The Business Divorce Law Report
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.