•Right No. 6. Property Rights. Property acquired by the partnership remains partnership property. [UPA 203]A Partner has the right to bring an action for an accounting during the term of the partnership, as well as on the partnerships dissolution and winding up. [UPA 405]. An individual partner has no right to sell, mortgage, or transfer partnership property. A partner can use or possess partnership property on behalf of the partnership [UPA 401(g)].A partner cannot use partnership property to satisfy an individual debt. A creditor of such a partner can get a charging order to attach the partner’s interest in the partnership;A partner can assign his or her right to receive a share of the profits to satisfy a creditors debt.
Practice QuestionJack and Jill form a partnership to build houses. Jack contributes $100,000 cash + tools worth $50,000. Jill contributes land worth $150,000. Jack is now short of funds and decides to sell the tools he contributed to pay off his personal debt.A.Because Jack originally contributed the tools, he can use them to pay off his personal debt;B.Jill is permitted to mortgage the real property that she contributed in the amount of $50,000, similar to Jack, to pay off her personal debt;C.Jack can’t take his tools back that he contributed to the partnership, but his creditors can take them;D.Jack’s creditors can get a charging order against his share of profits in the partnership.Answer: DOnce the assets are transferred into the partnership, they become partnership property. They are no longer owned by the individual partners. If an individual partner has a creditor, that creditor can get a charging order and attach the partner’s interest in the partnership’s profits and losses. In this case, Jack’s personal creditor’s could get a charging order to satisfy Jack’s individual, non-partnership debt.
PartnershipsDuties and Liabilities of Partners. •Fiduciary Duties. •Partners are fiduciaries and general agents of one another and the partnership.No. 1. Duty of Due Care [UPA 404(a)]Cannot commit grossly negligent, reckless conduct, intentionalmisconduct, or a knowingviolation of law;No. 2. Duty of Loyalty Duty of loyalty requires a partner to account to the partnership. [UPA 404(9a)].Deal in Good Faith, Honesty, Put Partnership first (No self-dealing). •Fiduciary Duties can not be waived.•Key is whether Partner Has Advised Other Partners of Potential Conflict of Interest
PartnershipsExample No. 1. Duty of Loyalty and Due Care.•Jayne Trell, a partner at Jacoby & Meyers, owns a shopping mall. Trell may vote against a J & M partnership proposal to open a competing shopping mall, provided that she has fully disclosed her interest in the existing shopping mall to the other partners at the firm. A partner cannot make secret profits or put elf interest before his or her duty to the interest of the partnership, however.