## Facts

- Louis E. Covalt (plaintiff) and William L. High (defendant) were officers and shareholders of Concrete Systems, Inc. (CSI); Covalt owned 25% and High owned 75%.
- In 1971, Covalt and High orally agreed to form a partnership.
- The partnership bought land and developed an office/warehouse building.
- In February 1973, the partnership leased the property to CSI for a five-year term.
- When the lease term ended in 1978, the parties agreed CSI would remain as tenant and the rent would increase to $1,850 per month.
- In December 1978, Covalt resigned from CSI and began working for a competitor, but he remained a partner in the real-estate partnership.
- Covalt demanded that CSI’s rent be raised to $2,850 per month; High declined to renegotiate the lease on those terms.
- Covalt sued High seeking, among other relief, damages for “lost rental value” based on the difference between the rent being paid and Covalt’s asserted fair rental value.
- After trial on the lost-rent claim, the district court found the fair rental value was $2,850 per month or higher and that CSI could pay that amount.
- The district court concluded High breached a fiduciary duty by not agreeing to the increase and entered a partial judgment against High individually for $9,500 plus prejudgment interest.
- High appealed from that partial judgment.

## Issues

1. Whether a partner may recover damages from a co-partner for an alleged breach of fiduciary duty based solely on the co-partner’s refusal to renegotiate and obtain a higher rent from a tenant of partnership property.

## Decision

- The New Mexico Court of Appeals reversed the partial judgment awarding Covalt damages and prejudgment interest against High individually.
- The court held that, on these facts, High’s refusal to agree to Covalt’s demanded rent increase did not support an individual damages award for lost rent.

## Legal Principles

- Partners owe fiduciary duties to each other in partnership matters, but those duties do not make a partner personally liable for damages whenever the partners disagree about business terms.
- A claim for “lost rent” requires more than proof that a higher rent might have been obtainable; liability depends on proof of wrongful conduct such as bad faith, self-interest at the partnership’s expense, or another form of disloyalty.
- Absent an agreement requiring a specific rent or a duty to pursue a particular renegotiation strategy, a partner’s refusal to consent to a proposed rent increase is not, by itself, a compensable breach of fiduciary duty.
- When partnership property is leased to a related entity, a court may examine fairness and loyalty, but a damages award against one partner individually still requires proof that the partner acted disloyally or diverted partnership value.

## Conclusion

The Court of Appeals reversed the award of damages for lost rental value because Covalt did not show that High’s refusal to raise CSI’s rent constituted disloyal or self-interested conduct; without proof of such wrongful conduct or a specific agreement requiring the increase, the dispute reflected a disagreement over business terms rather than a fiduciary breach supporting individual damages.


Covalt v. High, 675 P.2d 999, 100 N.M. 700 (1983)