New York Law Review

Tag: dissolution

  • Royal Bank and Trust Co. v. Weintraub, Gold & Alper, 68 N.Y.2d 124 (1986): Partnership by Estoppel

    Royal Bank and Trust Co. v. Weintraub, Gold & Alper, 68 N.Y.2d 124 (1986)

    Partners who continue to conduct business under a firm name without publicly announcing its dissolution are estopped from denying liability to a third party who reasonably relies on the appearance of a continuing partnership, even if the partners privately agreed to dissolve the partnership.

    Summary

    Royal Bank and Trust Co. (plaintiff) sought to recover funds from the law firm of Weintraub, Gold & Alper (defendants) and its partners after the firm’s named partner, Weintraub, defaulted on a loan obtained under the firm’s name. The defendants claimed the partnership had dissolved prior to the loan. The court held that because the partners continued to use the firm name and letterhead without public notice of dissolution, they were estopped from denying the partnership’s existence to a third party who reasonably relied on it. The court affirmed summary judgment in favor of the plaintiff, finding no triable issue regarding the plaintiff’s alleged negligence in failing to investigate further.

    Facts

    Roger Allen sought a $60,000 loan from Royal Bank, claiming it was needed for a larger loan. Allen told the bank the funds would be held in escrow by his attorneys, Weintraub, Gold & Alper. Allen provided a letter on the firm’s stationery confirming the escrow arrangement, signed by Alfred Weintraub. The bank confirmed the firm’s listing in the Manhattan phone directory and verified the escrow arrangement with Weintraub. The bank issued a check payable to the law firm. The loan was not repaid. Although not known to the bank at the time, the partners shared office space, the receptionist answered the phone in the firm name, the loan check was deposited in a firm account, bank documents certified the partnership’s existence, and liability insurance was obtained for the firm. No certificate of dissolution was filed until Alper withdrew months later.

    Procedural History

    Royal Bank sued Allen, the firm, and the partners individually. Allen confessed judgment, and Weintraub defaulted, but neither could satisfy the judgment. Royal Bank moved for summary judgment against the firm, Gold, and Alper, arguing the firm continued to exist. The defendants opposed, claiming the partnership dissolved earlier by oral agreement. The lower courts granted summary judgment for the plaintiff, and the defendants appealed. The Court of Appeals affirmed.

    Issue(s)

    Whether partners who privately agree to dissolve a partnership but continue to operate under the firm’s name and public indicia of a partnership are estopped from denying the partnership’s existence to a third party who reasonably relies on the appearance of a continuing partnership.

    Holding

    Yes, because a partner who makes, and consents to, continued representations that a partnership in fact exists is estopped to deny that a partnership exists to defeat the claim of a creditor. The public indicia of the partnership remained undisturbed, creating the impression of an ongoing entity.

    Court’s Reasoning

    The court reasoned that under Partnership Law § 20(1), a partner’s acts apparently carrying on the partnership business in the usual way are binding on the partnership unless the partner lacks authority and the person dealing with them knows it. Weintraub’s actions appeared to be in furtherance of the partnership business, and the bank had no knowledge of any lack of authority. The court emphasized that a private agreement to dissolve the partnership did not alter the result. Under Partnership Law § 27, partners who make and consent to continued representations that a partnership exists are estopped from denying its existence against a creditor. Because the defendants continued to use the firm name, telephone number, and stationery without any public notice of dissolution, the court concluded that the partnership continued to be liable to a party reasonably relying on the impression of its continued existence. The court stated that “partnership by estoppel should not be lightly invoked and generally presents issues of fact, here the undisputed evidence submitted on the summary judgment motion leaves no question for trial”. The court also dismissed the defendant’s argument that the bank acted negligently by failing to investigate further, stating that the individual listings in the attorney directory were insufficient to create a genuine issue requiring trial.

  • Tillow v. Kreindler, Relkin & Goldberg, 51 N.Y.2d 936 (1980): Enforceability of Arbitration Clauses in Dissolved Partnership Agreements

    51 N.Y.2d 936 (1980)

    When a partnership dissolves and a successor partnership continues operating under the terms of the original partnership agreement, including a broad arbitration clause, the members of the successor partnership are bound by that clause, even without a new written agreement.

    Summary

    Tillow sought to stay arbitration of his claim against the successor law firm, arguing the original partnership agreement containing the arbitration clause dissolved when a partner withdrew. The Court of Appeals held that because the successor firm treated the original agreement as binding, the broad arbitration clause remained enforceable. This decision underscores the importance of parties’ conduct in determining the continued validity of agreements after organizational changes. It clarifies that implied consent to an agreement’s terms, particularly an arbitration clause, can be inferred from consistent behavior.

    Facts

    In December 1972, Tillow signed a partnership agreement with Kreindler, Relkin, Olick & Goldberg. This agreement contained a broad clause requiring arbitration of any controversies arising from the agreement. Olick withdrew from the partnership in 1974, dissolving the original partnership. The remaining partners continued operating as Kreindler, Relkin & Goldberg. No new written partnership agreement was executed. Tillow departed the firm in 1979 and subsequently sought an accounting and damages. The successor firm sought to compel arbitration based on the 1972 agreement. Tillow then sought to stay arbitration.

    Procedural History

    Tillow sought to stay arbitration. The Appellate Division found the members of the successor firm treated the 1972 agreement as binding and continuing in effect. The Court of Appeals affirmed the Appellate Division’s order, upholding the enforceability of the arbitration clause.

    Issue(s)

    Whether the arbitration clause in the original partnership agreement remained enforceable against Tillow and the successor partnership, even though the original partnership had dissolved and no new written agreement was executed.

    Holding

    Yes, because by treating the 1972 agreement as continuing in force after the dissolution of the original partnership, the members of the successor partnership demonstrated their intention to be governed by the agreement’s arbitration clause.

    Court’s Reasoning

    The court reasoned that although the original partnership dissolved upon Olick’s withdrawal in 1974, the successor firm’s conduct demonstrated an intent to be bound by the 1972 agreement, including the arbitration clause. The court noted the Appellate Division’s finding that the successor firm treated the 1972 agreement as binding and continuing in effect, a conclusion “amply supported by the record.”

    The court emphasized the broad and unequivocal nature of the arbitration provision in the 1972 agreement. By continuing to operate under the terms of the agreement, the successor firm implicitly consented to its provisions, including the arbitration clause. The court cited Matter of Levin-Townsend Computer Corp. v Holland, 29 AD2d 925 and Alpert v Bannon, 40 AD2d 988, supporting the principle that conduct can demonstrate an intention to be governed by an agreement’s arbitration clause.

    The court concluded that “[s]ince the parties agreed to arbitration, it follows that all further issues concerning plaintiff’s claim are for the arbitrator to resolve.” This highlights the strong presumption in favor of arbitration when a valid agreement to arbitrate exists.