Lupien v. Malsbenden
1984 Me. LEXIS 735, 477 A.2d 746 (1984)
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Rule of Law:
A partnership may be formed when parties associate to carry on a business for profit as co-owners, regardless of their subjective intent. Co-ownership is evidenced by the parties' agreement to pool their money, labor, or skills, and, most essentially, by their right to participate in the control of the business.
Facts:
- Robert Lupien entered into a written agreement with Stephen Cragin, d/b/a York Motor Mart, for the construction of a Bradley kit car.
- Lupien paid a deposit of $500 and a further payment of $3,950 towards the purchase price.
- During frequent visits to the shop, Lupien primarily dealt with Frederick Malsbenden, as Cragin was seldom present.
- Malsbenden instructed Lupien to sign over ownership of his truck so its sale proceeds could be used to complete the car.
- Malsbenden provided Lupien with a rental car and later purchased a 'demo' car for Lupien's use while he waited for his vehicle.
- Malsbenden asserted he had only loaned $85,000, interest-free, to Cragin for the Bradley car operation, to be repaid from the proceeds of each car sold.
- Malsbenden purchased Bradley kits and other equipment for the business using his personal checks.
- Lupien never received the Bradley car he had contracted to purchase.
Procedural Posture:
- Robert Lupien filed a lawsuit against Frederick Malsbenden and Stephen Cragin in the Superior Court of York County, Maine (the trial court).
- The claim against Cragin was dismissed because he could not be served with process.
- Following a jury-waived trial, the Superior Court entered judgment for Lupien, finding that Malsbenden was a partner and was therefore liable on the contract.
- Malsbenden (appellant) appealed the trial court's judgment to the Supreme Judicial Court of Maine (the state's highest court), with Lupien as the appellee.
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Issue:
Does a business arrangement constitute a partnership when one party provides significant capital and exercises day-to-day control over the business, and the other party provides skills, even if the parties subjectively intended their relationship to be that of a creditor and debtor?
Opinions:
Majority - McKUSICK, Chief Justice
Yes. A partnership exists when the parties' total involvement in a business demonstrates a pooling of resources and joint control, regardless of how they label their arrangement. The court found that Malsbenden's involvement went far beyond that of a mere 'banker.' Although he termed his $85,000 investment a loan, it carried no interest and was not to be repaid in fixed amounts, but rather from the proceeds of car sales, indicating a stake in the business's profits. More importantly, Malsbenden exercised significant day-to-day control over the business, which is the essence of co-ownership under the Uniform Partnership Act. He opened the shop, paid employees, ordered parts, and dealt directly with customers like Lupien. Citing precedents like James Bailey Co. v. Darling, the court affirmed that parties can form a partnership in fact even if they do not intend to, as the law assesses the substance of the arrangement over the names the parties use. The arrangement represented a pooling of Malsbenden's capital and Cragin's skills with joint control over the business, legally constituting a partnership and making Malsbenden liable for its contractual obligations.
Analysis:
This case is a classic illustration of a partnership-in-fact, where a court looks beyond the parties' stated intentions to the objective reality of their business relationship. It establishes that the right to participate in the control of a business is the most critical element of co-ownership for determining the existence of a partnership. The decision serves as a caution to investors and lenders that if their involvement includes significant operational control, they risk being classified as partners and held personally liable for the business's debts. This precedent reinforces the protection of third parties who deal with a business, allowing them to hold accountable those who act like owners, not just those who formally call themselves owners.
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