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Chapter 31
OPERATION AND DISSOLUTION OF GENERAL
PARTNERSHIPS
I. Relationship of Partners and Partners with
Third Parties
A. Contracts of Partnership
1. Authority to Bind Partnership
a. Actual Express Authority
b. Actual Implied Authority
c. Apparent Authority
2. Partnership by Estoppel
B. Torts and Crimes of Partnership
C. Notice to a Partner
D. Liability of Incoming Partner
II. Dissociation and Dissolution of General
Partnerships Under RUPA
A. Dissociation
1. Wrongful Dissociations
2. Rightful Dissociations
3. Effect of Dissociation
B. Dissolution
1. Causes of Dissolution
a. Dissolution by Act of the Partners
b. Dissolution by Operation of Law
c. Dissolution by Court Order
2. Effects of Dissolution
a. Authority
b. Liability
C. Winding Up
1. Participation in Winding Up
2. Distribution of Assets
3. Marshaling of Assets
D. Dissociation without Dissolution
1. Non-dissolving Dissociations
2. Continuation after Dissociation
3. Dissociated Partner’s Power to Bind the
Partnership
4. Dissociated Partner’s Liability to
Third Persons
III. Dissolution of General Partnerships Under UPA
A. Dissolution
1. Causes of Dissolution
a. Dissolution by Act of the Partners
b. Dissolution by Operation of Law
c. Dissolution by Court Order
2. Effects of Dissolution
B. Winding Up
1. The Right to Wind Up
2. Distribution of Assets
3. Marshaling of Assets
C. Continuation After Dissolution
1. Right to Continue Partnership
a. Continuation after Wrongful
Dissolution
b. Continuation after Expulsion
c. Continuation Agreement of the Parties
2. Rights of Creditors
Cases in This Chapter
RNR Investments Limited Partnership v.
Peoples First Community Bank
Conklin Farm v. Doris Leibowitz
Horizon/CMS Healthcare Corp. v. Southern
Oaks Health Care, Inc.
Warnick v. Warnick
Chapter Outcomes
After reading and studying this chapter, the student should be able to:
Explain the contract liability of a partnership and the partners.
Explain the tort liability of a partnership and the partners.
Distinguish between the liability of incoming partner for debts arising
to creditors and partners.
TEACHING NOTES
This Instructor’s Manual will discuss both UPA and RUPA, with a
side-by-side comparison when appropriate. Note that the chapter in the
text discusses the RUPA but, where the RUPA has made signiticant
changes, the UPA is also discussed. The chapter summary in the text
re,ects only the RUPA.
I. RELATIONSHIP OF PARTNERS & PARTNERS WITHTHIRD
PARTIES
In the course of transacting business, the partnership and the partners also may
acquire rights over and incur duties to third parties. Because much of the law of
partnership is the law of agency, most problems arising between partners and
third persons require the application of principles of agency law. When a
partnership becomes liable to a third party, each partner has unlimited
personal liability for that obligation.
UPA RUPA
The UPA makes this relationship
explicit by stating that “[t]he law of
agency shall apply under this act”
The RUPA states that “[e]ach partner
is an agent of the partnership for the
purpose of its business.” In addition,
*** Chapter Outcome ***
Explain the contract liability of a partnership and the partners.
A. CONTRACTS OF PARTNERSHIP
If the partnership is bound on a transaction, then each general partner has
unlimited personal liability for that partnership obligation unless the partnership
is an LLP and the LLP statute shields contract obligations.
UPA RUPA
The UPA provides that
partners are jointly liable
on all debts and contract
obligations of the
Under the RUPA the partners are jointly and
severally liable for all contract obligations of
the partnership, which means that all of the
partners may be sued jointly in one action or
the partners as a group,
and the judgment must
be against all of the
obligors. Therefore, any
suit in contract against
however, only against property of the
defendant or defendants named in the suit;
and payment of any one of the judgments
satis/es all of them. The Revised Act, in
keeping with its entity treatment of
Authority to Bind Partnership
A partner may bind the partnership by her act if she has actual authority —
express or implied — or if she has apparent authority to perform the act. Where
there is neither actual authority nor apparent authority, the partnership is bound
only if it rati/es the act.
UPA RUPA
The UPA provides that the
following acts do not bind the
partnership unless authorized by
all of the partners:
1. assignment of partnership
property for the benefit of its
creditors;
2. disposal of the goodwill of the
The Revised Act omits the UPA’s list
of extraordinary acts that require
unanimous consent, leaving it to
the courts to decide the outer
limits of a partner’s agency power.
The Revised Act also authorizes the
optional, central /ling of a
statement of partnership authority
Actual Express Authority — A partner’s actual express authority may be
specifically set forth in the partnership agreement or in an additional oral or
written agreement between the partners. In addition, actual express authority
may arise from the partners’ majority decisions regarding ordinary matters
connected with partnership business. A partner who does not have actual
authority from all partners may not bind the partnership by any act that does not
apparently relate to the usual conduct of the partnership business.
Actual Implied Authority — A partner’s actual implied authority is neither
Apparent Authority — A partner’s apparent authority (which may or may not
be actual) is authority that a third person, from the partners’ conduct, would
reasonably assume to exist. But a third person may not rely on apparent
authority in a situation where he is put on notice or already knows that the
partner does not have actual authority.
UPA RUPA
Each partner is an agent of the partnership for the
purpose of its business. An act of a partner, including
the execution of an instrument in the partnership
name, for apparently carrying on in the ordinary
se
CASE 31-1
RNR INVESTMENTS LIMITED PARTNERSHIP v. PEOPLES
FIRST COMMUNITY BANK
Court of Appeal of Florida, First District, 2002
812 So.2d 561
http://scholar.google.com/scholar_case?case=957588625820748025&q_812+so.2d+561&hl=en&as_sclt=2,34
Van Nortwick, J.
