Opinion ID: 2751756
Heading Depth: 2
Heading Rank: 2

Heading: General Partnerships

Text: The second part of Judge King’s “chicken-or-the-egg” certified question essentially asks this: if Valentine is not a member of a mining partnership, but is simply a member of a general partnership that owns and operates oil and gas wells under a mineral 28 lease, then is Valentine required by the Statute of Frauds to produce a written instrument showing he is a partner in the general partnership? The answer is buried in West Virginia’s statutes, and is unequivocally “no.” The West Virginia Revised Uniform Partnership Act, or “RUPA,” defines a partnership as: an association of two or more persons to carry on as coowners a business24 for profit formed under section two, article two of this chapter, predecessor law, or comparable law of another jurisdiction . . . W.Va. Code § 47B-1-1(7) [2003]. Likewise, RUPA states that, generally, a partnership is formed in the following way: the association of two or more persons to carry on as coowners a business for profit forms a partnership, whether or not the persons intend to form a partnership. W.Va. Code § 47B-2-2(a) [1995].25 Under this definition, people operating a business together for profit “may inadvertently create a partnership despite their expressed 24 The RUPA states that a “‘Business’ includes every trade, occupation and profession.” W.Va. Code § 47B-1-1(1). 25 Somewhat confusingly, W.Va. Code § 47B-2-2(b) provides that, “An association formed under a statute other than this chapter, a predecessor statute, or a comparable statute of another jurisdiction is not a partnership under this chapter.” The Official Comments to the Revised Uniform Partnership Act clarifies the meaning of this statute: Subsection (b) provides that business associations organized under other statutes are not partnerships. Those statutory associations include corporations, limited partnerships, and limited liability companies. That continues the [now-repealed Uniform Partnership Act] concept that general partnership is (continued . . .) 29 subjective intention not to do so.” Allan Donn, Robert W. Hillman, & Donald J. Weidner, The Revised Uniform Partnership Act, § 202, Official Comments (Thompson Reuters 2014) [hereinafter Donn, Revised Uniform Partnership Act]. If there is any agreement governing a partnership, it may be written, oral, or implied. W.Va. Code § 47B-1-1(8).26 The West Virginia Legislature adopted RUPA in 1995, and stated that RUPA “governs all partnerships” in existence before, on, or after July 1, 1995. W.Va. Code § 47B-11-4 [1996].27 RUPA is a “gap filler” in that it only governs partnership the residual form of for profit business association, existing only if another form does not. Allan Donn, Robert W. Hillman, & Donald J. Weidner, The Revised Uniform Partnership Act, § 202, Official Comments (Thompson Reuters 2014). 26 RUPA broadly defines a partnership agreement in W.Va. Code § 47B-1­ 1(8): “Partnership agreement” means the agreement, whether written, oral or implied, among the partners concerning the partnership, including amendments to the partnership agreement. 27 The Official Comments to the Revised Uniform Partnership Act suggest that the model statute pertaining to the applicability of the Act “provides for a transition period in the applicability of the Act to existing partnerships,” allowing partnerships several years to adjust to the new law before it “becomes mandatory for all partnerships[.]” Donn, Revised Uniform Partnership Act, § 1206. When the West Virginia Legislature adopted RUPA, it effectively eliminated the transition period and made the Act applicable to all partnerships on July 1, 1995. 30 affairs when there is no partnership agreement, or to the extent a partnership agreement does not otherwise provide.28 West Virginia Code § 47B-1-3(a) [1995] provides that: relations among the partners and between the partners and the partnership are governed by the partnership agreement. To the extent the partnership agreement does not otherwise provide, this chapter governs relations among the partners and between the partners and the partnership.29 RUPA’s “underlying philosophy differs radically” from the common law and prior statutes, “thus laying the foundation for many of its innovative measures.” Shoemaker v. Shoemaker, 275 Neb. 112, 125, 745 N.W.2d 299, 309 (2008). Key among these innovative measures is that RUPA adopts the “entity” theory of partnership as opposed to the “aggregate” theory that previously applied. Under the aggregate theory, a partnership is characterized by the collection of its individual members, with the result being that if one of the partners dies or withdraws, the partnership ceases to exist. On the other hand, RUPA’s entity theory allows for the partnership to continue even with the departure of a member because it views the partnership as “an entity distinct from its partners.” Id., 275 Neb. at 125, 745 N.W.2d at 309-10. A leading treatise on RUPA best summarizes the distinction between the aggregate and entity theories of partnership: 28 See Creel v. Lilly, 354 Md. 77, 91, 729 A.2d 385, 393 (1999) (“RUPA is a ‘gap filler’ in that it only governs partnership affairs to the extent not otherwise agreed to by the partners in the partnership agreement.”); Donn, Revised Uniform Partnership Act, § 103, Official Comments (“To the extent that the partners fail to agree upon a contrary rule, RUPA provides the default rule.”). 