result of the fraud and deceit" of Bisno, Coxeter, TACMI, TACI and

Miske vs Coxeter TAFC "that induced Haldir ... to purchase and me to facilitate the
purchase by Haldir" of the limited partnership units in TACMI.
According to the terms of the assignment, Haldir would receive 75
I. BACKGROUND percent of any net recovery Miske obtained on the assigned
claims.

A .   F o r m a ti o n of and Investment in Limited Prior to investing in TACMI, Moriwaki had not been advised of
multiple material facts concerning the project, including that (1)
Partnerships the purchase price of a key asset was $1.7 million above its
appraised value; (2) contrary to a statement in the promotional
In 1985, appellants James Coxeter, Robert Bisno and TAFC formed materials that the property was acquired with no markup, in fact a
two California limited partnerships for the purpose of $900,000 markup had been added to the price of the property
redeveloping certain property in downtown Berkeley: appellant before the seller sold it to TACI and TACMI; and (3) Bisno
TACI and Trans-Action Commercial Mortgage Investors, Ltd. embezzled $470,000 from TACMI to buy a home.
(TACMI). Both companies were private placement limited
partnerships. Coxeter, Bisno and TAFC were the general partners
of the two limited partnerships. B .   L i ti g a ti o n a n d P r o c e d u r a l H i s t o r y

Bisno was responsible for managing the Berkeley project; Coxeter In late 2005 and early 2006, Miske, on his own behalf and as
managed projects in Southern California and other parts of the assignee of Haldir's claim, and other TACMI limited partners
state. Bisno approved the promotional work for the Berkeley separately filed actions against TACMI, TACI, and three of the
project, handled the advertising, flyers and brochures on behalf of limited partnerships' general partners: Bisno, Coxeter and TAFC.
the partnerships, and approved and oversaw distribution of a Each action alleged that plaintiffs had been fraudulently induced
private placement memorandum. As well, Bisno solicited potential to purchase units in TACMI. The court consolidated the three
investors, took them to the site, gave tours of the property, and actions, but thereafter ordered that those plaintiffs entitled to
made presentations encouraging them to invest. trial preference because of age and health issues (the Preference
Plaintiffs) would have their claims tried separately, before the
In early 1986, Bisno transferred $470,000 from TACMI for his claims of the non-Preference Plaintiffs. Miske was not a member
personal use to purchase a personal residence, without the of the preferential group.
knowledge or consent of the other partners.
The jury returned a special verdict in the Preference Plaintiffs'
Then in February and April 1987, Bisno met with Makoto case against all defendants, awarding damages of $251,325 and
Moriwaki, the president and owner of the Hong Kong company compound prejudgment interest of more than $1.15 million as of
Haldir, Ltd. (Haldir), to discuss the partnerships. Moriwaki traveled the date of judgment. This court affirmed the judgment in an
each time to Berkeley, and visited the property. Haldir ultimately unpublished opinion. (Emanuele v. Bisno (Mar. 13, 2008,
purchased 44 TACMI limited partnership units for $1,924,560. On A117913).)
April 11, 1987, its managing director executed a subscription
agreement. Thereafter, Moriwaki tendered the purchase money. After the remittitur issued on the Preference Plaintiffs' claims,
And finally, on April 13, 1987, Bisno, on behalf of the partnership, defendants settled with all remaining plaintiffs except Miske, as
countersigned the subscription agreement accepting Haldir's Haldir's assignee. Prior
subscription and making the company a limited partner.
[204 Cal.App.4th 1255]
For a short period of time thereafter, Haldir received distributions to trial, Miske asked the court to bar relitigation of certain issues,
totaling $183,389.37 from TACMI, and then the payments namely relating to proof of defendants' fraudulent conduct and
stopped. Haldir received new cash flow projections from TACMI the propriety of the compound interest award. Ultimately the
that were significantly less than the original projections. court ruled in Haldir's favor, and instructed the jury as follows:
"You must accept as proven that all defendants made knowing,
In March 1998, Haldir sold its TACMI limited partnership interest intentional, and deceptive misrepresentations and concealment in
for $198,000 to Berkeley Commercial Center, LLC (Berkeley 1986 and 1987 that were material and important; were made with
Center). the intent to deceive and induce persons to purchase TACMI
limited partnership units; and were made with the intent to have
purchasers rely on the misrepresentations." The court also
[204 Cal.App.4th 1254] instructed the jury on the liability of a partner: "A limited
In 1996, Dolores Staudenraus, another TACMI limited partner, partnership and each of its general partner[s] is responsible for
sued TACMI, Bisno, Coxeter and others for fraud. The general the harm caused by the wrongful conduct of a general partner
partners of TACMI cross-complained. while acting within the scope of his authority[, e]ven if the other
general partners were not aware of it or did not participate in the
Respondent Miske, another TACMI investor, had been wrongful conduct. [¶] Robert Bisno's conduct was within the
instrumental in introducing Moriwaki to the Berkeley project. In scope of his authority ...."
