I. RELATIONSHIPS AMONG PARTNERS
The operation and management of a partnership involves interactions
among the partners as well as their interactions with third persons. This
chapter will consider both of these relationships. The first part of the chapter
focuses on the rights and duties of the partners among themselves and to
the partnership, which are determined by the partnership agreement, the
partnership statute, and the common law. The second part of the chapter
A. DUTIES AMONG PARTNERS
Most legal rights and duties of partners may be established by agreement of
the partners, so long as they maintain standards of fairness and do not affect
the rights of third parties. Nevertheless, the RUPA makes some duties
mandatory; these cannot be waived or varied by the partnership agreement.
The legal duties of partners among themselves are the duties of loyalty, of
obedience, and of care; also, the duties to inform their co-partners and to
account to the partnership. All of these duties correspond precisely with the
duties owed by an agent to his principal.
*** Chapter Objective***
Identify and explain the duties owed by a partner to his or her copartners.
Fiduciary Duty
Each partner owes a fiduciary duty of utmost good faith, fairness, and loyalty
to his partners. His duty is one of continuous and undivided loyalty to them.
UPA RUPA
The UPA touches only sparingly
on a partner’s duty of loyalty
and leaves any further
development of the fiduciary
duties of partners to the
common law of agency.
The RUPA completely and exclusively
states the components of the duty of
loyalty by specifying that a partner
has a duty not to appropriate
partnership benefits without the
consent of her partners, to refrain
from self dealing, and to refrain from
himself a partnership asset or
opportunity without consent of
all the partners.
The fiduciary duty under the
UPA differs in some respects
from that of the RUPA. First, the
partner’s fiduciary duty under
the UPA applies to the formation
of the partnership. Second, it
applies to the winding up of the
partnership. The UPA states that
derives without the consent of
the other partners from any
transaction connected with the
formation, conduct, or
liquidation of the partnership or
from any use he makes of its
property. UPA Section 21. A
partner may not prefer himself
over the firm, nor may he even
deal at arm’s length with his
partners, to whom his duty is
one of undivided and
continuous loyalty. The fiduciary
duty also applies to the
purchase of a partner’s interest
from another partner. Each
partner owes the highest duty
winding up of the partnership
business or derived from a use by
the partner of partnership property,
including the appropriation of a
partnership opportunity;
to refrain from dealing with
the partnership in the conduct or
winding up of the partnership
business as, or on behalf of, a
party having an interest adverse to
the partnership; and
In addition, the Revised Act provides
that a partner does not violate the
duty of loyalty merely because the
partner’s conduct furthers his own
interest.
The fiduciary duty does not extend to
the formation of the partnership,
when, according to the comments to
RUPA Section 404, the parties are
really negotiating at arm’s length. The
duty not to compete terminates upon
dissociation, and the dissociated
partner may immediately engage in a
competitive business, without any
further consent.
The Revised Act imposes a duty of
good faith and fair dealing when a
CASE 30-3
ENEA v. THE SUPERIOR COURT OF MONTEREY COUNTY
Court of Appeal of California, Sixth Appellate District, 2005
132 Cal.App.4th 1559, 34 Cal.Rptr. 3d 513
http://scholar.google.com/scholar_case?
q=34+Cal.Rptr.3d+513&hl=en&as_sdt=2,34&case=5283361880886275530&scilh=0
Rushing, P. J.
Defendants [William and Claudia Daniels] state that in 1980, they and other family members
formed a general partnership known as 3-D. The partnership’s sole asset was a building that
had been converted from a residence into offices. Some portion of the property—apparently
the greater part—has been rented since 1981 on a month-to-month basis by a law practice of
which William Daniels is apparently the sole member. From time to time the property was
rented on similar arrangements to others, including defendant Claudia Daniels. Plaintiff’s
counsel stipulated in the court below that “the partnership agreement has as its principal
In 1993, plaintiff [Benny Enea], a client of William Daniels, purchased a one-third
interest in the partnership from the latter’s brother, John P. Daniels. * * * In 2001, however,
plaintiff questioned William Daniels about the rents being paid for the property * * * “and in
2003, Plaintiff was ‘dissociated’ from the partnership.”
On August 6, 2003, plaintiff brought this action “to determine partner’s buyout price and
for damages.” Alleg[ing] that defendants had occupied the partnership property * * * [while]
paying significantly less than fair rental value, “in breach of their fiduciary duty to plaintiff.”
In their answer, defendants denied all of these allegations except to admit that defendant
Claudia Daniels had occupied a portion of the premises at one time.
* * *
[The court granted defendants’ motion for summary judgment, and plaintiff appealed.]
