Friday, June 29, 2007

Trust Misplaced

A partnership in general terms is a legal contract entered into between two or more people in which each commits to furnish capital and labor for a common enterprise.

A partnership creates a fiduciary relationship and a duty for each of the partners to do what is necessary and beneficial for the partnership. It creates a bond whereby an act of a partner binds the partnership.

Unfortunately, sometimes trust can be misplaced. A partner does an act in contradiction with the intent of the partnership. Some even performs acts destructive to the partnership. There are a lot of reasons that fuel a person to betray the trust of the partners. The most obvious reason is greed. Self gain is the prime reason for betraying the partnership. A lot of cases filed in California has to do with claims for damages against the erring partner committed breach of the partnership agreement for one form of consideration or another, often always economic gain.

However, breach of partnership is not only committed directly against the partners. An erring partner may commit any wrongful or illegal act against third parties that could make the partnership accountable directly or indirectly. The wrongful act affects the partnership directly if the erring partner committed an act directly related in pursuance of the partnership’s goals. On the other hand, the wrongful act can indirectly affect the partnership if it is not done in pursuance of the authority vested in the partner by reason of the partnership but tends to affect the partnership.

If you are one of the partners who have been wronged, you can ask for the expulsion of the erring partner if such is in the partnership agreement or if not by votation among the innocent partners. In any case, you can always claim damages against the erring partner for damaged done to the partnership as a result of the breach.