Professional Documents
Culture Documents
March, 1991
BIO:
* Assistant Professor, Washington and Lee University School of Law. B.A. 1976, Yale
University; J.D. 1979, Yale University. The assistance of the Frances Lewis Law Center,
Washington and Lee University, is gratefully acknowledged.
LEXISNEXIS SUMMARY:
... American business has discovered the joint venture. ... "Things
affecting the partnership," the disclosure of which would be harmful
to the participant, would parallel the information that the joint
venture would require for its internal use (for example, Delta's plans
to expand or curtail service to various locations, American's
occupancy statistics on the various routes, or a plan to merge Delta
and another airline). ... The partners in a sophisticated joint venture
may by written agreement limit the access of any or all of them to
designated partner or venture information. ...
TEXT:
[*706] American business has discovered the joint venture.
Especially in certain high-tech industries n1 and sectors of the
economy with a strong international potential, n2 the joint venture is
being touted as the answer to problems ranging from the need to
minimize risk in high technology projects, n3 to difficulties in capital
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formation, n4
to excessive government regulation, n5 to a need to
[*707] bring new techniques into aging American industries, n6 to a
lack of competitiveness in international markets. n7 As one writer put
it, some American companies have "gone consortia-crazy." n8
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participants in some cases appear to act as if they are free to
establish the terms and conditions of the joint venture by contract,
unconstrained by either statute or common law. n18
The stakes can be quite high. Even if one discounts GM's internal
high-tech base, a secondary disclosure problem could arise with
respect to GM's other joint ventures. The American car [*714] maker
"has moved aggressively to weave new technologies into every aspect
of its business . . . [a]nd for the first time in its history, GM has made
investments in several small venture companies in fields ranging from
artificial intelligence to machine vision as a means to keep abreast of
relevant technologies." n33 Participants in those joint ventures could
justifiably have a concern over the dissemination to Toyota of
information from those ventures. These two examples illustrate the
complexity of the technology-transfer issues when joint venture
participants are involved in multiple high-tech joint ventures.
ld th i
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would otherwise wish to keep confidential from each other. The same
requirement to keep certain participant information confidential would
arise if a consortium of computer software companies was developing
a programming protocol to ease data transmission between different
software programs. Each individual participant might want the
consortium to have access to its source code, n35 while still
maintaining confidentiality vis-a-vis the other participants.
t i d i it b k f th i di id l ti i t n52
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contained in its books from the individual participants. n52
The high-tech joint venturer might gain some comfort in the fact that,
at least at common law, the right of inspection was seen as limited to
inspection for a proper purpose. n62 Reliance on this point, however,
should be tempered by caution. On its face, section 19 does not
impose a proper-purpose test for partnership access to the
partnership's books; the right to inspect is not qualified. n63 This
The only saving grace, and it is not complete, is that the disclosure
requirement of UPA section 20 is not self-executing. For the
disclosure obligation to arise, there must be a predicate demand by
another partner. Thus, in the Delta-American situation, Delta's
obligation to disclose its plans to expand or curtail [*727] service to
some locations would arise only upon a reasonably specific request
for information from American. Especially in situations like the Delta-
American joint venture, in which both parties have parallel
information they wish to keep confidential, a self-limiting dynamic
may prevent the request from ever being made. But this self-limiting
dynamic is not always present. Consider the Ampligen joint venture.
HEM, essentially a one-product pharmaceutical development
laboratory, would have everything to gain and nothing to lose from
asking Du Pont to disclose information known to the large corporation
that might affect the partnership. The scope of such information
would at the very least include data on other AIDS drugs that Du Pont
has under in-house development, that Du Pont is developing jointly
with other partners, or that Du Pont knows other parties are
developing. The reciprocal request could have little, if any, value to
Du Pont. In a situation with this type of asymmetry, the mutuality of
obligation presents little comfort to the party with more information.
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By its terms, the UPA did not displace the common law. n86 It is clear
that some circumstances give rise to a partner's affirmative obligation
to disclose, even absent a demand from a copartner:
Joint venture participants can take some steps under the present
regime to avoid this problem. One strategy is to remain in the joint
venture even after it ceases to have any future. Thus, the party with
confidential information does not have to disclose the information
that would bear on the value of the interest. This obviously may not
be a realistic option if the joint venture has a continuing right to call
upon the participants for resources, if there is potential liability from
remaining in the joint venture and the liability is not balanced by the
prospect of some gains, or if the flow of information is such that the
knowledgeable participant needs to extricate itself from the venture in
order to pursue the newly presented opportunity. n95 Another possible
strategy would be to grant each participant a put, with the price to be
either fixed or established on the basis of an agreed-upon formula,
since the disclosure obligation is inoperative when the sale price is
automatic. n96 This, however, is of limited utility. It is certainly not
the normal case to have such a fixed-price put for what are typically
quite speculative ventures.
