Partnership Disclaimers Are Called Into Question

Professor Douglas K. Moll at the University of Houston recently published an interesting article in The Journal of Corporation Law that tackles the question of whether parties may contract out of a general partnership relationship.  He concludes "Although a recent judicial decision suggests that they can, treating contractual disclaimers of partnership as dispositive is inconsistent with modern statutes". 

Professor Moll's article focuses on the Revised Uniform Partnership Act ("RUPA") which is understandable as some 39 states have currently adopted some version of RUPA.  He notes the Section 202(a) of RUPA "indicates that “the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership.”  California has adopted this language as Corporations Code Section 16202(a).   He also cites an early California decision to that effect.  San Joaquin Light & Power Corp. v. Costaloupes, 96 Cal. App. 322, 332, 274 P. 84, 88 (1929)  in which the Court of Appeal stated:

We may concede . . . that the contract expressly declares that the parties thereto are not partners.  However, this does not establish the fact that the parties did not intend to create a partnership between themselves or as to a third person. The parties did intend to create exactly the relationship as shown by the contract, but did not intend that relationship to be called that of partners. Their intention in this respect is immaterial.

In my experience, disclaimers of partnership status are fairly common in agreements in which the parties do not actually intend to become partners.  Professor Moll's point is that the parties' stated intentions just might not carry the day.