Agency & PartnershipAgency & PartnershipProfessor Donald J. KochanProfessor Donald J. Kochan

Class 24-25Class 24-25

Class MaterialsClass Materials

Pages 725-754;Pages 725-754;755-769; 772; 778; 782; 784-807755-769; 772; 778; 782; 784-807

Dissociation and DissolutionDissociation and Dissolution

Introduction to Introduction to Dissociation and DissolutionDissociation and Dissolution

DissolutionDissolution As a rightAs a right As leverage (undue/abuse?)As leverage (undue/abuse?) As fairness doctrine (used to justify emergence As fairness doctrine (used to justify emergence

of other seemingly unfair rules (deadlock rules of other seemingly unfair rules (deadlock rules for example)for example)

Freedom of Contract, Movement, and ExitFreedom of Contract, Movement, and Exit Efficiencies v. Inefficiencies of Automatic NatureEfficiencies v. Inefficiencies of Automatic Nature

Transaction Costs Associated with Continuing Transaction Costs Associated with Continuing Business or Reestablishing PartnershipBusiness or Reestablishing Partnership

Introduction to Introduction to Dissociation and DissolutionDissociation and Dissolution

Read carefully pages 725-726 and read the statutory provisions Read carefully pages 725-726 and read the statutory provisions citedcited

Dissolution -- UPA sec 29Dissolution -- UPA sec 29 UPA sec 38(1) – sets stage for termination of business and UPA sec 38(1) – sets stage for termination of business and

recognizes it as a default rule where partners can agree recognizes it as a default rule where partners can agree otherwise both pre- and post- dissolutionotherwise both pre- and post- dissolution

UPA 41 & 42 – dealing with rights and liabilities when business UPA 41 & 42 – dealing with rights and liabilities when business is continuedis continued

Dissociation and Dissolution under RUPA articles 6, 7 and 8Dissociation and Dissolution under RUPA articles 6, 7 and 8 RUPA introduces concept of dissociation; some dissociations RUPA introduces concept of dissociation; some dissociations

automatically become dissolutions and some dissociations do automatically become dissolutions and some dissociations do not; understand triggering events in Art 6, standards for not; understand triggering events in Art 6, standards for buyouts (default rules) in Art 7 and process of dissolution and buyouts (default rules) in Art 7 and process of dissolution and winding up in Art 8winding up in Art 8

Liquidation Rights under UPA 38(1) and RUPA 807(b)Liquidation Rights under UPA 38(1) and RUPA 807(b)

Driefuerst v. DriefuerstDriefuerst v. Driefuerst Strong statement of liquidation rights under UPA – strong doctrinal Strong statement of liquidation rights under UPA – strong doctrinal

casecase Important fact – no written articles of partnership govern hereImportant fact – no written articles of partnership govern here Cash preferred ruleCash preferred rule Sale of Assets rather than Valuation is NormSale of Assets rather than Valuation is Norm Understand the definition of “at will” – “A partnership at will is a Understand the definition of “at will” – “A partnership at will is a

partnership which has no definite term or particular undertaking partnership which has no definite term or particular undertaking and can rightfully be dissolved by the express will of any partner.”and can rightfully be dissolved by the express will of any partner.”

Shows statutory power of one partner to force a sale of the Shows statutory power of one partner to force a sale of the businessbusiness A) absent agreement otherwise; orA) absent agreement otherwise; or B) absent an exceptional appeal to equity (very narrow option) – B) absent an exceptional appeal to equity (very narrow option) –

RinkeRinke case and case and Nicholas v. Hunt Nicholas v. Hunt (Note 1); see also notes 2-3 (Note 1); see also notes 2-3 showing judicial exceptions to liquidation sale rare yet suject of showing judicial exceptions to liquidation sale rare yet suject of splits in courtssplits in courts

UPA 38(1)UPA 38(1)

““When dissolution is caused in any way, When dissolution is caused in any way, except in contravention of the partnership except in contravention of the partnership agreement, each partner, as against his co-agreement, each partner, as against his co-partners and all persons claiming through partners and all persons claiming through them in respect to their interests in the them in respect to their interests in the partnership, unless otherwise agreed, may partnership, unless otherwise agreed, may have the partnership property applied to have the partnership property applied to discharges its liabilities, and the surplus discharges its liabilities, and the surplus applied to pay in cash the net amount applied to pay in cash the net amount owing to the respective partners.”owing to the respective partners.”

