Updated on August 16, 2017
Ordinarily, partners cannot sue each other for damages based on partnership business, at least not until there has been an action for dissolution and accounting. Malott v. Seymour (1950) 101.Cal.App.2d 245, 246. The general rule is particularly applicable to claims for damages arising out of a manner in which a partner has conducted partnership and to breaches of partnership agreements. The Court of Appeals, however, has ruled that the reason for applying this general rule are less forceful where the wrongful acts complained of are a breach of contract and a tort (a civil wrong). Indeed, one clear exception to the rule is an action for damages for a tort “of such a nature that it not only terminates the partnership but wrongfully destroys it, and where the erring partner converts to his own use its entire assets.” Barlow v. Collins (1958) 166 Cal. App. 2d 274, 278.
This in an interesting rule because it means that in many instances a partner who thinks that their partner has done wrong must make the difficult decision of choosing to force a dissolution of the partnership if they desire to take action on the wrong. This creates a fair number of issues to consider before rushing to sue a business partner for wrongdoing.
To inquire about a free consultation on your partnership dispute, contact our Los Angeles attorneys at (310) 954-1877 or email at [email protected].