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CALIFORNIA CORPORATE & SECURITIES LAW

Joint Venturer May Be Partner By Estoppel

Benjamin Disraeli is often credited with saying “With words we rule men”.  I haven’t found a source for that particular quotation.  Even if he never uttered or wrote those words, I like the quote and the idea that the former prime minister may have said them.

A case handed down this week by the Nevada Supreme Court demonstrates the importance of words and interpretation.  In re Cay Clubs, 130 Nev. Adv. 14 (2014).  The case was brought by purchasers of condominiums in a project that was never completed.  They alleged that it had been represented to them that the defendants were in a joint venture relationship with the developer.  The claimed basis of liability was partnership by estoppel.  NRS 87.160(1) codifies the common law partnership by estoppel doctrine.  It provides:

When a person, by words spoken or written or by conduct, represents himself or herself, or consents to another representing him or her to any one, as a partner in an existing partnership or with one or more persons not actual partners, the person is liable to any such person to whom such representation has been made who has, on the faith of such representation, given credit to the actual or apparent partnership, and if the person has made such representation or consented to its being made in a public manner the person is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made.

The words seem clear and rather unremarkable and yet the parties (or at least their lawyers) argued that they meant very different things.  Here’s what the Nevada Supreme Court decided:

  • The “consent” required by the statute need not be explicitly communicated, it may be “manifested by one’s express words or one’s conduct from which the consent may be reasonably implied”.
  • The term “partnership” for purposes of the statute isn’t limited to a partnership, the subject of the representation may be a joint venture.
  • The phrase “given credit” is not limited to the extension of financial credit, it may mean “giving credence to the representation of a partnership by detrimentally relying on the representation . . . “.
  • A person may be “liable” under the statute even if the cause of action does not sound in contract, the test is “whether the claim implicates the reliance element that is required for partnership by estoppel”.

The Court even interpreted something that was not written into the statute – it found that for the plaintiffs to prevail on a partnership by estoppel claim, they must have reasonably relied on a representation of partnership or joint venture status.

California’s statute is different.  In 1994, the California legislature amended the Uniform Partnership Act of 1994 to add Corporations Code Section 16308.

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