Contracts hold business partnerships together. When a partner breaks that agreement, it can put your operations and your investment at serious risk.
Confirm whether a breach actually occurred
Your first step is to review the contract. Look at the specific terms your partner allegedly violated. Not every missed obligation qualifies as a breach.
California courts typically require four elements for a valid breach of contract claim: a valid contract, your performance under it, the other party’s failure to perform and damages you suffered as a result. A business litigation attorney can help you determine whether each element applies to your situation.
Understand your partner’s legal duties
Even if your agreement does not cover every scenario, your partner still owes you duties under state law. California Corporations Code § 16404 sets out the fiduciary duties every partner must uphold. These include a duty of loyalty and a duty of care. Violating these duties can mean the following:
- Misappropriating funds: A partner secretly pockets company money or diverts revenue.
- Competing against you: A partner starts or assists a business that competes with yours.
- Diverting clients: A partner steers customers to their own separate venture.
These violations may give you grounds for legal action beyond a standard breach of contract claim.
Gather evidence and consider your options
Start collecting relevant documents as soon as you suspect a breach. Contracts, financial records, emails and bank statements may all become important later. You may also have several ways to resolve the dispute, depending on your contract terms:
- Arbitration or mediation clause: Your contract may require alternative dispute resolution before you can file suit.
- Liquidated damages clause: Pre-set penalties written into the agreement may apply directly.
- Dissolution: If your contract lacks an expulsion provision, dissolving the partnership may be your clearest path forward.
Courts may evaluate timing, the extent of harm and whether you continued performing your own obligations. Documentation strengthens your position at each stage.
You may talk to an attorney before you act
A breach by a business partner can escalate quickly. An attorney can help you evaluate your contract dispute options and decide whether to negotiate, pursue arbitration or file a lawsuit. Speaking with a lawyer early may protect your rights and help you avoid mistakes that could weaken your case.