APPLETREE SQUARE I LIMITED PARTNERSHIP V. INVESTMARK, INC. (1993)

FACTS:  Purchasers/Appellants (Limited Partnership= Appletree Square I LP + One Appletree Square) bought a commercial office building from respondents (Investmark) that turned out to be contaminated with asbestos fireproofing materials. Appletree had previously asked for “any information relevant to investors” but was told to inspect the building because respondent did not know what information would be ‘relevant’.

ISSUE: Whether respondents had fiduciary duty to disclose to appellants the presence and danger of asbestos and if so, what come of the triable issues on claims of Breach Of Fiduciary Duties to disclose?

HOLDING: Yes. As partners, their relationship is fiduciary in nature and under the common law, the respondents had a duty to disclose information regarding asbestos if they knew about it.

RULE: The relationship of partners is fiduciary and fiduciaries are held to a high standard of integrity in their dealings with one another. Parties in a fiduciary relationship must disclose material facts to each other. Where a fiduciary relationship exists, silence may constitute fraud. The duty to render information is not the same as the duty to disclose.

DISCUSSION/ANALYSIS: Trial court’s holding–that RULPA 305[2] only requires limited partners to disclose upon “reasonable demand” and because purchasers did not demand info about asbestos, sellers had no obligation to disclose–is contradicted by proper interpretation of the disclosure statute.

Contractual Duties of Disclosure: While partners may change their common law and statutory duties by incorporating such changes in their Partnership Agreement, the major purpose of a contract clause is to shield wrongdoers from liability and it will be set aside if it goes against public policy. They cant destroy its fiduciary character, else it will invite fraud. Here, if respondents knew the building was contaminated with asbestos and if they reasonably should have known their partners did not know about the asbestos, they may have breached their fiduciary duty of disclosure.

Justifiable Reliance:  To discover asbestos on their own, Appletree would have had to know enough to ask about it or know enough to have various building materials tested. The fact that Investmark told Appletree to investigate did not make appellant’s reliance unreasonable as a matter of law. Respondent’s statement did not specifically tell appellants not to rely on them. Even if they had, it would not necessarily make reliance unreliable. Evidence allows a finding that they had superior knowledge and knew appellants did not know about the asbestos. These are factual determinations that must be answered in ordered to determine whether respondents neglected their fiduciary duty to inform appellants.

OUTCOME: Summary judgment for respondents reversed, remanded for further proceedings in accordance to this decision.

 

 

Text: Business Enterprises: Legal Structures, Governance & Policy (3d Ed.), Branson, et. al.
page 134

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