* * *
Despite the numerous diversions offered by defendants, the case presents a very simple
set of facts and issues. For present purposes it must be assumed that defendants in fact
leased the property to themselves, or associated entities, at below-market rents. * * *
Therefore the sole question presented is whether defendants were categorically entitled to
The defining characteristic of a partnership is the combination of two or more persons to
jointly conduct business. [Citation.] It is hornbook law that in forming such an arrangement
the partners obligate themselves to share risks and benefits and to carry out the enterprise
with the highest good faith toward one another—in short, with the loyalty and care of a
fiduciary. “Partnership is a fiduciary relationship, and partners are held to the standards and
duties of a trustee in their dealings with each other.” “‘… [I]n all proceedings connected
with the conduct of the partnership every partner is bound to act in the highest good faith to
his copartner and may not obtain any advantage over him in the partnership affairs by the
slightest misrepresentation, concealment, threat or adverse pressure of any kind.’
[Citations.]” [Citation.] Or to put the point more succinctly, “Partnership is a fiduciary
relationship, and partners may not take advantages for themselves at the expense of the
partnership.” [Citations.]
Here the facts as assumed by the parties and the trial court plainly depict defendants
Defendants * * * persuaded the trial court that they had no duty to collect market rents in
the absence of a contract expressly requiring them to do so. This argument turns partnership
law on its head. Nowhere does the law declare that partners owe each other only those duties
Duty of Obedience
The partner’s duty of obedience means that he is to act in accordance with
the partnership agreement and any business decisions properly made by the
partnership.
Duty of Care
UPA RUPA
A partner owes a duty of care to
manage partnership affairs without
culpable, or blameworthy,
negligence. Culpable negligence
is something more than ordinary
negligence, yet short of gross
negligence. Thus, a partner who
makes honest errors of judgment or
Each partner owes the partnership a
duty of faithful service to the best of
his ability. Nonetheless, he need not
possess the degree of knowledge
and skill of an ordinary paid agent.
Under the Revised Act a partner’s
duty of care to the partnership and
the other partners in the conduct
*** Chapter Objective***
Identify and describe the rights of partners.
B. RIGHTS AMONG PARTNERS
UPA RUPA
The law provides partners with
certain rights, including their:
• rights in specific partnership
property under a tenancy in
partnership,
• interest in the partnership,
The law provides partners with
certain rights, which include their:
right to use and possess
partnership property for
partnership purposes,
transferable interest in the
partnership,
*** Chapter Objective***
Distinguish between a partner’s rights in specific partnership property
and a partner’s interest in the partnership.
Rights in Specific Partnership Property
UPA RUPA
A partner’s ownership interest in
any specific item of partnership
property is by tenancy in
partnership, a type of ownership
that exists only in partnership and
has the following characteristics:
1. Each partner has an equal right to
possess partnership property for
In adopting the entity theory, the
Revised Act abolishes the UPA’s
concept of tenants in partnership.
Partnership property is owned by
the partnership entity and not by
the individual partners. Section 203.
Moreover, RUPA Section 501
specific partnership property.
3. A partner’s interest in specific
partnership property is not subject
to attachment or execution by his
individual creditors — only by
creditors with a claim against the
partnership.
4. On the death of a partner, his
right in specific partnership property
vests in the surviving partners. On
of the partnership. Section 401(g).
Partner’s Transferable Interest in the Partnership
UPA RUPA
Besides owning every specific item
of partnership property as a tenant
in partnership, each partner has an
interest in the partnership, defined
as her share of the profits and
surplus. This interest is personal
property and, on the partner’s
Each partner has an interest in
the partnership, which is defined
as “all of a partner’s interests in the
partnership, including the partner’s
transferable interest and all
management and other rights.”
Section 101(9). A partner’s
Assignability — A partner may sell or assign her transferable interest in the
partnership, but the transfer does not by itself cause the partner’s
dissociation or a dissolution and winding up of the partnership business. The
new owner is not entitled to (1) participate in the management or conduct of
UPA RUPA
The other partners by a unanimous vote may expel a partner
who has transferred substantially all of his transferable
partnership interest, other than as security for a loan. The
partner may be expelled, also, upon foreclosure of the
security interest.
Under Section 103(a), the partners may agree among
themselves to restrict the right to transfer their partnership
interests.
Creditors’ Rights — A partner’s interest in the partnership is subject to the
claims of the partner’s individual creditors, who may obtain a charging order
(type of judicial lien) against the partner’s interest.
