92
     n In particular, “B is liable for the act of C if B has ‘held
       out’ to other persons that C is empowered to perform
       acts of that particular nature”
n   Being “necessary” is not an exception if it is unusual
          Apparent Authority and
            Burns v. Gonzalez
n   Burden is on the participating partner to prove what he
    did was the usual way

n   UPA sec 9(1): Usual Way is based on fact that every
    partner is the agent of the partnership for the purpose of
    its business
UPA sec 9:
n  (1) Every partner is an agent of the partnership for the purpose of its business, and
   the act of every partner, including the execution in the partnership name of any
   instrument, for apparently carrying on in the usual way the business of the
   partnership of which he is a member binds the partnership, unless the partner so
   acting has in fact no authority to act for the partnership in the particular matter, and
   the person with whom he is dealing has knowledge of the fact that he has no such
n   (2) An act of the partner which is not apparently for the carrying on of the business of the partnership in the usual way
    does not bind the partnership unless authorized by the other partners.

n   (3) Unless authorized by the other partners or unless they have abandoned the business, one or more but less than all
    the partners have no authority to:

n   (a) Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the

n   (b) Dispose of the goodwill of the business,

n   (c) Do any other act which would make it impossible to carry on the ordinary business of a partnership,

n   (d) Confess a judgment,

n   (e) Submit a partnership claim or liability to arbitration or reference.

n   (4) No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having
    knowledge of the restriction.
         Notes on Pages 594-596
n   Understand RUPA 303 and the filing of a “statement of authority”
     n Gives notice

     n Can expand or restrict

     n Provides greater clarity for otherwise uncertain situations

n   Understand the restrictive attitude taken regarding transfers of real
    property discussed in note 2

n   Understand UPA/RUPA word change and note 5 explaining no major
    difference in substantive rule between “usual way” and “ordinary
    RNR Investments Limited Partnersghip v.
        Peoples First Community Bank
n   RUPA case where partnership agreement LIMITS
    authority but third partner never examines the
    partnership agreement

n   Focuses on the knowledge and reliance point –
    reliance is reasonable under RUPA if 3 does not
    have actual knowledge of the lack of authority (UPA
    has just said “knowledge”); under RUPA, 3 may be
    put on notice of lack of authority but not have actual
    RNR Investments Limited Partnersghip v.
        Peoples First Community Bank
n   “the determination of whether a partner is acting with authority to bind the partnership involves a
    two-step analysis. The first step is to determine whether the partner purporting to bind the
    partnership apparently is carrying on the partnership business in the usual way or a business of
    the kind carried on by the partnership. An affirmative answer on this step ends the inquiry, unless
    it is shown that the person with whom the partner is dealing actually knew or had received a
    notification that the partner lacked authority. See Kristerin Dev. Co. v. Granson Inv., 394 N.W.2d
    325, 330 (Iowa 1986)(applying Iowa version of UPA). Here, it is undisputed that, in entering into
    the loan, the general partner was carrying on the business of RNR in the usual way. The
    dispositive question in this appeal is whether there are issues of material fact as to whether the
    Bank had actual knowledge or notice of restrictions on the general partner's authority.

    [7] RNR argues that, as a result of the restrictions on the general partner's authority in the
    partnership agreement, the Bank had constructive knowledge of the restrictions and was
    obligated to inquire as to the general partner's specific authority to bind RNR in the construction
    loan. We cannot agree. Under section 620.8301, the Bank could rely on the general partner's
    apparent authority, unless it had actual knowledge or notice of restrictions on that authority. “
Partner Liability by Estoppel and
   Royal Bank v. Weintraub
n   Post-dissolution behavior of former law partners
n   Case itself is difficult to follow and poorly written
n   Focus on UPA sec 16 -- text on page 604
n   Fact of dissolution was not readily knowable
n   Partnership by estoppel “should not be lightly invoke and
    generally presents issues of fact . . .”
n   Here there was an apparent existing partnership and
    investigation was sufficiently completed
n   In light of notes following, think about risks of continued
    holding out and other behavior that supports false public
    impressions or fails to correct such false impressions
            Bardon Hypothetical
n   Focus on the precise language of sec 16 to determine
    issues of liability

n   How does consent to use of name fit in?

n   Holding out issues

n   Knowledge issues

n   Implied consent issues
      Is There a Duty to Speak?
n   Must one act to correct impressions that he did not

n   See Official Comment to UPA 16 on page 605: “It
    has been held that a person is liable if he has been
    held out as a partner and knows that he is being
    held out, unless he prevents such holding out, even
    if to do so he has to take legal action . . . On the
    other hand, the weight of authority is to the effect
    that to be held out as a partner he must consent to
    the holding and that consent is a matter of fact.”
           Brown v. Gerstein
n   Medical Malpractice case and name on
n   Note the focus on facts and degree
n   Use of name in the business alone too
    “slender” to show consent even if use of
    name is with person’s knowledge
n   Case seems to strongly favor actual
    consent; more egregious facts lead some
    courts to go other way
               Brown v. Gerstein
n   See general estoppel elements on p. 607
         “to prevail under this doctrine a plaintiff must prove:
    (1) that the would-be partner has held himself out as a
    partner; (2) that such holding out was done by the
    defendant directly or with his consent; (3) that the
    plaintiff had knowledge of such holding out; and (4) that
    the plaintiff relied on the ostensible partnership to his
    prejudice. Ibid. See also Reuschlein & Gregory, Agency
    and Partnership § 198 (1979); Crane & Bromberg,
    Partnership § 36 (1968); Rowley on Partnership 423-436
    (2d ed. 1960); Painter, Partnership by Estoppel, 16
    Vand.L.Rev. 327 (1963). Failure to establish any of these
    requirements precludes recovery on an estoppel theory.”
    J&J Builders Supply v. Caffin
n   Masonry building materials delivery case
n   Looking at facts here, court decides
    Failure to deny statements, coupled with
    later admission that he had held himself
    out as a partner (plus but not necessary
    factor), sufficient to establish liability
    under UPA sec 16
n   Personal appearance issue distinguishes
    case from Brown
      Reliance Conundrum and
      Brown & Bigelow v. Roy
n   License on a wall at office case
n   “public representation”
n   Court holds reliance NOT necessary to
    prove if a holding out is made to the
n   But see Simonelli
           Reisen Lumber &
    Millwork Co. v. Simonelli – and
        RUPA solves ambiguity
n   Construes UPA 16 as requiring reliance

n   Note 5 on page 616 – RUPA 308 makes
    clear that reliance is necessary whether
    the representation is public or private

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