Meeting 9 - September 14, 1994

Minutes of ninth meeting of the Ad Hoc Partnership Laws Committee, held on September 14, 1994. These minutes were prepared by J. Dennis Hynes.

Persons attending the meeting: Wanda J. Abel, H. Gregory Austin, Clifford J. Calhoun, J. Dennis Hynes, Robert R. Keatinge, and James R. Walker.

Mr. Austin appointed Mr. Walker to review the Texas RUPA and to call to the attention of the committee any changes made by the Texas act to provisions of RUPA (1994) under review by the committee.

Definitions of the words "includes" and "means" were added to the Cumulative Changes to RUPA as §§ 12.1 and 12.2. They are based on definitions in the Corporate Code.

SECTION 404. GENERAL STANDARDS OF PARTNER'S CONDUCT.

The committee returned briefly to the language of the new Section 404(a). It was resolved to change the conjunction "and" in § 404 (a)(1) to "or" in order to parallel the usage in § 404(a)(2), but not to change the conjunction in § 404(b) because the language of RUPA fit more comfortably the meaning being expressed in that section.

The rest of the meeting was devoted to consideration of renumbered provisions (c) through (e) of Section 404. A lengthy discussion followed a suggestion to move the new § 404(c), addressing the obligation of good faith and fair dealing, to § 404(a) as a new part (4). It was resolved to leave the section where it is on the reasoning that the obligation of good faith and fair dealing was intended to play a role similar to the role it plays in the Uniform Commercial Code and the Restatement of Contracts, as an implied term of all contracts. To move it to § 404(a) as a new part (4) would be to change its status to that of a separate and independent duty of partners and thus lose sight of the more limited role envisioned by the drafters of RUPA for the obligation of good faith and fair dealing.

The wording of § 404(c) was changed to broaden the scope of (c) to include duties arising outside of RUPA and the partnership agreement. The section as reworded is contained below:

The wording of § 404(d) was changed both to conform the wording to subsection (a) and to add a sentence drawn from the Delaware Limited Partnership Act directed at protecting partners who act in good faith in reliance on the partnership agreement. It was recognized that the sentence added to (d) might more appropriately belong elsewhere in RUPA and thus it was resolved to place § 404(d) on watch pending resolution of the issues surrounding § 103. The section as reworded is contained below:

With regard to § 404(e), dealing with transactions between a partner and the partnership, the committee endorsed the intent of that section to allow a partner to exercise rights arising under a transaction (such as foreclosure rights) the same as those of a person who is not a partner, but thought it should be made clear that when entering into a transaction a partner owed duties different from an outsider. The committee was concerned that subsection (e) could be read in a manner that would destroy any fiduciary duties a partner would owe the partnership even at the beginning of a transaction. The wording of (e) was changed in the following manner in order to address this issue:

It was resolved to address the issue of pre-formation duties among partners at our next meeting, to be held on September 28.