UPA Causes of DissolutionUPA Causes of Dissolution

Sections 31 and 32Sections 31 and 32 1) No violation of agreement but 1) No violation of agreement but

predetermined termination time predetermined termination time certain or at will “if no term is agreed certain or at will “if no term is agreed upon”upon”

2) Violation of Partnership Agreement2) Violation of Partnership Agreement 3) Other circumstances (including 3) Other circumstances (including

court decree)court decree)

Girard Bank v. HaleyGirard Bank v. Haley Issue of when did dissolution occur (at the time of the letter or at Issue of when did dissolution occur (at the time of the letter or at

the time of death)?the time of death)? Why and to whom did it matter?Why and to whom did it matter?

Issue of whether there must be grounds stated to effect Issue of whether there must be grounds stated to effect dissolutiondissolution Answer: NoAnswer: No

Right to dissolve pursuant to UPA 31(1)(b) is not qualified; a Right to dissolve pursuant to UPA 31(1)(b) is not qualified; a partner in a partnership at will can dissolve the firm at any partner in a partnership at will can dissolve the firm at any time and in any arbitrary manner, without regard to the time and in any arbitrary manner, without regard to the harm it will cause his fellow partners; can dissolve for a harm it will cause his fellow partners; can dissolve for a good reason, a bad reason, or no reason at all; need not be good reason, a bad reason, or no reason at all; need not be a justification (good or bad) and a dissolution with no a justification (good or bad) and a dissolution with no justification offered is still a dissolutionjustification offered is still a dissolution

Note that can protect selves from arbitrary termination by Note that can protect selves from arbitrary termination by agreeing to a term, where any partner would still have the agreeing to a term, where any partner would still have the “power” to dissolve for any reason but could still be liable for “power” to dissolve for any reason but could still be liable for damagesdamages

Page v. PagePage v. Page California Case -- 1961California Case -- 1961 Declaratory Judgment Action – what is that and why does plaintiff want it?Declaratory Judgment Action – what is that and why does plaintiff want it? Reversed trial court holding that a term was created, seeming to take a Reversed trial court holding that a term was created, seeming to take a

more restrictive view of court’s power to “imply” a termmore restrictive view of court’s power to “imply” a term Here, “profitability could not be a term, where profitability is a mere “hope” Here, “profitability could not be a term, where profitability is a mere “hope”

common to all ventures and not enough to convert it to a term from at willcommon to all ventures and not enough to convert it to a term from at will Demonstrates policy debate over rules favoring dissolution versus rules Demonstrates policy debate over rules favoring dissolution versus rules

favoring continuation of the businessfavoring continuation of the business On one hand, partners should not be trappedOn one hand, partners should not be trapped On other hand, partners who want to continue should not be forced to On other hand, partners who want to continue should not be forced to

sellsell This case favors freedom of action and free movement of capital – This case favors freedom of action and free movement of capital –

demanding evidentiary requirement should exist before applying a termdemanding evidentiary requirement should exist before applying a term Of course, demonstrates why express provisions, which will be Of course, demonstrates why express provisions, which will be

respected by the courts, are so important if a term is what you wantrespected by the courts, are so important if a term is what you want

Page v. Page (cont.)Page v. Page (cont.) Also explains concept of “wrongful Also explains concept of “wrongful

dissolution”, noting that fiduciary duties dissolution”, noting that fiduciary duties exist on the exercise of the right to dissolve exist on the exercise of the right to dissolve a partnership at will, and one cannot “freeze a partnership at will, and one cannot “freeze out” another partner in order to appropriate out” another partner in order to appropriate partnership assets for himself – UPA 38(2) partnership assets for himself – UPA 38(2) and a good faith duty as the basisand a good faith duty as the basis Of course, note the good faith is measures Of course, note the good faith is measures

NOT by the cause for the termination but NOT by the cause for the termination but the adequacy of the compensation to the the adequacy of the compensation to the partner being frozen outpartner being frozen out

Dissolution by JudiciaryDissolution by Judiciary

Read the notes on pages 743-44, especially Read the notes on pages 743-44, especially that judicial intervention should be rare and that judicial intervention should be rare and is available in very limited circumstancesis available in very limited circumstances

Read notes 2-4 regarding buyouts and Read notes 2-4 regarding buyouts and changes in RUPA as means of resolution in changes in RUPA as means of resolution in situations of partnership disagreementssituations of partnership disagreements

““Equity is not a referee of partnership Equity is not a referee of partnership quarrels”quarrels” BUT intervention is necessary at times – BUT intervention is necessary at times –

see note 1see note 1

Potter v. BrownPotter v. Brown Wrongful Misconduct CaseWrongful Misconduct Case Focuses on standard whether the Focuses on standard whether the

misconduct affected “misconduct affected “prejudiciallyprejudicially the the carrying on of the business”carrying on of the business”

Here, profits increased – so what Here, profits increased – so what consequence?consequence?

