Brief Fact Summary. Petitioner, Frigidaire Sales Corporation, entered into a contract with a limited partnership, Commercial Investors (“Commercial”), wherein the sole general partner was another corporation, Respondent corporation Union Properties (“Union”). Petitioner sought to hold Respondent individuals, Leonard Mannon and Raleigh Baxter, liable for the breach even though they were limited partners.
Synopsis of Rule of Law. A limited partner will be held liable if, for personal gain, they take control of a business over and above their normal rights as limited partners.
When the shareholders of a corporation, who are also the corporation's officers and directors, conscientiously keep the affairs of the corporation separate from their personal affairs, and no fraud or manifest injustice is perpetrated upon third persons who deal with the corporation, the corporation's separate entity should be respected.View Full Point of Law
Issue. The issue is whether the limited partners Baxter and Mannon can be held liable for Commercial’s breach of contract.
Held. The individual limited partners can not be held liable for the Limited Partnership’s breach with Petitioner. Petitioner was aware that Union was the only general partner of Commercial, and if they were uncomfortable with a corporation being named as the sole general partner then they should have requested additional assurances to ensure performance. Further, evidence demonstrated that Union was not a shell for Baxter and Mannon to operate Commercial â€“ Commercial was only one limited partnership under Union. The purpose of Union was to build collaborations with other parties, and one of those parties was
Commercial. Therefore Union was not simply in use for individual gain. If the legislature did not intend this limited partnership structure, they can simply correct it through legislation.
Discussion. The court holds the plaintiffs more accountable for the parties they contract with. There was also no element of fraud, which is the second element detailed in other corporate veil cases.