Court Opinion

ID: 9721128
Source: CourtListenerOpinion
Date Created: 2023-08-26 08:49:03.387341+00
Date Added: 2024-06-11T18:24:23.507963
License: Public Domain

NARES, J. Concurring and Dissenting.
—I concur with the majority’s result, but not its reasoning, insofar as it determines that general partner Haber is not directly liable to limited partner Kazanjian because of the misappropriation of hinds by general partner Hops. I part company with the majority, however, on the question of whether Haber, despite his lack of “primary” liability under any of several theories argued below, should nonetheless be liable to Kazanjian on the “secondary” theory of contribution.
The majority errs in three respects. First, it reverses the trial court on a theory never advanced below or on this appeal, which is improper, while ignoring the admitted fact that Kazanjian elected to pay the improper claim, which estops him from now asserting payment of the lien was improper. Next, apart from the lack of objection below and estoppel, the result reached by the majority is erroneous as a matter of law, resulting in the judicial creation of a heretofore-unknown entity, a “guaranteed” limited partnership. Last, the result reached (including the award of costs to appellant) is inequitable on the facts of the case before us. Because this result is improper, erroneous, and inequitable, I dissent from the reversal, but otherwise concur with the majority’s result on the only question which is properly before us.
*1631I. Point Not Raised Below
This case was litigated on the single question of whether general partner Haber was liable to limited partner Kazanjian for a misappropriation by general partner Hops. As the majority recognizes, Kazanjian’s claim rests on his assertion he should be treated as a partnership creditor, and this conflicts with the fundamental nature of limited partnerships, in which limited partners are not to be treated as third party creditors.
This resolution embraces all of the issues argued before the referee, the trial court and this court. (The majority recognizes resolution of the only question presented by the parties is the significant portion of its opinion.) Yet the majority, after requesting the views of the parties on matters never presented to the referee or argued to the trial court, reverses on a theory argued for by no one.
While reversing on a point never raised by the parties, the majority ignores the rule requiring affirmance of a correct judgment even if an improper theory for affirmance has been articulated below. (Davey v. Southern Pacific Co. (1897) 116 Cal. 325, 329 [48 P. 117].) A dispositive factor clearly presented by this record is the question of estoppel.1 As the majority admits, both Haber and Kazanjian first discovered the improper Hops lien while “sale of the new residence was in process. At that time they agreed to pay off the stray lien rather than contest it, in order to terminate the transaction and obtain funds from the sale.” (Maj. opn., ante, p. 1624.)
As Hops’s acts were outside the scope of the partnership business, the unratified conduct of Hops in giving a security interest in partnership property to secure his personal debt could not, as a matter of law, create an effective lien. “An act of a partner which is not apparently for carrying on the business of the partnership in the usual way does not bind the partnership unless authorized by the other partners.” (Corp. Code, § 15009, subd. (2); see also 2 Ballantine & Sterling, California Corporation Laws (4th ed. 1991) Partnership, ch. 24, §§ 607.03-608.01.)
It is clear that “a mortgage executed against partnership property by one partner only to secure his individual debt, and without the consent of his associate partners, conveys no title and creates no lien upon the property of the partnership or against nonconsenting partners.” (Shwartzler v. Lemas (1938) 12 Cal.2d 54, 59-60 [82 P.2d 419]. See also Ellis v. Mihelis (1963) 60 Cal.2d 206, 217-218 [32 Cal.Rptr. 415, 384 P.2d 7]; Owens v. Palos Verdes *1632Monaco (1983) 142 Cal.App.3d 855, 864-865 [191 Cal.Rptr. 381]; Corp. Code, § 15010, subd. (1).)
A partner is accountable for benefits “derived by him without the consent of the other partners.” (Corp. Code, § 15021, subd. (1).) “Such consent clearly can be given in connection with a specific transaction.” (2 Bromberg & Ribstein on Partnership (1988) § 6.07, subd. (h), p. 6:89.) Here the consent by Kazanjian to payment of the Hops debt constituted ratification of the improper obligation. Ratification “may be implied through acquiescence, if the co-partners learn of it, and fail to repudiate it within a reasonable time.” (Reuschlein & Gregory, The Law of Agency and Partnership (2d ed. 1990) Ratification, § 201, p. 305. See also Rakestraw v. Rodrigues (1972) 8 Cal.3d 67, 73 [104 Cal.Rptr. 57, 500 P.2d 1401]; Young v. Rosenthal (1989) 212 Cal.App.3d 96, 117 [260 Cal.Rptr. 369]; and Price v. Slawter (1962) 209 Cal.App.2d 608, 614 [26 Cal.Rptr. 227].) As the time for repudiation of the Hops obligation is long past, the appeal should be affirmed on this basis. However sound the reasons for paying rather than contesting the improper lien, the fact remains that such an election ought to be binding.
II. Indemnification and Contribution
The majority errs also in determining Haber is liable to Kazanjian under principles of indemnification (Corp. Code, § 15018, subd. (b)) and contribution (Corp. Code, § 15040, subd. (d)), although under no primary theory of liability. The majority first points out that “[a] partner who has paid more than his share of partnership obligations is entitled to indemnification from the partnership. If the partnership is unable to provide such indemnification, the partners must contribute the sums necessary to satisfy its liabilities.” (Maj. opn., ante, p. 1627.)
I have no quarrel with this as a statement of principle. It has, however, no application to the facts of this case. The statute relied upon to establish the limited partner’s right of “contribution” is Corporations Code section 15040, subdivision (d). As Kazanjian’s own counsel recognizes, the statute was “obviously drafted with the third party debts of a general partnership in mind” and “should be interpreted to account for the contributions between general partners.” This is a correct analysis. “The purpose of [Corporations Code section 15040] is for the protection of creditors.” (Price v. Slawter, supra, 209 Cal.App.2d at p. 611.)