Court rejects profitability or non-profitability Court rejects profitability or non-profitability as the measure for whether misconduct as the measure for whether misconduct occurredoccurred

Ultimately, this case turns on facts of non-Ultimately, this case turns on facts of non-materialitymateriality

Horizon/CMS Healthcare Corp. v. Horizon/CMS Healthcare Corp. v. Southern Oaks Health Care, Inc.Southern Oaks Health Care, Inc.

Nursing Home Facilities contract caseRead for Nursing Home Facilities contract caseRead for purposes of understanding changes made in purposes of understanding changes made in RUPARUPA

3 bases for decision3 bases for decision Factual finding of irreconcilable differencesFactual finding of irreconcilable differences Court decree of dissolution, and RUPA does Court decree of dissolution, and RUPA does

not make dissociation a condition precedent not make dissociation a condition precedent to dossiolutionto dossiolution

RUPA eliminates “wrongful dissolution”, RUPA eliminates “wrongful dissolution”, although it provides for damages (which although it provides for damages (which was not the action here)was not the action here)

Notice of Dissolution and Termination of Notice of Dissolution and Termination of Authority Among PartnersAuthority Among Partners

Read carefully notes on pages 750-751 and know Read carefully notes on pages 750-751 and know provisions cited thereinprovisions cited therein

UPA 33 – dissolution “terminates UPA 33 – dissolution “terminates allall authority of authority of anyany partner to act for the partnership” except “so partner to act for the partnership” except “so far as may be necessary to wind up partnership far as may be necessary to wind up partnership affairs or to complete transactions begun but not affairs or to complete transactions begun but not then finished.” (emphasis added)then finished.” (emphasis added)

Understand distinctions in UPA 33 and 34 Understand distinctions in UPA 33 and 34 regarding treatment depending on cause of regarding treatment depending on cause of dissolution (act v. bankruptcy or death)dissolution (act v. bankruptcy or death)

UPA 35 – effects of dissolution on third parties – UPA 35 – effects of dissolution on third parties – read note and sectionread note and section

Notice of Dissolution and Termination of Notice of Dissolution and Termination of Authority Among PartnersAuthority Among Partners

Read carefully notes on pages 750-751 and know provisions cited thereinRead carefully notes on pages 750-751 and know provisions cited therein RUPA sec 806 – read note and sectionRUPA sec 806 – read note and section

Does not distinguish between kinds of dissolution, unlike UPADoes not distinguish between kinds of dissolution, unlike UPA Contribution provisions for post-dissolution liabilities incurredContribution provisions for post-dissolution liabilities incurred Appropriate/Inappropriate Acts towqrd winding up Appropriate/Inappropriate Acts towqrd winding up

Dissociation distinctDissociation distinct RUPA secs 703 and 704RUPA secs 703 and 704 Notice limits liabilityNotice limits liability Statement of dissociation gives constructive notice 90 days after filingStatement of dissociation gives constructive notice 90 days after filing 2 year statute of limitations for exposure to liability even if no notice2 year statute of limitations for exposure to liability even if no notice Dissolution has similar provisions in Article 8Dissolution has similar provisions in Article 8

Notice covered in RUPA 804 and 805Notice covered in RUPA 804 and 805 Actual or regular constructive notice generally still appliesActual or regular constructive notice generally still applies But also, Statement of Dissolution filing – constructive notice 90 days But also, Statement of Dissolution filing – constructive notice 90 days

after filingafter filing Conclusively limits apparent authority thereafterConclusively limits apparent authority thereafter

Warner v. ModanoWarner v. Modano Trade accounts for goods sold and delivered; supermarket caseTrade accounts for goods sold and delivered; supermarket case Mortgage security caseMortgage security case Dual role issuesDual role issues First 2 claims: Use of UPA sec 15(b) – knowledge of a partner not First 2 claims: Use of UPA sec 15(b) – knowledge of a partner not

necessary so long as it is an ongoing business at the time of the necessary so long as it is an ongoing business at the time of the extension of credit. Liability rests on statutory grounds as a extension of credit. Liability rests on statutory grounds as a partner for a partnership obligation not on third-party partner for a partnership obligation not on third-party expectationsexpectations

