*1 Dist., Fourth Div. One. [No. D010325. Nov. 1991.] KAZANJIAN, GARY J. Plaintiff v. Appellant, ESTATES, LTD., al., RANCHO et Defendants Respondents. *3 Counsel
Jones, Hatfield, Penfield, Finegold Barden & and Thomas E. Polakiewicz for Plaintiff and Appellant.
Raffee, & Edwards Leuthold and Richard R. Leuthold for Defendants and Respondents.
Opinion
FROEHLICH, J.—
Background Gary J. Kazanjian (Kazanjian) a parcel owned in undeveloped property Rancho Santa Fe. He experienced in financial encum- difficulty servicing brances on the he property, determined would be either to sell required find or some means of avoid developing order to foreclosure property lienholders. Kazanjian contacted Herbert the Hops Hops Develop- ment Corporation (Hops) assistance resolving his problem.
Hops advised that construction high-value of a residence on the Kazanjian property would be The was to utilize profitable. plan Kazanjian’s equity property to obtain financing for construction. necessary Hops could however, add nothing to the financial he credibility project, because owned, had recently suffered foreclosures on two properties resulting impairment of his credit. It was concluded that the would need parties additional financial to make the guarantees project work.
The added guarantor was found in person (Haber). of Lawrence Haber Haber agreed to lend his financial credit to the return venture for an interest in profits. advice Upon Hops, experience who had had structures previously, established enterprise was as a partnership. Kazanjian was to contribute his return realty for a partner’s contribute, interest. Hops was to a services and credit advancing Haber’s contribution was his expertise. guarantee an unlimited
by becoming general partner, providing thus ad- expected While none of the three partnership obligations. venture, did agreement provision vance additional cash to the contain No assessments assessments for additional contributions. permitting capital However, were ever time to time for made. advanced sums from benefit of the and claimed a of reimbursement when project, right project was completed. authority manage broad partnership agreement gave Hops
business of the of the venture was to object plan financ- construct a residence on the and utilize realty, appropriate obtain to divide the ing, to sell the finished for a sale product profit, was and terminate the At time of dissolution Kazanjian *4 proceeds in the time of commencement of first to recover the his as of equity realty venture, $101,001. The of available the a sum later determined to be balance return of (after funds was then to be divided of all debts and payment “advances” made 30 to Haber by Hops, percent partners) percent percent Kazanjian. in the of the venture was other construction During period engaged Hops An Unbe- came due which he could not meet. projects. urgent obligation vested his in with literal authority knownst to two but accordance partners, in him the an encumbrance by partnership agreement, Hops imposed the funds. necessary to secure the loan which partnership property provided residence, and intended to the loan on the sale of the Hops repay completed to his credit to testified that assumed there would be sufficient funds lien was not cover the amount of the The misappropriation. improper in the new residence was discovered other until sale of lien than contest At that time off the rather process. they agreed pay stray it, in order funds from the sale. to terminate transaction and obtain
The The cost more building construction had taken than longer expected. turned out than the had The market for homes projected. high-priced The from sale to be soft. net result of these factors was that proceeds (after lien) were insufficient return all ad- of the unauthorized payoff $101,001 The vances and suit. Kazanjian’s Kazanjian brought entitlement. referee, The after a full matter was referred to a referee for an accounting. merits, hearing accounting by on the calculated the dissolution partnership (or, the unauthorized lien alterna- consideration of the of excluding payoff would reimburse the tively, upon the that hypothetical assumption Hops diversion). the referee for the amount of the On this basis advances, certain that determined that was entitled to a return of Hops $101,001, Kazanjian was entitled to a return profit small $2,295 remained, some which should be 40-30-30 accordance with split However, lien partnership agreement. because the funds foreign $45,998 removed, sum had been insufficient remaining first cash was entitlement, return his full much Kazanjian less pay anything way profit partners.