By reading the "on demand" language out of UPA section 20, the
synthesized obligation is made self-executing. By glossing over the
common-law limitation of the disclosure requirement to certain well-
defined factual situations, the synthesized obligation is made plenary.
n98
The process of developing a revision of the UPA has involved both the
American Bar Association (ABA) and the National Conference of
Commissioners on Uniform State Laws (Conference). In January of
1986, the ABA's Uniform Partnership Act Revision Subcommittee of
the Committee on Partnerships and Unincorporated Business
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Organizations, Section of Corporation, Banking and Business Law,
issued its report. n108 The Conference's Drafting Committee to Revise
the Uniform Partnership Act followed and, in the fall of 1989, issued
an initial discussion draft of the Revised UPA to the Conference. n109
Although the proposals for revision are not yet final, n110 some broad
themes are clear: for example, a rejection of the aggregate theory of
the UPA in favor of a modified entity theory as the basis for the
revised act. n111 With regard to the concerns of high- [*742] tech
joint venturers, the results are mixed.
Neither the ABA Report n112 nor RUPA n113 proposes any modification
of the language of UPA section 18(e) n114 that would undermine the
validity of the Eisenberg implied disclosure analysis. n115 Indeed, the
drafters of RUPA-89 refer to the Eisenberg analysis with apparent
approval in the comment to section 18. n116 But the drafters decline
to codify the routine operational disclosure requirement.
The UPA does not specifically allow the parties to agree to restrictions
on the information required to be disclosed. Under the Eisenberg
analysis, the only way for participants to limit the information
required to be disclosed to participants is to exclude such participants
from the decisionmaking process. The RUPA drafters take a radically
different approach. Under section 4X the parties are free to make
agreements limiting the availability of information. While this may be
an appropriate provision for high-tech joint ventures among
sophisticated parties represented by counsel, such an ability to
restrict information by agreement invites abuse in partnerships
involving less sophisticated participants and is inappropriate as a
general revision of partnership [*743] law. n117
The Conference drafters adopted the major thrust of the ABA draft and
expanded upon the theme. n124 The Conference draft proposes that
references within the section be expanded from "partnership books"
to "partnership books and [*744] records." n125 While generally
adopting the ABA committee's analysis, the Conference drafters felt
that the comment to the section
(b) Partners and their agents and attorneys may have access to
partnership books and records. Former partners may have access to
books and records pertaining to the time when they were partners. A
Although the ABA committee did not suggest specific language, the
following provisions would be a fair rendition of section 20(b) as
proposed by the ABA committee:
(b) Partners shall render, to the extent the circumstances render it
d bl
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just and reasonable and subject to the reasonable agreement of the
partners, true and full information on all things affecting the
partnership to any partner or the legal representative of any deceased
partner or partner under legal disability.
(b) Partners shall [render on demand] have the right, to the extent
just and reasonable, to true and full information of all things affecting
the partnership [to any partner or]. This is also the right of the legal
representative of any deceased partner or partner under legal
disability. By agreement, partners can reasonably restrict the right to
information about the partnership [*748] business. n138
(a) The partnership books and records, if any, shall be kept at the
principal place of business of the partnership.
(b) Partners[,] and their agents and attorneys [shall] may have access
t t hi b k
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to partnership books and records. Former partners [shall] may have
access to books and records pertaining to the time when they were
partners. [Subject to reasonable restrictions by agreement,
partnership books and records may be inspected and copied] A
partnership must provide the opportunity to inspect and copy books
and records during ordinary business hours. [The] A partnership may
impose a reasonable charge, covering the costs of labor and material,
for copies of any documents [provided] furnished to a partner.
The ABA committee cites Crane and Bromberg on Partnership for its
contention that the Georgia formulation is a more accurate rendition
of the common-law disclosure obligation. n151 But that treatise
reflects the analysis that the information required to be disclosed by
demand under section 20 of the UPA differs from the information
required to be disclosed even without demand under the common
law:
Properly read, Crane and Bromberg simply state that UPA section 20
did not change the common-law disclosure requirement; "in certain
circumstances," voluntary disclosure remains necessary as provided
under the common law.
Thus, the ABA committee's efforts can be criticized for misstating the
common-law duty to disclose, for trying to transform section 20 from
a remedial measure into a standard operating procedure, and for
creating a disclosure mechanism that will be unworkable in practice.
the ABA report suggested that UPA section 20 "be stated as a 'rights'
section rather than a duty section." n156 The ABA report, however,
does not make such a recommendation with specific reference to UPA
section 20, either in the summary n157 or in the body. n158
Furthermore, the summary specifically speaks in terms of "the
obligation of a partner to render information about the partnership
business to his fellow partners." n159
The RUPA language is notable, however, as much for what it does not
do as it is for what it does. In RUPA-89 the drafters defined
"partnership business" as "the scope of business activity set forth in
the partnership agreement or actually being conducted by the
partnership." n167 This was narrowed in RUPA-90 to define
partnership business as "the scope of business activity authorized by
a partnership agreement." n168 Rather than limit the required
disclosure to "true and full information of all matters of partnership
business," the drafters retained the substantially broader "true and
full information of all things affecting the partnership" in RUPA-89
and adopted the arguably narrower construction "true and full
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and adopted the arguably narrower construction true and full
information concerning the partnership" in RUPA-90. n169
There were several problems with the proposed language, not all of
which are resolved in the RUPA-90 draft. First, the focus of the
allowance in RUPA-89 was wrong. By using the more restrictive
formulation of "partnership business" rather than the broader
formulation of "all things affecting the partnership," the language
allowing intrapartnership agreements did not allow one type of
restriction -- relating to internal participant knowledge not directly
related to partnership business -- that is of critical concern to high-
tech joint venturers. This problem is resolved in the RUPA-90 draft,
B. The Proposal
(f) All partners shall have equal rights in the management and
conduct of the partnership business, which rights shall entitle
[*760] each partner to such information from the partnership
concerning the partnership business as is reasonably required for the
exercise of such rights, without any demand by such partner.