UPA RUPA
The creditor who
has charged the
interest of a partner
may apply for a
court-appointed
receiver to receive
and hold for the
creditor’s benefit the
share of profits
A court may charge the transferable interest of the
partner to satisfy a partner’s debt. A charging order
is also available to the judgment creditor of a
transferee of a partnership interest. The court may
appoint a receiver of the debtor’s share of the
distributions. The court may order a foreclosure of
the interest subject to the charging order. At any
time before foreclosure, an interest charged may
be redeemed by (1) the partner who is the
NOTE: See Figure 30-3: Partnership Property Compared with Partner’s Interest
Right to Share in Distributions
A distribution is a transfer of money or other partnership property from the
partnership to a partner in the partner’s capacity as a partner.
UPA RUPA
Right to Share in profit —
Each partner is entitled, unless
otherwise agreed, to a share of
the profits. Conversely, unless
otherwise agreed, each partner
must contribute toward any losses
The RUPA’s rules regarding
distribution are subject to contrary
agreement of the partners. A partner
has no right to receive, and may not
be required to accept, a distribution in
kind. The RUPA provides that each
of the partnership.
If the partners have no agreement
regarding profits, they share them
equally, regardless of the ratio of
their financial contributions or
Right to Return of Capital —
After all partnership creditors
have been paid, each partner is
entitled to repayment of his
capital contribution during the
winding up of the firm.
Right to Indemni+cation — A
partner who makes an advance to
(loan to) the partnership over and
above his agreed capital
contribution is entitled to
repayment of the advance plus
interest on it.
His position as a creditor of the
firm is subordinate to the claims
of nonpartner creditors but
superior to the partners’ rights to
return of capital.
In addition, a partner who has
reasonably and necessarily
partner is deemed to have an account
that is credited with the partner’s
contributions and share of the
partnership profits and charged with
distributions to the partner and the
partner does not have a right to
receive a current distribution of the
profits credited to his account, the
timing of the distribution of profits
being a matter arising in the ordinary
course of business to be decided by
majority vote of the partners.
otherwise.
Right to Return of Capital —
Absent an agreement to the contrary,
a partner does not have a right to
receive a distribution of the capital
contributions in his account before his
withdrawal or the liquidation of the
partnership.
Right to Indemni+cation — A
partner who makes an advance
beyond his agreed capital contribution
is entitled to reimbursement. An
advance is treated as a loan that
accrues interest. In addition, the
partnership must reimburse a partner
Right to Compensation — The
UPA provides that, unless
otherwise agreed, no partner is
entitled to payment for acting in
the partnership business.
Nevertheless, all of the partners
may agree to allow a partner to
receive a salary or a
loans of a person not a partner,
subject to the fraudulent transfer law,
the law of avoidable preferences
under the Bankruptcy Act, and general
debtor-creditor law.
Right to Compensation — The RUPA
provides that, unless otherwise
agreed, no partner is entitled to
Right to Participate in Management
Under both the UPA and the RUPA, each of the partners, unless otherwise
agreed, has equal rights in the management and conduct of the partnership
business. The majority generally governs the decisions of the partnership,
with the principal exception that all the partners must consent to any actions
that are contrary to the partnership agreement. In other words, partners may
override their original partnership agreement, but they must agree
unanimously to do so.
Right to Choose Associates
No partner may be forced to accept as a partner any person of whom she
does not approve. This is partly because of the fiduciary relationship
between the partners and partly because each partner has a right to
participate in the management of the business, handle the partnership
Enforcement Rights
Because the partnership relationship creates rights and duties among
partners, the law provides partners and the partnership with the means to
enforce these rights and duties.
UPA RUPA
Right to Information and
Inspection of the Books —
Each partner may demand
full information about all
partnership matters and, in
turn, must supply other
partners with full and
accurate information about
all things that affect the
partnership. Unless agreed
otherwise, each partner has
a right to inspect the firm’s
Right to Information and Inspection
of the Books — If a partnership
maintains books and records, they must
be kept at its chief executive oEce. A
partnership must provide partners access
to its books and records to inspect and
copy them during ordinary business hours.
Former partners are given a similar right,
limited to the records from the period
during which they were partners. A duly
authorized agent may also exercise this
right.
Legal Action —
UPA RUPA
A formal account is a complete
review of all financial
transactions of the partnership,
including financial statements.
The UPA grants each partner the
right to an account whenever
(1) his copartners wrongfully
exclude him from the
Under RUPA a partner may maintain
a direct suit against the partnership
or another partner for legal or
equitable relief, with or without an
accounting as to partnership
business, to enforce the partner’s
rights under the partnership
agreement and the Revised Act.
Section 405(b). Thus, under the
(4) other circumstances
render it just and
reasonable.
If a partner does not receive a
requested account or is dissatisfied
not authorize derivative actions.
ReFecting the entity theory of
partnership, the RUPA provides that
the partnership itself may maintain
an action against a partner for any