Articles Tagged with partnership disputes


Uniform Partnership Act Limits Remedy

If a partner dies after having allegedly misappropriated partnership funds, do the other partners have a right to pursue his estate? The answer appears to be no, according to a recent Chancery Court decision.

The decision in In re Genet, Docket No.: ESX-C-44-11 (Oct. 13, 2011) was decided under the now repealed Uniform Partnership Act – yet another warning to partnerships formed before December 2000 that if they want the newer law to apply, they should amend the partnership agreement to say so.

In granting a motion to dismiss the claim of the surviving partner seeking to require his nieces to account for the misappropriations of their father, Chancery Judge Walter Koprowski held that the statutory language that created an obligation of the partnership to account to the estate of a deceased partner was not reciprocal. It did not create a similar obligation of the estate to account to the partnership for the wrongful acts of the deceased partner.

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Partnership Interest Secretly Transferred to Family Member

Does a partner have an obligation — separate and apart from the terms of a partnership agreement — to disclose the fact that one of the partners has transferred their interest to another member of the partnership?

The question seems to answer itself.  Of course it is.  After all, is there anything more material to the business of a partnership than the identities of the partners?  But in a case earlier this year involving a secret transfer from a mother to one of her sons, the New Jersey Appellate Division’s came to the contrary conclusion.  The narrow reading given by the court to the Uniform Partnership Act and its failure to find that there was a duty to disclose the transfer is troubling.


Fiduciary Duties under the Uniform Partnership Act

The question that is lurking in this decision, Taylor v. Taylor, Docket No. A-4363-09T1 (N.J. App. Div. July 8, 2011), is whether the adoption of the UPA fundamentally altered the relationship between the partners of a partnership, and whether precedent going back to the early 20th Century is still good law.  The Taylor decision suggests it is not.

I do need to confess my personal bias.  I think the current trend of allowing parties in a business relationship to contract away basic principles of honesty and loyalty, demonstrated by statutory and occasional court approval of agreements that eliminate fiduciary duties, is a bad idea.  In my opinion, it’s like the Japanese gangster who willingly cuts off his own fingertip to atone for a mistake.  The fact that the Yakuza participated in the wrong done to himself doesn’t make it right.  On the other hand, I appear to be in the minority and the drafters of the Uniform Partnership Act, adopted in New Jersey in 2000, and a growing number of courts seem to think otherwise.

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