2005 he traveled to Japan to meet with Moriwaki. Miske discussed
the misconduct and "bad things that had happened" in the On the issue of compound interest, the court ruled that
partnership before Haldir invested in the company. After learning "[d]efendants are barred from relitigating the plaintiff's
of the wrongdoing, Moriwaki, on behalf of Haldir, assigned to entitlement to prejudgment compound interest if plaintiff prevails
Miske all of Haldir's "right, title, and interest in any and all of our on his fraud claim at trial. The `positive misconduct' of the
claims and causes of action for the monetary losses sustained as a
1
defendants is the same in the present case and in the case of the referred to a referee for an accounting, and the trial court
preference plaintiffs whose claims have already been tried." rendered judgment in accord with the referee's findings. Denying
Kazanjian's claim against the innocent general partner, the court
The jury in the present case returned a special verdict finding that ruled that such a partner was not personally liable to a limited
(1) Haldir reasonably relied on a concealment by Bisno that was a partner for damages suffered by acts of the cogeneral partner.
substantial factor in causing harm to it; (2) Bisno was acting within (Kazanjian, supra, 235 Cal.App.3d at pp. 1624-1625.)
the scope of his authority when he concealed a material fact from
Haldir; (3) Coxeter did not ratify Bisno's harmful conduct; and (4) (2) Not surprisingly, the question on appeal was whether the
the amount of compensatory damages, including compound innocent general partner was jointly liable to the limited partner
interest, was $1,408,212.07. The court entered judgment stating for the loss he suffered because of the other partner's
the jury returned a special verdict "against all Defendants" and malfeasance. The reviewing court concluded he was not, turning
decreed that Miske recover from defendants "jointly and to provisions of the Corporations Code law to determine the rights
severally." of a limited partner. The court noted that in general, the liability
of a general partner to a limited partner is the same as his or her
Thereafter Coxeter moved unsuccessfully for judgment liability to another general partner. (Kazanjian, supra, 235
notwithstanding the verdict or, alternatively, to set aside and Cal.App.3d at p. 1626.) At the time, the obligations of a
vacate the judgment and enter a new judgment. Coxeter argued misappropriating partner were spelled out in Corporations Code
he was an innocent general partner and could not be liable to former section 15021, subdivision (1), as follows: "Every partner
limited partner Haldir for his cogeneral partner's tortious conduct, must account to the partnership for any benefit, and hold as
citing Kazanjian. The trial court disagreed, trustee for it any profits derived by him without the consent of
finding Kazanjian distinguishable because "Haldir was an innocent the other partners ...." (Corp. Code, former § 15021, as added by
third party for purposes of determining defendant Coxeter's Stats. 1949, ch. 383, § 1, pp. 674, 680, repealed by Stats. 1996, ch.
liability for the actions of defendant Robert Bisno." 1003, § 1.2, p. 5906, eff.

Miske moved for an award of attorney fees, relying on a provision [204 Cal.App.4th 1257]
in the TACMI LPA. Responding to Coxeter's argument that Haldir Jan. 1, 1999.) Observing that the misappropriating partner holds
was not entitled to a fee award because the company prevailed profits improperly derived "`as trustee,'" the court concluded that
against him based on its status as an "innocent third party" and partnership law thus incorporated the fiduciary concepts of our
not as a limited partner, the court ruled that "[o]nce the purchase trust law. (Kazanjian, supra, at p. 1626.) Further, at the time of the
[of its limited partnership interest] had been made, ... Haldir was transactions in question, Civil Code former section 2239 provided:
entitled to the benefit of the attorney's fees clause in the "A trustee is responsible for the wrongful acts of a co-trustee to
which he consented, or which, by his negligence, he enabled the
latter to commit, but for no others." (Enacted in 1872, repealed by
[204 Cal.App.4th 1256]
Stats. 1986, ch. 820, § 7, p. 2730.) From this the court concluded
partnership agreement." The court awarded $1,339,025.31 in
that cotrustees and copartners "are not liable for loss caused by
attorney fees, exclusive of costs. These consolidated appeals
misdeeds of their cofiduciaries unless they are personally in some
followed.