(9) "partnership books and records" means (a) the media containing
any information required by applicable statutes, rules, regulations,
GAAP or the partnership agreement, or required for the preparation of
the partnership's tax returns or financial statements, including all
information on any supporting or explanatory schedules and notes,
and all information required to support, clarify or call into question
such tax returns and financial statements (the "required partnership
books and records"), together with (b) the media containing any
information maintained in fact within the partnership's control in
addition to that set forth under (a) (the "optional partnership books
and records"); subject in either case to destruction pursuant to
[*761] a commercially reasonable document/information destruction
policy of general application.
3. Section 20
(1) Partnership Tax Returns: Promptly after their being filed, a true
and complete copy of the partnership's federal, state and local income
tax returns for each year, together with all supporting schedules.
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Subsection (a) introduces some basic concepts and sets forth the
information that a partner should receive from any copartner
possessing the information without any triggering demand. First, the
subsection looks both to the right of the receiving party (designated
the "recipient") to the information and to the duty of the disclosing
partner (designated the "discloser") to make the disclosure. As
structured, the class of disclosers is limited to partners "possessing
such information." Thus, the disclosure mechanism does not
contemplate an affirmative obligation that partners seek out such
information if they do not already possess it. Within subsection (a),
there are two categories of information: "partnership transactions"
and "transfers of partnership interests." These conform to the
categories of information that must be disclosed without demand
under the common law. The definition of partnership transactions in
(a)(1) is plenary, "commercial transactions between the discloser and
the partnership," with an exclusion for transactions that are both
incidental to the business of the partnership and on terms and
conditions generally available in a recognized market. Paragraph (a)
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(2) tracks the common-law disclosure situation in which one partner
is either selling or purchasing a partnership interest in a transaction
with another partner. The [*764] paragraph applies only as to sales
between partners. It does not create a disclosure obligation when a
partnership interest is sold to a third party.
Perhaps the most significant change my draft makes from UPA section
20 is in the definition of the classes of information that are subject to
disclosure upon demand. UPA section 20 gives the demanding partner
access to "true and full information of all things affecting the
partnership." n183 My draft sets forth four categories of information
subject to disclosure on demand: required partnership books and
records, optional partnership books and records, partnership
business, and all things affecting the partnership. The provisions of
(c)(1) and (c)(2) generally follow the recommendations of the ABA
n184 and Conference n185 drafters with respect to the integration of
4. Section 20X
(a) Definitions.
(c) Injunctive and Other Relief. Either the sophisticated joint venture
or any partner therein may obtain an injunction against the exercise
of a partner's right to information under section 20(c), when the
moving partner establishes that the request for information is not
made in good faith and for a proper purpose. The issuing court may
in its discretion fashion a more limited remedy, including but not
limited to an order allowing receipt of the information by the partner
VII. CONCLUSION
Thereupon, with a wink and a nod, those same lawyers and judges
proceeded to argue and decide cases based on a much narrower set
of rules governing the relations of partners among themselves.
Especially when dealing with the partners' obligations to disclose
information to one another, the lawyers and judges circumvented the
impractical results of the Cardozo pronouncement and fashioned a
narrowly defined set of circumstances in which disclosure would be
required.
But you cannot play penny poker in the church basement forever.
Either a young new priest arrives who takes it all too seriously, or the
stakes get too high for it to be a friendly game. In the same way, the
days of the Cardozo wink and nod on joint venture disclosures should
be coming to an end. Like the new priest full of good intentions, the
ABA and the RUPA drafters take seriously the policy statements of the
higher authorities. And like the penny ante card game grown up, the
stakes in high-tech [*774] joint ventures have simply become too
large to depend on the benign neglect of the powers-that-be to
protect the pot.
Legal Topics:
For related research and practice materials, see the following legal
topics:
Business & Corporate LawJoint VenturesFormationBusiness &
Corporate LawJoint VenturesManagement Duties & LiabilitiesMergers
& Acquisitions LawAntitrustJoint Ventures
FOOTNOTES:
n5 For example, a proposed joint venture between Delta Air Lines and
American Airlines to combine their computer reservation systems was
developed in part to overcome "the nagging regulatory issues"
surrounding the two airlines' individually owned systems. Delta Airline
and American Airlines Agreement, PR Newswire, Feb. 6, 1989 (NEXIS,
Current library). The gambit did not succeed; the airlines announced
abandonment of the joint venture when the Justice Department
announced that it would initiate a civil antitrust suit to block the
combination. Washington Roundup, AVIATION WEEK AND SPACE
TECH., June 26, 1989, at 27.
n10 Armstrong, Charlap-Led HEM Revs Bid to Restore Its AIDS Drug,
Phila. Bus. J., July 24, 1989, at 1, col. 3.
n15 See, e.g., Delta Airline and American Airlines Agreement, supra
note 5.
