Thursday, October 26, 2017
A Label Does Not a Partnership Make
Many partnerships, particularly the real estate development and oil and gas industries, are intentionally formed with written partnership agreements and full understanding amongst the participants as to what are the rights and obligations as partners. There are as well inadvertent partnerships. “Partnership” is a relationship that exist if the statutory definition of what is a partnership is satisfied. Hence, persons can be in a partnership without either knowing that they are partners or, in certain cases, even if they have said they don’t want to be partners. The flipside of that coin is that, even if you say you are partners, if you don’t meet the legal definition of what is a “partnership,” then no partnership comes into existence. It was this latter rule that was recently considered by a New York Court. Hammond v. Smith, 2017 NY Slip Op. 05337, 151 A.D.3D 1896 (App. Div. Fourth June 30, 2017, corrected Aug. 2, 2017).
A partnership is defined at section 6(1) of the Uniform Partnership Agreement as “an association of two or more persons to carry on as co-owners a business for profit.” Section 7 of the UPA goes on to define a number of relationships or features thereof that do not give rise to a partnership. In this instance, the plaintiff alleged that the defendant had breached an oral partnership agreement, the aim of the partnership being to develop and market a lithographic tool. The trial court granted summary judgment, finding that no partnership existed. That determination would be affirmed by the Appellate Division. In that there was no partnership agreement, the court looked: “(1) the parties’ intent, whether express or implied; (2) whether there was joint control and management of the business; (3) whether the parties shared both profits and losses; and (4) whether the parties combined their property, skill or knowledge.” From there, making factual assessments based upon evidence including depositions and affidavits, the court found, notwithstanding the fact that the parties had referred to one another as partners, determined that the necessary elements of a partnership are missing. Citing both UrbanAmerica, L.P. II v. Carl Williams Group, LLC, 95 A.D. 3D 642, 644 (2012) and Kyle v. Ford, 184 A.D.2D 1036, 1036-1037 (1990), it specifically noted that “calling an organization a partnership does not make it one.”
Peter Mahler, in his blog New York Business Divorce, has as well reviewed this decision, that review in a posting on October 23 titled Calling an Organization a Partnership Doesn’t Make it One, But Not Calling it a Partnership Doesn’t Make it Not One. Got It? HERE IS A LINKto that posting.