Legal Question in Business Law in California

Lying may always be a sin, but in a business situation, for it to be "illegal" in the usual sense it would have to fall into a recognized category where the law provides either criminal punishment or a civil remedy. The closest category I can think of is fraud, which can be either a civil wrong (a tort) or a crime, or both; but this could also be a violation of a partner's fiduciary duties to the partnership and the other partners.

Here, there is probably no fraud being committed, because the usual definitions of fraud by misrepresentation require that the "victims" rely upon the lies to their detriment, and that in so relying, they acted reasonably. Here, you have, or easily could have, figured out that at least some of what you're being told is unreliable and probably outright false.

There is also another kind of fraud, "constructive fraud," defined in the Civil Code at section 1573. This is committed when a person in a fiduciary position -- such as a partner of a general partnership -- gains an advantage by misleading another to his or her prejudice. An intent to defraud is not necessary; the breach of the fiduciary duty suffices, but I think this also requires actual harm to a victim, and that a mere attempt to mislead is insufficient.

There is a crime of "attempted fraud" or "attempted false pretenses," but here too I believe it would be difficult to establish the requisite criminal intent, although it's certainly arguably present. This is probably the closest she's coming to doing something illegal.

Finally, the law of general partnerships imposes some affirmative duties on the partners' conduct toward each other. You might want to look up Corporations Code section 16404, which sets forth the fiduciary duties of a partner. Note, for example, that 16404(c), which says "a partner's duty of care to the partnership and the other partners in the conduct and winding up of the partnership business is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law." One could argue that the deliberate misrepresentations are "intentional misconduct" and that the partner is violating Corps, Code section 16404(c).

Well, as a matter of law, a fiduciary relationship of trust and confidence exists between partners which imposes on each the obligation to act towards the others with the utmost good faith and integrity in matters which relate to the partnership.

By Grace...

Shawn Jackson ESQ. (707) 584-4529

Business Development Attorney EMAIL: [email protected]

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As a Franchise Attorney I agree with both of the above answers. The business reality is you seriously need to consider removing this wayward "partner." This will involve a review of your partnership agreement and developing a good going forward strategy with her. Consult with a good business or franchise attorney in your area for specific advice.

Mr. Franchise - Kevin B. Murphy, B.S., M.B.A., J.D.

Franchise Foundations, a Professional Corporation