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CHAPTER 32
CREATION AND OPERATION OF A PARTNERSHIP
Answers to Learning Objectives
1. A partnership results from a contract, express or implied, written or oral.
2. A partner owes co-partners the duty to exercise loyalty and good faith, to use reasonable care and
Lesson Outline
1. A partnership results from a contract, express or implied, just as all other business commitments
result from a contract.
2. The articles of partnership should set forth all the terms of the partnership contract and other
6. A partner is a tenant or owner in a partnership. A surviving partner does not get full ownership upon
the death of the other partner and is not as free to sell the property.
7. Partners have at least five primary duties:
8. Partners have five well-defined rights:
a. Participate in the management of the business unless they have relinquished this right by
contract
b. Inspect the firm’s books
c. Reimbursement when that partner has paid a debt of the firm from personal funds
d. Withdraw advances
e. Withdraw profits
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b. New partners are liable under the Uniform Partnership Act for new debts and for old debts only
to the extent of their investment.
11. In the absence of an agreement providing otherwise, a partner in an ordinary trading partnership has
the implied powers to:
a. Compromise and release a claim against a third party
12. The five acts that partners have no implied power to perform are:
a. Assign the assets of the firm for the benefit of creditors
13. Profits and losses are shared equally unless otherwise agreed in the partnership agreement.
Comments on Cases
(p. 385) The court reasoned that the parties did not invest in a for-profit business venture and that Via did
not expect a return on her contribution other than the expectation to use and enjoy the residence.
Simply because the parties lived together and each contributed to the improvement of the
property did not create an implied partnership between them. Via v. Oehlert, 347 S.W.3d 224
(Tenn. Ct. App.)
(p. 388) The court said that secretly hiring an appraiser, failing to inform Green of the result, and secretly
transferring the asset of the partnership was a clear breach of the three partners duties toward
Green. Green v. McAllister, 14 P.3d 795 (Wash. Ct. App.)
(p. 389) The fact that Robert was specified as the managing partner did not deprive the other general
partner of a right to participate in management. If the parties had wanted to deprive one partner
of that right a limited partnership could have been formed with Robert as the general partner.
Krulwich v. Posner, 738 N.Y.S.2d 315 (N.Y.A.D.)
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(p. 391) The court pointed out that while representation of a person in a personal injury action is clearly
within the normal range of activities for a typical law partnership fraud in violation of the
standards of the legal profession associated with such representation, is not. Thus the fraud was
not in the ordinary course of the partnership business. Goodman v. Holmes & McLaurin
Attorneys at Law, 665 S.E.2d 526, (N.C. Ct. App.)
Answers to Questions
(Page 393)
1. A partnership may be created when two or more parties who do not have an intention to form a
partnership act in such a way as to lead third parties to believe that a partnership exists.
2. The law will recognize a partnership by estoppel when individuals give a false impression
that a partnership exists and third persons will be harmed by their conduct.
should be based on written records.
5. Under the Uniform Partnership Act partnership property, whether real or personal, may be owned
either in the names of the partners or in the name of the firm.
6. To try to collect a partner’s debt from the partnership personal creditors of one partner can ask a
court to order that payments due the debtor partner from the partnership be made to the creditors.
They also can force the sale of a debtor partner’s interest in the partnership.
7. If the personal interest or advantage of the partner conflicts with the advantage of the partnership,
the partner has a duty to put the firm’s interest above personal advantage.
Answers to Case Problems
(Page 394)
1. Yes. Despite inconclusive evidence regarding shared profits, Murrell and Brown held themselves
out to clients, creditors, tax authorities and others as partners. There was strong evidence that
Murrell and Brown had formed a partnership prior to and at the time the lease was signed. As a
partner, Brown was liable for provisions in the lease agreement. Brown v. 1401 New York
Avenue, Inc., 25 A.3d 912 (D.C.)
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4. Yes. MacKenzie’s and Kelly’s conduct would lead a reasonable third party to believe that
MacKenzie was acting as the agent of the partnership and with the requisite authority. Kelly
attended meetings with Glidden and MacKenzie during which they discussed the possibility of
obtaining money from Glidden for the venture and MacKenzie gave Kelly’s personal financial
statement to Glidden before negotiating with him. QAD Investors, Inc. v. Kelly, 776 A.2d 1244
(Me.)
O’War, LLC, 256 S.W.3d 563 (Ky.)
6. The court held that Ziegler and Kitsch were not partners, because they had no say in key business
decisions, such as when to cease operations and how to distribute clients. Each party was
responsible for his own equipment and fishing license. The parties also had no agreement to share
profits. Under the fee arrangement, Ziegler and Kitsch might receive no fees at all if there were not
more than six clients in a day. Ziegler v. Dahl, 691 N.W.2d 271 (N.D.)
7. Yes. The court held that the partnership agreement expressly required the partnership to pay Gary
Carlson’s life insurance premiums. As managing partner, Gerald Carlson breached his fiduciary
duty of good faith and loyalty towards his partner by failing to make the payments. Carlson v.
Carlson, 802 N.W.2d 436 (N.D.)