Last 4 claims: Sec 15 c/n apply because dissolvedLast 4 claims: Sec 15 c/n apply because dissolved Court applies standard of reasonableness to determine Court applies standard of reasonableness to determine

whether Beale was sufficiently known or active as a partnerwhether Beale was sufficiently known or active as a partner Liability, if at all, rested on failure to give noticeLiability, if at all, rested on failure to give notice Court in dicta notes that knowledge of a “partnership” Court in dicta notes that knowledge of a “partnership”

probably not necessary if there is knowledge of a “business” probably not necessary if there is knowledge of a “business” and the requisite player was activeand the requisite player was active

Note on page 754Note on page 754

Read the note carefully regarding Read the note carefully regarding your counsel and advisor roleyour counsel and advisor role

Cannot stress enough that taking Cannot stress enough that taking responsibility to provide actual notice responsibility to provide actual notice is always the wise counsel in affairs is always the wise counsel in affairs like dissolution; providing notice like dissolution; providing notice always helps to insulate one from always helps to insulate one from liabilities, reduce disputes, and liabilities, reduce disputes, and provide clarity to the marketprovide clarity to the market

Continuing the BusinessContinuing the Business

When and How?When and How?

Consider the benefits of continuing Consider the benefits of continuing and the downsides – who gains and and the downsides – who gains and who sufferswho suffers

Consider not just the partners but also Consider not just the partners but also the market and consumers and third the market and consumers and third parties in relationshipsparties in relationships

Buy-Sell AgreementsBuy-Sell Agreements

Buy sell agreements generally provide Buy sell agreements generally provide for the remaining partner or partners for the remaining partner or partners to buy out the interest of a partner to buy out the interest of a partner who has died or left the firmwho has died or left the firm

Specifically enforceable and not Specifically enforceable and not testamentarytestamentary

Valuable Planning tool – evaluation Valuable Planning tool – evaluation decisions made while parties neutraldecisions made while parties neutral

Avoids exercising liquidationAvoids exercising liquidation

Seattle-First National Bank v. Seattle-First National Bank v. MarshallMarshall

Basic Buy-sell agreements caseBasic Buy-sell agreements case Read to understand basic form, function, Read to understand basic form, function,

and enforceabilityand enforceability Generally the sale governed by the Generally the sale governed by the

partnership agreement not some other partnership agreement not some other standard even if it does not seem to be standard even if it does not seem to be the optimal valuation method; courts will the optimal valuation method; courts will generally not interfere with the agreementgenerally not interfere with the agreement

See note following for thoughts on See note following for thoughts on structuring these agreements structuring these agreements

Continuation Clauses and Continuation Clauses and Hunter v. StraubeHunter v. Straube

3 man medical/radiologist partnership case3 man medical/radiologist partnership case Basically one has a right to dissolve but the manner of Basically one has a right to dissolve but the manner of

distribution can be reasonably governed by contract and distribution can be reasonably governed by contract and that can include a continuation provisionthat can include a continuation provision

Express provision in partnership agreement controls Express provision in partnership agreement controls where retirement does not dissolvewhere retirement does not dissolve

Agreement’s call for distribution of the partnership Agreement’s call for distribution of the partnership propertyproperty

Only way per the agreement to withdraw was with notice Only way per the agreement to withdraw was with notice that here was insufficientthat here was insufficient

Cannot file suit and divest a partner of a right to Cannot file suit and divest a partner of a right to continue the partnership business that is provided in the continue the partnership business that is provided in the partnership agreementpartnership agreement

Liability of an Incoming PartnerLiability of an Incoming Partner

UPA secs 17 and 41(7); RUPA sec 306(b) – UPA secs 17 and 41(7); RUPA sec 306(b) – incoming partner is liable for existing debts incoming partner is liable for existing debts of the business but such liability “shall be of the business but such liability “shall be satisfied only out of partnership property.”satisfied only out of partnership property.”

