Innocent Partner Fixed with the Liability of Defrauding Partner. This case reveals the importance of picking your partners wisely. In this case, it was a law firm where one partner defrauded a lender who lent money to the law firm. The loans where to help prosecute client claims, and loans were to be repaid once cases settled. When the lender found out that this wasn’t always happening, the law firm was sued. Later it would be discovered that many of the loan documents were forged by the fraudster partner (ie: they were supposed to be signed by clients of the firm, but the lawyer signed them instead).
The defrauding partner died, and the innocent partner pursued. This case is a solemn reminder that innocent partners are equally exposed. In this case, judgment was rendered in excess of $1M, with the court highlighting that despite the fact that the innocent party had nothing to do with the fraudulent activities, the innocent partner:
“…is liable under the Partnerships Act, RSO 1990 c. P.5 for the debts and obligations reflected in those instruments. This liability attaches to a partner despite the fact that the partner did not participate in or authorize the acts of another partner on which the liability is based: Strother v. 3464921 Canada Inc., 2007 SCC 24 (CanLII), [2007] 2 SCR 177, at paras 105-108.”
Lifeline Litigation Loans Inc. v. Hanson, 2022 ONSC 489
https://www.canlii.org/en/on/onsc/doc/2022/2022onsc489/2022onsc489.html