Agency & Partnership Flashcards
Summary
Wendy and Mary are general partners in the Kibble partnership, but Angelo is only a creditor of Kibble. As a transferee of Mary’s right to receive profits in Kibble, Bob is legally entitled to Mary’s share of those profits. However, that assignment does not make Bob a partner. Therefore, Bob does not have a right to inspect the books and records of Kibble. Wendy is not entitled to use the delivery van on Sundays to take her nieces to their softball games.
What is the legal relationship among Wendy, Mary, and Angelo?
Wendy and Mary are partners in Kibble. Angelo is a creditor of Kibble.
Rule
A partnership is defined as “the association of two or more persons to carry on as co-owners a business for profit . . . whether or not the persons intend to form a partnership.” Uniform Partnership Act (UPA) (1997) § 202(a); see also UPA (1914) § 6(1). Here, a partnership was formed when Mary joined Wendy in running Kibble. Because the partnership was formed without the formalities required of other types of partnerships, it is a general partnership.
Application
Wendy and Mary each receive a share of the profits of Kibble, and each is therefore presumed to be a partner in the business. UPA (1997) § 202(c)(3); UPA (1914) § 7(4). This presumption is supported by the fact that Mary is to receive her share of the profits “for as long as Kibble [remains] in business,” and that Wendy and Mary each work in the business and participate in the business planning for Kibble. Further, Mary agreed to share in any losses that Kibble might suffer. Therefore, Wendy and Mary are partners in the Kibble partnership.
Angelo also receives a share of the profits of Kibble and therefore might also be presumed to be a partner in the partnership. However, this presumption does not apply where those profits are “received in payment of a debt by installment or otherwise.” UPA (1997) § 202(c)(3)(i); UPA (1914) § 7(4)(a). The statement on the memo line of Angelo’s check is evidence that Angelo loaned money to the partnership. Angelo is entitled to receive a share of the profits of Kibble only until his loan to Kibble (plus interest) is paid in full, and therefore he is not presumed to be a partner in the business. In addition, Angelo did not agree to share in any losses that Kibble might suffer. Further, Angelo does not play any role in the day-to-day operations of Kibble. Angelo is a creditor of Kibble but is not a partner in the partnership.
Is Bob entitled to Mary’s share of the monthly profits of Kibble?
As the transferee of a legally transferable interest in the partnership, Bob is legally entitled to receive distributions that Mary would otherwise have received.
Rule & Application
As a partner in the Kibble partnership (see Point One), Mary has a transferable interest in the profits and losses of the partnership and in her right to receive distributions. UPA (1997) § 502; UPA (1914) § 26. The transfer of that interest is permissible and creates in the transferee a right to receive distributions to which the transferor would otherwise be entitled. Here, Mary transferred her right to receive a share of the profits of Kibble to Bob when she assigned all her interest in Kibble to him. Therefore, Bob is legally entitled to receive Mary’s share of the profits of Kibble.
[NOTE: A partnership need not give effect to a transferee’s rights until it has notice of the transfer. UPA (1997) § 503(e). Here, the partnership had such notice because Mary gave Wendy a copy of the letter effecting the transfer. The transfer of a partner’s right to profits and losses and the right to receive distributions does not effect a termination or dissolution of the partnership.]
Is Bob entitled to inspect the books and records of Kibble?
Bob is not entitled to inspect the books and records of Kibble because he is not a partner in Kibble.
Rule & Application
As a partner in the Kibble partnership, Mary has a transferable interest in the partnership (see Point Two). That interest, however, is limited. For example, a transfer of the partnership interest does not make the transferee a partner unless the other partner or partners consent to making the transferee a partner. Here, such consent was not given because Wendy said, “I don’t want Bob involved with Kibble.” Therefore, Bob did not become a partner and is not entitled to access information concerning partnership transactions nor to inspect or copy the partnership books or records. UPA (1997) § 503(a)(3); UPA (1914) § 27(1).
Is Wendy entitled to use the delivery van on Sundays to take her nieces to their softball games?
The delivery van is partnership property, and Wendy is not entitled to use it on Sundays to take her nieces to their softball games.
Rule & Application
Property is partnership property if it is acquired in the name of the partnership. UPA (1997) § 204(a)(1); UPA (1914) § 8(1). Partnership property is property of the partnership and not of the partners individually. UPA (1997) § 203; UPA (1914) § 25(1). Though partners may use partnership property for partnership purposes, they may not use it for their own purposes. UPA (1997) § 401(g) (§ 401(i) in 2013 rev.); UPA (1914) § 25(2)(a). Here, the delivery van was purchased in the partnership’s name and, therefore, is partnership property and not Wendy’s individual property. The facts do not suggest that the partners agreed that Wendy could use the delivery van for her own purposes on Sundays, and, absent such an agreement, Wendy is not entitled to use it to take her nieces to their softball games even if the partnership is not using the van on Sundays.
[NOTE #1: Wendy’s use of the delivery van could be analyzed through the lens of fiduciary duty. It could be argued that Wendy has violated her duty of loyalty by using the van because it is partnership property. See, e.g., UPA (1997, revised 2013) § 409(b)(1)(B).]
[NOTE #2: The partnership was not dissolved when Mary transferred her interest to Bob. Under § 27 of the UPA (1914) and § 503 of the UPA (1997), the transfer of all or any part of a partner’s interest is not a dissolution of the partnership. Thus, Mary’s gift to her son Bob of her interest in the partnership does not dissolve the partnership.]
