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FIDUCIARY DUTIES OF PARTNERS

What you need to know:


UPA
o UPA 21: Contains description of fiduciary duties, but only says
partners must not steal from partnership.
o UPA 19, 20, 22 -> supplements UPA 21.
o UP 4(3) -> incorporates law of agency -> means courts are generous
about imposing fiduciary duties on partners under the UPA.
RUPA
o 404 -> Partners owe duty of loyalty and care.
o RUPA narrow broad duties imposed under UPA.
404(b): Limits duties to:
Anti theft
No self-dealing
No competing against partnership
103(b)(3) -> partners can narrow duty of loyalty by
contract.
* can not completely rule out by the contract
* the policy reasons to narrow the duty of loyalty by RUPA:
Agent rule is for the interest of the principals, while the partnership is for all
the partners.
Mutual belief and close relationship and the possibility of the agreement.
404(c): Limits duty of care to:
restriction on grossly negligent, reckless, intentional,
conduct.
* the definition of the gross negligence
* why impose lower negligence: chilled the decision making and investment.
No floods of cases or disputes in the courts
Encourage the partners self-regulation
103(b)(4) -> partners may modify duty of care by
contract, but may not unreasonably reduce duty of care.
404(d)
Obligation of good faith and fair dealing
* track of pennies
Also be aware of 404(e).
* just because the partner acts for his own interest doesnt mean violation of
fiduciary duty
Meinhard v. Salmon 1928, NY
o Facts:
Gerry leased Hotel Bristol to Salmon.
Salmon got Meinhard to give the money so that Salmon
could reconstruct, alter, mangem and operate the property.
Salmon & Meinhard = coadventurers, subject to fiduciary
duties.
Gerry offers to renew lease with Salmon. Salmon renews lease
through his own company.
He never tells Meinhard.
Meinhard sues Salmon for breach of fiduciary duty.
o Lower Court:
Gave 25% of value of new lease to Salmon, on cross appeal
went up to 50%.
Salmon appealed.
o Cardozo:
Joint adventurers of the finest loyalty to one another while
enterprise continues.
Salmon has a duty to give his coadventurer a chance to
compete, a duty to disclose the opportunity.
o Remedy:
Salmon gets + 1 share ownership. Meinhard gets all the rest.
o Dissent:
Venture was meant to be a limited one. No intent to expand
into far greater undertaking lasting many more years.

* There is no necessity of disclosing to Meinhard since the evidence could prove that
he didnt have the money to participate in the deal? No. He might get able to loan
funds.
* flowering language: vagueness to scare off those who wants to dodge the law; still
bright line is also advantageous in some ways
* the remedy for a violation of fiduciary duty is high.
Disgorgement
Punitive, to punish
* efficient breach the goal of the remedy of the breach of the contract is to get even,
then in some cases, to breach could be settled by both parties
* Salmon was self-dealing.
* Salmon could probably not be offered to the transaction if the lease was in L.A.
* The reason to impose higher fiduciary duty on the manager is just like the more
skillful you are the more responsible you are.
* Fiduciary duties arise when somebody entrusts the interest or wealth to
somebody else, the somebody else have discretion about how to manage the wealth.
Thus creating an vulnerable position of those entrusting party which requires the
protection of the fiduciary duty.