Business Organizations 1

Partnership: Formation
pp. 83-87, 88-91

-A partnership is an association of two or more “PERSONS” acting as co-owners of property in a business for
profit.
-Who doesn’t associate in a business? A sole proprietor - a person who is alone. She has customers, she has
employees, she has suppliers, but she’s not in the business with them.
-“Numerosity Requirement”: More than one. Two or more persons.
-What is a person? Individuals, corporations, an entity, a partnership!
-2 individuals, 2 partnerships, and 2 corporations can form YET ANOTHER partnership? YES!
-Some of the most successful partnerships have been 2 corporations coming together.
-Boeing gets parts from all over the world - wings in Italy, etc. Boeing partners up with them.
-Joint ventures, strategic alliances -> it’s a PARTNERSHIP.
-To be somebody’s partner, you have to OWN something together. If you don’t co-own PROPERTY, you’re
not truly owners. When you own something together, RISK of damage to that property or it harming others.
-Make sure they’re doing this together for profit.
-Business Divorce: Dissolution to dissolve a partnership
-Uniform Partnership Act: The UPA is the result of synthesizing from scholars and judges. HAS NO
FORCE OF LAW WHATSOEVER. Only takes on the power of law when it’s adopted by a state.
TRANSFERABLE IN ANY JURISDICTION.
-NYPL: New York Partnership Law

Fenwick v. Unemployment Compensation Commission 44 A.2d 172 (1945)

Rule of Law: A partnership exists when two or more persons act as co-owners of a business for profit.

Facts: Fenwick (plaintiff) employed Chesire as a cashier and receptionist at his beauty salon. Chesire
eventually demanded a raise and Fenwick agreed to increase her compensation through an agreement which
described their association as a partnership and it provided that Chesire would be paid her existing salary plus
20% of business profits if the business warrants it. However, Chesire couldn’t make capital investments, and
Fenwick would still maintain control of the business and be responsible for the debts. Chesire continued to
work but eventually quit. A case was brought before the New Jersey Unemployment Compensation
Commission (Commission) (defendant) to determine whether Chesire was Fenwick’s partner or employee. If
Chesire was Fenwick’s employee, Fenwick would be responsible for paying into the state unemployment
compensation fund. The Commission found that Chesire was Fenwick’s employee, holding that the agreement
was simply an instrument used by the parties to set the level of Chesire’s salary. The New Jersey Supreme
Court reversed, relying heavily on the terms of the agreement and ruling that Fenwick and Chesire were
partners.

Issue: Is a partnership established by an agreement stating that two parties are partners, if one party retains sole
ownership of the business and the parties conduct themselves as employer and employee?

Holding: No. In order for a partnership to be formed, the parties involved must have co-ownership of a
business. The judgment of the supreme court is reversed.

FACTORS DETERMINING THE EXISTENCE OF A PARTNERSHIP RELATION:

 Business Organizations 2

1. The first factor is the intention of the parties and language of the agreement. Although the
agreement listed Fenwick and Chesire as “partners,” the intent of the parties in entering into the
agreement was to give Chesire the possibility of a salary increase at her current job while at the same
time protecting Fenwick from having to pay it if his business did not improve. Hence, the agreement
was intended simply to memorialize the agreed-upon financial relationship between an employer and
employee, and Chesire was excluded from most of the rights of a partner.
2. Another factor is the right to share in the profits and losses of an enterprise. The agreement gave
Chesire the right to share in some of the profits, but the losses were to be borne solely by Fenwick.
3. A further factor is ownership, management, and control of the partnership property and business.
Fenwick provided all the capital for the beauty parlor, and the agreement gave Fenwick complete
ownership rights and control over managing the business.
4. Another factor is the conduct of the parties toward third persons. While Fenwick and Chesire told
the Commission they were partners and filed partnership income tax returns, they did not hold
themselves out as partners to anyone else. Fenwick and Chesire carried on their business relationship as
employer and employee.
5. The final factor concerns rights upon termination of the partnership. When Chesire quit her job,
she simply left her position, and the business continued. There was no “winding up the partnership” or
any indication that a partnership had been dissolved. Considering the evidence in light of these factors, it
is clear that Fenwick retained sole ownership in the beauty parlor after the agreement was executed.
6.
Martin v. Peyton. Court of Appeals of New York 158 N.E. 77 (1927)

Rule of Law

In order for a creditor to be a partner in a firm, the creditor must be closely enough associated with the firm so
as to make it a co-owner carrying on the business for profit.

