Frigidaire Sales Corporation v. Union Properties

Supreme Court of Washington · Corporations

CorporationsLimited partnershipsLimited partner liabilityCorporate general partnerlimited partnershipcorporate general partnercontrol of the businesslimited partner liability

Facts

Frigidaire contracted with Commercial Investors, a limited partnership. Leonard Mannon and Raleigh Baxter were limited partners of Commercial and were also officers, directors, and shareholders of Union Properties, Inc., the limited partnership's sole general partner. Through their control of Union Properties, they exercised day-to-day control and management of Commercial. After Commercial breached the contract, Frigidaire sued Union Properties and the respondents personally.

Issue

Do limited partners become liable as general partners under RCW 25.08.070 merely because, as officers, directors, and shareholders of the corporate sole general partner, they control the limited partnership's day-to-day business?

Rule

Where a limited partnership is lawfully formed with a corporation as its sole general partner, limited partners do not incur general liability under RCW 25.08.070 solely because they control and manage the partnership through their roles as officers, directors, or shareholders of that corporate general partner. If they act only in corporate capacities, keep corporate affairs separate from personal affairs, and no fraud or manifest injustice is shown, the corporate entity must be respected; concerns about inadequate capitalization are addressed, if at all, by veil-piercing principles rather than by imposing general-partner liability automatically.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Seattle, Cascade Harbor Ventures, LP was formed with Rainline Management, Inc. as its sole general partner. Two limited partners, Nora Patel and Evan Brooks, owned all shares of Rainline and ran the partnership's daily operations, but they signed every contract only as Rainline's president and treasurer, kept separate books, and the supplier knew Rainline was the only general partner.

When the partnership defaults on a supply contract, is a court most likely to hold Nora and Evan personally liable as general partners solely because they controlled the business day to day?

Explanation. The majority held that where the law permits a corporation to serve as sole general partner, limited partners do not incur general liability merely because they control the partnership through their roles as officers, directors, or shareholders of that corporation. The key is that they act only in corporate capacities, the corporate entity is respected, and the creditor knows it is dealing with the corporation as the general partner.