Covalt v. High

New Mexico Court of Appeals · 1983 · Corporations

675 P.2d 999 (1983)

Updated August 22, 2026

CorporationsPartnershipsFiduciary dutypartnershipequal management rightsordinary partnership mattersmajority ruledeadlock

Facts

Covalt and High formed a two-person partnership that owned land and a building leased to CSI, a corporation in which both were shareholders and officers, though Covalt later resigned his corporate position. After the written lease expired, CSI remained as tenant at an orally adjusted rent of $1,850 per month, and no written agreement specified how rent would thereafter be set between the partners. In January 1979, Covalt demanded that the rent be raised to $2,850 per month, but High did not agree and took no action to renegotiate the rent. The trial court found that High was the managing partner, that CSI could afford the increase, and that High's refusal breached a fiduciary duty to Covalt.

Issue

May one partner recover damages from his co-partner for refusing to agree to negotiate and obtain an increase in rent for partnership property, where the partners are equally divided and have no agreement governing that decision? More specifically, did High breach a fiduciary duty to Covalt by not acceding to Covalt's demand for a rent increase?

Rule

Partners owe one another duties of good faith, fairness, and disclosure in partnership affairs, but absent an agreement to the contrary, all partners have equal rights in the management and conduct of partnership business. Differences as to ordinary partnership matters are governed by a majority of the partners; in a two-person partnership with an even split and no agreement resolving the dispute, neither partner may compel the other to act, and the proper remedy for the impasse is dissolution rather than damages.

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

Nina Patel and Owen Brooks form a two-person partnership in Albuquerque to own a small commercial building. The partnership agreement says nothing about management, and the building is leased month-to-month to a printing business; Nina wants to raise the rent by 20%, but Owen refuses because he thinks the tenant may leave.

If Nina sues Owen for damages, alleging he breached a fiduciary duty by refusing to approve the rent increase, what is the best answer?

Explanation. The majority rule is that, absent agreement to the contrary, partners have equal rights in management. Differences over ordinary partnership matters are decided by a majority, and in a two-person partnership an even split means neither partner may force the other to act. A refusal to approve a rent increase in that setting is an impasse, not a compensable fiduciary breach; the proper remedy is dissolution rather than damages.