BUT note that incoming partner who then BUT note that incoming partner who then shares the benefits of a pre-existing shares the benefits of a pre-existing contract after joining can be personally contract after joining can be personally liable for obligations under those contracts liable for obligations under those contracts – courts split on this “executory portion” – courts split on this “executory portion” issue (see note on pages 761-762)issue (see note on pages 761-762)

Liability of a Withdrawing Liability of a Withdrawing PartnerPartner

Often continuesOften continues See UPA 36(1)-(3) and RUPA 703See UPA 36(1)-(3) and RUPA 703 Based on idea that 3 is not a party to Based on idea that 3 is not a party to

agreements between partnersagreements between partners Consider the casesConsider the cases

Redman v. WaltersRedman v. Walters

Known to be a case that incentivized LLP Known to be a case that incentivized LLP legislationlegislation

An attorney who leaves a partnership, having An attorney who leaves a partnership, having never met the aggrieved client of the firm, can never met the aggrieved client of the firm, can be exposed to vicarious liability years later for be exposed to vicarious liability years later for the negligence of another partner of the firmthe negligence of another partner of the firm He was vicariously liable when the case He was vicariously liable when the case

came to the firm, so remains so after his came to the firm, so remains so after his departuredeparture

Why? Right legal result but bad policy? How Why? Right legal result but bad policy? How could this have been avoided?could this have been avoided?

Munn v. ScaleraMunn v. Scalera Construction contract case; completion of project post-dissolution Construction contract case; completion of project post-dissolution

issuesissues UPA sec 36(3) – (1) “dissolution of a partnership does not of itself UPA sec 36(3) – (1) “dissolution of a partnership does not of itself

discharge the existing liability of a partner,” and (3) “Where a person discharge the existing liability of a partner,” and (3) “Where a person agrees to assume the existing obligations of a dissolved partnership, agrees to assume the existing obligations of a dissolved partnership, the partners whose obligations have been assumed shall be discharged the partners whose obligations have been assumed shall be discharged from any liability to any creditor of the partnership who, knowing of the from any liability to any creditor of the partnership who, knowing of the agreement, consents to a material alteration in the nature or time of agreement, consents to a material alteration in the nature or time of payment of such obligations.”payment of such obligations.”

““Principal of Surety”Principal of Surety” Look closely at behavior to determine when and if consent given – here Look closely at behavior to determine when and if consent given – here

double payment issuedouble payment issue Note that facts of election to have house completed by one was not Note that facts of election to have house completed by one was not

enough to equal consent to dischargeenough to equal consent to discharge A point to be taken from the trial court’s decision is that just because A point to be taken from the trial court’s decision is that just because

you resolve a partnership issue does not mean there are not other you resolve a partnership issue does not mean there are not other legal theories for these types of cases in other doctrines of lawlegal theories for these types of cases in other doctrines of law

Creditor’s ClaimsCreditor’s Claims

““Any change in personnel dissolved a Any change in personnel dissolved a partnership at common law, just as it partnership at common law, just as it does today under the UPA.”does today under the UPA.” If business continued:If business continued:

At common law, creditors had no claim against new At common law, creditors had no claim against new partnershippartnership

Page 772 Note 3: RUPA – dissolution Page 772 Note 3: RUPA – dissolution not automatic and sec 703 covers not automatic and sec 703 covers successor liability; entity theory successor liability; entity theory resolves complexities of UPA hereresolves complexities of UPA here

Rights of a Retired or Dissociated Partner or the Rights of a Retired or Dissociated Partner or the Estate of a Deceased Partner when the Business Estate of a Deceased Partner when the Business

ContinuesContinues

Presents unique problemsPresents unique problems For time purposes we will not discuss For time purposes we will not discuss

beyond recognition of tensions between beyond recognition of tensions between estate law and partnership lawestate law and partnership law

Just read Note 6 on p. 782 – RUPA 701 Just read Note 6 on p. 782 – RUPA 701 and commentsand comments

Good WillGood Will Understand the methods of valuationUnderstand the methods of valuation Understand the definitions of what constitutes good willUnderstand the definitions of what constitutes good will

Tangibles and IntangiblesTangibles and Intangibles P. 784 Bromberg & Ribstein:P. 784 Bromberg & Ribstein:

““Goodwill has a variety of meanings but is generally used in Goodwill has a variety of meanings but is generally used in partnership cases to refer to the going concern value of the partnership cases to refer to the going concern value of the business, as opposed to the breakup or liquidation value of business, as opposed to the breakup or liquidation value of its separate assets. This going concern value is almost its separate assets. This going concern value is almost always related in some way to profitability . . . Giidwill in this always related in some way to profitability . . . Giidwill in this sense includes favorable relationships with customers, sense includes favorable relationships with customers, employment relationships, credit rating, and other aspects of employment relationships, credit rating, and other aspects of relationships with suppliers, the value of an assembled relationships with suppliers, the value of an assembled organization of property, equipment, and personnel, and organization of property, equipment, and personnel, and such relatively objective components as trade name and such relatively objective components as trade name and customer records.”customer records.”

