B. Dissolution by act of parties
1. Agreement
2. Expulsion
CASE BRIEF: Gelman v. Buehler
986 N.E. 2d 914 (N.Y. 2013)
FACTS: Two business school graduates entered into an oral partnership agreement to
raise money to find and acquire a growth business. Their goal was to sell the business and share
the profits. After a disagreement over partnership interest, one partner sought to terminate the
partnership. The other claimed it was a breach of contract to unilaterally terminate the partnership.
ISSUE: Can a partner unilaterally terminate an oral agreement if no definite term or
particular undertaking is specified in the agreement?
HOLDING: Yes. Partnership law allows unilateral termination if there is no particular undertaking or
REASONING: The court found that the partnership was dissolvable by either partner because the statute so
allows, unless there is a definite term of duration or a particular undertaking to be achieved. In this
case, the plan to (1) raise money; (2) identify a business to buy; (3) raise more money to purchase
the business; (4) operate the business to increase its value; (5) achieve the liquidity event; (6) sell
the business; and (7) secure profit from the sale was, according to the court, “fraught with
uncertainty.” There was no definite term of duration and no particular undertaking to be achieved.
C. Dissolution by operation of law
1. Death – ask the students what happens if a partner dies in a partnership that provides for the
continuation of the business on the death of a partner, and the partnership does not have sufficient cash
2. Bankruptcy of partnership or individual partners
3. Illegality
D. Dissolution by decree of court
1. Insanity of partner
2. Incapacity of partner
CASE BRIEF: Della Ratta v. Dyas
961 A. 2d 629 (Md. App. 2008)
FACTS: Dyas and Della Ratta were equal owners of two hotels and a condominium
project. Della Ratta owned the construction company that built the projects and the company that
managed the two hotels. Dyas believed that Della Ratta was attempting to squeeze him out of the
business. Dyas seeks dissolution of the LLC and a winding up of the partnership.
ISSUE: Can Dyas dissolve the LLC and wind up the general partnership?
REASONING: Dissociation of partner from the partnership was warranted. Della Ratta acted in bad faith and
used improper accounting to seek money from the partnership. It is no longer reasonably
practicable to carry on the business.
E. Dissociation under RUPA
F. Notice of dissolution
1. Notice to partners – clear intention
2. Notice to third persons
a. Actual notice to those having dealt with the partnership
CASE BRIEF: Philipp Lithographing Co. v. Babich
135 N.W.2d 343 (Wis. 1965)
FACTS: Paul Babich ran a business under the name of House of Paul. The business became a partnership
among Babich, Dyson, and Schnepp but continued under the same name. The partners arranged
for the printing of advertising material with Philipp Lithographing Co., making contracts on three
separate occasions for such printing. During the course of these dealings, the House of Paul
became a corporation. When the printing bills were not paid in full, Philipp sued the partners as
individuals. They claimed they were not liable because the corporation had made the contracts.
ISSUE: Are the partners individually liable for preincorporation debts?
REASONING: Whether or not the House of Paul was a corporation with respect to a particular contract was not
important because no notice had been given of its change from a partnership to a corporation.
Having originally done business with the defendant as a partnership, Philipp could hold the
individual persons liable as partners until notice to the contrary was given to the plaintiff.
G. Winding up partnership affairs
H. Distribution of assets
1. The first responsibility is to outside creditors
2. The second responsibility is to loans of partners to the partnership
5. In some dissolution cases, there is the practical problem of parties either not knowing how to distribute
funds or trying to take advantage of each other with the distributions. Challenge the students with a
problem similar to the following:
Assume that partner A makes a capital contribution of $12,000, partner B makes a contribution of
$6,500 and services, and partner C makes no monetary contribution, but agrees to devote knowledge
How will the partnership accounts be settled?
