Partnership Status of Joint Ventures in Colorado: Editorial Comments on Crs Section 38-30-166

• Publication year: 1996
• Pages: 61
• Citation: Vol. 25 No. 2 Pg. 61

25 Colo.Law. 61 Colorado Lawyer 1996.

1996, February, Pg. 61. Partnership Status of Joint Ventures in Colorado: Editorial Comments on CRS Section 38-30-166

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Vol. 25, No. 2, Pg. 61

Partnership Status of Joint Ventures in Colorado: Editorial Comments on CRS § 38-30-166

by Michael A. Sabian and Beat U. Steiner

It is important to have a clear understanding of when an association is a partnership and therefore governed by the Uniform Partnership Law. Economic performance of a community is directly related to the efficiency of its markets. Statutes governing business transactions are designed to create efficiencies. When the legal rules governing business transactions and associations are clear and readily known, parties to them can more efficiently plan and conduct their business activities and spend less effort negotiating, performing and disputing agreements. Statutes dealing with business transactions and entities are designed to facilitate the process.

This article discusses House Bill ("H.B.") 92-1312, which was recently enacted in Colorado, and its purpose of clarifying the Uniform Partnership Law as it pertains to partnerships.

Background of Revisions to § 166

In 1991, the Real Estate Section of the Colorado Bar Association ("CBA") initiated the formation of the Ad Hoc Joint Venture Committee ("Committee") to draft an amendment to CRS § 38-30-166 ("§ 166").(fn1) The authors were involved on the Committee: Beat Steiner served as chairman of the Committee, and Michael Sabian represented the Business Law Section. The Committee drafted a proposed amendment, which was enacted as H.B. 92-1312.(fn2)

H.B. 92-1312 was enacted to eliminate confusion arising from § 166, which provided for the holding of title to real property by a joint venture,(fn3) and the Uniform Partnership Law, which provided for the holding of title to real property by a partnership.(fn4) The following two scenarios illustrate certain problems encountered under those laws.

First, an association that regarded itself as both a joint venture and a partnership would record a joint venture affidavit pursuant to § 166 relating to its real property. One of the venturers would encounter financial difficulties. Its judgment creditor would file a judgment lien against the real property titled in the venture. The venture would enter into a contract to sell the real property. Because the title insurance company would reflect the venturer's judgment lien as a lien against the real property held by the venture, the venture would be unable to consummate the sale. The venture would pursue a malpractice claim against the attorney who had represented it in connection with its formation and acquisition of title to the real property on the basis that the venturers had intended to form a partnership whose property could not be encumbered by a venturer's creditor.

Second, the joint venture would enter into a contract for sale of its real property and then be unable to obtain either a timely execution of the contract for sale or the deed to consummate the sale from a venturer who was experiencing financial difficulties. That venturer would have no incentive to cooperate with the sale because it would either be avoiding creditors or would not improve its financial position by a sale at a loss, and would not be at risk for further loss without the sale because it would be judgment proof.

Again, the venture would be unable to consummate the sale and would pursue a malpractice claim against its former attorney.

These situations existed because title insurance companies and courts recognized the following two differences between joint ventures and partnerships. First, because a joint venture was not an entity separate from its members, the interest of a venturer in its real property was personal and the real property was subject to a lien by the venturer's creditor. Because a partnership was a legal entity separate from its partners, the partnership's real property was not subject to a lien by a partner's creditor. The creditor could subject the partner's interest in the partnership only to a lien and a charging order. Second, the signature of all venturers of a joint venture were required to sell real property, whereas a partnership could sell real property through the signature of one partner as agent of the partnership, at least in the case of a sale in the ordinary course of business.

H.B. 92-1312 cured these problems by providing that § 166 does not apply to a joint venture that is a partnership, whether or not it is denominated a joint venture. H.B. 92-1312 further amended the provisions

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applicable to a joint venture that had recorded a joint venture affidavit to treat it more like a partnership, by providing that the affidavit could authorize fewer than all of the venturers to act for the venture and by adding that a venturer's creditor could encumber only its interest in the venture and not its interest in...