Facts: Alexander Hunter and Brenda Ho had co-ownership of a number of real estate properties. They had hoped to acquire the property adjacent to one of their own properties known as ‘The Baby’. However the neighbours refused to sell it and the current Mayor David Miller was not conducive to divide single family properties into multiple lots. In 2009, despite the change in their personal relationship they continued to carry their joint entrepreneurial ventures.
In mid-2011, the owner of the adjacent property (Stanley Pomlinski) passed away, and the estate trustee was open to selling the property. From mid to late 2011, Alexander withheld the new information from Brenda regarding the sale of the Pomlinski property, even though at that time she had the funds to finance the partial acquisition of the property. After she lost her job, Alexander asked his father to buy the property for him as a trustee. Since Brenda was facing financial troubles, Alexander purchased her share in ‘The Baby’ for $50,000 which was more than her initial investment. This prevented her from going bankrupt.
However, he did not disclose to her his acquisition of the adjacent property, and the information that he had received from his inside contacts that Mayor Ford was more agreeable to dividing property into sub lots. Through a lot of hard work, Alexander combined ‘The Baby’ with the property his father purchased, and subdivided it into lots. He then sold it for $800,000. Alexander and Brenda still own a couple of properties together. However, Brenda and her husband Phillip are upset that Alexander made all this extra money. They think he is a fraud since he did not disclose all the information. Phillip has threatened him with violence. And they are considering taking legal action against Alexander. Issues:
The issue is that whether Alexander had an obligation to disclose his acquisition of the adjacent property and his information about the agreeableness of the new mayor for dividing the property into smaller sub lots.
Law: Determining whether or not a Partnership exists between Alexander and Brenda will impact the legal consequences of this issue. Under the Partnerships Act R.S.O. 1990, CHAPTER P.5 it is stated: Definition of Partnership:
* 2. Partnership is the relation that subsists between persons carrying on a business in common with a view to profit, but the relation between the members of a company or association that is incorporated by or under the authority of any special or general Act in force in Ontario or elsewhere, or registered as a corporation under any such Act, is not a partnership within the meaning of this Act. R.S.O. 1990, c. P.5, s. 2.
Rules for determining existence of partnership * 3.1. Joint tenancy, tenancy in common, joint property, common property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof. p [s. 3-1] * 3.2. The sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived. p [s. 3-2]
Duty as to rendering accounts: * 28. Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or the partner’s legal representatives. R.S.O. 1990, c. P.5, s. 28.
Accountability for private profits: * 29. (1) every partner must account to the firm for any benefit derived by the partner without the consent of the other partners from any transaction concerning the partnership or from any use by the partner of the partnership property, name or business connection. R.S.O. 1990, c. P.5, s. 29 (1).
Duty of partner not to compete with firm: * 30. If a partner, without the consent of the other partners, carries on a business of the same nature as and competing with that of the firm, the partner must account for and pay over to the firm all profits made by the partner in that business. R.S.O.1990, c. P.5, s. 30.
Analysis After analyzing the situation, I have come up with two possible scenarios. If you and Brenda were just investing in properties together and were not bound to a partnership by contract, then according to clauses 3.1 and 3.2 under the Partnerships Act R.S.O. 1990, CHAPTER P.5 you have done nothing wrong. It is stated by 3.1 and 3.2 that just having joint tenancy of property or sharing gross returns does not itself create a partnership. Thus you were not obliged to give Brenda any information regarding the purchase of the adjacent property or the change in the attitude of the mayor. And as Brenda passed over her ownership of `The Baby` to you, she was not entitled to any future profits regarding to the property.
On the other hand, if you and Brenda had signed a Partnership agreement then as it is stated in section 2 of the Partnerships Act R.S.O. 1990, CHAPTER P.5, you would be legally obliged to each other. Under the section 28, it was your responsibility to disclose all information to Brenda regarding the sale of the Pomlinski property. Under section 30, purchase of the adjacent property and its future sale together with `The Baby` are seen as a direct competition to the firm. Consequently, according to section 29 and 30, the profits incurred from these transactions belong to the firm and not the individual. Thus you are legally obliged to share the profits with Brenda.
Conclusion/ Recommendation If it is assumed that there is no contractual obligation as a partnership, then you have nothing to worry about. Legally you did not do anything wrong and if they take you to court, you will win. But if you two had a partnership contract, then this would get more complicated. Regardless of the situation, I advise that you go for the Alternative Dispute Resolution (ADR). The ADR will help save a lot of time and money. The ADR will be controlled and privacy will be maintained. By this way you and Brenda can come to a settlement that would benefit both of you. You can also make a counter claim to Brenda’s husband (Phillip) as he threatened you with violence. This is a direct violation of your civil rights.