...
Once past the bar on corporate partners, the common law made few
substantive differentiations between partnerships and joint ventures.
See, e.g., Smith, 77 Ill. 2d at 318, 396 N.E.2d at 527 ("the rights and
liabilities of its members are tested by the same legal principles which
govern partnerships"); Wiley N. Jackson Co., 197 Va. at 67, 87 S.E.2d
at 785 ("The relations of the parties to a joint adventure and the
nature of their association are so similar and closely akin to those of
partners that it is commonly held that their rights, duties and
liabilities are to be tested by rules which are substantially the same as
those which govern partnerships."); 1 A. BROMBERG & L. RIBSTEIN,
BROMBERG AND RIBSTEIN ON PARTNERSHIP § 2.06(a), at 2:42-:43
(1988) ("[M]ost courts have chosen to distinguish between isolated
transactions and continuing enterprises by classifying the former as
joint ventures and applying partnership law with little or no
modification."). The primary differences have been in the scope of
liability for usurpation of partnership/joint venture opportunities and
in the degree to which the partner must refrain from outside business
activities. Id. § 6.07 Lest joint venturers intent on sharp practices
gain too much comfort from the differentiation, however, it should be
noted that the parties in Meinhard v. Salmon were classic joint
venturers and not partners. Meinhard v. Salmon, 249 N.Y. 458, 463,
164 N.E. 545, 546 (1928).
n21 Webber, Ricochet Change Across the Pacific, HARV. BUS. REV.,
Sept.-Oct. 1988, at 144.
n23 Id.
n24 See, e.g., Baillie, Intellectual Property in the U.S. and Research
and Development Joint Ventures, in JOINT VENTURES IN THE UNITED
n26 Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545 (1928).
n27 NBC Sues Sony/Columbia in Video "Plot," L.A. Times, Mar. 16,
1990, at D5, col. 4.
n28 This is of course not the only option. The parties could agree, for
example, that they would have full access to venture information, but
would not make use of the information until the conclusion of the
project. One problem with such a solution is that in order to monitor
compliance, the venturers would have to make their internal
operations open to inspection, thus jeopardizing their purely internal
information. Another problem is that, given the way in which high-
tech information is utilized, it is often extraordinarily difficult and
expensive to prove the use, or misuse, of such information.
n32 Abbott, United Press Int'l, Feb. 7, 1984 (NEXIS, Current library)
(quoting General Motors Corp. Chairman Roger Smith).
n34 NBC Sues Sony/Columbia in Video "Plot," supra note 27, at D16.
n35 The source code is the proprietary operating instructions for the
computer, written in machine-readable language. The smooth
transmission of data between programs might require the programmer
to have access to both the source code of the sending and receiving
computer. This would be particularly true where the source code used
nonstandard or unique coding, which might well be of increased
proprietary value.
n38 See, e.g., Joint Venturing, supra note 13, at 8. This primer on
international joint ventures suggests measures for handling the flow
of information. After noting that one of the joint venturers in the
hypothetical has as a secondary purpose "to obtain for its own
purposes the technology and know-how that will be developed as a
result of the joint undertaking." id. at 17, the authors suggest a
stepped exchange of information. The first step, in the pre-joint-
venture stage, is an information-exchange agreement, under which
...
n42 UPA § 18(e), 6 U.L.A. 213 (1969), provides that, absent the
contrary agreement of the partners, "[a]ll partners have equal rights
in the management and conduct of the partnership business."
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n44 UPA § 20, 6 U.L.A. 256. The Uniform Partnership Act has been
adopted in every state but Louisiana, with the language of § 20 in the
Uniform Partnership Act incorporated into the statute of each adopting
state. ALA. CODE § 10-8-46 (1987); ALASKA STAT. § 32.05.150
(1986); ARIZ. REV. STAT. ANN. § 29-220 (1989); ARK. STAT. ANN. §
4-42-403 (1987); CAL. CORP. CODE § 15020 (Deering 1979); COLO.
REV. STAT. § 7-60-120 (1986); CONN. GEN. STAT. ANN. § 34-58
(West 1987); DEL. CODE ANN. tit. 6, § 1520 (1974); FLA STAT. ANN.
§ 620.655 (West 1977)0; GA. CODE ANN. § 14-8-20 (1989); HAW.
REV. STAT. § 425-120 (1985); IDAHO CODE § 53-320 (1988); ILL.
ANN. STAT. ch. 106 1/2, para. 20 (Smith-Hurd 1987); IND. CODE
ANN. § 23-4-1-20 (Burns 1989); IOWA CODE ANN. § 544.20 (West
1987); KAN. STAT. ANN. § 56-320 (1983); KY. REV. STAT. ANN. §
362.245 (Baldwin 1983); ME. REV. STAT. ANN. tit. 31, § 300 (1978);
MD. CORPS. & ASS'NS CODE ANN. § 9-403 (1985); MASS. ANN.