The trial court rendered find- judgment accordance with referee’s The ings. judgment included an award favor appropriate the funds against Hops, recognition Hops’s misappropriation from the resulting lien. foreign directly Since sums misappropriated loss, caused Kazanjian’s the court awarded judgment against also $41,884 favor of net (some amount of the loss and also Haber, hefty punitive damages). Kazanjian’s court denied claim against however, finding that Haber was “not liable to personally Gary J. Kazanjian, for damages co-general suffered caused acts of the partner, Hops Development Corporation.” referee,
On appeal, mathematics and basic factual findings court, adopted by are challenged. directs itself to the appeal question of Haber’s might misdeeds. As Hops’s expected, *5 his corporation are now bankrupt, practical and Kazanjian’s only Haber, source of lost recovery his is the the equity deep pockets general “financial” partner.
Issue Presented The issue thus When limited presented is: a suffers loss partner because of funds misappropriation general one partnership is other general partner jointly liable to the limited such loss? partner answered, this Surprisingly, seems not to been question previously have either in terms of of the uniform provisions by judicial acts or partnership decision.
Discussion We conclude that an general innocent is partner jointly not and severally liable with a malfeasant general partner for which cause misappropriations loss to a limited We believe the partner. to general partner’s exposure a liability to limited partner should not be extensive as potential as However, liability to we creditors. reverse the decision trial court because it did not consider rights and partners’ obligations contribution when dissolution A results loss. consideration would proper rights Kazanjian’s general partner in a of limited loss sharing partner
result Haber. outset,
At
we
based
classification
arguments
dismiss
of business of the
tortious
acts as either within or outside
scope
partner’s
will
agreement
It
that the
partnership. may
presumed
typical partnership
of partnership
ever contain a
hardly
provision authorizing misappropriation
gave Hops,
a
While the
by general partner.
partnership agreement
funds
case,
it did
not
power
partnership property,
execute liens on
On
him in
from
money
authorize
to steal
process
with,
hand,
it
clear
done
or
other
is
that tortious acts
connection
of,
process
general partners
the business of the
will
partnership
subject
(See
creditors.
v. Hale
We state the obvious when we remind that a limited partner capacity rights find limited partner’s as a limited is not a creditor. To what the Act, are we Limited as contained Partnership look Revised Uniform Code section 15611 et Code section Corporations seq. Corporations (b) chapter states: “. as in this or Except provided subdivision . . has the partnership agreement, general partner partnership liabilities of a in a without limited and to the other partners.” Limited The word in the California Revised “partner” Partnership Code, Act means both a and a limited partner. (Corp. therefore, either otherwise Literally, except particularly provided act, the or the of a to a agreement general partner *6 identical his general partner. to to another in Uniform of a are set forth obligations misappropriating 21, in Code (1), Act section contained Partnership Corporations subdivision 15021, (1): subdivision to the partner section must account “Every partner benefit, and it derived himby hold as trustee for ship any profits in of .” this reading without the consent the other . . It is notable partners. is than to individual accounting that the rather partnership, It is to be noted that the copartners. misappropriating also law holds “as trustee” the thus Partnership derived. profits improperly (See in the law. Tri-Growth fiduciary generated trust incorporates concepts Burdman, (1989) Eisenberg v. 216 City, Silldorf, Duignan Centre Ltd. & 1139, 1150 a is ere- Cal.App.3d Cal.Rptr. [265 330]: “[W]hen
1627 ated, the rights fiduciary relationship.”) and duties based on parties acquire (at case) that provided Civil Code section the time to this applicable 2239 he trustee for the acts of a co-trustee to which responsible wrongful is “[a] consented, which, commit, latter but or he enabled the to negligence, Thus, cotrustees, not for no others.”1 and hence also are liable copartners, in personally loss caused misdeeds their cofiduciaries unless are they in way some at fault—either the tort consent or by participating through otherwise, (Gbur (1979) or it to occur. v. Cohen negligence permitting 296, 507]; Cagnolatti (1983) v. Guinn 140 Cal.App.3d Cal.Rptr. [155 42, 151].) Cal.App.3d Cal.Rptr.
