It’s the Law: Implied partnership can be difficult to prove

Q: I have been working in a business for years. I was paid minimum wage, with the understanding that I would be an owner of the business and help it grow. We had no clear agreement on my ownership interest but the other owners frequently told me that I would benefit from my work, share in the company growth and that I was part of the team. There are two other owners and I think I should own one-third of the business, although I am not listed as an owner in any of the paperwork. Aren’t I entitled to one-third of the business?

A: Your case will be difficult. It sounds like you do not have a clear agreement with the other participants. Even if you do have an oral agreement, proving terms of the agreement will not be easy.

It is always advisable to reduce terms of any important agreement to writing. This avoids most later disputes as to terms of the agreement. In your case, it would also avoid dispute as to the existence of an agreement.

Even if you have an oral agreement, oral agreements can also be rendered unenforceable by the Statutes of Frauds. The Statutes of Frauds is inherited from English common law and is intended to avoid fabricated claims based upon alleged oral agreements. It encourages parties to confirm their agreements in writing. Florida has adopted a statute which basically incorporates the English common law. The statute may be used as a defense to bar enforcement of claimed oral agreements to sell real estate, contract not to be performed within one year from date of the agreement, promises to pay debts of a third party and agreements made on consideration of marriage.

The Statute of Frauds applies only to contracts that have not been completely performed. If an oral contract has been completely performed by one party, the statute of frauds may not be employed as a defense. The problem for you in this regard is that it looks like any agreement you have may be continuing and performance not complete. Contrast your situation with an oral contract to build a house.

If you are unable to prove terms of your partnership agreement or if enforcement is barred by the statute of frauds, there may still be hope. A recent Florida appellate case addressed a similar situation, where a couple claimed to have an oral partnership agreement with the owner of various “Mr. Submarine” franchise restaurants. Their claimed agreement was that they would invest their time and effort with little compensation and at some point in time would share in the proceeds and profits.

Over a twenty-one year period, the couple received $384,519 from the alleged partnership. The owner of the businesses died, and the couple made a claim against the estate based on their alleged agreement.

The couple could not prove the existence of an actual agreement and by time of trial the claims were reduced generally to a claim that there was an implied partnership and that the owner of the businesses had been unjustly enriched by the difference between what they should have been paid for the work performed at prevailing rates and the amount they actually were paid.

The case was submitted to a jury. If the jury agreed an implied partnership existed, the couple’s expert valued their partnership interest at over $10,000,000. Unfortunately for the couple, the jury did not find an implied partnership.

The jury found that the owner of the businesses had been unjustly enriched by the difference between market value of services performed and actual amount paid and awarded the couple $1,211,231. In effect, the couple was awarded fair wages for their services, as opposed to sweat equity creating ownership in the business.

Unfortunately for the couple, the award was reduced on appeal. The appellate court found that since the couple’s claim was really a claim for past wages, they could only recover for wages not barred by Florida’s two year statute of limitation for actions to recover wages or overtime, not the twenty-one years awarded by the jury.

As you can see, written contracts and partnership agreements are critical in a business setting. Prompt pursuit of claims is important. The facts of each case will affect the outcome. I suggest you discuss your case promptly with an experienced attorney.

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William G. Morris is a lawyer with offices at 247 N. Collier Blvd., Marco Island. The column is not intended to be legal advice for specific circumstances. General questions can be sent by e-mail to wgmorrislaw@earthlink.net or by fax to (239) 642-0722. Read other columns at http://www.wgmorris.com.

© 2008 marconews.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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