Business Associations, Pages 233–235

Enea v. Superior Court

Court of Appeal of California, 2005
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Facts:

Plaintiff and defendants were in a partnership which owned a building. The building was primarily rented to defendants at below market value. Plaintiff sued defendants for breaching their fiduciary duty.

Procedural History:

Trial court ruled that plaintiff had claim unless the parties had an agreement requiring fair market rents.

Issue:

Were defendants entitled to rent the property to themselves at less than market value?

Rule:

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RUPA §§ 404 (b), (e)
  1. A partner’s duty of loyalty to the partnership and the other partners includes all of the following:
    1. To account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property or information, including the appropriation of a partnership opportunity.

. . .

  1. A partner does not violate a duty or obligation under this chapter or under the partnership agreement merely because the partner’s conduct furthers the partner’s own interest.

Reasoning:

As merely furthering one's interest does not constitute a breach of his duty of loyalty, one can lease partnership property to himself. However, he is not allowed to do so at the expense of the partner. Defendants could have leased the property to themselves at market value, but doing so at below market value is benefiting themselves at the partnership's expense. Even the partnership's primary purpose was to hold the property while its value appreciated, defendants still deprived it of the opportunity to rent the space at market rates in the mean time. It does not have to be the primary purpose of the partnership for it to have a right to it.

Nowhere does the law say that partners only owe duties that that they explicit contract for. The fiduciary duties at issue here are implied by law.

Holding:

No, defendants were not allowed to rent the partnership's property to themselves at below market value. Summary judgment vacated and denied.