way at fault—either by participating in the tort through consent or
otherwise, or by negligence in permitting it to occur." (Kazanjian,
supra, at p. 1627.)
II. DISCUSSION
(3) As well, the Kazanjian court underscored that a general
partner's exposure to liability to a limited partner is not as
A. Coxeter's Liability extensive as a general partner's potential liability to partnership
creditors. (Kazanjian, supra, 235 Cal.App.3d at p. 1625.) While
(1) Coxeter first protests that Miske cannot recover from him stressing that a limited partner in the capacity of limited partner is
because he was found innocent of any wrongdoing. We start with not a creditor, the court was clear that all general partners,
the general proposition that all partners in a partnership are including innocent general partners, are jointly and severally
bound by the fraud of a copartner acting within the scope of his or liable to creditors for the tortious acts of a copartner done in
her authority in a partnership transaction with an innocent third connection with, or in the process of, the partnership business.
party, and thus all are responsible for the injury occasioned (Id. at pp. 1626, 1629.) Further, although like a creditor, a limited
thereby. (Stout v. Turney (1978) 22 Cal.3d 718, 723, fn. 6 [150 partner has no control of the partnership business, the limited
Cal.Rptr. 637, 586 P.2d 1228].) Coxeter, however, maintains that partner has made a business decision to relinquish control over
because the jury found that only Bisno concealed material business management in return for limiting her liability to her
information from Haldir, Coxeter is an innocent general investment. Historically, our limited partnership law was based on
partner and thus cannot be liable to Haldir, a limited partner, for two assumptions: First, that public policy did not require limited
Bisno's tortious acts. From this Coxeter asserts that the court partners to be responsible for partnership obligations. Second,
erred in entering a joint and several judgment against him based "`persons in business should be able, while remaining themselves
on the premise that Haldir's fraud claim, asserted by Miske as liable without limit for the obligations contracted in its conduct, to
assignee, was brought in the capacity of a third party rather than a associate with ... others who contribute to the capital and acquire
limited partner. rights of ownership, provided that such contributors do not
compete with creditors for the assets of the partnership.'
Coxeter centers his argument on Kazanjian. There, limited partner [Citations.]" (Id. at p. 1629, italics omitted.)
Kazanjian sued two general partners for one partner's
misappropriation of partnership funds. The other partner was The legal question we must resolve is whether to treat Haldir as
innocent of any wrongdoing, and the wrongdoing occurred well an innocent third party or an innocent limited partner, for
after the limited partner joined the partnership. The matter was purposes of its assigned fraud in the inducement claim. Haldir's
2
complaint is that it purchased the limited partnership in
reasonable reliance on Bisno's representations, which in fact were
false and Bisno knew they were false. Had it known the truth
about the concealed facts, it would not have purchased the units
or become a limited partner. Further, Haldir would not have paid
what it did for the units since the units, under the circumstances,
had no value. The jury specifically found that Haldir reasonably
relied "on a concealment" of Bisno, Haldir's reliance on the Kazanjian vs. Rancho Estates, Ltd.
concealment was a substantial factor in causing harm to it, and
Bisno was acting within the scope of his authority when he made Background
the concealment.
Gary J. Kazanjian (Kazanjian) owned a parcel of undeveloped
[204 Cal.App.4th 1258] property in Rancho Santa Fe. He experienced financial difficulty in
Bisno's tortious concealment occurred before Haldir paid money servicing the encumbrances on the property, and determined he
for the units, and induced Haldir to purchase units it later deemed would be required either to sell or find some means of developing
were worthless once it discovered the fraud. The diminishment in the property in order to avoid foreclosure by the lienholders.
value occurred at the moment of purchase, notwithstanding that Kazanjian contacted Herbert Hops of the Hops Development
it was discovered later, after Haldir had become a limited partner. Corporation (Hops) for assistance in resolving his problem.