LAWS ch. 108A, § 20 (Law. Co-op. 1985); MICH. STAT. ANN. §
449.20 (Callaghan 1990); MINN. STAT. ANN. § 323.19 (West 1981);
MISS. CODE ANN. § 79-12-39 (1989); MO. ANN. STAT. § 358.200
(Vernon 1968); MONT. CODE ANN. § 35-10-403 (1989); NEB. REV.
STAT. § 67-320 (1986); NEV. REV. STAT. § 87-200 (1987); N.H.
REV. STAT. ANN. § 304-A:20 (1984); N.J. STAT. ANN. § 42:1-20
(West 1940); N.M. STAT. ANN. § 54-1-20 (1988); N.Y. PARTNERSHIP
LAW § 42 (McKinney 1988); N.C. GEN. STAT. § 59-50 (1989); N.D.
CENT. CODE § 45-07-03 (1978); OHIO REV. CODE ANN. § 1775.19
(Baldwin 1986); OKLA. STAT. ANN. tit. 54, § 220 (West 1969); OR.
REV. STAT. § 68.330 (1989); 15 PA. CONS. STAT. ANN. § 8333
(Purdon 1990); R.I. GEN. LAWS § 7-12-31 (185); S.C. CODE ANN. §
33-41-530 (Law. Co-op. 1990); S.D. CODIFIED LAWS ANN. § 48-3-
11 (1983); TENN. CODE ANN. § 61-1-119 (1989); TEX. REV. CIV.
STAT. ANN. art. 6132b, § 20 (Vernon 1970); UTAH CODE ANN. § 48-
1-17 (1989); VT. STAT. ANN. tit. 11, § 1243 (1984); VA. CODE ANN.
§ 50-20 (1989); WASH. REV. CODE ANN. § 25.04.200 (1969); W.VA.
CODE § 47-8a-20 (1986); WIS. STAT. ANN. § 178.17 (West 1989);
WYO. STAT. § 17-13-403 (1989). Even Louisiana, the only state that
has not adopted the Uniform Partnership Act, has statutory provisions
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He may not exercise his right in a manner that unduly interferes with
the operations of the partnership or prevents other partners from
exercising their rights in this regard.
LA. CIV. CODE ANN. art. 2813 (West Supp. 1990). The Civil Code
further states:
In only three states has the language of § 20 been changed from that
of the Uniform Partnership Act: Florida modifies the Uniform Act text
by moving the phrase "on demand" to the beginning of the section:
"On demand partners shall render true and full information of all
things affecting the partnership to any partner or the legal
representative of any deceased partner or partner under legal
disability." FLA. STAT. ANN. § 620.655 (emphasis added). Georgia
varies the official text to: "Partners shall render, to the extent the
circumstances render it just and reasonable, true and full information
of all things affecting the partners to any partner and to the legal
representative of any deceased partner or of any partner under legal
disability." GA. CODE ANN. § 14-8-20 (emphasis added). Minnesota
makes the words "on demand" into a separate clause, and changes
the word "partnership" to "partnerships": "Partners shall render, on
demand, true and full information of all things affecting the
partnerships to any partner or the legal representative of any
deceased partner or partner under legal disability." MINN. STAT. ANN.
§ 323.19 (emphasis added). Only one state, Georgia, has modified
the uniform language to eliminate the demand component from the
enacted statute. GA. CODE ANN. § 14-8-20.
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n45 Within § 19 the language "subject to any agreement between the
partners" clearly modifies the preceding clause, "[t]he partnership
books shall be kept," and the last clause, "and every partner shall at
all times have access to and may inspect and copy any of them." UPA
§ 19, 6 U.L.A. 254; see also A. BROMBERG, CRANE AND BROMBERG
ON PARTNERSHIP § 66, at 383 n.13 (1968) (characterizing the
language of § 19 as "rather oblique, since the statement is primarily
where they shall be kept, and only secondarily that they shall be
kept")(emphasis in original).
The duty to account for profits made from the unauthorized use of
partnership property under § 21 is self-executing. But this is best
viewed as a modification of the right to an accounting under § 22,
where the benefited partner has all of the information that would lead
the disadvantaged partners to act, and is divulging the information as
trustee for the benefit of the disadvantaged partners.
n50 See id. § 18(e), 6 U.L.A. at 213 ("The rights and duties of the
partners in relation to the partnership shall be determined, subject to
any agreement between them, by the following rules: . . . (e) All
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n52 Exceptions to the general rule are found in some special purpose
joint ventures created under federal law. Under the Steel and
Aluminum Energy Conservation and Technology Competitiveness Act
of 1988, 15 U.S.C. §§ 5101-5110, "[t]he knowledge resulting from
research and development activities conducted under this chapter
shall be developed for the benefit of the domestic companies who
provide financial resources to the program," id. § 5103(b)(3), and the
"results from research and development activities" in the federally
sponsored joint venture can be kept confidential for up to five years,
id. § 5103(b)(4)(A). A parallel provision exists for confidential
information from participants in the National Institute of Standards
and Technology's Advanced Technology Program. Id. § 278n(d)(5).
n53 See, e.g., Saballus v. Timke, 122 Ill. App. 3d 109, 118, 460
N.E.2d 755, 760 (1983) ("As a general rule, one of the ordinary
duties of partners is to keep true and correct books showing the firm
accounts . . ."); 2 A. BROMBERG & L. RIBSTEIN, supra note 18, §
6.05(c), at 6:55 n.17 ("U.P.A. § 19 refers only to 'partnership books,'
which apparently includes only financial records . . ."); A.
