8 N.Y.3d 523 (2007)
Partnership agreements are interpreted according to general contract principles; if an agreement unambiguously permits amendments by a majority vote, such amendments are valid and enforceable.
Summary
This case concerns a dispute among partners over an amendment to a partnership agreement regarding compensation for withdrawing partners. The New York Court of Appeals held that the amendment, passed by a majority vote, was valid because the partnership agreement unambiguously permitted amendments in this manner. The court emphasized that partnership agreements are contracts interpreted according to their terms, and courts should not imply terms that contradict the parties’ express intent. The decision reinforces the principle that partners have broad latitude to structure their relationships through partnership agreements, and that majority rule provisions will be upheld absent specific prohibitory language.
Facts
Plaintiffs Bailey and Culligan were former equity partners at Fish & Neave, an intellectual property law firm. The firm’s partnership agreement (the “Agreement”) stated that decisions regarding partnership business, including dissolution, would be decided by a majority in interest of the partners. In December 2003, the firm decided to change its accounting system from accrual-based to cash-based, affecting how withdrawing partners were compensated. The firm adopted interim “standstill” amendments and then a permanent amendment to reflect this change, all passed by a majority vote. Bailey and Culligan withdrew from the firm in 2004 and subsequently sued, arguing that the amendment was invalid because it required unanimous consent.
Procedural History
The plaintiffs sued, alleging breach of contract and seeking to invalidate the amendment. The Supreme Court dismissed the complaint, holding that the agreement permitted the amendment by a majority vote. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal.
Issue(s)
Whether a partnership agreement provision allowing a majority vote on partnership matters permits amendment of the agreement regarding compensation to withdrawing partners by a majority vote, or whether such an amendment requires unanimous consent under New York Partnership Law § 40(8).
Holding
No, because the partnership agreement, by its terms, unambiguously permits amendments affecting compensation to withdrawing partners by a majority vote, and New York Partnership Law § 40(8) applies only in the absence of an agreement between the partners.
Court’s Reasoning
The Court of Appeals reasoned that partnership agreements are contracts and should be interpreted according to their plain terms. The agreement stated that “in all questions relating to the partnership business…the decision of a majority in interest of the partners…shall be conclusive upon and bind all the partners, except as otherwise provided herein.” Because the section regarding payments to withdrawing partners (section 11) did not include any language requiring more than a majority vote, the court concluded that a majority vote was sufficient to amend it. The court distinguished sections 9 and 16.7(a) of the agreement, which explicitly required more than a majority vote for certain actions, implying that the absence of such language in section 11 was intentional. The court stated, “[P]rovisions of [Partnership Law § 40] cannot be implied as part of the agreement so as to make a different contract from that which the parties intended nor override the agreement which the parties, in fact, made.” The court emphasized the anomaly of requiring unanimous consent for compensation amendments while allowing dissolution of the partnership by majority vote. The court concluded that it would not “add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing”.