Class 20 - Donald J. Kochan

Agency & Partnership
Professor Donald J. Kochan
Class 20
Today’s Materials
Partnership Operation
Pages 581-616
Partnership Generally
Why enter into a partnership?
Pooling of assets
 Pooling of Expertise
 Specialization Issues
 Liability Controls
 Third Part Confidence – Reputational
 Taxation and Bankrupty Issues
 Saleability/Alienability/Depersonalization
Types of Authority
What are the types of authority?
 Why do they matter?
 Who do they matter to?
 How do authority issues relate to the
incentives to create a partnership?
How is the Question related to Control or
the Surrender of the same?
 Know concepts on p. 581
Elle v. Babbitt
Implied Actual Authority Case
Authority created by acquiescence
Ordinary Course of Business
BUT, decisions to end the partnership, in
effect, require unanimity – i.e. not
ordinary course of business
Summers v. Dooley
Deadlock case – partners equally divided
UPA sec 18(e) and (h) (same principles as RUPA 401(j))
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
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.”
Consider the indemnification issues separately
National Biscuit Co. v. Stroud
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
Deadlock case
Unpaid creditor/partner objects to continued purchase of
Court interprets as – unless a majority OBJECTS,
ordinary matters may be conducted
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
Partners have apparent authority to conduct ordinary
business and carry on business in the usual way
“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
Note the parallels with apparent authority in agency
discussed on pp. 591-92
 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”
Being “necessary” is not an exception if it is unusual
Apparent Authority and
Burns v. Gonzalez
Burden is on the participating partner to prove what he
did was the usual way
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:
(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
(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.
(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:
(a) Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the
(b) Dispose of the goodwill of the business,
(c) Do any other act which would make it impossible to carry on the ordinary business of a partnership,
(d) Confess a judgment,
(e) Submit a partnership claim or liability to arbitration or reference.
(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
Understand RUPA 303 and the filing of a “statement of authority”
 Gives notice
 Can expand or restrict
 Provides greater clarity for otherwise uncertain situations
Understand the restrictive attitude taken regarding transfers of real
property discussed in note 2
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
RUPA case where partnership agreement LIMITS
authority but third partner never examines the
partnership agreement
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 knowledge
RNR Investments Limited Partnersghip v.
Peoples First Community Bank
“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
Post-dissolution behavior of former law partners
Case itself is difficult to follow and poorly written
Focus on UPA sec 16 -- text on page 604
Fact of dissolution was not readily knowable
Partnership by estoppel “should not be lightly invoke and
generally presents issues of fact . . .”
Here there was an apparent existing partnership and
investigation was sufficiently completed
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
Focus on the precise language of sec 16 to determine
issues of liability
How does consent to use of name fit in?
Holding out issues
Knowledge issues
Implied consent issues
Is There a Duty to Speak?
Must one act to correct impressions that he did not
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
Medical Malpractice case and name on
Note the focus on facts and degree
Use of name in the business alone too
“slender” to show consent even if use of
name is with person’s knowledge
Case seems to strongly favor actual
consent; more egregious facts lead some
courts to go other way
Brown v. Gerstein
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
Masonry building materials delivery case
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
Personal appearance issue distinguishes
case from Brown
Reliance Conundrum and
Brown & Bigelow v. Roy
License on a wall at office case
“public representation”
Court holds reliance NOT necessary to
prove if a holding out is made to the
But see Simonelli
Reisen Lumber &
Millwork Co. v. Simonelli – and
RUPA solves ambiguity
Construes UPA 16 as requiring reliance
Note 5 on page 616 – RUPA 308 makes
clear that reliance is necessary whether
the representation is public or private