The referee and the court Haber ignorant trial found that was It also found Haber to have Hops’s misappropriation. inferentially not been the negligent permitting Hops’s misdeed. In view of nature of special participation, Haber’s as a but person providing credit not expected activities, participate business the partnership’s finding nonnegli is gence logical We surely the evidence. therefore conclude supported by Haber, the court was correct Kazanjian’s claim denying against terms of rejecting that Haber as should be concept general partner answerable directly as would have been to creditor. not, however,
This conclusion does answer to provide complete limited partner’s inter are rights obligations partners claim. se 18, 40, regulated by (b), Uniform Act sections subdivision Partnership Code, (d) subdivision (b) A (Corp. (d)). subd. subd. §§ partner who has more paid than his share of partnership obligations entitled to from the If indemnification is unable indemnification, provide partners must contribute sums necessary to satisfy provided by its liabilities. Most important, Corpora- all, tions Code (d), section “if subdivision but any, insolvent, contribute, are or . . . refuse other shall contrib- liabilities, and, ute their share the relative in which they proportions share profits, additional amount liabilities.” necessary pay These are provisions analyzed and and Ribstein explained Bromberg 6.02, II Partnership, (c), volume pages section subdivision 6:14 *7 (Ala. 1988) 1The case of Reynolds upon Kazanjian v. Mitchell is So.2d 227 relied inapposite. opinion general While that did to for partners partners hold two liable their limited the a general partner, ordinary misdeeds of third course those misdeeds were “in of (Id. partnership’s p. partnership business.” at is that undisputed Hops It encumbered debt, for a property personal clearly ordinary an action scope partnership outside of business. Thus Reynolds partners both absent. predicate general of is the division of according losses to share through obligation 6:18. in of of capital result consumption where the losses profits applies misappropriation in from the loss this case resulted partnership business. obligated is Hops, and that general partner, of funds aby When, however, entitlement is this funds to the partnership. return the uncollectible, or loss through imprudent effect is the same as other any its uncollectible, which, being It is a loss unsuccessful partnership operation. in this of the referee From the calculations partnership capital. has impaired case, extent of some to the we can see that has been capital impaired $45,000. insolvent, capital the contribution to partnership Since and Haber. two remaining partners: the loss falls remedy upon be (d), this loss should Under section subdivision Code Corporations ratios, which with their partnership profit allocated to them accordance equally upon should fall and 30 means loss being percent percent them. reference to this is made without acknowledged analysis
It must be that Code Corporations The mechanics of status of a limited special partner. Act, (d)) subd. (d) (Uniform Partnership section subdivision to the part- of funds actual appear contemplate replacement account, the funds. Since followed disbursement of to be nership funds his stated beyond to contribute cannot required assessment contained (and here we overlook the possibility investment This does an assessment. he cannot be dunned for additional agreement) this not, on dissolution an for distributions accounting we apprehend, preclude which into of contribution. concepts takes account case, instance, the entire of contribution
In absent the application this the hap- because of upon Kazanjian misfortune falls partnership loss from Had initial for the capital that he the entire penstance provided business, the extent have shared it to made Haber would profit been to the the losses It is reasonable that entirely participate 30 percent. extent (or, insolvency, same because of his excluding Hops 30 percent however, We remaining partners). emphasize, of 50 solvent percent concepts entirely upon of loss to Haber is based assignment contribution, and a general obligation special with joint liability loss terms of a limited from protect another malfeasant general partner.
Conclusion We have analyzed responsibilities we interesting, While contribution to repair impaired capital. terms of statutory provisions conclusion reflects stated merely clearly
believe this *8 no in of law. We reverse on represents thinking partnership innovative terms this but a more and accurate on ground, only require complete accounting dissolution of this partnership.