BROMBERG, supra note 45, § 66, at 383 (concluding that the
applicable statutes do not specify what types of records are included,
but noting that applicable tax regulations would require financial
records for tax purposes).
n54 See, e.g., Lowell Perkins Agency,Inc. v. Decker, 256 Ark. 211,
212-13, 506 S.W.2d 559, 559-60 (1974) (operation of a garage under
an oral agreement); Royal v. Moore, 580 S.W.2d 159, 160-61 (Tex.
Ct. App. 1979) (operation of apartment building).
n58 In its litigation HEM charged that the access of Du Pont to the
records "violated Food and Drug Administration guidelines." Id. It
should be noted that UPA § 19 gives each partner access to
partnership books "at all times," even the dead of night, and allows
the inspecting partner to "inspect and copy any of them." UPA § 19, 6
U.L.A. 254 (1969).
n60 In the Ampligen case the auditor would be required to probe the
research documentation -- the key to the later controversy between
the parties -- in order to determine whether a loss contingency
needed to be accrued. See supra note 56 and accompanying text. If
the standard for inclusion in the classification "partnership books" is
whether information is required for audit purposes, then the sweep of
the classification would be very broad.
n63 " The partnership books shall be kept, subject to any agreement
between the partners, at the principal place of business of the
partnership, and every partner shall at all times have access to and
may inspect and copy any of them." UPA § 19, 6 U.L.A. 254 (1969)
(emphasis added).
n65 See A. BROMBERG, supra note 45, § 66, at 385 n.31 ("'[The
inspecting] partner's rights are not absolute. He may be restrained
from using the information gathered from inspection for other than
partnership purposes.'") (quoting Sanderson v. Cooke, 256 N.Y. 73,
175 N.E. 518 (1931)).
n66 UPA § 21(1), 6 U.L.A. 258 ("Every partner must account to the
partnership for any benefit, and hold as trustee for it any profits
derived by him without the consent of the other partners from any
transaction connected with the formation, conduct, or liquidation of
the partnership or from any use by him of its property.").
n68 Slingerland v. Hurley, 388 So. 2d 587, 589 (Fla. Dist. Ct. App.
1980).
n69 Peskin v. Deutsch, 134 Ill. App. 3d 48, 54, 479 N.E.2d 1034,
1038 (1985).
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n70 Meinhard v. Salmon, 249 N.Y. 458, 463-64, 164 N.E. 545, 546
(1928). For example, Professor Beane reproduces language from
Meinhard as the introduction to her article discussed in the following
section. Beane, The Fiduciary Relationship of a Partner, 5 J. CORP.
LAW 483, 483 (1980).
n74 While the dissolution situation could be covered under the second
classification, as a transaction between the partners themselves, see,
e.g., Allen v. Sanders, 176 Ga. App. 647, 337 S.E.2d 428 (1985),
transactions between a partner and the partnership during the term of
the partnership should certainly be included and indicate the
appropriateness of a general expansion of the classification.
n75 Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545 (1928).
n77 Peskin v. Deutsch, 134 Ill. App. 3d 48, 479 N.E.2d 1034 (1985).
n79 Johnson v. Peckham, 132 Tex. 148, 120 S.W.2d 786 (1938).
n80 Alexander v. Sims, 220 Ark. 643, 649-50, 249 S.W.2d 832, 836
(1952) ("[W]e think that [the defendant] failed to observe and obey
the rule which requires partners to exercise the utmost good faith in
their dealings with each other," when the defendant, with knowledge
of her partner's impending death, got the unsuspecting but soon to be
deceased partner in the two-person partnership to sign a mutual
agreement giving a deceased partner's interest to the survivor.).
n81 Patrick v. Bowman, 149 U.S. 411, 420 (1893). The Patrick court
faced a situation in which the acquiring partner, who was also the
managing partner, knew of a rich mineral strike prior to the
consummation of his purchase of the partnership interest. The court
noted, but did not rely upon, conflicting evidence of a demand for
information by the seller, and qualified the duty to disclose:
n82 Graham v. Stratton, 339 F.2d 1004, 1008 (7th Cir. 1964).
n83 " Facts, such as those appearing on the firm books, to which all
the partners have equal access need not be divulged." H.
REUSCHLEIN & W. GREGORY, supra note 71, § 189, at 280 (citing
Bradley v. Marshall, 129 Vt. 635, 285 A.2d 745 (1971)).
n85 The Uniform Partnership Act does not, by its terms, affirmatively
provide that the partners are fiduciaries to each other. The only use of
the term "fiduciary" in the Uniform Partnership Act is in the title to
Uniform Partnership Act § 21, "Partner Accountable as a Fiduciary."