RNR is a Florida limited partnership formed * * * to purchase vacant land in Destin, Florida, and
to construct a house on the land for resale. Bernard Roeger was RNR’s general partner and Heinz
Rapp, Claus North, and S.E. Waltz, Inc., were limited partners. The agreement of limited
partnership provides for various restrictions on the authority of the general partner. Paragraph 4.1
of the agreement required the general partner to prepare a budget covering the cost of acquisition
and construction of the project (defined as the “Approved Budget”). * * *
In June 1998, RNR, through its general partner, entered into a construction loan agreement,
note and mortgage in the principal amount of $990,000. From June 25, 1998 through Mar. 13,
2000, the bank disbursed the aggregate sum of $952,699, by transfers into RNR’s bank account.
All draws were approved by an architect, who certified that the work had progressed as indicated
and that the quality of the work was in accordance with the construction contract. No
representative of RNR objected to any draw of funds or asserted that the amounts disbursed were
not associated with the construction of the house.
* * *
RNR asserts that a copy of the limited partnership agreement was maintained at its offices.
Nevertheless, the record contains no copy of an Approved Budget of the partnership or any
evidence that would show that a copy of RNR’s partnership agreement or any partnership budget
was given to the Bank or that any notice of the general partner’s restricted authority was
provided to the Bank.
* * * [T]he trial court entered a summary final judgment of foreclosure in favor of the Bank.
* * *
* * * Section 301(1), [citation], a part of the Florida Revised Uniform Partnership Act
(FRUPA), provides:
Each partner is an agent of the partnership for the purpose of its business. An act of a partner,
including the execution of an instrument in the partnership name, for apparently carrying on
in the ordinary scope of partnership business or business of the kind carried on by the
partnership, in the geographic area in which the partnership operates, binds the partnership
unless the partner had no authority to act for the partnership in the particular manner and the
person with whom the partner was dealing knew or had received notification that the partner
lacked authority.
[Court’s footnote: RNR mistakenly argues that section 301(1) has no application to a limited
partnership because that section is part of the Florida Revised Uniform Partnership Act, not the
partnership, unless the third party “knew or had received a notification that the partner lacked
authority.” [Citation.] “Knowledge” and “notice” under FRUPA are defined in section 102. That
section provides that “[a] person knows a fact if the person has actual knowledge of the fact.”
* * *
“Absent actual knowledge, third parties have no duty to inspect the partnership agreement or
inquire otherwise to ascertain the extent of a partner’s actual authority in the ordinary course of
business * * * even if they have some reason to question it.” [Citation.] The apparent authority
provisions of section 301(1), reflect a policy by the drafters that “the risk of loss from partner
misconduct more appropriately belongs on the partnership than on third parties who do not
knowingly participate in or take advantage of the misconduct.” * * * [Citation.]
Under section 301(1), the determination of whether a partner is acting with authority to bind
the partnership involves a two-step analysis. The first step is to determine whether the partner
purporting to bind the partnership apparently is carrying on the partnership business in the usual
way or a business of the kind carried on by the partnership. An affirmative answer on this step
ends the inquiry, unless it is shown that the person with whom the partner is dealing actually
knew or had received a notification that the partner lacked authority. [Citation.] Here, it is
undisputed that, in entering into the loan, the general partner was carrying on the business of
RNR in the usual way. The dispositive question in this appeal is whether there are issues of
material fact as to whether the Bank had actual knowledge or notice of restrictions on the general
partner’s authority.
RNR argues that, as a result of the restrictions on the general partner’s authority in the
partnership agreement, the Bank had constructive knowledge of the restrictions and was
* * *
Because there is no disputed issue of fact concerning whether the Bank had actual knowledge
or notice of restrictions on the general partner’s authority to borrow, summary judgment was
proper.
Affirmed.
Partnership by Estoppel
Partnership by estoppel imposes partnership duties and liabilities on a
nonpartner who has represented himself or has consented to be represented as
a partner. It extends to a third person to whom such a representation is made
and who justi/ably relies upon the representation.
*** Chapter Outcome ***
Explain the tort liability of the partnership and the partners.
B. TORTS AND CRIMES OF PARTNERSHIP
Both the UPA and the RUPA provide that a partnership is liable for the loss or
injury that a partner causes through any wrongful act or omission while acting
within the ordinary course of the partnership business or with the authority of
the partnership. A partnership is also liable if a partner in the course of
partnership business or while acting with authority of the partnership breaches a
trust by receiving money or property of a person not a partner, and the partner
misapplies the money or property.
If the partnership is liable, each partner has unlimited personal liability for the
partnership obligation unless the partnership is an LLP. The liability of partners for
UPA RUPA
The Revised Act makes the partnership liable for no-fault
torts by the addition of the phrase, “or other actionable
conduct.”
A partner is not criminally liable for the crimes of her partners unless she
authorized them or participated in them.
NOTE: See Figure 31-2.
C. NOTICE TO A PARTNER
Admissions or representations made by a partner regarding firm affairs may be
used as evidence against the firm if they were made within the scope of
authority. Notice given to a partner concerning partnership business is imputed
to the partnership.
UPA RUPA
A partnership is bound (1) by notice
to any partner of any matter
relating to partnership affairs; (2)
A partner’s knowledge, notice, or
receipt of a noti/cation of a fact
relating to the partnership is
by the knowledge of a partner
acting in a particular matter, if he
possessed or acquired such
effective immediately as knowledge
by, notice to, or receipt of a
noti/cation by the partnership,