The we and original, decision reached herein which believe somewhat resolution, which in has us the most terms of is the decision given difficulty of for the limiting liability general cogeneral misdeeds of their partners There is need to cite when a partners. premise no for the that precedent in general torts partner commits connection with the business partnership creditors, which cause loss to all general partners jointly severally are and have liable. We the this that same thought, working through opinion, is, obligations might well to limited The limited pertain partners. partner creditor, some like a creditor of Like respects, the the limited has control no He is entirely business. dependent upon for the and general partners care of his protection One investment. could that the nature of limited posit proposition is that of a general partnership general several (composed partners) together who objective returning are business of a profit to the limited partner. Such all concept impose general would partners obligation of protection of limited joint several liability for the misappropriation by any general partner. concluded, however,
We have that the framework statutory created by uniform does partnership acts not provide broad scope liability. Further reflection and research respecting objectives of limited partner- ship status seem to The justify conclusion. Limited Uniform Partnership Act, first adopted was based two fundamental assumptions. The first assumption was did public not limited policy require to become bound for partnership was: “That obligations. persons second able, in business should be while liable remaining themselves without limit conduct, for the obligations contracted its to associate with themselves others who contribute capital pro- acquire rights ownership, vided that such do compete contributors with creditors assets (6 Act, partnership.” (1969) U. Laws West’s Ann. U. Limited Partnership note, added; comrs. italics p. § see also Barrett & Partners Seago, 1.2, and Partnerships, (1956) Law and Taxation Limited Partnerships, p. § 490; 53.0, 2 Rowley (2d 1960) on Partnership ed. Limited Partnerships, p.
Thus, it appears that the key differences between the (1) are limitation of the limited partner to his investment, in return for which the limited all partner relinquishes right management. business remains a “partner" sense that he participates profits and losses business. It does not *9 all guarantee the limited deny partner
seem violative of this status them. Innocent of the acts of each of general partners propriety se, not for misdeeds responsible inter are general obviously partners, Code of Corporations their contribution provisions one of number—the “to (f) only for payment section subdivision provide in excess of his share of the amount which he has paid extent of acts, in the there would uniform Nothing contrary appearing liability.” for the claims nonliability this rule of modifying no reason for appear good of loss of a limited partner.
Disposition and its determi- transactions accounting The trial court’s the other partners and to liability Hops nations of is claims Haber Kazanjian’s against are affirmed. The judgment denying reversed, the trial remanded further consideration by and the case is court, Kazanjian Haber to paid by to determine the amount which should be the Uniform Partnership with the contribution provisions accordance Code, (d)). is entitled to costs Kazanjian Act subd. (Corp. appeal.
Huffman, J.,P. concurred. Acting the majority’s —I concurwith NARES, Concurring Dissenting. J. result, general partner it determines that reasoning, but not its insofar as because of Kazanjian liable to limited directly Haber is I with the Hops. part company of hinds by general partner misappropriation however, Haber, lack despite on the of whether majority, question below, should under of several theories argued “primary” liability of contribution. “secondary” theory on the Kazanjian nonetheless be liable First, the trial court on in three it reverses majority respects. errs while which is never advanced below or on this appeal, improper, theory claim, the improper the admitted fact that elected ignoring pay him lien was improper. which from now estops asserting payment Next, result reached lack below and objection estoppel, from the apart law, judicial resulting is erroneous as a matter of majority “guaranteed” creation of a heretofore-unknown entity, Last, appellant) the result reached the award of costs (including Because this result is improper, on the facts of the case before us. inequitable erroneous, reversal, concur I but otherwise dissent from the inequitable, before us. which is only question properly with the result on the majority’s Point Not Raised Below I.
This case was on the litigated single of whether question *10 Haber was liable to limited for a partner Kazanjian by misappropriation As the partner Hops. majority recognizes, Kazanjian’s claim rests on creditor, assertion should be treated as a and this conflicts partnership with the fundamental nature of limited which limited partnerships, part- are ners not to be treated third creditors. party referee, This resolution embraces all of the argued issues before the (The trial court and this court. recognizes majority only resolution of question presented by is the parties significant of its Yet portion opinion.) the majority, after requesting views of the on never parties matters court, presented to the referee or argued to the trial reverses a theory on argued by no one.
While reversing on a never point raised by parties, majority ignores rule requiring affirmance if of a correct even an judgment improper theory for affirmance has been (Davey articulated below. v. South- 325, ern (1897) Co. 116 Cal. A 117].) 329 P. factor dispositive [48 Pacific clearly presented record is the question of As the estoppel.1 majority admits, both Haber and Kazanjian first discovered the lien improper Hops while “sale of the new residence inwas At that time process. they agreed to pay it, off the lien rather stray than contest in order to terminate the ante, transaction and obtain funds from the sale.” (Maj. opn., p.