UPA § 21, 6 U.L.A. 258 (1969).
n86 Id. § 5, 6 U.L.A. at 19 ("In any case not provided for in this act
the rules of law and equity . . . shall govern."). The nature and extent
of the fit between the Act and the common law has been the source of
varying judicial interpretations, some finding the common law to be
superseded when a topic is covered in the Act, see, e.g., Chien v.
Chen, 759 S.W. 2d 484, 491 (Tex. Ct. App. 1988).
n88 See, e.g., Alexander v. Sims, 220 Ark. 643, 649-50, 249 S.W.2d
832, 836 (1952); Bakalis v. Bressler, 1 Ill. 2d 72, 81-82, 115 N.E.2d
323, 328 (1953); Kreutz v. Jacobs, 39 Ill. App. 3d 515, 519-20, 349
2d 93 9 ( 9 6)
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N.E.2d 93, 95 (1976); Herring v. Offutt, 266 Md. 593, 596-98, 295
A.2d 876, 879 (1972); Johnson v. Buck, 540 S.W.2d 393, 399 (Tex.
Ct. App. 1976).
n90 See, e.g., Joint Venturing, supra note 13, at 17 (citing need for a
pre-memorandum-of-understanding "information exchange
agreement" to provide for confidentiality in the preliminary disclosure
phase).
n96 Graham v. Stratton, 339 F.2d 1004, 1008 (7th Cir. 1964).
n102 See, e.g., Wortham & Van Liew v. Superior Court, 188 Cal. App.
3d 927, 932-33, 233 Cal. Rptr. 725, 728 (1987); Block v. Lea, 5 Haw.
App. 266, 278, 688 P.2d 724, 733, cert. denied, 67 Haw. 685, 744
P.2d 781 (1984); Fouchek v. Janicek, 190 Or. 251, 272-73, 225 P.2d
783, 793 (1950).
n103 E.g., Coleman v. Lofgren, 593 P.2d 632, 636 (Alaska 1979).
Coleman is interesting because the court quoted UPA § 20 with
emphasis on the demand component, and, seeing no evidence of
demand, found for defendant on the nondisclosure claim. The court
did not address any common-law theory requiring disclosure, which
might have been present given the facts of the case.
One way to finesse the demand component while deciding the matter
under UPA § 20 is to find conduct which, although falling short of an
express demand for the specific information later at issue, constitutes
in effect a constructive demand. This is one reading which can be
given to the opinion in Berg v King Cola Inc The case involved an 78/92
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given to the opinion in Berg v. King-Cola, Inc. The case involved an
investor who had been promised stock in a to-be-formed corporation
in return for her investment. The managing partner told the investor
that he had not formed the corporation, when in fact he had formed a
corporation and issued all of the stock to himself. The plaintiff did not
ask whether the corporation had been formed. She asked for her
stock. King-Cola, 227 Cal. App. 2d at 340-41, 38 Cal. Rptr. at 656-57.
The King-Cola court recited that the managing partner "was under a
legal duty to disclose to plaintiff matters affecting their business
relationship," citing UPA § 20 and making no reference to the demand
component. Id. at 341, 38 Cal. Rptr. at 657-58. But, at an earlier
point in the opinion, reference is made to conduct of the plaintiff that
could be taken to constitute a § 20 demand. Id. at 341-42, 38 Cal.
Rptr. at 657-58. Even absent a precisely worded demand, the court
characterized the plaintiff's requests in such a way as to supply the
demand component in § 20:
The use of constructive demand does not evidence the type of merger
and expansion suggested by Professor Beane. The courts are, after
all, finding the predicate demand, or at least its functional equivalent.
n111 See RUPA-89, supra note 18, at i-ii; RUPA-90, supra note 18, at
2 ("The Drafting Committee has recommended a Revised Uniform
Partnership Act ('RUPA') that moves the law of partnership closer to
an entity model. RUPA does not adopt, however, a 'strict' entity
approach."); Revision Report, supra note 107, at 124 ("Because the
'entity theory' avoids a number of technical problems, such as the
authority of a general partnership to sue or be sued in its partnership
name, the subcommittee determined that it should be incorporated
into any revision of the UPA whenever possible and that the
'aggregate theory' should be retained only where it appears to be
essential, e.g., because of tax considerations."). This is, of course, a
reversal of the decision made at the time the Uniform Partnership Act
was drafted. The UPA was adopted by the Conference in 1914 after
twelve years of celebrated debate during which the theoretical
foundation of the Act was changed from the entity theory advanced by
Harvard Dean James Barr Ames to the aggregate theory supported by
Pennsylvania Dean William Draper Lewis.
n124 See RUPA-89, supra note 18, § 19, at 58; RUPA-90, supra note
18, § 20, at 63.
n125 RUPA-89, supra note 18, § 19, at 58; RUPA-90, supra note 18, §
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20, at 63.
n127 Revision Report, supra note 107, at 149; RUPA-89, supra note
18, § 19 comment, at 59; RUPA-90, supra note 18, § 20 comment, at
64-65.
n140 UPA § 18, 6 U.L.A. 213, contains prefatory language that "[t]he
rights and duties of the partners in relation to the partnership shall be
determined, subject to any agreement between them, by the following
rules." (emphasis added). RUPA-89 and RUPA-90 § 18 delete the cited
language but achieve the same result as to § 18 through a new
section, designated § 4X, which "lists the provisions of RUPA that
cannot be varied by agreement" and does not include § 18 in the list.
