Court Opinion

ID: 9794226
Source: CourtListenerOpinion
Date Created: 2023-08-31 03:01:33.81105+00
Date Added: 2024-06-11T08:13:03.599895
License: Public Domain

MATTHEWS, Chief Justice,
dissenting in part.
The court below initially found as a fact that the interim general partner, Pike, rati*567fied his predecessor’s (Carrigan’s) unauthorized assignment of partnership property by making loan payments and seeking to renegotiate the loan to pay off the entire balance. Upon reconsideration, this factual finding remained unchanged. Instead, the court decided that liability of the partnership required ratification by all limited partners, thus impliedly rejecting the idea that the new general partner alone could ratify the transaction on behalf of the partnership. I think this conclusion was an error of law.
Under the applicable statute1 a general partner of a limited partnership has plenary power to act for the partnership except in limited circumstances. The only exception applicable here is subsection (4) which requires unanimous limited-partner approval when the general partner assigns partnership property “for other than a partnership purpose.” HRS § 425-29 (emphasis added). This exception applies to Carrigan, but not to Pike. While Carrigan granted the deed of trust to the bank for “other than” a partnership purpose, Pike ratified the transaction for a partnership purpose— to avoid foreclosure of the deed of trust. Pike thus acted within his general sphere of plenary power, and his ratification of the loan transaction bound the partnership.
The statute does not imply that a successor general partner lacks authority to ratify an unauthorized act of a prior general partner. Since limited partnerships can have hundreds of limited partners, to so construe the statute would effectively stalemate a large limited partnership in circumstances where ratification by a successor general partner would be in the best interest of the partnership. There is no reason to suppose that the Hawaii Legislature or the authors of the Uniform Limited Partnership Act intended such an unwieldly result.2
For these reasons I would reverse the judgment of the superior court and remand with directions to enter judgment in favor of the bank on the claim of the partnership based on the trial court’s factual finding of ratification by Pike. With respect to the bank’s counterclaim, I agree with the majority opinion.

. HRS § 425-29. The relevant text is set forth in note 3 of the majority opinion.

. The Uniform Limited Partnership Act defines a limited partnership as "a partnership formed by two or more persons under the provisions of Section 2, having as members one or more general partners and one or more limited partners.” Thus, there is no statutory limit to the number of limited partners able to participate in a limited partnership, and some very large groups have been assembled. See, e.g., Sec. and Exch. Comm'n v. Murphy, 626 F.2d 633, 646 (9th Cir.1980) (Investments in a limited partnership by 400 persons "clearly suggest[ed] a public offering rather than a private placement" for federal securities regulation purposes); Lichtyger v. Franchard Corp., 18 N.Y.2d 528, 277 N.Y. S.2d 377, 223 N.E.2d 869 (1966) (class action permitted by limited partners of real estate syndicate with several hundred members).
To accommodate this increased participation of typically passive investors, the limited partnership form of business centralizes management in the general partner(s), providing limited partners with a role similar to that of corporate shareholders. See Ruzicka v. Rager, 305 N.Y. 191, 111 N.E.2d 878, 881 (1953) ("statutes permitting limited partnerships were intended to encourage investment in business enterprise by affording to a limited partner a position analogous to that of a corporate shareholder"). The efficiency achieved by this management structure is unnecessarily disrupted when a general partner cannot, without unanimous limited partner approval, act in the interest of the partnership.