At the moment of purchase, Haldir is in the same shoes as any
defrauded innocent third party purchasing a partnership asset. It
Hops advised that construction of a high-value residence on the
had not yet retained any benefits from the partnership and had
Kazanjian property would be profitable. The plan was to utilize
not yet begun operating under the LPA. The only difference at that
Kazanjian's equity in the property to obtain the necessary
moment between Haldir and a generic innocent third party who
financing for construction. Hops could add nothing to the financial
pays more for a partnership asset than it is worth in a transaction
credibility of the project, however, because he had recently
wherein material information was concealed, is that Haldir
suffered foreclosures on two properties he owned, resulting in
purchased limited partnership units and thereafter became a
impairment of his credit. It was concluded that the parties would
limited partner.
need additional financial guarantees to make the project work.

Coxeter's argument that we must view this through the lens of the
The added guarantor was found in the person of Lawrence Haber
innocent general partner analysis is based on the hypertechnical
(Haber). Haber agreed to lend his financial credit to the venture in
argument that the cause of action for fraud in the inducement did
return for an interest in profits. Upon the advice of Hops, who had
not accrue until Haldir acted in reliance on Bisno's concealment
had experience in such structures previously, the enterprise was
and sustained damages as a result. (See Blickman Turkus, LP v. MF
established as a limited partnership. Kazanjian was to contribute
Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 868 [76
his realty in return for a limited partner's interest. Hops was to
Cal.Rptr.3d 325]: elements of action for fraud and deceit based on
contribute, as a general partner, his services and [235 Cal. App. 3d
concealment are (1) the defendant concealed a material fact; (2)
1624] expertise. Haber's contribution was his advancing credit to
the defendant had a duty to disclose the fact to the plaintiff; (3)
the partnership by becoming a general partner, thus providing an
the defendant intentionally concealed the fact with intent to
unlimited guarantee of partnership obligations. While none of the
defraud; (4) the plaintiff was unaware of the fact and would not
three partners expected to advance additional cash to the
have acted had she or he had knowledge of the concealed fact;
venture, the agreement did contain a provision permitting
and (5) the plaintiff sustained damages as a result of the
assessments for additional capital contributions. No assessments
concealment.)
were ever made. However, Hops advanced sums from time to
time for the benefit of the project, and claimed a right of
(4) Haldir relied on the flawed representations when it made the reimbursement when the project was completed.
decision to purchase the partnership units. That reliance of course
continued through the signing of the partnership agreement and
The partnership agreement gave Hops broad authority to manage
payment of money at which precise moment Haldir suffered
the business of the partnership. The object of the venture was to
damages, i.e., the units were worth less than the purchase price
plan and construct a residence on the realty, to obtain and utilize
(or perhaps nothing). Coxeter's position—that the elements of
appropriate financing, to sell the finished product for a profit, and
reliance and injury did not occur until Haldir became a limited
upon sale to divide the proceeds and terminate the partnership.
partner—exalts form over substance and may be technically true.
At time of dissolution Kazanjian was first to recover the equity in
However, Haldir did not become an innocent limited partner
his realty as of the time of commencement of the venture, a sum
within the meaning of Kazanjian at that precise moment. Recall,
later determined to be $101,001. The balance of available funds
Kazanjian was not fraudulently induced to buy into the
was then to be divided (after payment of all debts and return of
partnership. Rather, he had already purchased his partnership
any "advances" made by partners) 40 percent to Hops, 30 percent
units and had been operating under the LPA for some time when
to Haber and 30 percent to Kazanjian.
the misappropriation that reduced the assets available at
distribution and dissolution occurred. Here, the concealment
occurred prior to Haldir's becoming a limited partner, and the During the period of the venture Hops was engaged in other
value of its units was substantially reduced at the instant of going construction projects. An urgent obligation came due which he
into the partnership. Although it is a fairly close call, we conclude could not meet. Unbeknownst to his two partners, but in
that for purposes of applying the rule of Kazanjian, Haldir was an accordance with literal authority vested in him by the partnership
innocent third party, not an innocent limited partner. Therefore, agreement, Hops imposed an encumbrance upon partnership
Coxeter was jointly liable for Bisno's concealment of material property to secure the loan which provided the necessary funds.
facts. Hops intended to repay the loan on the sale of the completed
residence, and testified that he assumed there would be sufficient

3
funds to his credit to cover the amount of the misappropriation. because it did not consider partners' rights and obligations of
The improper lien was not discovered by the other partners until contribution when dissolution results in loss. A proper
sale of the new residence was in process. At that time they agreed consideration of such rights would [235 Cal. App. 3d 1626] result
to pay off the stray lien rather than contest it, in order to in a sharing of limited partner Kazanjian's loss by general partner
terminate the transaction and obtain funds from the sale. Haber.