29 We note, however, that W.Va. Code § 47B-1-3(b) contains various rights and duties (such as the duties of care, good faith, and fair dealing) that cannot be varied, altered, unreasonably reduced or restricted, or eliminated by a partnership agreement. 31 The aggregate theory traditionally applied by the common law courts does not regard the partnership as an organization with a separate legal personality. The aggregate approach views the partnership as nothing more than a conduit for a collection of individuals. Each partner is seen as owning an undivided share of partnership assets and as conducting a pro rata share of partnership business. The entity theory, on the other hand, treats the partnership as a distinct entity interposed between partners and partnership assets. The partner’s interest is viewed as a separate bundle of rights and liabilities associated with the partner’s participation in the organization, analogous to the interest of a corporate shareholder in shares of stock. Donn, Revised Uniform Partnership Act, § 201. This new philosophy is bluntly expressed in West Virginia Code § 47B-2-1 [1995]: “A partnership is an entity distinct from its partners.” This philosophical distinction is important to understanding property owned by partnerships. Under the entity theory, “Partners are no longer conceived of as co­ owners of partnership property. Rather, the partnership entity owns partnership property.” Donn, Revised Uniform Partnership Act, § 203. “Even property that is contributed by partners becomes property of the entity rather than property of a cotenancy of the contributing partners.” Id. In light of the entity theory, RUPA provides the following rule for the ownership of property by a partnership: Property acquired by a partnership is property of the partnership and not of the partners individually. 32 W.Va. Code § 47B-2-3 [1995]. “[I]f property has become partnership property, the individual partners no longer have a direct interest in it.” Donn, Revised Uniform Partnership Act, § 204.30 30 West Virginia Code § 47B-2-4 [1995] defines situations in which property will be deemed partnership property, but ultimately the question involves the “objective manifestations of intent” by the partners. Donn, Revised Uniform Partnership Act, § 204. The statute provides: (a) Property is partnership property if acquired in the name of: (1) The partnership; or (2) One or more partners with an indication in the instrument transferring title to the property of the person’s capacity as a partner or of the existence of a partnership but without an indication of the name of the partnership. (b) Property is acquired in the name of the partnership by a transfer to: (1) The partnership in its name; or (2) One or more partners in their capacity as partners in the partnership, if the name of the partnership is indicated in the instrument transferring title to the property. (c) Property is presumed to be partnership property if purchased with partnership assets, even if not acquired in the name of the partnership or of one or more partners with an indication in the instrument transferring title to the property of the person’s capacity as a partner or of the existence of a partnership. (d) Property acquired in the name of one or more of the partners, without an indication in the instrument transferring title to the property of the person’s capacity as a partner or of the existence of a partnership and without use of (continued . . .) 33 In this case, Valentine asserts that he did not purchase a direct ownership interest in real estate. Instead, he argues that Frank “F.A.” Deem sold him an ownership interest in four general partnerships, and that it was the general partnerships which owned the real estate interests. Valentine asserts there was substantial evidence to support a finding that he was a member of the four partnerships, that the leases were owned and operated by the four partnerships, and that he was therefore entitled to share in the profits generated by those leases. The Court of Appeals precisely assessed that the question that needed to be resolved was whether Valentine needed a writing conforming to the Statute of Frauds to show his ownership interest in the general partnerships that owned the mineral leases. Neither of the parties has produced any evidence of partnership agreements for the four partnerships, so their relations are governed by RUPA. Under RUPA, any property given to or acquired by the four partnerships (whether real or personal property) “is property of the partnership[s] and not of the partners individually.” W.Va. Code § 47B-2-3. Accordingly, any interest in the mineral estates would be owned by the four partnerships, and not by the individual partners such as Valentine or Sugar Rock. Hence, Valentine need only establish that he is a member of each of the four partnerships, and there is no requirement under the Statute of Frauds that he produce a deed, will, or other written instrument to establish he was granted a partnership interest in the partnership. partnership assets, is presumed to be separate property, even if used for partnership purposes. 34 To be clear, this was also the rule under the common law. When a partnership owns real estate, it is a well-established rule that the Statute of Frauds could not be applied between partners. As we said in Syllabus Point 2 of Lantz v. Tumlin, 74 W.Va. 196, 81 S.E. 820 (1914),31 Where persons associate themselves together in a joint enterprise for profit, either as partners or otherwise, a relationship of trust and confidence is thereby established, and thereafter as between them in the conduct of the joint or partnership business the statute of frauds is inapplicable.32 31 Lantz v. Tumlin contains several references that the two parties were seeking the “winding up and settlement of a mining partnership[.]” 