Croisant v. Watrud

Oregon Supreme Court · Corporations

CorporationsPartnership liabilityAgencyFiduciary dutyAccountingpartnershipagencyinherent agency power

Facts

Plaintiff initially retained the defendant accounting partnership in 1955 for tax advice and preparation of tax returns, and all services were performed by partner Watrud from the firm's Medford office. After plaintiff moved to California in 1957, she arranged with Watrud to collect income, make disbursements, keep her books and records, and prepare statements and tax returns, while the partnership received a monthly check covering all of Watrud's services. Plaintiff later discovered that Watrud had made unauthorized payments from her Oregon account to her husband and to himself despite her instructions not to do so. The trial court treated Watrud's fund-handling as an independent trustee employment separate from the partnership business.

Issue

Whether the accounting partnership is liable for Watrud's unauthorized handling and misapplication of plaintiff's funds when Watrud lacked express authority to perform fund-handling services. More specifically, the question is whether those services were reasonably understood by plaintiff to be part of the partnership business so as to bind the partnership for Watrud's breach of trust.

Rule

A partnership is liable for a partner's breach of trust incident to services undertaken for a client when the client reasonably believes the services are being performed as part of the partnership business, even if the partner lacked express authority and there is no basis to find implied or apparent authority from professional custom. The reasonableness of that belief is determined from the particular facts of the case, not solely from the profession's own description of the services it usually performs.

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

Maya Rios hired Harbor Ledger Partners, an accounting partnership in Portland with a branch office in Eugene, to prepare business tax returns for her rental properties. After she moved to Seattle, the same partner who had always handled her file began collecting rent checks, paying vendors, updating her books, and sending all charges through the firm's monthly invoices; he later diverted some rent money to himself.

If Maya sues the partnership for an accounting, which argument most strongly supports partnership liability?

Explanation. The majority held that partnership liability may attach even without express authority, implied-in-fact authority, or proof of professional custom, if the client reasonably believed the partner was acting as part of the partnership business. Facts showing continuity from the original engagement and partnership billing strongly support that reasonable belief. (Derived from Croisant v. Watrud (n.d.).)