September 29, 1992
RICHARD REIMAN, D/B/A REIMAN & CO., APPELLANT
INTERNATIONAL HOSPITALITY GROUP, LTD., ET AL., APPELLEES; BROMLEY SMITH, JR., ET AL., APPELLANTS V. RICHARD REIMAN D/B/A REIMAN & CO., APPELLEE
Appeals from the Superior Court of the District of Columbia; (Hon. Steffen W. Graae, Trial Judge)
Before Steadman and Wagner, Associate Judges, and Kern, Senior Judge.
The opinion of the court was delivered by: Steadman
STEADMAN, Associate Judge:
Appellant Richard Reiman, a real estate broker, seeks to recover a $250,000 brokerage fee in a long-running legal action begun in September 1983. The case is now before us for a second time. Following a prior appeal to this court and remand for a new trial Reiman v. Int'l Hospitality Group, 558 A.2d 1128 (D.C. 1989) (Reiman I), the trial court in a bench trial granted judgment in favor of Reiman against international Hospitality Group, Ltd., a Maryland corporation, ("IHG"), *fn1 its wholly-owned subsidiary Somers Holdings, Inc., a District of Columbia corporation, ("Somers"), and Bromley Smith, individually. Smith's liability was based on the theory that he had held himself out as a general partner of 4400 Connecticut Avenue Associates ("CAA"), a District of Columbia limited partnership. *fn2
Reiman appeals the refusal of the trial court to hold liable appellee Henry Lieberman on the theory that he too incurred liability as a partner of CAA due to the late filing of the certificate of limited partnership. The two corporate defendants and Smith cross-appeal, challenging the sufficiency of the evidence to support the trial court finding of anticipatory breach. We hold the evidence sufficient to support the judgment against the corporate defendants and Smith. However, we remand for further proceedings on the issue of Lieberman's liability.
Many of the pertinent facts, which we summarize here, were set forth in our prior opinion. 558 A.2d at 1129-31. In 1981, Reiman, a licensed D.C. real estate broker, entered into an agreement with Bruce Lyons, the managing partner of Connecticut Inn Partnership ("CIP"), which owned the Connecticut Inn Motel, to market the motel. Their understanding was that Reiman would receive a $200,000 commission at closing. Reiman thereupon began to market the motel and interested IHG in it. Lieberman was the president and Smith the senior vice-president of IHG.
On September 3, 1982, IHG and CIP executed a letter of intent *fn3 to purchase the motel "on behalf of a partnership to be formed." On November 16, 1982, a formal, 20-page purchase agreement was entered into between CIP and "4400 Connecticut Avenue Associates, a District of Columbia limited partnership," which Bromley Smith signed as "General Partner" of CAA. Under that agreement, as supplemented, CAA *fn4 agreed to pay Reiman a total commission of $250,000, including the $200,000 for which CIP was obligated. *fn5
In fact, difficulties developed and the contemplated transaction never went through. CIP claimed that at a climactic meeting on January 17, 1983, the purchaser had "anticipatorily breached" the agreement. As a consequence, CIP put the motel back on the market on January 20. In November 1983, the motel was sold to another buyer.
Reiman brought suit for his commission in September 1983. The trial court in the first trial found for the defendants, on the ground that the commission agreements provided for payment only if the purchase was consummated. On appeal, we reversed, holding that Reiman might recover if he could show that the defendants *fn6 made occurrence of the closing impossible through their own fault or misconduct.
On the retrial, the trial court found that the corporate defendants had anticipatorily breached the purchase agreement and therefore made it impossible to perform. Consequently, it entered judgment in favor of Reiman for the claimed commission. *fn7 It subsequently also entered judgment against Smith as general partner of CAA, the signatory to the purchase agreement and to the other commission documents, but refused to hold Lieberman liable. *fn8 From this judgment, Reiman and the defendants cross-appeal.