74 W.Va. at 196, 81 S.E. at 820. However, the facts indicate that one party purchased the mineral interest and “took the deed for the property in his individual name.” It therefore appears that the parties in Lantz v. Tumlin did not form a “mining partnership,” but rather a general partnership with its primary business being the purchase, ownership and operation of a mineral interest. 32 See also, Syllabus Point 3, Currence v. Ward, 43 W.Va. 367, 27 S.E. 329 (1897) (“Neither an express nor constructive trust in lands need be created, declared, or proven in writing in this State, but may be shown by oral evidence.”); Syllabus Points 2 and 5, Bond v. Taylor, 68 W.Va. 317, 69 S.E. 1000 (1910) (“Where two or more persons, as partners in fact or otherwise, engage in a joint enterprise to buy land or the timber thereon for sale and profit the relationship of trust and confidence is thereby established, requiring good faith and fair dealings between the parties. . . . In such cases of express trust the statute of frauds is inapplicable”); Syllabus Point 1, Floyd v. Duffy, 68 W.Va. 339, 69 S.E. 993 (1910) (“Creations and declarations of trusts in lands may be made and proved in this state as they could be in England, before the English Statute of Frauds, the seventh section of that statute, requiring the proof of such creations and declarations to be in writing, never having been in force in this state.”); “Applicability of Statute of Frauds to joint adventure or partnership to deal in real estate,” 18 A.L.R. 484 (1922) (“[T]he decided weight of authority is to the effect that a parol partnership agreement, or joint enterprise, entered into by two or more persons for the purpose of carrying on the business of purchasing and selling real estate, or interests therein, for speculation, the profits to be divided among the parties, is not within the provisions of the Statute of Frauds relating to the sale of land or an interest in lands; in other words, that such an agreement may be entered into and become effectual, although not in writing.”); (continued . . .) 35 In other words, an oral partnership agreement to carry on a business that buys, owns, and/or sells real estate is enforceable and is not within the Statute of Frauds. “[A] partnership interest – regardless of the nature of the partnership’s assets – is personalty, not realty. Indeed, if the legal characterization of a partnership interest depended on the nature of the partnership’s assets, that characterization might change every time the “Applicability of Statute of Frauds to joint adventure or partnership to deal in real estate,” 95 A.L.R. 1242 (1935) (same). Other states also view real estate owned by a partnership as personal property, not subject to the Statute of Frauds, so as to facilitate property division during dissolution. See, e.g., In re Estate of Maggio, 193 Vt. 1, 17, 71 A.3d 1130, 1141 (2012) (“a transfer of a partner’s interest in a partnership, including an interest in a partnership that owns real property, is not subject to the Statute of Frauds”); Turley v. Ethington, 213 Ariz. 640, 645-46, 146 P.3d 1282, 1287-88 (Ct. App. 2006) (“the statute of frauds has no practical application to agreements governed by the RUPA.”); Forward v. Beucler, 702 F.Supp. 582, 585 (E.D.Va.1988) (“[E]nforceability of an oral promise to transfer a limited partnership interest is not barred by the statute of frauds even if the partnership’s sole asset is real property. . . . [P]artnership interests are personalty whatever the nature of the partnership assets.”); Beach v. Anderson, 417 N.W.2d 709, 712-13 (Minn.Ct.App.1988) (stipulation to transfer partnership interest was an agreement to transfer personalty and therefore not subject to Statute of Frauds, even though partnership owned real property); Malaty v. Malaty, 95 A.D.3d 961, 962, 944 N.Y.S.2d 591, 593 (2012) (“The statute of frauds does not render void oral joint venture agreements to deal in real property, as the interest of each joint venturer in a joint venture is deemed personalty.”); Wirth v. Sierra Cascade, LLC, 234 Or.App. 740, 769, 230 P.3d 29, 45 (2010) (the Statute of Frauds does not apply to agreements to transfer property “from partner to partnership” or “from partner to partner, on behalf of the partnership”); Turley v. Ethington, 213 Ariz. 640, 647, 146 P.3d 1282, 1289 (Ariz. Ct. App. 2006) (because the Revised Uniform Partnership Act allows constructive trusts to be used to remedy breaches of partnership fiduciary duty, court refused “to apply the statute of frauds to contracts for the conveyance of real property between and among partners and partnerships.”); Potter v. Homestead Preservation Ass’n, 330 N.C. 569, 577, 412 S.E.2d 1, 6 (1992) (“A partner’s interest in partnership assets—including real property—is a personal property interest. As such, it is not subject to the statute of frauds.”). 36 partnership acquired or disposed of assets. The legal chaos inevitably flowing from such a rule of law was surely not intended” when the Legislature adopted RUPA. Forward v. Beucler, 702 F.Supp. 582, 586-87 (E.D. Va. 1988). We therefore conclude that, under RUPA, a partnership interest – regardless of the nature of the partnership’s assets – is personal property, not real property. The Statute of Frauds is therefore inapplicable to the relationship between partners, and does not require that a partnership interest in the partnership be proven by a written instrument.