Facts

The brokerage firm of Knauth, Nachod & Kuhne (KN&K) made a series of bad investments, which resulted in
the firm suffering severe financial difficulties. In order to save KN&K, one of its partners, Hall, entered into a
transaction with Peyton (defendant) and other persons (lenders) for a loan of $2,500,000 worth of securities to
KN&K. In return for the loan, the lenders were to receive 40 percent of KN&K’s profits until the debt was
repaid. The transaction was based on three documents: an agreement, indenture, and option. The agreement
provided that: (1) two of the lenders were appointed “trustees” who were to be informed of transactions
affecting them, paid dividends and income from those transactions, had the power to buy and sell their loaned
securities and substitute those securities with those of equal value, but could not commingle those securities
with KN&K’s other securities, and were required to keep the securities valued at a certain level; (2) Hall was
given the power of directing the management of KN&K until the loan was repaid, and his life was to be insured
for $100,000 with the insurance policies given to the trustees as additional collateral; (3) the trustees were to be
kept informed of the important matters of KN&K’s business, could inspect the books, and had the power to veto
certain business decisions that could affect their collateral; and (4) each KN&K member was to assign their
interest in the firm to the trustees, member could receive a loan from KN&K, the members’ draw amount was
fixed, and no other distribution of profits could be made. The indenture was basically a mortgage on the
collateral delivered by KN&K to the trustees. The option: (1) gave the lenders the opportunity to buy into
KN&K by buying 50% or less of the members’ interest at a listed price; (2) enabled the formation of a
corporation to replace KN&K if its members and lenders agreed; and (3) provided for the resignation of any
KN&K member at the demand of Hall. Martin (plaintiff), a creditor of KN&K, sued the lenders, claiming that
their transaction with KN&K, as illustrated by the agreement, indenture, and option, made them partners in that
firm and thereby liable for KN&K’s debts. The trial court held that the lenders were not partners of KN&K.
 Business Organizations 3

Issue

Do agreements intended to protect the financial interests of creditors necessarily make them partners of a debtor
firm?

Holding and Reasoning (Andrews, J. )

No. A partnership is not formed unless two or more parties are closely associated so as to be co-owners carrying
on a business for profit. When, as here, creditors have executed loan documents with a debtor firm that contains
provisions for the collection of collateral, this court must examine the extent to which those documents
associate the creditors with the business operations of the firm. In this case, no partnership was formed. The
agreement’s providing for appointment of two of the lenders as trustees, for example, does not indicate a
partnership. The trustees were in charge only of transactions affecting their collateral, and they were prohibited
from commingling the collateral with KN&K’s other securities. Similarly, Hall’s life insurance and
management power does not imply an association with KN&K because Hall was trusted by the other lenders to
keep an eye on KN&K and work to ensure that it was run efficiently enough to return to profitability and pay
back the lenders. And, the trustees’ veto power does not indicate a partnership, as it gave them the ability only
to safeguard against bad investments concerning their collateral. The trustees had no authority to initiate
transactions on half of KN&K, nor bind the firm by their actions. Further, the assignment of firm interest to the
lenders is not indicative of a partnership, because the intent was to protect the firm’s profits, which represented
the lenders’ compensation for the loan. The indenture was basically a mortgage, containing the terms of
KN&K’s performance of the loan. The indenture did not contain any terms of partnership. The option’s
provision giving Hall the right to demand the resignation of KN&K members was unusual, but as the intent was
to protect the lenders against speculative transactions that could render the option itself worthless, it does not
show that a partnership was formed. Questions of whether a partnership is formed between various entities are a
matter of degree, to be determined on a case-by-case basis. In this case, the loan documents do not show that a
partnership existed between the lenders and KN&K. The judgment of the trial court is affirmed.

Partnership: Fiduciary Duties

pp. 101-107 (Meinhard), 108-113(Sandvick)

Meinhard v. Salmon. Court of Appeals of New York 164 N.E. 545 (1928)

Rule of Law: Co-adventurers, like partners, have a fiduciary duty to each other, including sharing in any
benefits that result from the parties’ joint venture.

