Agency & Partnership Flashcards
Summary
The partnership is bound on the contract for the purchase of the all-electric truck because Aldo, as a partner, acted as an agent for the partnership when apparently carrying on in the ordinary course the partnership’s business.
Thus, Carlos is liable for the unpaid balance of the purchase price of the all-electric truck because partners are personally liable for partnership obligations.
In addition, Aldo is entitled to be reimbursed by the partnership for the down payment on the truck he made on behalf of the partnership because he properly incurred this payment in the ordinary course of the partnership’s business.
Aldo is not entitled to be paid for the value of his services to the partnership because no agreement on compensation for services existed between him and the other partners.
The partnership is not bound on the sale of the land. Aldo had neither actual nor apparent authority to sell the land for the partnership. No actual authority existed because the sale was not in the ordinary course of the partnership’s business and was not approved unanimously by the partners. No apparent authority existed because the developer was aware that the transaction was not in the ordinary course of the partnership’s business and there is nothing to suggest that the partnership communicated to the developer that Aldo was authorized to make the sale.
Did Aldo, though he did not have the consent of the other partners, act as agent on behalf of the partnership when he purchased the all-electric garbage truck?
The partnership is bound on Aldo’s purchase of the all-electric garbage truck because he acted as agent of the partnership by apparently carrying on in the ordinary course the partnership’s business.
Rule
As a general rule, partners are agents of the partnership, and, as such, their acts (including entering into contracts) bind the partnership. See Revised Uniform Partnership Act (1997, as amended 2013) (RUPA) § 301(1); see also Uniform Partnership Act (1916) (UPA) § 9(1). Specifically, an act of a partner, including the signing of an instrument in the partnership name, for apparently carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership, binds the partnership, unless the partner did not have authority to act for the partnership in the particular matter and the person with whom the partner was dealing knew or had notice that the partner lacked authority.
Application
Here, Aldo purchased the all-electric garbage truck in the name of the partnership. Purchasing an all-electric garbage truck for a trash collection business that previously had been using only all-gas trucks is carrying on in the ordinary course the partnership’s business, given that all-electric garbage trucks are more fuel-efficient and have become common in the trash collection business. Further, the truck dealership had sold trucks to Aldo for the partnership on prior occasions and thus it could properly assume that the purchase of the all-electric garbage truck was for carrying on the ordinary business of the partnership and, absent notice to the contrary, that Aldo had authority to make the purchase.
As a result, even though Aldo purchased the all-electric garbage truck without the consent of the other partners, the partnership is bound on the purchase because he was apparently carrying on in the ordinary course the partnership business when he purchased the truck for the partnership.
Is Carlos liable for the partnership obligation to purchase the all-electric garbage truck and thus for part of the unpaid balance of the purchase price?
Carlos is liable for the unpaid balance of the purchase price of the all-electric garbage truck.
Rule
Partners are personally liable for the obligations of a general partnership. See RUPA § 306(a) (joint and several liability for partnership obligations); compare UPA § 15(b) (joint liability for partnership debts). [NOTE: Under RUPA, a judgment creditor must generally exhaust the partnership’s assets before enforcing a judgment against the separate assets of a partner. RUPA § 307(d).]
Application
Here, because the contract to purchase the all-electric truck is an enforceable obligation of the partnership (see Point One(a) above), Carlos is jointly and severally liable (under RUPA) and jointly liable (under UPA) with Aldo and Belinda for this partnership obligation.
Is Aldo, who made a down payment for the truck on behalf of the partnership, entitled to reimbursement from the partnership for this down payment?
Aldo is entitled to reimbursement from the partnership for the $30,000 down payment he made on the all-electric truck.