We first address the defendants' argument that the trial court erroneously found that an anticipatory breach of the contract to purchase the motel occurred at the January 17 meeting with CIP. They proceed from the correct premise that "for a repudiation of a contract by one party to be sufficient to give the other party the right to recover for breach, the repudiating party must have communicated, by word or conduct, unequivocally and positively its intention not to perform." Order of AHEPA v. Travel Consultants, Inc., 367 A.2d 119, 125 (D.C. 1976), cert. dismissed, 434 U.S. 802, 98 S.Ct. 30, 54 L.Ed.2d 60 (1977). See also Ingber v. Ross, 479 A.2d 1256, 1262-63 (D.C. 1984); Burke v. Thomas J. Fisher & Co., 127 F. Supp. 1 (D.D.C. 1953), aff'd, 95 U.S. App. D.C. 85, 219 F.2d 767 (1955); 4 CORBIN ON CONTRACTS § 973 (1951). They then contend in substance that Lyons had invited them to propose changes in the deal and that at the January 17 meeting they had offered modifications to the contract which did not communicate "unequivocally" their intention to not perform.
The trial court made extensive oral findings on the issue of breach. It noted that when executing the purchase agreement, the purchasers "were very well aware of the financial situation of the Connecticut Inn," and took steps "to cover themselves in the event of problems arising," anticipated or unanticipated. It also found that the settlement date was extended by mutual agreement to January 17, at which time a new payment schedule and closing date would be discussed as indicated by the letter of January 13 sent to CIP by the purchasers' attorney. The court specifically rejected the defendants' argument that Lyons had invited the purchasers to propose new conditions precedent or alter the purchase price.
The court further found that at the meeting on January 17, Conrad Cafritz, representing the buyers, in effect presented an all-or-nothing, "take-it-or-leave-it" markedly modified proposal to CIP. Inter alia, the purchase price was to be effectively reduced by $350,000 and a lease with the University of the District of Columbia was to be a condition precedent to their purchase of the motel. It was "more in the statement of a mandate: This is the new deal; only if the deal goes down this way can it conclude." Looking also at other documents presented into evidence prepared around the time of the crucial meeting, the court stated: "What I conclude happened at the January 17 meeting . . . was an entirely new deal. It repudiated the old contract. They were not going to go forward on that basis."
Anticipatory repudiation is not something to be lightly inferred in the rugged give-and-take of the marketplace. However, the trial court here after a lengthy trial made careful and thorough findings of fact. Such findings are binding upon an appellate court unless clearly erroneous or without support in the record. D.C. Code § 17-305 (a) (1989); see Hershon v. Hellman Co., 565 A.2d 282, 284 (1989). We perceive no basis for reversal on this ground here.
The remaining issue is whether Lieberman is individually liable. This issue arises because when the purchase agreement was executed on November 16, 1982, no formal steps had been taken to create CAA as a limited partnership under the then-operative District of Columbia version of the Uniform Limited partnership Act ("ULPA"), D.C. Code § 41-201 et seq. (1986). *fn9 The relevant provision read:
§ 41-202. Procedure for formation; filing and recordation of certificate.
(a) Two or more persons desiring to form a limited partnership shall:
(1) Sign and swear to a certificate, which shall state: [14 requirements listed]
(2) File for record the certificate in the office of the Recorder of Deeds of the District of Columbia.
(b) A limited partnership is formed if there has been substantial compliance in good faith with the requirements of subsection (a) of this section.
On December 1, 1982, a limited partnership certificate for CAA was signed, pursuant to § 41-202 (a)(1), showing Somers Holdings, Inc., a wholly-owned subsidiary of IHG, as general partner and Smith, Lieberman and Richard Bromley, another IHG executive, as limited partners. However, this limited partnership certificate was not filed with the Recorder of Deeds until January 19, 1983, two days after the anticipatory breach. Inter alia, the certificate provided: "The term of the partnership shall commence on the date of the filing of this Certificate of Limited Partnership . . . ."
