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Rapoport v. 55 Perry Co. - 50 A.D.2d 54, 376 N.Y.S.2d 147 (App. Div. 1st Dept. 1975)

Rule:

The Partnership Law provides that subject to any contrary agreement between the partners that no person can become a member of a partnership without the consent of all the partners. N.Y. Partnership Law § 40(7). N.Y. Partnership Law § 53(1) provides that an assignee of an interest in the partnership is not entitled to interfere in the management or administration of the partnership business but is merely entitled to receive the profits to which the assigning partner would otherwise be entitled. Additionally, N.Y. Partnership Law § 50 indicates the differences between the rights of an assignee and a new partner. That section states that the property rights of a partner are (a) his rights in specific partnership property, (b) his interest in the partnership, and (c) his right to participate in the management. On the other hand, an assignee is excluded in the absence of agreement from interfering in the management of the partnership business and from access to the partnership books and information about partnership transactions.

Facts:

In 1969, Simon, Genia and Ury Rapoport(Rapoport) entered into a partnership agreement with Morton, Jerome and Burton Parnes, forming the partnership known as 55 Perry Company. Pursuant to the agreement, each of the families owned 50% of the partnership interests. In December of 1974 Simon and Genia Rapoport assigned a 10% interest of their share in the partnership to their adult children, Daniel and Kalia. The Parnes partners were advised of the assignment and an amended partnership certificate was filed in the County Clerk's office indicating the addition of Daniel and Kalia as partners. However, when plaintiffs Rapoports, thereafter, requested defendant Parnes partnerss to execute an amended partnership agreement to reflect the above changes in the partnership, defendant Parnes refused, taking the position that the partnership agreement did not permit the introduction of new partners without consent of all the existing partners. Thereafter, plaintiffs Rapoport brought the present action against defendant Parnes partners and 55 Perry Company, seeking a declaration that Simon and Genia Rapoport had an absolute right to assign their interests to their adult children without consent of the defendants and that such assignment was authorized pursuant to paragraph 12 of the partnership agreement. Plaintiffs further sought to have Daniel and Kalia be declared partners in 55 Perry Company and have their names entered upon the books of the partnership as partners. The defendants Parnes interposed an answer, taking the position that the partnership agreement did not permit admission of additional partners without consent of all the existing partners and that the filing of the amended certificate of partnership was unauthorized. On the motion for summary judgment, both parties agreed that there were no issues of fact and that there was only a question of the interpretation of the written documents, which should be disposed of as a matter of law by the court. Nevertheless, the trial court found that the partnership agreement was ambiguous, and that there was a triable issue with respect to the intent.

Issue:

Under the Partnership Agreement, could new partners be permitted to enter the partnership without the consent of all the partners?

Answer:

No.

Conclusion:

On appeal, the Court held that the agreement was not ambiguous, and that, pursuant to the terms of the agreement and of the Partnership Law, consent of the other partners was required in order to admit the others to the partnership. The Court stated that a reading of the agreement indicated that the parties intended to observe the differences between assignees of a partnership interest and the admission into the partnership itself of new partners. The Court held that N.Y. Partnership Law § 40(7) provided that no person could become a member of a partnership without the consent of all the partners, that the partnership agreement was intended to limit a partner with respect to his right to assign a partnership interest, and that plaintiffs' children had interests as assignees. The Court then modified the trial court's order to grant summary judgment in favor of defendants to the extent of declaring that the partnership agreement did not permit entry into the partnership of new partners, including the adult children of plaintiffs who had reach their majority, without the consent of all the partners.

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