Chicago Business Litigation Lawyer Blog
Under the Illinois Uniform Partnership Act (IUPA), all partners are liable for any wrongful act or omission by any partner (In re Keck, Mahin & Cate, 274 B.R. 740 (2002)), (Bane v. Ferguson, 707 F.Supp. 988 (1989)). This includes acts that occur in the ordinary course of the partnership’s business or are authorized by the partners (Bane v. Ferguson, 707 F.Supp. 988 (1989)), (In re Ascher, 141 B.R. 652 (1992))[3]. The liability is not limited even for “innocent” partners.
As for the protection against cheating, partners are fiduciaries for one another under Illinois law (Bane v. Ferguson, 707 F.Supp. 988 (1989)). This means they have a duty to exercise the utmost good faith and honesty in all partnership dealings (Johnson v. Woldman, 158 B.R. 992 (1993)). Particularly, the Uniform Partnership Act in Illinois imposes a trust duty (Johnson v. Woldman, 158 B.R. 992 (1993)), (Federal Deposit Ins. Corp. v. Braemoor Associates, 686 F.2d 550 (1982)). It mandates that every partner must account to the partnership for any benefit and hold as a trustee for it any profits derived by him/her without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership, or from any use by him/her of its property.
However, this fiduciary duty is only recognized when a partner derives profits without the consent of the other partners (Johnson v. Woldman, 158 B.R. 992 (1993)). Also, the liability of any partner does not extend to former partners. Additionally, partners cannot sue their fellow partners for acts that occur in the ordinary course of business or are authorized by the co-partners until there has been a final settlement of partnership accounts (In re Ascher, 141 B.R. 652 (1992)).
If a partner believes that he/she has been cheated, the appropriate remedy to seek under the Illinois Partnership Act could be an accounting, especially if the issue between partners requires an accounting.
In federal cases, the principle is generally the same. For instance, in the case of In re Keck, Mahin & Cate, it was established that under Illinois law and the Agreement, partners are liable for claims arising before or during the time they were partners (In re Keck, Mahin & Cate, 274 B.R. 740 (2002)). Continue reading ›