Corrales v. Corrales
129 Cal. Rptr. 3d 428, 198 Cal.App.4th 221, 2011 Cal. App. LEXIS 1043 (2011)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Under the California Revised Uniform Partnership Act (RUPA), a partnership requires an association of two or more persons. Therefore, the withdrawal of one partner from a two-person partnership automatically results in the dissolution of the partnership by operation of law, not a dissociation that would trigger a buyout of the departing partner's interest.
Facts:
- In 1989, brothers Rudy and Richard Corrales formed a two-person partnership, RC Electronics (RCE), to repair and sell computer tape drives.
- Under their agreement, Rudy was responsible for running the business, while Richard provided financing and business expertise.
- Rudy's wife, Pamela, worked as the office manager and was responsible for the company's business records.
- In 2004, Richard discovered that Rudy, Pamela, and their daughters had formed a separate, competing business called PK Electronics (PKE) without his knowledge.
- When Richard confronted Rudy about the competing business, Rudy refused to provide information and cut off all communication with him.
- On April 12, 2005, Richard sent Rudy a formal "Notice of Dissociation," stating that he was withdrawing from the RCE partnership.
Procedural Posture:
- Richard Corrales sued Rudy Corrales and his family for claims including breach of fiduciary duty and sought an accounting.
- Rudy Corrales filed a separate suit against Richard Corrales for breach of contract and other claims.
- The two lawsuits were consolidated for a bench trial in the state's trial court.
- The trial court, operating under the theory of dissociation, applied the statutory buyout provision of Corporations Code § 16701 and adopted the valuation provided by Rudy's expert.
- The trial court also found Rudy breached his fiduciary duty but ruled that Richard had not proven any damages.
- Richard Corrales (appellant) appealed the judgment to the California Court of Appeal.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does the withdrawal of one partner from a two-person partnership constitute a 'dissociation' that triggers a statutory buyout of the departing partner's interest, or does it cause an automatic 'dissolution' of the partnership?
Opinions:
Majority - Bedsworth, Acting P. J.
No, the withdrawal of one partner from a two-person partnership does not trigger a buyout; it causes an automatic dissolution of the partnership. By statutory definition, a partnership is 'an association of two or more persons,' and therefore a one-person partnership cannot legally exist. The concept of 'dissociation,' which allows remaining partners to buy out a departing partner and continue the business, is inapplicable when there are no 'remaining partners' to carry on the partnership. When Richard withdrew from the two-person partnership, RCE ceased to have the minimum number of partners required by law, and it dissolved automatically. Consequently, the trial court erred by applying the buyout procedure of Corporations Code § 16701 instead of the dissolution and winding-up procedure mandated by § 16801 and § 16807, which requires paying creditors before settling accounts between partners.
Analysis:
This decision establishes a bright-line rule for two-person partnerships in California, clarifying that they are fundamentally different from partnerships with three or more members upon a partner's departure. It solidifies the distinction between dissociation (where the entity continues) and dissolution (where it terminates), preventing a remaining individual from forcing a buyout. This holding protects the interests of partnership creditors, who are given priority during the winding-up process of a dissolution, a protection that would be bypassed in a direct partner-to-partner buyout following a dissociation.
Unlock the full brief for Corrales v. Corrales