Pennsylvania Supreme Court: Widow Cannot Step into Shoes of Deceased Spouse to Enforce a Partnership Agreement and Obtain Specific Performance
10.17.24
In Estate of Caruso v. Caruso, 2024 WL 4142814 (Pa. Sept. 11, 2024), the Pennsylvania Supreme Court considered “whether an individual—here, the spouse of a deceased business partner—who was not an original party to a partnership agreement, nor a third-party beneficiary to that agreement, and where the terms of the agreement do not permit assignment of a deceased partner’s interest to a non-party may be permitted to ‘step into the shoes’ of the deceased partner and enforce the partnership agreement.”
The partnership agreement at issue (the Agreement) was originally entered into by a mother, Mary Ann Caruso, and her two sons, Peter and John Caruso. The purpose of the partnership was to function under a fictitious name and engage in the purchase and development of land. The Agreement provided that upon the death of a partner, the remaining partners could buy out the deceased’s interest in the partnership. Prior to her death, Mary Ann conveyed her interest in the partnership to her sons equally such that Peter and John became 50/50 partners.
Upon John’s death, Peter did not exercise the buy-out provision in the Agreement. Instead, he continued operating the partnership with John’s widow, Geraldine, as 50/50 partners. Peter and Geraldine later merged the partnership with a limited liability company.
Upon Peter’s death, Geraldine attempted to purchase his interest in the partnership pursuant to the buy-out provision in the Agreement by tendering a check for the net book value thereof to Peter’s daughter, Sandra. After Sandra refused to accept the payment, Geraldine sued Sandra and sought specific performance in line with the buy-out provision.
The Supreme Court refused to provide the requested relief. Per the Caruso court, to compel specific performance, the requesting party must demonstrate the existence of a contract. While Peter and Geraldine may have formed their own partnership through their actions and business dealings, the Court found that there was no evidence they intended to be bound by the terms of the Agreement. Geraldine could not merely step into John’s shoes by virtue of her being his surviving spouse or the executrix of his estate. In addition, Geraldine presented no evidence that Mary, Peter and John intended to confer her any benefits under the Agreement. Because Geraldine was not a party to the Agreement, not a third-party beneficiary thereof, and not an assignee of any rights thereunder, she could not enforce the Agreement’s buy-out provision (or any other provision).
The Caruso decision is a good reminder that parties to partnership agreements (as well as other entity agreements) should remain vigilant in analyzing the agreements under which they operate to ensure that those agreements adequately set forth their respective rights and obligations. In the above discussion, had Geraldine updated the partnership agreement after the death of her spouse, John, she may have avoided the result of not being able to enforce the buy-out terms of the partnership agreement.
Co-authors Gregory Sellers, of counsel, and Isabella Gray, associate, are members of the Litigation Department at Klehr Harrison.