In the U.S., punctilio of honor, or the highest standard of honor, is a term used to describe the
level of care and attention that a fiduciary must abide by in his/her conduct to an individual or firm
s/he has fiduciary relationship. ... Loyalty, honesty and good faith constitutes Punctilio of Honor
“Joint adventures, like copartners, owe to one another, while the enterprise continues, the
duty of the finest loyalty….Many forms of conduct permissible in a workaday world for
those acting at arm’s length, are forbidden to those bound by fiduciary ties…Not honesty
alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.”
Meinhard v. Salmon, 164 N.E. 545 (N.Y. 1928), is a widely cited case in which the New York Court of
Appeals held that partners in a business owe fiduciary duties to one another where a business opportunity
arises during the course of the partnership. The court holds that the fiduciary duty of communication was
breached where a partner in a joint venture failed to inform his co-partner of a profitable opportunity that was
offered by a third-party who was ignorant of the partnership. Furthermore, the duty of loyalty was breached
 Business Organizations 4

where the partner appropriated to himself a benefit arising from his status as a partner without allowing his co-
partner an opportunity to compete. This holding relates to the doctrine of corporate opportunity.

Facts: Salmon entered into a lease with the Bristol hotel and wanted to convert it into retail space so he entered
into a joint venture with Meinhard. Meinhard would pay Salmon half the amount required to manage and
operate the property, and Salmon would pay Meinhard 40 percent of the net profits for the first five years, and
50 percent thereafter. Both parties agreed to bear any losses equally. The joint venture lost money during the
early years, but eventually became very profitable. As the Bristol Lease was expiring, a new lessor approached
Salmon about his plan to redevelop the property. Salmon then executed a new lease for other property owned
by the new lessor under his own company. Salmon didn’t inform Meinhard about this, and Meinhard
eventually found out about the 2nd lease and demanded that it be held in a trust as an asset of the joint venture.
Salmon refused and Meinhard filed suit.

Proc. History: The referee entered judgment for Meinhard, giving Meinhard a 25 percent interest in the
Midpoint Lease. On appeal, the appellate division affirmed, and upped Meinhard’s interest in the Midpoint
Lease to 50%.

Issue: Is a co-adventurer required to inform another co-adventurer of a business opportunity that occurs as a
result of participation in a joint venture?

Holding and Reasoning (Cardozo, C.J.)

Yes. As sharers in a joint venture, co-adventurers owe each other a high level of fiduciary duty. A co-adventure
who manages a joint venture’s enterprise has the strongest fiduciary duty to other members of the joint venture.
The Midpoint Lease was an extension of the subject matter of the Bristol Lease, in which Meinhard had a
substantial investment. Salmon was given the opportunity to enter into the Midpoint Lease because he managed
the Bristol Hotel property. Because Salmon’s opportunity arose as a result of his status as the managing co-
adventurer, he had a duty to tell Meinhard about it. Salmon breached his fiduciary duty by keeping his
transaction from Meinhard, which prevented Meinhard from enjoying an opportunity that arose out of their joint
venture. Accordingly, the judgment of the appellate division is affirmed, with a slight modification. This court
holds that a trust attaching to the shares of stock should be granted to Meinhard, with the parties dividing the
shares equally, but with Salmon receiving an additional share. The additional share enables Salmon to retain
control and management of the Midpoint property, which according to the terms of the joint venture Salmon
was to have for the entire length of that joint venture.

Dissent (Andrews, J.)

Salmon did not breach his fiduciary duty to Meinhard. The joint venture’s purpose was to exploit the Bristol
Lease exclusively, for a limited duration of 20 years. Salmon fulfilled his duty to Meinhard by managing the
Bristol Hotel property and distributing Meinhard’s share of the profits during the term of the Bristol Lease.
Salmon’s fiduciary duty to Meinhard was restricted to matters pertaining to the Bristol Lease, and ended
when the Bristol Lease expired. The judgment of the lower courts should be reversed, and a new trial ordered.