Corporations Code section 15632, subdivision (a), states in pertinent part: “A limited partner is not liable for any obligation of a limited partnership.” (Italics added.) Corporations Code section 15636, subdivision (a), states:
*1633“No limited partner shall be required to make any additional contribution to the limited partnership." This is the entire point of a limited partnership: A limited partner does not share in the liability of the general partners, and also cannot be forced to contribute more to the partnership. If a limited partner is not liable for “any obligation” of the partnership, and cannot be required to make contributions, Corporations Code section 15040, subdivision (d), necessarily has no application. “Reciprocal rights ought to result from a mutual agreement.” (Ames v. Downing (1850) 1 Bradf. 321, 332.) The majority here creates a nonreciprocal right of contribution on behalf of a limited partner, which could not be enforced against him. This radical alteration in the operation of a millenium-old institution is based upon a wholly mistaken view of its purposes.
The majority’s fundamental error stems from its admitted preconception that general partners ought to be liable to their limited partners for losses. (Maj. opn., ante, p. 1629.) While unable to fit this premise into the framework of the law, the majority nonetheless expresses the startling notion that a proper view of a limited partnership is one in which the general partners “are in business for the objective of returning a profit to the limited partner.” (Ibid.) “The idea at first impression is apt to win attention if not favor, but on closer scrutiny cannot, I think, be upheld.” (Ames v. Downing, supra, 1 Bradf. at p. 325.) Indeed, this perception stands history on its head, and makes nonsense of the law.
As a cursory review of the history of limited partnerships reveals (see, e.g., Ames v. Downing, supra, 1 Bradf. at pp. 325-330, and Evans v. Galardi (1976) 16 Cal.3d 300 [128 Cal.Rptr. 25, 546 P.2d 313]), they were intended to provide a means for idle capital to be invested in enterprises operated and directed by others, without liability for business debts past the amount of the investment. The price of this limitation on liability was a corresponding limitation on direction and control of the business. Thus a limited partner provides fuel for the enterprise, but no more.
Competition and its inherent risk are central to capitalist theory. Insofar as the majority transforms a speculation into an “entitlement," which must be repaid by “contributions” from any solvent general partner, it reduces the risk associated with speculation, but at the price of necessarily constraining competition. Requiring general partners to manage their business so as never to impair the value of a limited partner’s capital investment, on pain of having to “contribute” to any impairment, enhances the position of current limited partners. It also, however, reduces the utility to general partners of such investments, to the likely future detriment of all.
Again, the purpose of the statutes providing for limited partnerships was ‘to encourage investing.” (Gilman Paint & Varnish Co. v. Legum (1951) 197 *1634Md. 665 [80 A.2d 906, 908, 29 A.L.R.2d 286].) One consequence is clear. “A limited partnership is in the nature of an investment. [Citation.]” (Allen v. Amber Manor Apartments Partnership (1981) 95 I11.App.3d 541 [51 I11. Dec. 26, 420 N.E.2d 440, 445].) From this also follows the fact that “when the limited partner makes the contribution, he is placing that amount at risk. [Citation.] He is not permitted to insure that risk or to guarantee a return to himself by taking some form of security. [Citation.]” (Id. at pp. 445-446, italics added.) “[T]he issue . . . is . . . whether a limited partner may secure his capital contribution. We conclude that the answer is that he may not.” (Kramer v. McDonald’s System, Inc. (1979) 77 I11.2d 323 [33 I11. Dec. 115, 396 N.E.2d 504, 507].)
On these authorities it is perfectly clear that limited partners determine to place the amount of their contribution at risk. Their liability may be limited to the amount of that contribution, but is necessarily coterminous therewith. As the body of cases interpreting limited partnerships compels the uniform conclusion that a limited partner’s interest is at risk, and in fact may not lawfully be secured or guaranteed,2 the invention by the majority herein of a right of contribution to ensure that interest is contrary to both law and reason.
III. Inequitable Result
This is a proceeding in equity. I believe that so far as possible in these matters, we ought to strive for a result not only lawful, but just. The result announced by the majority is neither. I have set forth above my view that the result does not comply with the law. It is beyond arguing that, on the facts of this case, forcing a large further expenditure by Haber for the benefit of Kazanjian is most unjust. From this record it is apparent that only through Haber’s intervention, at the request of the others, was Kazanjian given an opportunity to avoid foreclosure on whatever equity he had in his property. While he has not received all of the benefits he hoped for from the partnership, he has probably received more than he might have had he instead elected simply to sell raw land in a declining market.
The award of costs to Kazanjian is also inequitable. As to what the majority admits is the primary question on this appeal the judgment is affirmed. On a subsidiary question the majority grants relief to Kazanjian, but on no theory ever advanced on his behalf, and indeed on a theory properly rejected by his counsel. The costs award merely wreaks further ruin *1635upon an entirely innocent partner, who has long ago regretted the day he yielded to the blandishments of Hops and Kazanjian and embarked upon this painful course.
IV. Summary
The majority’s determination to reverse this matter for the purpose of requiring that a speculative investment be partially secured has resulted in a violation of appellate procedure, clear error, and inequity. For all of the reasons set forth above, I would affirm the judgment in its entirety, and order that Haber, for whatever small solace it might grant, recover his costs on appeal.

“The law of estoppel shall apply under [the Uniform Partnership] act.” (Corp. Code, § 15004, subd. (2).)

A limited partner may apart from his initial contribution make loans to the partnership and receive security therefor so long as partnership assets are sufficient to pay creditors. (Grainger v. Antoyan (1957) 48 Cal.2d 805, 813 [313 P.2d 848], followed in Hughes v. Dash (5th Cir. 1962) 309 F.2d 1, 3.)