Friday, February 19, 2016
I love your most recent post, Josh, and have been truly enjoying the ensuing commentary/conversation. I took on the “is it a contract?” issue in the LLC context because of questions similar to those raised in your post and in the comments it generated. I admit that the partnership issue on which you posted has fascinated me for quite some time. (I first encountered it when I undertook to teach Business Associations almost 16 years ago . . . .)
I have to push back on your analysis a bit, however. In particular, here’s the part of your post with which I have some trouble:
There must be an agreement to associate for a purpose. To me, that requires consideration and assent. If one has associated sufficiently under the law to make one both a partner and an agent of another (and thus liable for the partner), I don’t see how there is a lack of sufficient consideration or assent to form a contract.
Why does an association for a purpose require an agreement? To "associate" is to combine, connect, or link. The concept of an association builds from that: "connection or combination" or "an organization of people with a common purpose and having a formal structure." It is clear in the comments to the RUPA that the drafters use "associate" and "association" in these common forms. In fact, the drafters refer to various forms of association created under other statutes, including “corporations, limited partnerships, and limited liability companies.” See RUPA Section 202, cmt 2.
It is the association--of two or more persons to carry on as co-owners a business for profit--that creates an agency relationship and third-party liability for the obligations of the firm (unless the parties separately agree to those matters--which they may do independently or coincident with the formation of a partnership). Those parts of the relationship are attributes of a partnership--aspects of the relationship that flow from the legal conclusion that a partnership has been formed. In other words, because of the formation of a partnership, the partners are agents of the partnership and are liable for partnership obligations.
Even assuming an agreement, however, it certainly is true that not every agreement is a contract. Offer, acceptance, and (as you note) consideration would be required at common law to form a contract. (Mohsen adds value to that analysis as well in his comment, even if he refers to the partnership agreement as opposed to partnership formation.) Partners may and do, in fact, contract with each other under that legal meaning. But I am not confident that a contract is required.
Tell me what I am missing in all this . . . .
Parenthetically, I will note that I am extending my work on LLC operating agreements as contracts (referenced favorably at the outset in your post, for which I thank you) in future work, and I will be presenting the preliminary ideas on that at KCON XI next weekend in San Antonio. It will be interesting to share some of these ideas with folks for whom contracts is their primary area of legal inquiry. And since my associate dean is making noises about me teaching contracts sometime soon, I'd best get myself up to speed with the experts in any case . . . .