The construction had taken longer than expected. The building At the outset, we dismiss arguments based upon classification of
cost more than the partners had projected. The market for high- the tortious partner's acts as either within or outside the scope of
priced homes turned out to be soft. The net result of these factors business of the partnership. It may be presumed that the typical
was that the proceeds from sale were insufficient (after payoff of partnership agreement will hardly ever contain a provision
the unauthorized lien) to return all advances and Kazanjian's authorizing misappropriation of partnership funds by a general
$101,001 entitlement. Kazanjian brought suit. The matter was partner. While the partnership agreement gave Hops, in this case,
referred to a referee for an accounting. The referee, after a full the power to execute liens on partnership property, it did not
hearing on the merits, calculated the partnership dissolution authorize him in the process to steal money from the partnership.
accounting by excluding consideration of the payoff of the On the other hand, it is clear that tortious acts done in connection
unauthorized lien (or, alternatively, upon the hypothetical with, or in the process of, the business of the partnership will
assumption that Hops would reimburse the partnership for the subject the general partners to liability to creditors. (See
amount of the diversion). On this basis the referee determined Blackmon v. Hale (1970) 1 Cal. 3d 548 [83 Cal. Rptr. 194, 463 P.2d
that Hops was entitled to a return of certain advances, that [235 418]; innocent partner in law firm liable for misappropriation of
Cal. App. 3d 1625] Kazanjian was entitled to a return of his client trust funds by copartner). However, the fact that a misdeed
$101,001, and that a small profit of some $2,295 remained, which will subject all partners to liability to a creditor does not
should be split 40-30-30 in accordance with the partnership necessarily mean the misdeed causes equal liability to a losing
agreement. However, because the foreign lien funds in the sum of limited partner.
$45,998 had been first removed, the remaining cash was
insufficient to return Kazanjian his full entitlement, much less pay We state the obvious when we remind that a limited partner in his
anything by way of profit to the partners. capacity as a limited partner is not a creditor. To find what the
limited partner's rights are we look to the Revised Uniform
The trial court rendered judgment in accordance with the Limited Partnership Act, as contained in Corporations Code
referee's findings. The judgment included an appropriate award in section 15611 et seq. Corporations Code section 15643,
favor of the partnership and against Hops, in recognition of Hops's subdivision (b) states: "... Except as provided in this chapter or in
misappropriation of the funds resulting from the foreign lien. the partnership agreement, a general partner of a limited
Since the misappropriated sums directly caused Kazanjian's loss, partnership has the liabilities of a partner in a partnership without
the court also awarded judgment against Hops and in favor of limited partners to the partnership and to the other partners."
Kazanjian in the net amount of the loss (some $41,884 and also
hefty punitive damages). The court denied Kazanjian's claim [2] The word "partner" in the California Revised Limited
against Haber, however, finding that Haber was "not personally Partnership Act means both a general and a limited partner.
liable to the limited partner, Gary J. Kazanjian, for damages (Corp. Code, § 15611.) Literally, therefore, except as particularly
suffered caused by the acts of the co-general partner, Hops provided otherwise either by the agreement or the act, the
Development Corporation." liability of a general partner to a limited partner is identical to his
liability to another general partner.
On appeal, the mathematics and basic factual findings of the
referee, as adopted by the court, are not challenged. The appeal The obligations of a misappropriating partner are set forth in
directs itself to the question of Haber's liability for Hops's Uniform Partnership Act section 21, subdivision (1), contained in
misdeeds. As might be expected, Hops and his corporation are Corporations Code section 15021, subdivision (1): "Every partner
now bankrupt, and Kazanjian's only practical source of recovery must account to the partnership for any benefit, and hold as
for his lost equity is the deep pockets of Haber, the "financial" trustee for it any profits derived by him without the consent of
general partner. the other partners. ..." It is notable in this reading that the
accounting is to the partnership, rather than to individual
Issue Presented copartners. [3] It is also to be noted that the misappropriating
partner holds "as trustee" the profits improperly derived.
