Frigidaire Sales Corporation v. Union Properties, Inc.
562 P.2d 244 (1977)



PROCEDURE: Petitioner contractor appealed from the judgment of the Court of Appeals (Washington) upholding the judgment of the trial court that was entered for respondent limited partners in a contract action seeking, inter alia, to impose general liability against the limited partners for the limited partnership's contractual obligations, where the general partner was a corporation controlled by the limited partners.

FACTS: Frigidaire (P) entered into a contract with Commercial Investors, a limited partnership. Mannon and Baxter were limited partners of Commercial. They were also directors, officers and shareholders of Union Properties (D), the only general partner of Commercial. They controlled D and through their control of D, they exercised day to day control and management of Commercial. Commercial breached its contract with P and P sued both D, the individual parties and Commercial.

ISSUE: If a limited partnership s general partner is a corporation, whose controlling members are also the limited partners in the partnership, may a creditor treat the limited partners as additional general partners?

RULE: Because creditor of limited partnership entered into contract knowing that corporate partner was only party with general liability and because in eyes of law it was corporate general partner, separate entity, which controlled limited partnership, limited partners were not liable to creditor of limited partnership as general partners simply because they were officers, directors or shareholders of corporate general partner.

HOLDING:The trial court denied their claim that the limited partners incurred general liability and the appellate court affirmed. The supreme court agreed, ruling that the limited partners did not incur general liability for the partnership's liabilities under § 25.08 simply because they controlled the corporate general partner. The record showed that the limited partners did not form the general partner for the sole purpose of operating the partnership, but to create several business opportunities. Thus, their control of the general partner was not merely for the benefit of the partnership. Also, although the limited partners signed the contract, the contractor knew they were agents and it was dealing with a limited partnership with a corporate general partner.