Rule
A partnership must reimburse a partner for any payment made by the partner in the course of the partner’s activities on behalf of the partnership. RUPA § 401(b) (provided the partner complied with his fiduciary duties in making the payment); UPA § 18(b) (requiring partnership to indemnify partner for payments in the ordinary and proper conduct of its business). Thus, a partner who fulfills his duties of loyalty and care in making a payment in the ordinary course of the partnership’s business is entitled to reimbursement from the partnership. See RUPA § 409(b)(1)(A) (duty of loyalty includes not deriving a personal benefit in the conduct of the partnership’s business), § 409(c) (duty of care includes not engaging in grossly negligent or reckless conduct).
Application
Here, Aldo made the $30,000 down payment from his own funds for the purchase of the all-electric truck in the ordinary course of the partnership business. See Point One(a). Further, there is nothing to indicate that Aldo gained any personal benefit in the transaction; nor is there any indication that he was grossly negligent or reckless in purchasing an all-electric truck, given that other trash collection businesses were using all-electric trucks because of their fuel efficiency. Thus, the partnership is obligated to repay Aldo for his down payment on the truck.
Is Aldo entitled to be paid for the value of all or part of his services to the partnership?
Aldo is not entitled to be paid for his services to the general partnership, because the partners did not have an express (or implied) agreement to provide such payments.
Rule
Generally, a partner is not entitled to separate remuneration for services on the theory that a partner’s compensation for his or her services is his or her share of profits. RUPA § 401(j); UPA § 18(f). Here, although Aldo claims that he spends almost twice as much time as his partners do in running the partnership, he is not entitled to be paid by the partnership for his services.
Nonetheless, there are two exceptions to the no-remuneration rule. First, in the case of a winding up of the partnership, a partner is entitled to reasonable compensation for services rendered in connection with winding up the business of the partnership. But this exception does not apply here.
Second, a partner is entitled to remuneration for his services when the partners agree to pay a partner for his or her efforts. RUPA § 105(a)(1) (“partnership agreement governs . . . relations among the partners”); UPA § 18 (“subject to any agreement between them”). Some courts have required that partners explicitly agree to remuneration. See Yoder v. Hooper, 695 P.2d 1182, 1186 (Colo. Ct. App. 1984) (“Absent an express agreement, no partner may take a salary for partnership business.”); In re Dewey & LeBoeuf LLP, 518 B.R. 766 (Bankr. S.D.N.Y. 2014). Other courts permit remuneration based on an implied agreement to compensate a partner.
Application
Here, there was no explicit agreement to compensate Aldo for his services. Nor are there facts to suggest that the partnership impliedly agreed to pay any remuneration to Aldo. Thus, Aldo is not entitled to any compensation for his services to the partnership.
Is the sales contract for the land, which was not within the partnership’s ordinary course of business and was not approved by all the partners, binding on the partnership?
Aldo acted without actual or apparent authority to sell the land to the developer. Thus, the partnership is not bound on the sales contract for the land.
Rule
As a general rule, matters outside the ordinary course of a partnership’s business must be unanimously approved by the partners. RUPA § 401(k); UPA § 18(h) (amending the partnership). Neither RUPA nor UPA define the types of extraordinary acts that require the consent of all partners.
Application
Here, neither the original purchase of the land nor the later contract to sell the land was in the partnership’s ordinary course of business. The land, which was zoned as residential only, had originally been purchased for investment. In addition, the land was located in State B, where the partnership did not engage in the trash collection business or any other business.
Because the sale of the land was not in the ordinary course of the partnership’s business and because it was not unanimously approved by the partners, Aldo’s actions did not bind the partnership. In other words, without the other partners’ consent, Aldo lacked actual authority to sell the land. RUPA § 301(2); UPA § 9(2).
In addition, there is nothing to indicate that Aldo had apparent authority to sell the land. First, the developer was aware of the partnership’s ordinary business (collecting trash) and that the land was not related to this business. Second, there is no indication that the partnership communicated to the developer that Aldo was empowered to make the sale. To the contrary, the developer knew that the partnership operated a trash collection business in State A and did no business in State B, where the land was located. This should have put the developer on notice that Aldo was acting alone and lacked the authority to engage in the transaction.
