Can general partners sell partnership property without limited partner consent? Ellis v. La Val Enterprises Explained

The Utah Court of Appeals addressed a fundamental question of partnership authority in Ellis v. La Val Enterprises, reversing a district court’s finding that a general partner lacked authority to grant an option to purchase partnership property without limited partner consent.

Background and Facts

In 1996, the Ellis family created a limited partnership and transferred their 174-acre farm into it. The parents served as general partners, with their five children as limited partners. After the father died in 2015, LaVern became the sole general partner. In 2017, she executed an option contract allowing her son Dennis and his wife to purchase the farm for $750,000. When LaVern died in 2019, Dennis attempted to exercise the option, but his siblings refused to honor it, claiming LaVern lacked authority under the partnership agreement and applicable law.

Key Legal Issues

The case turned on whether LaVern had authority to enter the option contract without limited partner consent. The partnership agreement contained broad language in Section 7.3 authorizing general partners to “sell, transfer, lease” partnership property “in their absolute discretion and without the consent of the Limited Partners.” However, the siblings argued that limitations in Section 7.5 and changes to Utah partnership law in 2013 requiring limited partner consent for substantial asset sales restricted this authority.

Court’s Analysis and Holding

The Court of Appeals reversed, finding that the partnership agreement unambiguously granted the general partner authority to sell partnership property. The court applied principles of contract interpretation, noting that specific provisions override general ones, and that Section 7.3’s detailed authorization for property sales controlled over the partnership’s general purposes. Critically, the court held that the agreement incorporated the Utah Revised Uniform Limited Partnership Act as it existed in 1996, not subsequent amendments. The 1996 law imposed no restrictions on general partner authority to sell partnership property without limited partner consent.

Practice Implications

This decision highlights the importance of precise drafting in partnership agreements. When parties intend to incorporate future legislative changes, they must use explicit language such as “as amended” or reference “corresponding provisions of any future law,” as the parties did for tax provisions in the same agreement. The ruling also demonstrates how statutory interpretation principles apply to partnership agreements that reference specific statutes, with contracts presumptively incorporating the law existing at the time of execution absent clear contrary intent.