What are the duties of Partners to the Partnership and Each
Other?
1.
2.
3.
4.
5.
6.
7.
8.
Fiduciary Duty
No Adverse Interests/Secret Profits
Not to Compete
Duty to Serve
Duty of Care
Duty to Act within Actual Authority
Duty to Account
Duty of Confidentiality
1. Fiduciary Duty
FIDUCIARY DUTY – highest duty of loyaltymust act with good faith and fair dealing
Trust
Confidence
Honesty
2. Adverse Interests/NO
SECRET PROFITS
Adverse Interests/NO SECRET PROFITSconflict of interest where partner profits personally – rather than as a partner- from a partnership transaction. Partner may enter a deal with the partnership only when:
TEST
Partner deals in good faith
Makes full disclosure of all material facts affecting the transaction, and
Obtains approval from the partners
3. Not to Compete
Not to Compete – not to take business away from the partnership
Unless permission is obtained from the partners Test: must…
Partner deals in good faith
Makes full disclosure of all material facts affecting the transaction, and
Obtains approval from the partners
4. Duty to Serve
Duty to Serve- duty to work for the partnership Failure to pull their share will result in charges to hire someone to do their part
5. Duty of Care
Duty of CareBusiness judgment rule, (discussed in corporations Chapter 43). As in corporation law so too in partnership law, the courts will defer to the judgment of business managers unless there is a showing of bad faith, fraud, or breach of fiduciary duty. The rationale for courts being reluctant to substitute their judgments for those of business managers is that judges are less well equipped to make business judgments than are business managers who continually make such decisions and who have business knowledge and experience not possessed by judges.
6. Duty to Act Within Actual
Authority
Same authority principles apply – see
Agency
7. Duty to Account
Duty to Account: partner’s duty to tell his partners how he has used partnership funds and property
Personal use of partnership resources is theft 8. Duty of Confidentiality
Duty of Confidentiality: partners should not disclose Financial information
Trade secrets
Customer lists
Mode of operation
Secret formulae
Business plans
HOW DO PARTNERS GET
PAID?
Share PROFITS of business
A partner is not entitled to a salary, but only to his share of the profits, absent an agreement to the contrary or the application of some special rule.
Profits and Losses. Note that losses are shared as profits are shared, absent a contrary agreement.
But profits are shared equally, absent a contrary agreement, even if losses are shared unequally
Each partner has UNLIMITED personal liability to partnership creditors, who are not bound by percentage loss allocations unless the creditor explicitly agrees
BRIEF: Spector v. Konover
Facts: 4 partners orally formed partnership. Two (Spector
& Rosenberg) contributed land, other two (Patron &
Konover) built and operated the shopping center.
