Author Question: Liability of Limited Partners. Robert Pitman was one of two limited partners in Ramsey Homebuilders, ... (Read 191 times)

crazycityslicker · **on:** Jun 24, 2018

Liability of Limited Partners. Robert Pitman was one of two limited partners in Ramsey Homebuilders, a limited partnership that engaged in the business of residential construction. Michael Ramsey was the sole general partner in the partnership. Because Ramsey had a poor credit history, he was unable to borrow the money or obtain the credit needed to sustain the partnership's business. Pitman, who had a personal account with Flanagan Lumber Co, contacted Flanagan's credit manager and secured an account in the partnership's name. After the partnership failed to pay the account, Flanagan sued Pitman, alleging that although Pitman was a limited partner in Ramsey Homebuilders, he was responsible for the partnership's debt under RULPA 303. Pitman argued that, if anything, he was operating within the waters of the safe harbor provided by RULPA 303(b)(3), which states that a limited partner does not participate in the control of the partnership solely by acting as a surety or guarantor for any liabilities incurred by the partnership. Can Pitman be held liable for the partnership's debt to Flanagan?

Question 2

Agents have no obligation to engage in activity on behalf of principals that could lead to personal liability.
a. True
b. False
Indicate whether the statement is true or false

phuda · **Reply #1 on:** Jun 24, 2018

Answer to Question 1

Liability of limited partners
The trial court found that Pitman had participated in the control of the business by securing credit for the partnership, that Flanagan had reasonably relied on that participation in extending credit, and that Pitman was therefore liable to Flanagan for the debt subsequently incurred by the partnership. Pitman appealed. The trial court's judgment was affirmed. The Supreme Court of Alabama ruled that in securing credit that was vitally necessary to the partnership, Pitman had exercised a degree of control over partnership affairs sufficient to justify his being held liable as a general partner for the debt to Flanagan. The court held that control is defined as the power or authority to manage, direct, superintend, restrict, regulate, govern, administer, or oversee. The court pointed out that the trial court could have found that Pitman participated in the control' of the partnership's business by securing one of the things that the partnership needed to survivea source of building materials that would be provided on credit. Moreover, the court found that Flanagan reasonably relied on Pitman's participation in the partnership's business in deciding to extend credit to the partnership.

Answer to Question 2

TRUE