Agreement to Limit One Partner's Obligatios
For Partnership Debt to Outsiders
Ruled Invalid

by Donald Ray Burger
Attorney at Law

Agreement among partners that one of them will not share in the obligations of the partners is not binding on third parties. Ballard v. U.S., 17 F.3d 116 (5th Cir. 1994).

A partnership hired Ballard to manage certain real estate. Everyone in the partnership agreed Ballard would share in the profits or losses but everyone also agreed that Ballard would not share in the obligations of the partnership. As a result, Ballard believed he would not be liable for any partnership debts.

The partnership did not pay its payroll taxes and the government sued Ballard along with the rest of the partners.

Held: Under Texas law, a joint venturer or partner is jointly and severally liable for all debts of the partnership, despite the agreement among the partners.

Warning: If you enter a partnership believing that an agreement among the partners will limit your obligations for partnership debts to outsiders, you may be in for a rude surprise.

Written by Donald Ray Burger, Attorney at Law
Last revised: May 17, 1996

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