As Hops’s business, acts were outside the scope partnership unratified conduct of giving interest security partnership not, to secure property law, his personal debt could as a matter of create an effective lien. “An act of a partner which is not apparently carrying the business of the in the partnership usual does not bind the way Code, unless 15009, authorized other partners.” (2); (Corp. subd. § see also Ballantine & Sterling, (4th 1991) California Corporation Laws ed. 24, ch. Partnership, 607.03-608.01.) §§
It is clear that “a mortgage executed against partnership by one property debt, partner only to secure his individual and without the consent of his associate partners, conveys no title and lien creates no property or against (Shwartzler nonconsenting partners.” v. Lemas 54, (1938) 12 Cal.2d 59-60 P.2d See (1963) [82 also Ellis v. Mihelis 419]. 206, 415, Cal.2d 7]; 217-218 384 P.2d Cal.Rptr. [32 Owens v. Palos Verdes 1“The Code, law of estoppel apply shall Partnership] under Uniform (Corp. act.” [the (2).) subd. § 381]; (1983) 142
Monaco 864-865 Cal.App.3d Cal.Rptr. Corp. Code, 15010, (1).) subd. §
A him is accountable for benefits “derived without the consent Code, (1).) of the other subd. “Such consent partners.” (Corp. § (2 can be clearly given specific Bromberg connection with transaction.” 6.07, (h), 6:89.) & Here the Ribstein on subd. Partnership p. consent ratification of by Kazanjian payment Hops debt constituted obligation. Ratification improper “may implied through acquiescence, it, if the learn of and fail to it within a reasonable co-partners repudiate (Reuschlein (2d time.” & The Law ed. Gregory, Agency Partnership *11 Ratification, 201, 1990) Rodrigues (1972) 305. See also Rakestraw v. 8 p. § 67, 57, 1401]; Young (1989) Cal.3d 73 500 P.2d v. Rosenthal Cal.Rptr. [104 96, 369]; 212 (1962) 117 Price Cal.App.3d v. Slawter 209 Cal.Rptr. [260 608, 227].) 614 Cal.App.2d Cal.Rptr. As the time for repudiation Hops obligation is should be affirmed on this basis. long past, appeal However sound the reasons for rather than paying contesting improper lien, the fact remains that such an election to be ought binding. Indemnification
II. Contribution The majority errs also Haber is liable to under determining Code, 15018, (b)) of indemnification subd. and contribu- principles (Corp. § Code, 15040, (d)), tion (Corp. theory subd. under no although primary The liability. first out that who has more majority points partner paid “[a] than his share of partnership is entitled to indemnification from obligations indemnification, If the partnership. partnership is unable to provide the partners must contribute the necessary satisfy sums its liabilities.” ante, 1627.) (Maj. opn., p. has, however,
I have no with quarrel this as a statement of It no principle. application to facts of this case. The statute relied to establish the upon 15040, limited partner’s right of “contribution” is section Code Corporations (d). subdivision As own counsel Kazanjian’s recognizes, statute was drafted with the third “obviously debts of a party general partnership mind” and “should be interpreted to account for the contributions between general partners.” This is a correct “The analysis. purpose [Corporations Slawter, Code section (Price is for the of creditors.” v. protection 15040] supra, 611.) 209 at Cal.App.2d p. 15632, (a),
Corporations Code section subdivision states pertinent part: “A limited is partner any obligation not liable of a limited partnership.” (Italics added.) (a), Code section subdivision states: Corporations contribution to make additional shall be required “No A a limited partnership: This is the entire point the limited partnership." also in the general partners, does not share is If limited a more to the cannot be forced to contribute cannot be required “any obligation” partnership, not liable contributions, (d), nec- section subdivision Code Corporations make mutual from a to result rights ought no essarily application. “Reciprocal has here 332.) majority (Ames Downing v. Bradf. agreement.” of a limited partner, of contribution on behalf nonreciprocal right creates a in the radical alteration enforced him. This against which could not be mistaken wholly is based of a millenium-old institution operation purposes. view of its admitted preconception fundamental error stems from its majority’s for losses. their limited ought to be liable to general partners ante, frame fit this into the premise While unable to
(Maj. p. opn., law, notion that startling expresses work of the nonetheless majority which the general view of a limited is one proper to the limited returning profit partner.” “are business for the objective favor, if but on attention not (Ibid.) “The idea at first to win impression apt cannot, think, supra, (Ames Downing, I v. closer scrutiny upheld.” *12 head, Indeed, its on history Bradf. at this stands p. perception makes nonsense of the law. (see, reveals a review of the of limited cursory history partnerships
As
325-330,
Evans v. Galardi
1 Bradf. at
e.g.,
Downing, supra,
pp.