Sandvick v. LaCrosse. Supreme Court of North Dakota. 747 N.W.2d 519 (N.D. 2008)

Rule of Law: A joint purchase of a lease for the purpose of selling the lease for profit can constitute a joint
venture.
 Business Organizations 5

Facts: In May 1996, Sandvick (plaintiff), Bragg (plaintiff), LaCrosse (defendant), and Haughton (defendant)
jointly purchased three oil and gas leases (the Horn leases) for the purpose of selling them for profit during their
five-year terms. Empire Oil Company which was owned by LaCrosse, held title to the Horn leases. The
purchase was made using credits that each of the parties had in Empire Oil’s checking account. The Horn leases
had no provisions for extensions or renewals. In November 2000, six months before the expiration of the Horn
leases, Haughton and LaCrosse purchased three five-year oil and gas leases (the Horn top leases) that were, in
effect, extensions of the Horn leases. The terms of the Horn leases and the Horn top leases were identical,
except that Sandvick and Bragg WERE NOT parties to the Horn top leases. Sandvick and Bragg were not
informed of Haughton and LaCrosse’s acquisition. Sandvick and Bragg brought suit against LaCrosse and
Haughton, alleging that they breached their fiduciary duties by failing to offer Sandvick and Bragg the chance
to participate in the purchase of the Horn top leases. The district court ruled that neither a partnership nor a joint
venture existed with respect to the Horn leases and that, therefore, no fiduciary duty was owed.

Issue: Does a joint purchase of a lease for the purpose of selling the lease for profit constitute a joint venture?

Holding and Reasoning

Yes. Here, no partnership existed among the parties. In North Dakota, a partnership consists of two or more
persons who associate to carry on a business as co-owners for profit. A partnership exists where there is: (1)
an intent to be partners; (2) co-ownership of the business; and (3) a profit motive. A business is defined as
a series of acts that are aimed at a particular goal. Here, the parties are not carrying on a business, since the
parties’ purchase of three oil and gas leases for a limited period of time does not constitute a series of acts.
Therefore, the district court properly found that a partnership did not exist.

However, a joint venture did exist among the parties. A joint venture is like a partnership but limited in scope
and duration. A joint venture is found where:
(1) there is a contribution made by each party;
(2) the parties share a proprietary interest and mutual control over the property;
(3) there is an agreement for the sharing of profits; and
(4) there is an agreement showing that a joint venture exists.
Here, the Horn leases were purchased from each party’s Empire Oil credits, the property was titled in Empire
Oil’s name, and the parties intended to sell the leases and share the profits. Thus, a joint venture existed among
the parties. Principles of partnerships apply to joint ventures, such as the duties of loyalty and care. Here,
LaCrosse and Haughton’s purchase of the Horn top leases was incompatible with their duty of loyalty. By
purchasing the Horn top leases six months before the expiration of the Horn leases, LaCrosse and Haughton
created a conflict of interest because it was no longer in their best interest to sell the Horn leases before they
expired. The duty of loyalty required LaCrosse and Haughton to offer Bragg and Sandvick the opportunity to
participate in the purchase the Horn top leases. Therefore, the decision of the district court is reversed.

Dissent

Even if a joint venture was in fact formed, it is possible that the parties agreed to limit their duty of loyalty.
However, this court simply presumes that a full duty of loyalty existed. In the absence of a written contract, the
majority should not overlook the district court’s findings of fact, which were made after the district court had
the benefit of seeing and hearing the witnesses before determining the scope of the parties’ obligations.
Therefore, the judgment of the district court should be affirmed.

 Revised Uniform Partnership Act §202: A “business” is defined as a “series of acts directed
toward an end”, and includes every trade, occupation, and profession.
 The existence and scope of a fiduciary duty depends upon the language of the parties’ agreement.
 Business Organizations 6

 Principles of partnership law apply to the joint venture relationship.

 UPA 1997 §404(a): A partner owes duties of loyalty and care to the other partners.
o A. To account to the partnership and hold as trustee for it any property, profit, or benefit
derived by the partner in the conduct and winding up of the partnership business or
derived from a use by the partner of partnership property, including the appropriation of a
partnership opportunity;
o B. 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;
o C. To refrain from competing with the partnership in the conduct of the partnership
business before the dissolution of the partnership.

Partnership: Management
pp. 130-139

 The Rights of Partners in Management

o UPA 18(e): In the absence of an agreement to the contrary “all partners have equal rights
in the management and conduct of the partnership business”
o UPA 18(h): Any difference arising as to ordinary matters connected with the partnership
business may be decided by a majority of the partners.
 Articles of Parnership

National Biscuit Company v. Stroud. Supreme Court of North Carolina (1959)