[1a] The issue thus presented is: When a limited partner suffers Partnership law thus incorporates the fiduciary concepts
loss because of the misappropriation of partnership funds by one generated in trust law. (See Tri-Growth Centre City, Ltd. v. Silldorf,
general partner, is the other general partner liable jointly to the Burdman, Duignan & Eisenberg (1989) 216 Cal. App. 3d 1139,
limited partner for such loss? Surprisingly, this question seems not 1150 [265 Cal.Rptr. 330]: "[W]hen a partnership is created, [235
previously to have been answered, either in terms of provisions of Cal. App. 3d 1627] the parties acquire rights and duties based on a
the uniform partnership acts or by judicial decision. fiduciary relationship.") Civil Code section 2239 (at the time
applicable to this case) provided that "[a] trustee is responsible for
the wrongful acts of a co-trustee to which he consented, or which,
Discussion
by his negligence, he enabled the latter to commit, but for no
others."fn. 1 Thus, cotrustees, and hence also copartners, are not
We conclude that an innocent general partner is not jointly and liable for loss caused by misdeeds of their cofiduciaries unless
severally liable with a malfeasant general partner for they are personally in some way at fault-either by participating in
misappropriations which cause loss to a limited partner. We the tort through consent or otherwise, or by negligence in
believe the general partner's exposure to liability to a limited permitting it to occur. (Gbur v. Cohen (1979) 93 Cal. App. 3d 296,
partner should not be as extensive as his potential liability to 302 [155 Cal. Rptr. 507]; Cagnolatti v. Guinn (1983) 140 Cal. App.
creditors. However, we reverse the decision of the trial court 3d 42, 49 [189 Cal. Rptr. 151].)
4
[1b] The referee and the trial court found that Haber was ignorant It is entirely reasonable that he participate in the losses to the
of Hops's misappropriation. It also inferentially found Haber not to same 30 percent (or, excluding Hops because of his insolvency, to
have been negligent in permitting Hops's misdeed. In view of the the extent of 50 percent of the remaining solvent partners). We
special nature of Haber's participation, as a person providing emphasize, however, that this assignment of loss to Haber is
credit but not expected to participate in the partnership's based entirely upon concepts of partnership contribution, and not
business activities, the finding of nonnegligence is logical and upon any special obligation of a general partner to protect a
surely supported by the evidence. We therefore conclude that the limited partner from loss in terms of joint liability with another
court was correct in denying Kazanjian's claim against Haber, in malfeasant general partner.
terms of rejecting the concept that Haber as general partner
should be answerable directly to the limited partner, as he would Conclusion
have been to a creditor.
We have analyzed the responsibilities of partners in a limited
This conclusion does not, however, provide a complete answer to partnership in terms of contribution to repair impaired capital.
the limited partner's claim. The rights and obligations of partners While interesting, we believe this conclusion merely reflects
inter se are regulated by Uniform Partnership Act sections 18, clearly stated statutory provisions and [235 Cal. App. 3d
subdivision (b), and 40, subdivision (d) (Corp. Code, §§ 15018, 1629] represents no innovative thinking in terms of partnership
subd. (b) and 15040, subd. (d)). A partner who has paid more than law. We reverse on this ground, but only to require a more
his share of partnership obligations is entitled to indemnification complete and accurate accounting on dissolution of this
from the partnership. If the partnership is unable to provide such partnership.
indemnification, the partners must contribute the sums necessary
to satisfy its liabilities. Most important, as provided by
The decision reached herein which we believe is somewhat
Corporations Code section 15040, subdivision (d), "if any, but not
original, and which has given us the most difficulty in terms of
all, of the partners are insolvent, or ... refuse to contribute, the
resolution, is the decision limiting liability of general partners for
other partners shall contribute their share of the liabilities, and, in
the misdeeds of their cogeneral partners. There is no need to cite
the relative proportions in which they share the profits, the
precedent for the premise that when a general partner commits
additional amount necessary to pay the liabilities."
torts in connection with the partnership business which cause loss
to creditors, all general partners are jointly and severally liable.
