Partnerships

Question 1

General definition

Answer 1

Association of 2 or more persons to carry on as co-owners in a business for profit. Not a legal entity.

Question 2

Formation: requisities

Answer 2

1. contract capacity: P who lacks capacity is only liable to extent of capital contribution
2. No formalities (can be express or implied). SOF only applicable for 1 year rule
3. Legality of purpose
4. Consent

Question 3

Proof of partnership existence

Answer 3

Express intent governs. If no express intent look to

1. Title to prop
2. designation of entity by parties
3. amount of activity
4. Sharing of gross returns
5. sharing of profits
6. Sharing of losses

Question 4

Prima facie evidence of partnership

Answer 4

Sharing of profits unless sharing is actually repayment of debt, payment of wages, rent, consideration for sale of goodwill of business

Question 5

Partnership by estoppel: Liability of person who holds himself out at partner

Answer 5

or allows another to do so = liable to 3rd parties who extend credit in reliance

Question 6

Partnership by estoppel: liability of person who holds another out as partner

Answer 6

Makes that person his agent to bind him to third parties

Question 7

Partnership property: capital vs property

Answer 7

Capital = $ contributed by partners for purpose of carrying on business
property = everything partnership owns including the capital

Question 8

What is included in partnership property?

Answer 8

No limits. Controlling factor is parties intent to devote property to partnership purposes

Question 9

Partner’s rights in partnership property

Answer 9

Partners own property as tenants in partnership

Question 10

Partner’s rights in partnership property: incidents of ownership

Answer 10

P’s have

1. right to possession for PS purposes
2. Not assignable, mortgageable, attachable or subject to any individual claims of the partners
3. Right of ownership vests in the surviving partner after death of another

Question 11

Partner’s interest in the partnership

Answer 11

P has interest in the PS (his share of profits and surplus). Treated as personal property. Assignable without dissolving PS and attachable.

Question 12

Relations between Partners: Fiduciary duty

Answer 12

Owe each other F duty. P can not gain for himself at the expenses of the PS

Question 13

Relations between Partners: Management rights

Answer 13

Equal rights in mgmt absent agreement

Question 14

Relations between Partners: distributions

Answer 14

Each partner shares equally in profits and surplus absent agreement

Question 15

Relations between Partners: losses

Answer 15

contribute to losses according to share of profits

Question 16

Relations between Partners: Renumeration

Answer 16

no general right of renumeration for services rendered to PS. Surviving partner has right to renumeration for winding up

Question 17

Relations between Partners: breach of agreement to work for PS

Answer 17

Where P has impliedly or expressly agreed to devote time to PS and fails to do so she may be charge in accounting for damages caused to PS

Question 18

Relations between Partners: idemnification

Answer 18

A PS must indemnify every partner fpr payments made and personal liabilities

Question 19

Relations between Partners: contribution

Answer 19

where one P has been required to pay more than his share of PS debt, he may require contribution for pro rata shares

Question 20

Can a partner sue another partner? Can a partner sue or be sued by the PS?

Answer 20

No. Exception where the subject of litigation does not involve a complex accounting or unrealted to the PS

Question 21

Application of agency law to partnerships

Answer 21

Every partner is an agent of the partnership for the purpose of its business. The act of every partner for apparently carrying on in the usual way of business will bind the PS and thereby bind the other partners.

Question 22

Actual authority: sources

Answer 22

PS agreement, majority or unanimous vote of partners

Question 23

Actual authority: when unanimous vote required

Answer 23

Unless agreement says otherwise, unanimous consent required to

• submit to arb
• assignment for benefit of creditors
• confession of judgment
• disposition of PS’s goodwill
• Generally, engage in business other than that contemplated by PS agreement

Question 24

Apparent authority: real property

Answer 24

If title held in PS name = title may be conveyed by any partner. if Partner lacked apparent or actual authority, PS may recover from transferee so long as not a BFP

If title in fewer of the Ps names = any of them can convey.

If title in name of all partners = only a conveyance by all named passes an equitable interest as well as legal title

Question 25

Apparent authority: Mortgages

Answer 25

same as real prop

Question 26

Apparent authority: leases

Answer 26

contract law.

Question 27

Apparent authority: Personal property

Answer 27

Contract laws govern

Question 28

Apparent authority binds PS

Answer 28

to any contract within the scope of PS business. If its outside the scope, PS is not bound unless they have actual authority

Question 29

When is knowledge imputed to the partnership

Answer 29

If P is a participant in the transaction = imputed if he acquired the information while a partner or if acquired before he became a partner, knowledge was present to his mind If P with information is not a participant = imputed if partner reasoable could and should have communicated it to the participating partner. Fraud is exception

Question 30

When is the partnership liable for the fraud of a partner on a 3rd party?

Answer 30

When Partner is acting within the scope of P business = PS is liable When not, no liability to PS

Question 31

When P seeks to defraud the PS in transaction with thrid party

Answer 31

if the 3rd party is aware of the fraud, PS is not liable.

Question 32

When is the PS liable for the P's breach of trust to third parties

Answer 32

IF P misapplies money or property of thrid parties received in the scope of his apparent authority or within the scope of his ordinary course of business

Question 33

What is a partner's liability?

Answer 33

Liable for contracts in the scope of the PS business or that are expressly authorized and tort liability of other partners and employees

Question 34

Nature of partner liability

Answer 34

Partners are jointly and severally liable for torts and breaches of trust and joint liability for all other debts and obligations

Question 35

Extent of Partner liability

Answer 35

personally and individually liable for the entire amount of PS obligations.

Question 36

Liability of incoming partners

Answer 36

liable for prior obligations only to the extent of her capital contribution

Question 37

Liability of retiring partners

Answer 37

liability of obligations incurred during his time as partner unless there has been payment, release or novation. Liable for acts after retirement unless notice is given

Question 38

Criminal liability

Answer 38

Partner not liable for the criminal acts of another partner taken in course of ordinary business unless an accessory after the fact etc.

Question 39

Dissolution by act of partners

Answer 39

happens pursuant to PS agreement mutual assent of all Ps Explusion of partner express will of one P

Question 40

Dissolution by operation of law

Answer 40

PS business becomes illegal P dies Bankruptcy of either P or the PS

Question 41

Dissolution by decree of equity court

Answer 41

On request of P and showing of - breach of PS agreement such that it is not practicable to go on - unprofitability - misconduct that prejudices the business - incompetnace - incapability

Question 42

How to terminate apparent authority after dissolution

Answer 42

Notice is required. Personal notice required to current and past creditors. Publication notice for others. Failure to give notice will result in partners being personally bound to third parties who extend credit to the PS

Question 43

Authority of Ps to transact business after dissolution

Answer 43

Dissolution terminates the authority of any P to act as agent for the either the PS or any other P. P does have authority to wind up.

Question 44

Order of PS liabilities being paid

Answer 44

1. outside creditors 2. Partner's advances 3. Partner's contribution to capital 4. surplus and profits

Question 45

Right to continue business after dissolution

Answer 45

Remaining Ps have right to continue the PS business after dissolution if -P dissolves the PS in contravention of the agreement -Partner is expelled -Partners agree to continue Creditors retain their rights as they were.