Rule of Law
 In a general partnership with two partners, each party has the power to bind the partnership in matters
pertaining to the partnership’s business.
 What either partner does with a third person is binding on the partnership.
 All partners are jointly and severally liable for the acts and obligations of the partnership.
 One co-partner cannot restrict the other co-partner for ordinary matters connected with the partnership
business.
Facts
Stroud (defendant) and Freeman formed a general partnership to sell groceries. The partnership agreement did not
limit either partner’s authority to conduct ordinary business on behalf of the partnership. Several months before
the partnership was dissolved, Stroud told a National Biscuit Company (NBC) (plaintiff) official that he would not
be personally liable for any bread sold to the partnership. Freeman subsequently ordered more bread on behalf of
the partnership, and NBC delivered that bread to the partnership. Shortly thereafter, the partnership was dissolved,
and Stroud refused to pay for the bread delivered at Freeman’s behest. NBC sued the partnership and Stroud for
the price of the bread. The trial court found in favor of NBC.
Issue
Can one general partner restrict another partner from conducting business on behalf of a two-person partnership?
Holding and Reasoning (Parker, J.)
No. Each partner has an equal right in the management and conduct of a partnership, and differences within a
partnership are decided by a majority of the partners. However, when there are only two partners there can be no
majority, and neither partner can prevent the other from binding the partnership in the ordinary course of business.
Freeman’s purchase of bread was a binding transaction, done pursuant to the partnership’s business. Stroud, as
Freeman’s sole co-partner, had no authority to negate Freeman’s purchase. The partnership sold the bread that
 Business Organizations 7

Freeman bought, and consequently Stroud, as well as Freedman, benefited from that purchase. The judgment of
the trial court is affirmed.

Summers v. Dooley. Idaho Supreme Court (1971)

Rule of Law
In a general partnership, each partner has an equal right in managing the partnership’s business.

Facts
Summers (plaintiff) and Dooley (defendant) were co-partners in a trash collection business. Both partners
operated the business. The partners agreed that when one partner was unable to work, he could hire a
replacement at his own expense. Several years after the formation of the partnership, Summers asked Dooley if
he would agree to hire an additional employee. Dooley refused, but Summers hired the worker anyway and paid
him out of his own pocket. In spite of the fact that the new worker was a good employee, Dooley would not
agree to pay him out of the partnership funds. Summers sued Dooley, seeking reimbursement for the expenses
Summers incurred in hiring the new employee. The trial court granted Summers only partial relief, which he
appealed.
Issue
Is a partner who refused to hire an additional employee liable to a co-partner for expenses incurred in hiring a
new worker?
Holding and Reasoning (Donaldson, J.)
No. In a general partnership, each partner has equal rights regarding the management of the ordinary affairs of
the partnership. Unless there is an agreement to the contrary, differences between the partners about everyday
business are to be decided by a majority of the partners. When a partnership consists of only two partners,
one partner cannot unilaterally bind the partnership by incurring expenses over the objection of the
other. In this case, Summers hired the additional worker after Dooley clearly expressed his objection. Under
these circumstances, it would be unfair for Dooley to be forced to pay an expense that Summers incurred for his
own benefit, rather than for the benefit of the partnership. The judgment of the trial court is affirmed.

“In the case at bar one of the partners continually voiced objection to the hiring of the third man. He did
not sit idly by and acquiesce in the actions of his partner. Under these circumstances it is manifestly
unjust to permit recovery of an expense which was incurred individually and not for the benefit of the
partnership but rather for the benefit of one partner.”

Day v. Sidley & Austin United States District Court, District of Columbia(1976)

Rule of Law: Partners have a fiduciary duty to make full disclosure of information of value to the partnership,
and may not advantage themselves at the expense of the partnership.

Facts
Day (plaintiff) was the senior underwriting partner in the Washington office of the Sidley & Austin law firm
(S&A) (defendant). S&A’s partnership agreement, which Day signed, provided that all matters of firm policy
would be decided by the executive committee, of which Day was not a member. In early 1972, S&A’s
executive committee discussed merging S&A with another law firm (Lieberman Firm). In July 1972, the merger
was approved by a vote of S&A’s underwriting partners. Day himself voted in favor of the merger. After
several more meetings of the underwriting partners, the terms of the merger were entered into an amended
partnership agreement, which Day signed. Soon thereafter, the executive committee of the combined firm
decided to move S&A’s office to a new location and appoint a former chairman of the Lieberman firm as co-
chairman of the new firm. Day resigned soon thereafter, stating that the appointment of the co-chairman and
 Business Organizations 8

