Enea v. Superior Court

132 Cal. App. 4th 1559, 34 Cal. Rptr. 3d 513 (2005)

 

RULE:

The defining characteristic of a partnership is the combination of two or more persons to jointly conduct business. In forming such an arrangement the partners obligate themselves to share risks and benefits and to carry out the enterprise with the highest good faith toward one another--in short, with the loyalty and care of a fiduciary. A partner may not obtain any advantage in the partnership affairs by the slightest misrepresentation, concealment, threat or adverse pressure of any kind. 

FACTS:

Petitioner partner sued real parties in interest, his former partners, for breaches of fiduciary duties consisting primarily of renting partnership property to themselves at less than its fair market value. The partnership's sole asset was a building that had been converted from a residence into offices. The trial court granted defendants' motion for summary adjudication. Respondent superior court summarily adjudicated the cause of action against petitioner, and petitioner sought a writ of mandate to set aside the order. The Court of Appeal directed the superior court to set aside its order and deny the motion. 

ISSUE:

Did the partners breach its fiduciary duty when it  leased partnership property to themselves at a rate below fair market value?

ANSWER:

Yes.

CONCLUSION:

The court held that the trial court erred in granting the real parties' motion for summary adjudication because they were not categorically entitled to lease partnership property at less than it could yield in the open market. The court rejected the real parties' argument that Corp. Code, § 16404, provided the exclusive statement of a partner's obligation to the partnership and to other partners. In adopting the Revised Uniform Partnership Act, the California legislature left the articulation of the duty of loyalty to traditional common law processes. Further, even if the statutory enumeration of duties were exclusive, it would not entitle the real parties to rent partnership property to themselves at below-market rates. Section 16404, subd. (e), did not empower the real parties to occupy partnership property for their own exclusive benefit at partnership expense, in effect converting partnership assets to their own and appropriating the value it would otherwise have realized as distributable profits.

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