These provisions are analyzed and explained in Bromberg and We have thought, in working through this opinion, that the same
Ribstein on Partnership, volume II (1988) section 6.02, subdivision obligations might well pertain to limited partners. The limited
(c), pages 6:14 [235 Cal. App. 3d 1628] through 6:18. The partner is, in some respects, like a creditor of the partnership. Like
obligation to share losses according to the division of profits the creditor, the limited partner has no control of the partnership
applies where the losses result in consumption of capital of the business. He is entirely dependent upon the general partners for
business. The partnership loss in this case resulted from the the care and protection of his investment. One could posit the
misappropriation of funds by a general partner, and that general proposition that the nature of a limited partnership is that of a
partner, Hops, is obligated to return the funds to the partnership. general partnership (composed of the several general partners)
When, however, this entitlement is uncollectible, its effect is the who together are in business for the objective of returning a profit
same as any other loss through imprudent or unsuccessful to the limited partner. Such concept would impose on all general
partnership operation. It is a loss which, being uncollectible, has partners the obligation of protection of the limited partner and
impaired partnership capital. From the calculations of the referee joint and several liability for the misappropriation by any general
in this case, we can see that capital has been impaired to the partner.
extent of some $45,000. Since Hops is insolvent, the contribution
to partnership capital to remedy the loss falls upon the remaining
We have concluded, however, that the statutory framework
two partners: Kazanjian and Haber. Under Corporations Code
created by the uniform partnership acts does not provide such
section 15040, subdivision (d), this loss should be allocated to
broad scope of liability. Further reflection and research respecting
them in accordance with their partnership profit ratios, which
the objectives of limited partnership status seem to justify this
being 30 percent and 30 percent means the loss should fall
conclusion. The Uniform Limited Partnership Act, first adopted in
equally upon them.
1916, was based upon two fundamental assumptions. The first
assumption was that public policy did not require limited partners
It must be acknowledged that this analysis is made without to become bound for partnership obligations. The second was:
reference to the special status of a limited partner. The mechanics "That persons in business should be able, while remaining
of Corporations Code section 15040, subdivision (d) (Uniform themselves liable without limit for the obligations contracted in its
Partnership Act, § 40, subd. (d)) appear to contemplate actual conduct, to associate with themselves others who contribute to
replacement of funds by partners to the partnership account, to the capital and acquire rights of ownership, provided that such
be followed by disbursement of the funds. Since a limited partner contributors do not compete with creditors for the assets of the
cannot be required to contribute funds beyond his stated partnership." (6 West's U. Laws Ann. (1969) U. Limited Partnership
investment (and here we overlook the possibility of assessment Act, § 1, comrs. note, p. 564, italics added; see also 2 Barrett &
contained in this agreement) he cannot be dunned for an Seago, Partners and Partnerships, Law and Taxation (1956)
additional assessment. This does not, we apprehend, preclude an Limited Partnerships, § 1.2, p. 490; 2 Rowley on Partnership (2d
accounting for distributions on dissolution which takes into ed. 1960) Limited Partnerships, § 53.0, p. 551.)
account the concepts of contribution.
[4] Thus, it appears that the key differences between the limited
In this case, for instance, absent the application of contribution and general partners are (1) limitation of liability of the limited
the entire loss from partnership misfortune falls upon Kazanjian partner to his investment, in return for which (2) the limited
because of the happenstance that he provided the entire initial partner relinquishes all right of business management. The limited
capital for the partnership. Had a profit been made in the partner remains a "partner" in the sense that he participates in
business, Haber would have shared it to the extent of 30 percent. profits and losses of the business. It does not [235 Cal. App. 3d
5
1630] seem violative of this status to deny the limited partner the
guarantee of all general partners of the propriety of the acts of
each of them. Innocent general partners, inter se, are obviously
not responsible for the misdeeds of one of their number-the
contribution provisions of Corporations Code section 15040,
subdivision (f) provide for payment by a partner only "to the
extent of the amount which he has paid in excess of his share of
the liability." Nothing to the contrary appearing in the uniform
acts, there would appear no good reason for modifying this rule of
nonliability for the claims of loss of a limited partner.

Disposition

The trial court's accounting for partnership transactions and its