Where there was no agreement on how losses would be shared among the parties, North Carolina law would not recognize the existence of a partnership between the parties.  Cutter v. Vojnovic, 2024 NCBC 7 (J. Bledsoe). As a result, Plaintiff’s breach of fiduciary duty claims and other claims based upon the existence of a partnership would be dismissed.

Plaintiff and Defendant worked together trying to purchase three restaurants, expecting Plaintiff to provide the necessary financing and Defendant to run the restaurants post-acquisition.  The parties never entered into any type of written agreement.  After their multiple offers were rejected by the restaurants’ seller, the parties sought an SBA loan to finance the purchase.  To qualify for the SBA loans, Defendant had to pay off his other outstanding SBA loans, but did not have the capital to do so.  When Plaintiff refused Defendant’s request that Plaintiff pay off his (Defendant’s)  loans, Defendant obtained the necessary financial backing elsewhere and purchased the restaurants without any help (financial or otherwise) from Plaintiff.     Plaintiff  filed suit contending Defendant breached  their partnership agreement and breached fiduciary duties Defendant owed as a result of their partnership.   Defendant sought summary judgment, contending Plaintiff could not prove a partnership existed.

Finding that North Carolina law requires  parties to agree on a method of sharing both profits and losses before a partnership will be recognized,  the Business Court agreed with Defendant and found that no partnership existed given that Plaintiff acknowledged there was no agreement on how to share losses.   Because no partnership existed,  Plaintiff could not maintain a claim for breach of the partnership agreement,  breach of any  fiduciary duty arising from a partnership, or request a dissolution of the partnership.

Based upon this decision, any individuals or entities who believe their relationship  constitutes a partnership should ensure they have an agreement (either oral or written) not only on how to share profits, but losses as well.

Additional Legal Points: The existence of a partnership is unlikely where one party does not bear any risk of loss.  (Opinion, ¶39).