office move made his job “intolerable.” Day subsequently filed suit against S&A, alleging that S&A violated its
fiduciary duty by commencing merger negotiations without consulting non-executive committee partners, and
by not informing those partners of the changes that would result from the merger.
Issue
Is it a breach of fiduciary duty for “executive” law firm partners to not consult with all the other partners
regarding proposed changes to the internal structure of the partnership?
Holding and Reasoning (Parker, J.)
No. Partners have a fiduciary duty to act in the interest of the partnership. Hence, partners may not withhold any
information that results in them being personally enriched while harming the partnership. That did not occur in
this case. The executive S&A partners did not gain financially nor did they increase their authority as a result of
the merger. Those partners were already members of the executive committee and had a good deal of power
within the firm. Moreover, Day himself signed the partnership agreement and the amended agreement, both of
which clearly provided that the executive committee would have authority to make decisions concerning firm
policy. Neither agreement guaranteed that Day would maintain any position of status within the firm either
before or after the merger. Accordingly, Day’s complaint against S&A is denied.
 No court has recognized a fiduciary duty to disclose information regarding changes in the internal
structure of the firm.
 UPA (1914)§29, 31: if one partner retires, the old partnership is dissolved by that retirement and when
the remaining partners continue their practice a new partnership is formed, OR:
o The partners may have a written partnership agreement that specifies what happens when a
partner retires – most particularly, how that partner is paid off for her or his interest in the
partnership.
o Continuation agreement: an agreement obligating the remaining partners to continue to associate
with one another as partners under the existing agreement
 UPA(1997): if a partner retires pursuant to an appropriate provision in the partnership agreement (and
in various other situations), there is a “dissociation” (§601) rather than a dissolution (§801)
o Dissociation: the partnership continues as to the remaining partners and the disassociated
partner is entitled, in the absence of an agreement to the contrary, to be paid an amount
determined as “if on the date of dissociation, the assets of the partnership were sold at a price
equal to the greater of the liquidation value or the value based on a sale of the entire business as a
going concern without the dissociated partner” plus interest from the date of dissociation.

Partnership: Dissolution
pp. 139-143, 149-154

Owen v. Cohen. Supreme Court of California (1941) - DISSOLUTION

Rule of Law: A court may order the dissolution of a partnership when the parties’ quarreling makes it
impossible for them to cooperate, or when one partner’s acts materially hinder the partnership’s business.

Facts

Owen (plaintiff) and Cohen (defendant) entered into an oral agreement to become partners in a bowling alley.
Owen loaned the partnership $6,986.63 to buy the necessary equipment, which the parties agreed would be paid
back to Owen from the profits of the business. While the business proved immediately profitable, the parties
started quarreling over issues such as management and policies of the enterprise, and their rights and duties
under their partnership agreement. Cohen insisted on being the dominant partner, and was openly hostile toward
Owen in front of customers and employees. Cohen refused to do any manual work, and appropriated partnership
funds for personal use. Cohen further demanded that a gambling room be added to the bowling alley, which
 Business Organizations 9

Owen vehemently opposed. The partners’ constant arguments resulted in a steady decline of the bowling alley’s
monthly receipts. Realizing that the parties could not resolve their differences, Owen offered Cohen the choice
of either buying out Owen’s interest in the bowling alley, or selling Cohen’s interest to Owen. Cohen refused to
reasonably entertain either option, insisting that the business be continued until he was ready to sell at a price he
would set himself. Owen subsequently filed an action in equity to dissolve the partnership. The trial court found
that Cohen’s behavior in relation to the business made it impossible for the partnership to continue, and decreed
dissolution of the partnership. The trial court also appointed a receiver to sell the partnerships’ assets, ordering
that Owen receive half the proceeds, plus $6,986.63 as payment for the loan he made to the partnership.

Issue: Should a partnership be dissolved when one partner engages in a series of hostile actions that harm the
partnership?

Holding and Reasoning (Curtis, J.)

