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Law School Case Brief

Covalt v. High - 100 N.M. 700 (Ct. App. N.M. 1983)

Rule:

The status resulting from the formation of a partnership creates a fiduciary relationship between partners. The status of partnership requires of each member an obligation of good faith and fairness in their dealings with one another, and a duty to act in furtherance of the common benefit of all partners in transactions conducted within the ambit of partnership affairs. N.M. Stat. Ann. § 54-1-21 (1978). As a fiduciary, each partner has a duty to fully disclose to the other all material facts which may affect the business of the partnership. N.M. Stat. Ann. § 54-1-20 (1978). A partner must account for any profit acquired in a manner injurious to the interests of the partnership.

Facts:

Plaintiff Louis E. Covalt and defendant William L. High were corporate officers and shareholders in Concrete Systems, Inc. (CSI). They later formed a partnership, which bought real estate and constructed an office and warehouse building on the land. The building was then leased to CSI. Covalt resigned his corporate position and was employed by another company, but he remained a partner in the ownership of the land and building. Covalt wrote to High demanding that the monthly rent be increased, but High refused to act. Covalt then filed a lawsuit against High in New Mexico state court alleging breach of fiduciary duty and seeking the sale of the real property in lieu of partition, an accounting, and actual and punitive damages. Covalt also filed suit against CSI and its shareholders, but the trial court ordered that the partnership action be tried separately. Following trial, Covalt was awarded judgment against High, individually, in the sum of $ 9,500, plus prejudgment interest in the sum of $ 2,269.

Issue:

Was High liable for breach of fiduciary duty when he refused to act on his co-partner Covalt's request to raise the rent owed by CSI on the partnership's property?

Answer:

No.

Conclusion:

The appellate court reversed the trial court's judgment in favor of Covalt. Th court ruled that, in the absence of an agreement of a majority of the partners, an act involving a partnership business could not be compelled by a co-partner. There was no breach of fiduciary duty by High, and the proper remedy for the parties' impasse was dissolution.

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