Dawson v. White & CaseDawson v. White & Case

Reflects trend in recognizing good Reflects trend in recognizing good will for law firms and other will for law firms and other professional businessesprofessional businesses

Case limited to specific facts of case Case limited to specific facts of case where partnership expressly where partnership expressly excluded good will as an asset of the excluded good will as an asset of the firmfirm

Winding Up; Liquidation; Winding Up; Liquidation; Terminating the BusinessTerminating the Business

UPA secs 29 and 37; and RUPA 803: UPA secs 29 and 37; and RUPA 803: ““In this act dissolution designates the point in time when the In this act dissolution designates the point in time when the

partners cease to carry on the business together; termination is the partners cease to carry on the business together; termination is the point in time when all the partnership affairs are wound up; point in time when all the partnership affairs are wound up; winding up, the process of settling partnership affairs after winding up, the process of settling partnership affairs after dissolutions.” Section 37 of UPA focuses on the right to wind up, dissolutions.” Section 37 of UPA focuses on the right to wind up, stating that, subjects to agreement, “the partners who have not stating that, subjects to agreement, “the partners who have not wrongfully dissolved” have the right to wind up, “provided, wrongfully dissolved” have the right to wind up, “provided, however, that any partner, his legal representative or his assignee, however, that any partner, his legal representative or his assignee, upon cause shown, may obtain winding up by the court.” upon cause shown, may obtain winding up by the court.”

Section 803 of RUPA is the counterpart to 37. It defines the right to Section 803 of RUPA is the counterpart to 37. It defines the right to wind up in similar terms, except that it adds a provision delineating wind up in similar terms, except that it adds a provision delineating some of the rights of the person winding up the business. some of the rights of the person winding up the business.

Liquidation and Winding UpLiquidation and Winding Up Liquidation. Liquidation. Beals v. Superior Welding Co.Beals v. Superior Welding Co., , 653 N.E.2d 653 N.E.2d

430, 438 (III. App. 1995), states the following with regard to 430, 438 (III. App. 1995), states the following with regard to liquidation: liquidation:

Plaintiff presents no authority to support her claim that the Plaintiff presents no authority to support her claim that the partnership of Hall and Schwartz was no “liquidated” within partnership of Hall and Schwartz was no “liquidated” within the meaning of section 41 [of UPA]. The term “liquidation” the meaning of section 41 [of UPA]. The term “liquidation” is not defined in “winding up” of partnership affairs is not defined in “winding up” of partnership affairs referenced in section 29 and 37 of the Partnership referenced in section 29 and 37 of the Partnership Act….Schwartz purchased Hall’s interest in the firm, Act….Schwartz purchased Hall’s interest in the firm, notified clients and the public of the dissolution, notified clients and the public of the dissolution, acknowledged the completion of all projects and receipt of acknowledged the completion of all projects and receipt of all accounts receivable, and agreed not to transact any all accounts receivable, and agreed not to transact any business on behalf of the former partnership when he business on behalf of the former partnership when he commenced business as a proprietorship. Under these commenced business as a proprietorship. Under these facts, nothing more was required to wind up or liquidate facts, nothing more was required to wind up or liquidate the partnership. the partnership.

Resnick v. KaplanResnick v. Kaplan

Duty of a partner after dissolution to finish the Duty of a partner after dissolution to finish the business that existed at the tim eof the dissolutionbusiness that existed at the tim eof the dissolution In the absence of agreement, the partner is In the absence of agreement, the partner is

required to perform the contracts without required to perform the contracts without additional compensation but continues to receive additional compensation but continues to receive regular share of profits until termination -- i.e., the regular share of profits until termination -- i.e., the partnership continues until winding up is completepartnership continues until winding up is complete

Where partners split the cases, as here, profits still Where partners split the cases, as here, profits still divided according to original shares not based on divided according to original shares not based on who took what case; partner has duty to account who took what case; partner has duty to account for cases he takes with him; principal does not for cases he takes with him; principal does not apply to new business even if with same clientapply to new business even if with same client