a. Obligations of the firm:
To X $ 2,800
To Y 800
To Z 200
3
c. Contributions now required and payments made:
By A Capital $12,000
Loss -8,000
Bal. due A $ 4,000
By B Capital $ 6,500
Loss -8,000
d. Ask the students what would happen if C were insolvent. Answer: A and B would each contribute
CASE BRIEF: Corley v. Ott
485 S.E.2d 97 (S.C. 1997)
FACTS: Fred Ott and Charles Corley were partners doing business as “Lakewood Associates, a general
partnership.” Corley provided the capital to purchase the land to be sold by the partnership, called
Lakewood Estates. Corley brought suit for the dissolution of the partnership, and Ott contended
that his contributions of time and labor in improving Lakewood Estates should be credited to him as
capital contributions in the distribution of assets.
ISSUE: Are the services part of capital?
REASONING: There was no evidence of any agreement between the partners that Ott’s services should be
credited as capital contributions. Therefore, the value of the services could not be credited as
capital contributions in the distribution of assets.
I. Continuation of partnership business
ANSWERS TO QUESTIONS AND CASE PROBLEMS
1. Distribution of assets on liquidation. No. On liquidation, after creditors have been paid, contributions made by
the partners must be repaid. This means that the balance must be paid to Linda’s estate and Ray. If there is not
sufficient surplus to repay the contributions in full, Linda’s estate and Ray will prorate the balance. This means
2. Assignment of partner’s interest. No. Bartholomew is an assignee and is entitled to receive only a partner’s
share of the profits during the continuance of the firm and the assignor’s interest on dissolution. The assignee
3. Notice of dissolution of partnership to third persons. No. Amy and Paula will not be able to avoid personal liability
in a suit brought by Children’s Apparel, Inc., because they dealt with Children’s Apparel prior to dissolution of the
4. Effect of dissolution. Judgment for Rudi Basecke. The building was partnership property, even though the parties
had ceased joint operation of the partnership cheese business and had dissolved the partnership five years
5. Determining the existence of a partnership. Delta and SkyWest are not partners. The agreement between Delta
and SkyWest indicates no desire to engage in a business as risk-sharing partners with joint control over the
enterprise. It is true that both parties expected to make a profit from the enterprise; however, a person “who has
6. Determining the existence of a partnership. Judgment for Pettes. The totality of evidence in the case
demonstrated that the parties intended a partnership and co-ownership. The dissolution agreement would result
7. Partnership property. Judgment for Marlowe. The bar had been purchased with partnership funds and therefore
8. Authority of partners. Judgment for Dooley. Summers had no authority to employ the third man at the expense of
9. Determining the existence of a partnership contract. The court agreed with Raymond that the construction
company could not have been both a corporation and a partnership. However, recognizing that the company
was a corporation, and not a partnership, that does not mean there could not exist a partnership contract. Aware
In answering the question “How would you decide this case” students and judges want to do what is “right.” A
legal theory is needed, however. It is not “right” that Thomas be treated as an at-will corporate officer, terminated
10. Distribution of assets. Judgment for Langness. A partner who contributes only services to the partnership is not
deemed to have made a capital contribution. Thus, Friedman was not entitled to be credited with 10 percent of
11. Division of profits. No. In the absence of any contrary provision in the partnership agreement, partners share
profits equally; so each partner in the described situation is entitled to $50,000. Ross’s claim is that profits are to
12. Extent of partner’s liability. Partners are jointly liable for debts and obligations of the partnership (UPA § 15).
Where no partnership assets remain to satisfy the judgment, as in this case, the judgment creditor may enforce
13. Determining the existence of a partnership. Judgment for Smith. The fact that Smith received wages does not
per se defeat the existence of a partnership and the position that Smith was a partner. Smith worked long hours,
sometimes 25 overtime hours in a week without pay, to establish the business and to pay off debts. Other facts,
14. Prohibited transactions for partners. Judgment for the partnership. The act of one partner in making a contract in
carrying on the business of the partnership may be binding on the partnership under UPA § 9(1). However, the
15. Nature and extent of partner’s liability. Yes. All members of the firm are liable on contracts made by a partner for
management system for classroom use.