Whether limited partners become personally liable as general partners under RCW 25.08.070 when they control the limited partnership through their roles as officers, directors, and shareholders of its corporate general partner.
Holding
No. Limited partners do not incur general-partner liability merely because, in their corporate capacities, they control the corporate general partner that manages the limited partnership.
Reasoning
Washington law permits a limited partnership to have a corporation as its sole general partner. Frigidaire did not challenge the legitimacy of that structure. The question was therefore not whether Union Properties could serve as Commercial’s general partner, but whether Mannon and Baxter’s corporate roles made them personally responsible for the partnership’s debts under the statutory control test.
The Court treated Union Properties as a legally separate entity. Although Mannon and Baxter controlled the corporation, a corporation necessarily acts through its directors, officers, and agents. Thus, when they managed Commercial through Union Properties, they were acting for the corporate general partner rather than exercising control in their personal capacities as limited partners.
The parties stipulated that Mannon and Baxter never acted directly or personally in operating Commercial. They signed the contract as Union Properties’ president and secretary-treasurer, and Frigidaire knew that Union Properties—not the individual respondents—was Commercial’s sole general partner. Because the respondents kept their corporate and personal affairs separate, Frigidaire had no basis to assume they had personally undertaken general-partner liability.
The Court distinguished the Texas decision in Delaney v. Fidelity Lease Ltd. There, the corporate general partner and limited partnership were formed at the same time, and the corporation existed solely to operate that partnership; the controlling limited partners’ acts were therefore viewed as acts for the partnership itself. Here, Union Properties was an ongoing real-estate enterprise that formed and managed several limited partnerships, so the respondents’ corporate acts were not merely acts undertaken for Commercial.
Frigidaire’s concern that use of a minimally capitalized corporate general partner could defeat the statutory requirement of a general partner with unlimited liability did not justify disregarding the corporation. That concern may arise whenever a creditor deals with a corporation, not just in limited partnerships. Where a corporate general partner is inadequately capitalized or used to perpetrate fraud or injustice, ordinary corporate veil-piercing principles can protect creditors.
Frigidaire knowingly contracted with a limited partnership whose only generally liable partner was Union Properties. If it wanted the individual respondents’ credit behind the agreement, it could have required personal guarantees. Applying RCW 25.08.070 to impose liability here would improperly ignore the corporate entity despite Frigidaire’s knowledge that it was dealing with that entity.