Ames v.
25,
313]),
were intended
(1976)
they
P.2d
Competition capitalist “entitlement," be which must into an majority transforms speculation it reduces general partner, from solvent repaid by “contributions” constraining necessarily at the price risk associated with but speculation, as never their business so manage competition. Requiring investment, pain capital the value of a limited impair partner’s current position enhances having any impairment, to “contribute” to also, however, utility general partners limited It reduces the partners. investments, all. future detriment of likely limited was the statutes partnerships Again, purpose providing (1951) Legum (Gilman Co. v. 197 Paint & Varnish encourage investing.” ‘to 1634 906, 908, is clear. 286].) One consequence 29 A.2d A.L.R.2d
Md. 665 [80 (Allen v. nature of an investment. [Citation.]” “A limited Dec. 541 I11. (1981) Partnership I11.App.3d Apartments [51 Amber Manor 440, “when the the fact that 445].) this also follows N.E.2d From contribution, at risk. that amount he is placing makes the limited a return guarantee that risk or to permitted He to insure is not [Citation.] 445-446, (Id. at pp. security. some form of by taking [Citation.]” himself may . whether a added.) issue . . . is . . italics “[T]he may that he the answer is We conclude that secure his contribution. capital I11.Dec. I11.2d323 (Kramer System, Inc. not.” v. McDonald’s 507].) 396 N.E.2d determine to limited partners it is clear that perfectly On these authorities Their liability may at risk. the amount of their contribution place contribution, therewith. coterminous necessarily but is to the amount of that the uniform compels limited partnerships of cases body interpreting As risk, may fact interest is at conclusion that a limited partner’s herein of a majority the invention guaranteed,2 be secured or lawfully law and to both contrary to ensure that interest is of contribution right reason. Inequitable Result
III. in these possible I that far as believe so equity. This is a proceeding lawful, The result matters, but just. not only we to strive for result ought view that the my I have forth above is neither. set by majority announced that, on the facts arguing the law. It is beyond result does not with comply case, the benefit of Haber for further forcing large expenditure only through From this record it is unjust. apparent is most others, intervention, an given was Kazanjian Haber’s at request *13 property. he had his on whatever equity to avoid foreclosure opportunity he for from the the benefits hoped While he has not received all of have had he he might he received more than has partnership, probably market. declining land instead elected to sell raw simply what the As to is also Kazanjian inequitable. award of costs judgment this appeal admits is the majority primary question Kazanjian, relief to the majority grants affirmed. On a subsidiary question behalf, theory indeed on a but on no ever advanced on theory further ruin wreaks merely The costs award his counsel. properly rejected by loans to the 2A from his initial contribution make partner may apart (Grainger pay creditors. long assets are sufficient security receive therefor so (5th v. Dash Hughes 848], Cir. followed in Antoyan v. 48 Cal.2d P.2d 1, 3.) 1962) F.2d day ago regretted who has long an innocent entirely upon and embarked the blandishments of yielded course. painful Summary
IV. purpose matter to reverse this majority’s determination in a secured has resulted investment be partially that a requiring speculative error, For all of inequity. clear violation of appellate procedure, above, and order entirety, I its judgment would affirm the reasons set forth Haber, his costs on it recover might grant, for whatever small solace appeal.