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When is a Party Liable for a Business Partner's Debts?

When is a Party Liable for a Business Partner's Debts?

A partnership refers to any association of two or more persons for the purpose of carrying on some business. A written agreement is not necessary to form a partnership under New York law. A court may determine that a partnership exists based on the conduct of the parties involved.

Upstate Resort Dispute Leads to Lawsuit Against “Development Partner”

Whether a partnership—sometimes referred to as a joint venture—exists is often an important issue in civil litigation matters such as a breach of contract lawsuit. This is because unlike a corporation, in a partnership the individual partners are jointly liable for any judgments against the partnership as a whole. A recent New York case helps illustrate this point.

The plaintiffs in this case are a couple who entered into an agreement with two companies (we will call them Company A and Company B) to develop a ski resort in upstate New York. As part of the agreement, the plaintiffs had to transfer certain parcels of land to a third party, which they did. Company A also had a business relationship with Company C, a “holding company for development activities.” Company A and Company C jointly applied for a number of grants and government permits related to the proposed resort.

At some point, Company A withdrew from the project. The plaintiffs then sued a number of parties, including Company C, for breach of contract. Company C argued it was never part of the original agreement between the plaintiffs, Company A, and Company B. A Columbia County Supreme Court judge agreed and granted Company C’s motion to dismiss. The plaintiffs appealed.

The Appellate Division, Third Department, reversed the Supreme Court and returned the plaintiff’s complaint for further proceedings. The appeals court said the trial judge “failed to address” whether or not Company C was actually a “joint venturer or partner” with Company A. Indeed, the Third Department observed Company C’s own court filings strongly suggested it was in a legal partnership with Company A. For one thing, Company C explicitly sought grant funding for the resort, representing itself as a “development partner” with Company B. This grant application further stated Company C would also be forming a “new development entity” with the other two companies if and when the grant was approved. At a minimum, this raised a “question of fact” for the Supreme Court to consider as to whether or not Company C was a partner or joint venturer who must share the liability for any potential breach of contract against the plaintiffs.

Contact a Long Island Commercial Litigation Attorney Today

Anytime you enter into a business relationship with another person or corporate entity, you need to take care to understand your potential obligations and liability. Even if you do not think you are entering into a legally binding partnership or joint venture, the other persons involved—and ultimately a judge—may think otherwise. That is why you should always seek assistance from an experienced New York business attorney. Contact the offices of Nisar & Mason, P.C. if you need to speak with an attorney today.

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