Post by Andrew Verstein
As Paul Miller recently observed, New Private Law scholars have largely hewed to tort, property, contract, or fiduciary law. Comparatively little attention has been devoted to business entities such as corporations and partnerships. Yet without the NPL label, there is fascinating work underway that is well worth the attention of this blog’s readers. As an exhibit, I commend Harwell Wells’s new paper (forthcoming in the Vanderbilt Law Review) “The Personification of the Partnership.”
Wells’s focus is the familiar debate over entity ontology. Do entities “exist” or are they fictions, reducible to the sum of their members? For corporations, this debate is normative (overrule Citizens United!) or conceptual (does a corporate ‘intend’ things, for the purposes of specific-intent crimes?), but there is no plausible doctrinal debate. Corporations are legal persons. By contrast, the ontological status of partnerships has been in active flux for more than a century. Nineteenth century jurists like Story and Kent rejected the legal personhood of partnerships, but by the end of the century, elite opinion had shifted decidedly toward recognizing the partnership as its own legal person. Dean Ames drafted the Uniform Partnership Act to firmly endorse the entity view. But then Ames died, and his successors redrafted the UPA to be ambivalent about whether and to what extent the partnership is an entity distinct from the set of its partners. The UPA remains the law of many commercially important states such as New York. Litigation under UPA partnership law is often litigation about entitization.
Wells sheds new light on partnership ontology by excavating the forgotten reasons why the UPA drafters refused to endorse the entity view partnership, despite its endorsement by Ames and other leading advisors. The answer is a peculiar braiding of doctrine, normativity, and conceptualism: legal practitioners came to view the partnership as the corporation’s moral superior, in terms of the ethical relationships the form supported in its participants. Partnerships linked partners in a way that made them better people, and corporations risked the opposite.
This critique was rooted in entity ontology. Partners were inspired to live up to a high standard because they were in direct privity with their coadventurers and creditors. People want to do right by those they are connected to. And if there is a moral failing, they must own it as their own. By contrast, a corporation intermediates the relationship between all corporate patrons. Two investors are nothing to each other, they are only something to the corporation. Likewise, the shareholder to the corporate creditor. It is easier to take liberties with people to whom you do not hold some special and direct relationship.
Wells describes how American lawyers believed that partnership could spin privity into decency – but not if the partnership was just a corporation with funny voting and profit rules. The partnership had to be nothing, or else it was nothing special.