Marr v. LanghoffMarr v. Langhoff

Rule applied in Rule applied in ResnickResnick does not does not apply if there is an instant winding apply if there is an instant winding upup Because there is no fiduciary obligation Because there is no fiduciary obligation

after terminationafter termination Note references back to Note references back to MeehanMeehan

Ohlendorf v. FeinsteinOhlendorf v. Feinstein

A corollary to the duty to wind up is A corollary to the duty to wind up is the the right to wind upright to wind up

Cannot force continuation of the Cannot force continuation of the business as a means of mitigating business as a means of mitigating damages – doesn’t work in damages – doesn’t work in partnership contextpartnership context

TerminationTermination

UPA 40(b)UPA 40(b) RUPA 807RUPA 807

Read carefully the summaries on p. Read carefully the summaries on p. 797797

Settlement of AccountsSettlement of Accounts

Read carefully the notes on page Read carefully the notes on page 797-798797-798

Priority issuesPriority issues

Insufficient Assets issuesInsufficient Assets issues

Judicial Sales and Judicial Sales and Prentiss v. SheffelPrentiss v. Sheffel

Request for a receiver granted by trial court probably Request for a receiver granted by trial court probably meaning it viewed the plaintiff partners as wrongful meaning it viewed the plaintiff partners as wrongful dissolvers; freeze out deemed unjustified under 18( (“All dissolvers; freeze out deemed unjustified under 18( (“All partners have equal rights in the management and conduct partners have equal rights in the management and conduct of the partnership business”) – wrongfulness was irrelevant of the partnership business”) – wrongfulness was irrelevant on appealon appeal

Even a wrongfully discharged partner can bid at a judicial Even a wrongfully discharged partner can bid at a judicial sale – court explains no injurysale – court explains no injury

Neutrality and open competition of judicial sale discussedNeutrality and open competition of judicial sale discussed Note that even when a partner forgoes one of his rights Note that even when a partner forgoes one of his rights

under UPA 38 to continue the business himself in the under UPA 38 to continue the business himself in the judicial sale setting, he still has available the right under judicial sale setting, he still has available the right under UPA 38(2) to damages for breach of the partnership UPA 38(2) to damages for breach of the partnership agreementagreement

Losing Venture: Claims Among Losing Venture: Claims Among Partners; Kovacik v. ReedPartners; Kovacik v. Reed

California case 1957 – read for California California case 1957 – read for California line of cases requiring contribution in line of cases requiring contribution in unequal capital account situations – court unequal capital account situations – court then notes all of these involved some then notes all of these involved some capital contribution from each partner, or capital contribution from each partner, or the services partner received compensation the services partner received compensation as expense of businessas expense of business

KovacikKovacik distinguished – In the absence of distinguished – In the absence of those facts above, the court will infer that those facts above, the court will infer that services constitute an equal capital services constitute an equal capital contribution to the money contributedcontribution to the money contributed

Charging and Sharing LossesCharging and Sharing LossesMore on KovacikMore on Kovacik

Note 2 on p. 804:Note 2 on p. 804: RUPA 401 (b) states that “[a] partnership shall charge each partner’s RUPA 401 (b) states that “[a] partnership shall charge each partner’s

account with a share of the partnership losses, whether capital or account with a share of the partnership losses, whether capital or operating, in proportion to the partner’s share of the profits.” This operating, in proportion to the partner’s share of the profits.” This continues the rule in UPA 18(a). The Comment to 401 acknowledges continues the rule in UPA 18(a). The Comment to 401 acknowledges that this rejects the that this rejects the KovacikKovacik approach and that this “may seem unfair,” approach and that this “may seem unfair,” stating that “[i]n entering a partnership with such a capital structure, stating that “[i]n entering a partnership with such a capital structure, the partners should foresee that application of the default rule may the partners should foresee that application of the default rule may bring about unusual results and take advantage of their power to vary bring about unusual results and take advantage of their power to vary by agreement the allocation of capital losses. On the other hand, as a by agreement the allocation of capital losses. On the other hand, as a practical matter, the working partner’s obligation to contribute practical matter, the working partner’s obligation to contribute anything beyond his original investment may be illusory. The partner anything beyond his original investment may be illusory. The partner who contributes little of no capital may be without resources to share who contributes little of no capital may be without resources to share losses and is, in that case, execution proof.”losses and is, in that case, execution proof.”