Frigidaire Sales Corporation v. Union Properties, Inc. case brief
summary
562 P.2d 244 (1977)
CASE FACTS
The contractor sued when the limited partnership breached its contract. Noting that the limited partners were also the officers, directors, and shareholders of the corporate general partner, the contractor sought to impose general liability upon the limited partners, claiming that they exercised the day-to-day control of the partnership through the general partner and were therefore liable under Wash. Rev. Code § 25.08.070.
PROCEDURAL HISTORY
The trial court denied their claim that the limited partners incurred general liability and the appellate court affirmed.
DISCUSSION
CONCLUSION
The judgment of the court of appeals was affirmed.
NOTES:
This is a limited partnership tax shelter case. Tax shelters take advantage of the fact
that due to some accounting rules (e.g., depreciation) a firm can appear to lose money
even if it is economically profitable. Standard form for a tax shelter, especially in
mineral extraction and real estate industries, is a limited partnership with a corporate
general partner.
Court says that since the defendants (both limited partners and shareholders in the
corporate general partner) adhered to the formalities of both partnership and corporate
law, the veil could not be pierced.
562 P.2d 244 (1977)
CASE SYNOPSIS
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.CASE FACTS
The contractor sued when the limited partnership breached its contract. Noting that the limited partners were also the officers, directors, and shareholders of the corporate general partner, the contractor sought to impose general liability upon the limited partners, claiming that they exercised the day-to-day control of the partnership through the general partner and were therefore liable under Wash. Rev. Code § 25.08.070.
PROCEDURAL HISTORY
The trial court denied their claim that the limited partners incurred general liability and the appellate court affirmed.
DISCUSSION
- The supreme court agreed, ruling that the limited partners did not incur general liability for the partnership's liabilities under § 25.08.070 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.
CONCLUSION
The judgment of the court of appeals was affirmed.
NOTES:
This is a limited partnership tax shelter case. Tax shelters take advantage of the fact
that due to some accounting rules (e.g., depreciation) a firm can appear to lose money
even if it is economically profitable. Standard form for a tax shelter, especially in
mineral extraction and real estate industries, is a limited partnership with a corporate
general partner.
Court says that since the defendants (both limited partners and shareholders in the
corporate general partner) adhered to the formalities of both partnership and corporate
law, the veil could not be pierced.
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