Yes. A partner has a duty to act in the best interest of the partnership. When a partner continually antagonizes
the other partner to the extent that business is adversely affected, the partnership can rightly be dissolved.
Cohen contends that he and Owen’s arguments were trivial, and that such minor disagreements do not warrant
dissolution of a partnership. While it is true that small quarrels between partners would not justify breaking up a
partnership, if such quarrels in the aggregate work to the detriment of the partnership’s business, a court will
properly grant a complaint for dissolution. Cohen’s persistent cajoling and belittling of Owen, and his insistence
on having his own way in policy matters, severely harmed the partnership’s business. This is illustrated by the
monthly reduction in gross receipts that grew worse as the partners’ business relations deteriorated. The
evidence shows that under these circumstances, it would be impractical for the partnership to continue. Cohen
also argues that Owen should not be paid $6,986.63 out of the proceeds, as the parties agreed that Owen’s loan
would be repaid from the business’s profits. This court disagrees. Cohen’s behavior made it impossible for
the business continue, let alone remain profitable. Cohen’s acts violated his fiduciary duty to act in the best
interest of the partnership. Accordingly, the trial court was justified in dissolving the partnership, decreeing the
sale of assets, and ordering the distribution of the proceeds as it did. The decision of the trial court is affirmed.

 The general rule that trifling and minor differences and grievances which involve no permanent mischief
will not authorize a court to decree a dissolution of a partnership, however, courts of equity may order
the dissolution of a partnership where there are quarrels and disagreements of such a nature and to such
extent that all confidence and cooperation between the parties has been destroyed or where one of the
parties by his misbehavior materially hinders a proper conduct of the partnership business.
 A cause for judicial dissolution under UPA 1914 §32:
o On application by or for a partner the court shall decree a dissolution whenever…
 A partner has been guilty of such conduct as tends to affect prejudicially the carrying on
of the business.
 A partner willfully or persistently commits a breach of the partnership agreement, or
otherwise so conducts himself in matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership with him..
 Other circumstances render a dissolution equitable.
 Business Organizations 10

Giles v. Giles Land Company. Kansas Court of Appeals(2012) - DISSOCIATION

Rule of Law
Under Kansas law, dissociation is appropriate if a partner engaged in conduct relating to the partnership
business that makes it not reasonably practicable to carry on the business with the partner.

Facts
Giles Land Company, L.P. (partnership) (defendant) was a family-owned farming company. The partners were
all related. The partnership held a meeting to consider converting the partnership to a limited liability company
(LLC). One of the Giles children, Kelly (plaintiff), was unable to attend the meeting, but later received notice of
the partnership’s determination to convert to an LLC. Kelly formally requested the partnership’s books and
records for his review. He was not satisfied with the books and records turned over, so he brought suit against
the partnership and the other partners (defendants), claiming that he was improperly denied access to the books
and records. The defendants filed a counterclaim, arguing that Kelly should be dissociated from the partnership.
The defendants presented evidence that Kelly had threatened them and that the family relationship was broken
beyond repair. The defendants also presented evidence that they did not trust Kelly and vice versa. The trial
court ruled in favor of the defendants on all counts, finding that it was not practicable to continue the
partnership with Kelly as a partner. Kelly appealed the trial court’s order regarding his dissociation from the
partnership to the Kansas Court of Appeals, arguing that he had not engaged in conduct relating to the
partnership.
Issue
Is dissociation appropriate where the partner engaged in conduct relating to the partnership business that makes
it not reasonably practicable to carry on the business in partnership with the partner?
Holding and Reasoning (Green, J.)
1) IMPRACTICABILITY: Dissociation on account of impracticability is based on dissolution law. Dissociation
is appropriate if the partner engaged in conduct relating to the partnership business that makes it not reasonably
practicable to carry on the business in partnership with the partner. Just as “an irreparable deterioration of a
relationship between partners is a valid basis to order dissolution, [it is also, therefore] a valid basis for the
alternative remedy of dissociation.”
Threats + lack of trust – the partnership cannot operate in a meaningful fashion and not as a family business as
intended. They were only talking through attorneys. Lots of animosity.

2) WRONGFUL CONDUCT: Alternatively, dissociation may be ordered if a partner has engaged in wrongful
conduct that adversely and materially affected the partnership.
 Due to Kelly’s wrongful conduct (threats/berating his parents to give him what he wants), the
partnership was essentially at a standstill until the issues with him were resolved. Accordingly, Kelly’s
conduct adversely and materially affected the partnership.

The trial court thus did not err by ordering Kelly’s dissociation. Additionally, the trial court did not err by
finding that Kelly was subject to dissociation for the same actions based on the wrongful conduct route to
dissociation. As a result, the trial court’s ruling in favor of dissociation is affirmed.

 Limited partnership vs. General partnership: have the same economic claims, but only the general
partners have management control and only the general partners are personally liable for the debts of the
partnership.