RUPA-89 supra note 18 § 18 comment at 51; see id § 4X at 7-8 &
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§ 18 comment, at 51; see id. § 4X, at 7 8, &
§ 18 comment, at 51; RUPA-90, supra note 18, § 4X, at 11-12, & § 18
comment, at 57.
n149 " Partners shall render, to the extent the circumstances render it
just and reasonable, true and full information of all things affecting
the partners to any partner and to the legal representative of any
deceased partner or of any partner under legal disability." GA. CODE
ANN. § 14-8-20 (1989) (emphasis added).
The ABA committee did in addition indicate that the partners would be
able to agree to "reasonable" modifications of the disclosure
obligations. Revision Report, supra note 107, at 150-51.
n153 The drafters seemed in the earlier draft to concede that the
obligation cannot be completely self-executing, with their observation
that the comments "should give some guidance on the extent to which
information must be provided whether requested or not." RUPA-89,
supra note 18, § 20 comment, at 61. That position, however, may be
changing; the RUPA-90 comment changes the statement that guidance
should be given into a question: "Should Comment give some
guidance on the extent to which information must be provided even if
not requested?" RUPA-90, supra note 18, § 20 comment, at 66.
n155 RUPA-89, supra note 18, § 20, at 59; RUPA-90, supra note 18, §
20, at 63.
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n160 RUPA-89, supra note 18, § 18 comment, at 51. The language is
not included in the comments to RUPA-90. See RUPA-90, supra note
18, § 18 comment, at 57-61.
n164 This certainly is not to suggest that the problems of the RUPA
drafts are problems inherent in a structure based on a right to obtain
information. A full definition could obviously be created using either
basis. It is merely to observe that the change in basis created
problems in the new structure, and these problems have not been
addressed.
n166 RUPA-89, supra note 18, § 20, at 59. RUPA-90 includes the "just
and reasonable" modifier while changing the definition of what
information is to be disclosed to "true and full information concerning
the partnership." RUPA-90, supra note 18, § 20, at 63.
n169 RUPA-89, supra note 18, § 20, at 59-60; RUPA-90, supra note
18, § 20, at 63.
n171 RUPA-90, supra note 18, § 4X, at 11-12, & § 20, at 63.
n175 In its present form § 18(e) provides that, absent the contrary
agreement of the partners, "All partners have equal rights in the
management and conduct of the partnership business." UPA § 18(e),
6 U.L.A. 213 (1969). Under the RUPA drafts the provision is
renumbered as § 18(f), and the ability to modify is moved from the
introductory clause of § 18 to a new section designated § 4X, which
provides that "[u]nless the partnership agreement provides otherwise,
the provisions of this [Act] govern ["the" in RUPA-89] relations
among the partners." RUPA-89, supra note 18, § 4X, at 7; RUPA-90,
supra note 18, § 4X,at 11. Proposed § 4X does list several sections
that cannot be modified by the partnership agreement, and § 18 is not
included. Between RUPA-89 and RUPA-90, the drafters changed the
order of the clauses in § 4X, but not the content, and augmented the
listing of sections not subject to variation in the partnership
agreement. Neither change restricts the ability to modify the
provisions of § 18(e), now § 18(f), by agreement. Compare RUPA-89,
supra note 18, § 4X, at 7-8 with RUPA-90, supra note 18, § 4X, at 11-
12.
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n178 Note that under the draft language at (f)(1), the term "partner"
includes "the legal representative of any deceased partner or partner
under legal disability, [and] former partners to the extent the
information at issue pertains to the time when they were partners."
See supra subsection VI.B.3.
n179 " Partners shall render on demand true and full information . . ."
UPA § 20, 6 U.L.A. 256 (1969).
n182 Berg v. King-Cola, Inc., 227 Cal. App. 2d 338, 341-42, 38 Cal.
Rptr. 655, 657-58 (1964).
n185 RUPA-89, supra note 18, § 20, at 59; RUPA-90, supra note 18, §
20, at 63.
n191 Algernon Blair Group, Inc. v. Corneal, No. 86-4465 (E.D. Pa.
Feb. 18, 1988)(LEXIS, Genfed Library, Dist file); see supra note 72
and accompanying text.
n193 Revision Report, supra note 107, at 150; RUPA-89, supra note
18, § 20 comment, at 59; RUPA-90, supra note 18, § 20 comment, at
63.
n194 Revision Report, supra note 107, at 150; RUPA-89, supra note
18, § 20 comment, at 59; RUPA-90, supra note 18, § 20 comment, at
63.
n199 Meinhard v. Salmon, 249 N.Y. 458, 463-64, 164 N.E. 545, 546
(1928).
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