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What is a Partnership by Estoppel?

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  • Written By: Christopher John
  • Edited By: Lauren Fritsky
  • Last Modified Date: 13 November 2016
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A partnership by estoppel is a doctrine or a legal concept that allows a court to provide a remedy to a plaintiff, such as awarding him monetary damages. Essentially, this doctrine requires a plaintiff to prove that a defendant’s conduct caused him or her to believe that the defendant was in a partnership, which resulted in the plaintiff’s damages. Originally, the concept came from judicial decisions or the common law, but some jurisdictions eventually enacted laws codifying it. In other words, a legislative body passed a law defining the legal elements of a partnership by estoppel.

A plaintiff has the burden of proving a partnership by estoppel. In most jurisdictions, he does this by showing that a defendant held himself out as a partner, or that the defendant consented to others holding him out as a partner; that the plaintiff knew of the defendant holding himself out as a partner; that the plaintiff reasonably relied on the claimed partnership; and that plaintiff suffered damages. If a plaintiff proves these elements, a judge may rule in favor of the plaintiff, who is then likely to recover damages from a defendant.

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As an example, Brown and Green are lawyers who share office space, a receptionist, and a telephone number to minimize their expenses. They also advertise their legal services as "Brown and Green, attorneys-at-law." The receptionist answers their phone as the law office of Brown and Green. These lawyers, however, do not share their earnings, nor do they discuss their cases with one another because Brown is an accident lawyer and Green is a tax lawyer.

Sarah sees their advertisement on a billboard, she calls the number, and she schedules an appointment with Brown. She goes to the office and decides to hire Brown to help her with an accident case. She is unhappy with the outcome and files a lawsuit against these lawyers for legal malpractice. Sarah has to prove that there was a partnership by estoppel for a court to allow the suit against both lawyers to continue. According to this example, Sarah has a good chance of succeeding because it is reasonable to believe that the lawyers had a partnership.

The doctrine developed from judicial decisions, but as time passed, the legislative bodies of some jurisdictions recognized this concept. For instance, in the US, some states have adopted statutes that define a partnership by estoppel. 

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allenJo
Post 2

@Monika - I agree. I think the estoppels definition given in the article makes it clear that the partnership is one that is explicit or implied, given the nature of the setup.

Lawyers know the law better than anyone else. I hardly think they would enter into such an arrangement without knowing how the public would perceive their business model, or the legal implications of a lawsuit filed against one of the partners.

On that note, I think it should be noted that no one should enter into a partnership arrangement lightly. If the ship goes down, both partners can go down with it, regardless of who is technically at fault.

Monika
Post 1

I think this makes sense. It's sort of one of those instances of "if it walks like a duck, and looks like a duck...it must be a duck." I don't think it would be fair for people to be in a partnership, and then try to claim they weren't for legal purposes!

However, I have to admit that when I heard this term I thought it was something different. I thought a partnership by estoppel was where a court forces two people to be partners. Like if two people agreed to a partnership and then one backed out, the court would make them go through with it anyway. However, the real definition for partnership by estoppel makes much more sense!

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