Early history:

The Space Marines who now serve under Chaplain La Faye upon "Paine's Honor" all served under the Command of Chaplain Paine.
Paine was a renown fighter and exceptional orator who could inspire his battle brothers to acts of insane courage and fury. Through many a battle, Paine went on to not only prove his efficiency as a warrior and a chaplain, but also as a great tactician and Commander. And though doubt and rumors that Paine's loyalty was more towards the primarch Sanguinius, than towards the Emperor, circulated within the chapter, it was decided that Paine was to be given command of an individual strike force of his own. This force had no distinct name and was usually just referred to as "Paine's Company" or, as it was called by Paine himself, "The Swords of Sanguinius".

With his own strike force, Paine gained a significant new freedom, namely the freedom to speak more freely about his thoughts and beliefs without interference from other officers to a group of soldiers that was constantly under his command and deeply dedicated to him. And as the rumors suggested, Paine's allegiance was indeed more towards Sanguinius, than towards the Emperor. For Paine, Sanguinius manifested the ultimate warrior; skilled, courageous and loyal to the end. But the Emperor had shown weakness when it mattered most and had let his emotions and fears cloud his vision, which had cost Sanguinius his life. He saw the death of Sanguinius as a result of the Emperors weakness and an injustice to Sanguinius and all soldiers who had bought time with their lives and the enemy's blood, for which the Emperor could never atone. But as Sanguinius' allegiance was to the Emperor and the Imperium of man, so was Paine's. And so he demanded his soldiers fought with courage, dignity and righteous fury; he lectured them on the importance of honor and loyalty and trained them even further in the art of close quarters combat.

Paine's influence, training and oratory skills pushed his company further and further, making them a devastating Assault Army which struck foes with cold precision and the fire of untamed fury and blood lust. In the eyes of the Chaplain, his were the ultimate soldiers, but to the Imperium of man, they were flawed and dangerous. Although Paine's strict code of honor and the pursuit of perfection in hand to hand combat which he preached helped minimize the civilian casualties, because his soldiers simply saw no thrill in killing a person who cannot defend himself or poses no threat to them, Paine's troops were notorious for attacking allies who they deemed cowards or who seemed to be worthy foes. It goes without saying that repeated allegations of heresy did not help their cause...

The betrayal:

After several indications and warnings concerning Paine and his troops, the Blood Angels decided to investigate the situation and deal with any problems personally by sending numerous troops which where in proximity to capture them and hold trial. At that time, Paine and his soldiers were fighting an ork invasion on the jungle world of Tipax II. Both the Orks and the Paine's Blood Angels took great pleasure in this fight, since it always boiled down to straight on confrontations in very close combat in which only the toughest, strongest and more skilled party survived. However, the Angels had less respect for some of their supposed allies who fought the orks alongside, than they had for the actual orks. They looked down upon some of the Imperial Guard armies who fought on Tipax II, because in their eyes, they were cowards, often afraid to get into hand to hand combat, sacrificing resources and territory to save themselves and delegating the fighting to other forces if possible. The guardsmen who Paine and his troops deemed worthy, mostly those who weren't afraid to wrestle orks with a knife, had their support and respect. But the others were mere vermin to them; a complete waste of resources, and so they were raided by Paine's troops when they needed ammunition, fuel or other parts, or even for simple practice when they were not satisfied after battling with Orks.
This did not go unnoticed by the Inquisition. Up and coming Inquisitor Tahl realized a chance to rise in the ranks of the inquisition if he could lead the destruction of a group of heretical marines.
Inquisitor Tahl found support from the Sisters of Battle stationed on Tipax II, who dedicated a rather large contingent of troops to the eradication of Paine's Company and some of the local guard forces.
But as an outright attack on the Blood Angels would be too dangerous, Tahl decided to lay a trap.

Soon, Paine was contacted by the Inquisitor, who sent the coordinates for a position where Paine's would meed with the Sisters of Battle to engage in a major battle against the biggest local Ork warboss. Paine initially refused, but then agreed when Tahl called upon their allegiance to the Blood Angels, Sanguinius and the Emperor and that they were bound by honor to trust and support the Imperium and its Inquisition.
The closer Paine and his troops got to the meeting point, the more his worries and doubts about the situation grew and strange visions plagued his mind. But his loyalty was to Sanguinius and by honor he was bound to the Imperium and that was more important than reason. So Paine and his troops descended from the skies via jump pack and drop pod, only to find themselves in a desolate and barren field, surrounded by jungles. But the moment he touched the ground, Paine's visions made sense, his mind became clear and he realized he had been fooled.
Fire reigned down upon the Blood Angels from all sides as they were caught in a crossfire of Imperial Guard forces and the Sisters of Battle. Carnage ensued; the battle was short but brutal.
The imperial forces were not particularly strong in numbers and might have presented an easy foe in any normal situation, but surrounded, without cover and facing dug in heavy weapons and tanks, Paine's Company suffered heavy losses. But the Imperial forces had not expected such a rapid and determined response by the Blood Angels. The two Scriptor Dreadnoughts who had deployed with Paine's forces via drop pod, cast a wall of blood around their allies that blurred the vision of all those who fired upon them and even stopped some of the projectiles. Then, the Blood Angels took to the skies with their jump packs and landed right in between the enemies lines, in their trenches and on their tanks and did what they do best: kill their foes in honest close quarters combat.

The Blood Oath

After a hand full of hours, the battle had ended as the Imperial Forces and most of the Blood Angels lay dead. Slowly, all survivors of Paine's Company started to return to the center of the landing zone, where they had started off at the beginning of the battle. The ground was covered in blood, bodies and shrapnel as La Faye, Paine's second in command and apprentice stumbled to the center and fell to his knees next to his Commander. Paine was lying on the ground, surrounded by the corpses of his foes, his armor heavily damaged and covered in blood. His Crozius had been destroyed by a shot from a plasma gun during the battle, but Paine had just continued, like many in his company, to fight his enemies bare handed.
All the survivors gathered around their dying commander as he spoke his last words and apologized. He said that it was the same weakness that the Emperor felt when holding back and doubting the betrayal of Horus, that has kept him from admitting his disbelief in the Imperial Forces and that he has failed as a commander, because he has let his sense of honor jeopardize their existence and their true duties. And so he asked of his men not forgiveness, for he was beyond redemption, but to learn from his mistakes. And so, all surviving members of his company took the blood oath, which by virtue of the blood of their battle brothers shed through the betrayal of the Imperium relieved them of their duty and allegiance to any Imperial Authority.

When the Blood Angel Troops tasked with the investigation of Paine's Company arrived on Tipax II, they only found the mingled corpses of fellow Blood Angels and the Imperial Forces and a single Imperial soldier who was left alive as a witness to the Blood Oath. And so it was official that Paine's Company had turned away from the Emperor.