QAD Investors, Inc. v. Kelly
46 U.C.C. Rep. Serv. 2d (West) 480, 776 A.2d 1244, 2001 ME 116 (2001)
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Rule of Law:
A partner can be held liable on a contract, such as a promissory note, that they did not personally sign if the signing partner had apparent authority to bind the partnership, or if the non-signing partner subsequently ratified the agreement through their conduct.
Facts:
- In 1993, Laurence Kelly and Stephen MacKenzie entered into a joint venture, a form of partnership, to purchase a parking lot.
- MacKenzie approached Russell Glidden of QAD Investors, Inc. for a $20,000 loan, providing Glidden with Kelly's personal financial statement.
- Kelly attended meetings with MacKenzie and Glidden where the venture was discussed, and he did not object to MacKenzie characterizing him as a joint venturer.
- QAD provided a $20,000 check, which was deposited into a bank account under Kelly's exclusive control.
- MacKenzie alone signed a promissory note that named both himself and Kelly as borrowers and included a signature line for Kelly, which was left blank.
- After MacKenzie made the first few payments, Kelly took over and made numerous subsequent payments on the note from the account he controlled.
- Kelly communicated directly with Glidden about late payments and met to discuss the payment schedule, never disclaiming his or the partnership's obligation on the note.
- Even after receiving a copy of the note and seeing his signature was missing, Kelly made one more payment and did not inform Glidden that he considered himself not liable.
Procedural Posture:
- QAD Investors, Inc. filed a complaint against Stephen MacKenzie and Laurence Kelly in the Superior Court (trial court) seeking payment on a promissory note.
- Defendant MacKenzie was subsequently discharged in bankruptcy.
- After a bench trial, the Superior Court found Kelly jointly liable on the note as a member of the joint venture partnership and entered judgment for QAD.
- The trial court awarded QAD half the partnership's indebtedness plus interest and attorney's fees.
- Kelly, as appellant, appealed the judgment to the Supreme Judicial Court of Maine, the state's highest court.
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Issue:
Is a partner liable on a promissory note that he did not personally sign, when the note was executed by his partner for the partnership's business and the non-signing partner subsequently accepted the benefits and made payments on the note?
Opinions:
Majority - Dana, J.
Yes. A partner is liable on a promissory note he did not sign if his partner had apparent authority to bind the partnership or if the non-signing partner's subsequent conduct ratified the agreement. The court found that MacKenzie had apparent authority to bind the partnership because Kelly's conduct—attending meetings, allowing his financial statement to be used, and not objecting to being presented as a partner—would lead a reasonable third party like Glidden to believe MacKenzie was acting as an agent for the partnership. Even if MacKenzie lacked authority, Kelly ratified the note through his subsequent actions. Ratification occurred because Kelly, with knowledge of the transaction, accepted the benefit of the loan into an account he controlled, made payments in the precise amount specified by the note, negotiated the payment schedule, and failed to repudiate the debt until litigation began. This failure to disaffirm, combined with the retention of benefits, constituted an affirmance of the note, making him and the partnership liable.
Analysis:
This decision reaffirms the core agency principles within partnership law, emphasizing that liability can be established through conduct, not just a written signature. The ruling on ratification is particularly significant, as it clarifies that a partner who knowingly accepts the benefits of a transaction and fails to repudiate it in a timely manner will be deemed to have affirmed it. This case serves as a precedent that a partner cannot remain silent, enjoy the fruits of a deal made by a co-partner, and later disclaim responsibility based on the technicality of a missing signature. It underscores the importance of prompt and clear communication for any partner wishing to disavow an unauthorized act committed on the partnership's behalf.
