Kay v. Gitomer
251 A.2d 853, 1969 Md. LEXIS 937, 253 Md. 32 (1969)
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Rule of Law:
Real property titled in the individual names of partners as co-tenants is considered partnership property if the partners' intent and conduct demonstrate it was devoted to partnership purposes. A contract for the sale of such property signed by only one partner is binding on the partnership if that partner had actual authority from the other partners to enter into the agreement.
Facts:
- In the spring of 1959, Albert J. Kay and his brother-in-law, Benjamin P. Eckles, decided to form a contracting business partnership without a formal agreement.
- On June 18, 1959, Kay and Eckles purchased a parcel of real estate, including lot 5, taking title in their individual names as tenants in common.
- The partnership, 'Kay and Eckles, Building Contractors,' established its office on the property and, in 1960, rented out lot 5.
- The partnership reported the rental income from lot 5 on its 1960 tax return and paid the real estate taxes and other expenses for the property from partnership funds.
- In November 1964, Kay and Eckles told a real estate agent, Augie Urciolo, they would consider selling lot 5.
- On November 23, 1964, both Kay and Eckles participated in a conversation with Urciolo where they rejected a $40,000 offer from Norman M. Gitomer but indicated they would accept $45,000 with specific payment terms.
- After the November 23 conversation, Eckles left for a week-long trip to Myrtle Beach.
- On November 25, 1964, while Eckles was away, Kay signed a contract with Gitomer to sell lot 5 for $45,000, signing both his own name and Eckles' name to the agreement.
Procedural Posture:
- Norman M. Gitomer filed a bill for specific performance against Albert J. Kay and Benjamin P. Eckles in the Circuit Court for Montgomery County, a state trial court.
- The trial court found that the property was held by Kay and Eckles as tenants in partnership and that the contract signed only by Kay was binding on the partnership.
- The Circuit Court entered a decree ordering Kay and Eckles (appellants) to convey the property to Gitomer (appellee).
- Kay and Eckles appealed the trial court's decree to the Court of Appeals of Maryland, the state's highest court.
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Issue:
Does a contract for the sale of real estate, signed by only one partner, bind the partnership when the property is titled in the partners' individual names as tenants in common?
Opinions:
Majority - Singley, J.
Yes. A contract for the sale of partnership real estate signed by a single partner is binding on the partnership if the property was intended to be partnership property and the signing partner had actual authority from the other partners. The court found that the property was partnership property based on the partners' intent, evidenced by their use of the property for the business, their treatment of it as a partnership asset on tax returns, and Kay's testimony that it was for the 'beneficial ownership' of the partnership. Under the Uniform Partnership Act, the criterion for determining if property is partnership property is the partners' intention to devote it to partnership purposes. Since it was partnership property, it was not subject to the wives' dower rights. The contract was binding because Kay had actual, not just apparent, authority from Eckles to sign. The court inferred this actual authority from Eckles's participation in the initial negotiations where the acceptable price and terms were discussed, and his subsequent failure to disaffirm the contract, creating a 'strong inference' that he had authorized Kay to act.
Analysis:
This decision clarifies that the determination of whether real estate is partnership property hinges on the partners' intent, which can be proven by their conduct and financial treatment of the asset, regardless of how the title is formally held. It establishes that a court can infer a partner's 'actual authority' to bind the partnership in a significant transaction, such as a real estate sale, from their participation in preliminary negotiations and their subsequent actions (or inaction). This broadens the concept of authorization beyond explicit, formal consent and places a greater emphasis on the totality of the circumstances. Future cases involving disputes over a single partner's authority will likely look to this precedent to justify finding implied authorization based on conduct.
