A basic and well-known principle of partnership law is that, absent an agreement to the contrary, general partners have authority to unilaterally bind the partnership to contracts with third parties.

In New York, the rule is codified in Section 20 (1) of the Partnership Law, which states:

Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership . . .

Generally speaking, partners also have the power to unilaterally convey partnership real property, as codified in Section 21 of the Partnership Law which states, “Where title to real property is in the partnership name, any partner may convey title to such property by a conveyance executed in the partnership name . . .”

Important restrictions exist, though – statutory and potentially contractual – on general partners’ ability to bind the partnership to transactions which may, in effect, cause the dissolution of the business. These restrictions can be a trap for the ill-informed, as emphasized by a recent Brooklyn appeals court decision in Camuso v Brooklyn Portfolio, LLC, 164 AD3d 739 [2d Dept 2018]. Camuso is a reminder that careful due diligence is vital when buying partnership real property. Continue Reading When Dealing in Partnership Owned Real Property, Caveat Emptor

BreakupIt seems that every time I comment on the dearth of business divorce cases involving partnerships in an era increasingly dominated by limited liability companies, up pops a new and interesting decision in a dispute among partners in a general or limited partnership. In this instance, I’m proven wrong by not one but by three recent decisions involving partnership disputes although, I have to point out in my own defense, two of the three spring from what I call legacy partnerships formed in the 1980’s, i.e., before the advent of LLCs in New York.

Camuso

The first is Camuso v Brooklyn Portfolio, LLC, 50 Misc 3d 1226(A), 2016 NY Slip Op 50273(U) [Sup Ct Kings County Mar. 8, 2016], which is making its second appearance on this blog.

My previous post examined a decision almost two years ago by Brooklyn Commercial Division Presiding Justice Carolyn E. Demarest in which she determined that a real estate partnership agreement’s transfer restrictions gave way to a marital divorce settlement conveying half of one partner’s 50% interest to his ex-wife where the other 50% partner, who never formally consented to the conveyance as required by the partnership agreement, nonetheless subsequently ratified the transfer in the partnership tax returns and by prior judicial admissions. Continue Reading A Potpourri of Partnership Breakups

Shifting alliances. Pacts made and broken. Territorial disputes. Sounds like nations at war, but it also describes an unusual, three-way battle over a real estate partnership being waged in Brooklyn Supreme Court in which Commercial Division Presiding Justice Carolyn E. Demarest (pictured) recently dealt with the fundamental question: Can someone become a partner absent compliance with the partnership agreement’s transfer restrictions?

Justice Demarest answered “yes” in a decision earlier this month, in Camuso v Brooklyn Portfolio LLC, 2014 NY Slip Op 50940(U) [Sup Ct, Kings County June 9, 2014]. Essentially, she found that each of the two 50% partners separately had validated the transfer of a 25% interest by one of them to his ex-wife, by means of stipulations in prior legal proceedings and in partnership tax returns identifying the ex-wife as a partner, resulting in a three-way, 50/25/25 partnership.

The ultimate issue in the case is the validity of a $5.9 million contract, executed on the partnership’s behalf solely by the remaining 50% partner, for the sale of the partnership’s realty to a third-party buyer. The court’s ruling didn’t resolve the contract’s enforceability, instead finding an issue of fact whether other provisions in the partnership agreement and the Partnership Law require unanimous partner approval for the sale.

Continue Reading Divorce Settlement, Tax Returns Trump Partnership Agreement’s Transfer Restrictions