The trial court found no basis for holding Lieberman individually liable. It took as its starting point the proposition that the "relevant time for establishing the existence and identity of the purported general partnership for purposes of liability is the day of the execution of the contract." From this premise it first noted that on November 16, not even a certificate of partnership had been executed, a prerequisite to the creation of an effective limited partnership under D.C. Code § 41-202 (a); "thus, it follows that general partnership liability could not attach [as a matter of law] for failure to take the second step [recordation of the certificate]." Second, examining the question whether Lieberman and Smith intended in fact to form a general partnership, the court concluded from the evidence that on November 16, "Lieberman and Smith intended to form a limited partnership, not a general partnership." Accordingly, the court found no basis to impose liability upon Lieberman.
No cases are extant in this jurisdiction in which a purported limited partnership had undertaken to act as a partnership without full compliance with the statutory requirements for establishing a limited partnership. *fn10 We think the trial court, in the absence of such guidance, stopped short in its analysis.
Limited partnerships were unknown to the common law and are entirely the creatures of statute. From their earliest inception, in New York and Connecticut in 1822, limited partnership statutes, being in derogation of the common law, were strictly construed. The view was commonly taken that a special or limited partner was essentially a general partner, with immunity from personal liability only on condition of full and exact compliance with the statutory requirements as to the details of formation of the association. See Rathkee v. Griffith, 218 P.2d 757 (Wash. 1950).
One of the express purposes of the ULPA was to mitigate the rigor of this principle. Thus, the drafters listed as the third of the seven assumptions upon which the ULPA was drafted that "the limited partner not being in any sense a principal in the business, failure to comply with the requirements of the act in respect to the certificate, while it may result in the nonformation of the association, does not make him a partner or liable as such. The exact nature of his liability in such cases is set forth in Sec. 11." *fn11
That Section 11, which appears as D.C. Code § 41-211, reads:
A person who has contributed to the capital of a business conducted by a person or partnership erroneously believing that he has become a limited partner in a limited partnership is not, by reason of this exercise of the rights of a limited partner, a general partner with the person or in the partnership carrying on the business, or bound by the obligations of such person or partnership; provided, that on ascertaining the mistake he promptly renounces his interest in the profits of the business, or other compensation by way of income.
Thus, it is no longer correct to say that any individual associated with a purported limited partnership where the proper formalities have not been complied with is necessarily as a matter of law liable as a general partner. As cases have recognized, compliance with Section 11 "promptly" after the discovery of a mistake will prevent any general partner liability from being imposed upon the putative limited partner. See, e.g., Giles v. Vette, 263 U.S. 553, 563 (1924) ("Section 11 is broad and highly remedial"); Voudouris v. Walter Heller & Co., 560 S.W.2d 202, 206-07 (Tex. Civ. App. 1977) (citing United States v. Coson, 286 F.2d 453 (9th Cir. 1961)); Graybar Elec. Co. v. Lowe, 462 P.2d 413 (Ariz. Ct. App. 1969); Rathke v. Griffith, supra, 218 P.2d at 760-61. The converse of Section 11, however, and implicit in its language, as these decisions in part suggest, is that if such a renunciation is not effectuated and no other section of the UPLA provides protection, *fn12 the putative limited partner faces liability in an individual capacity for debts of the partnership. *fn13 Having discovered the problem, he may not continue to hope to reap whatever benefits the association may otherwise entitle him to. The doctrine that a putative limited partner in a defective limited partnership under the ULPA runs the risk of individual liability may be found set forth in a number of cases. As a neighbor federal circuit court starkly summarized the situation: "It is well settled that to obtain the protections and privileges of limited liability a person must comply with the statutory requirements regulating the formation of limited partnerships or otherwise be held liable as a general partner." Filesi v. United States, 352 F.2d 339, 341 (4th Cir. 1965). See also, e.g., Vidricksen v. Grover, 363 F.2d 372 (9th Cir. 1966); Deporter-Butterworth Tours, Inc. v. Tyrrell, 151 Ill. App.3d 949, 104 Ill. Dec. 821, 503 N.E.2d 378 (Ill. Ct. App.), appeal denied, 511 N.E.2d 427, (Ill. 1987); Dwinell's Central Neon v. Cosmopolitan Chinook Hotel, 587 P.2d 191 (Wash. Ct. App. 1978), review denied, 92 Wash. 1009 (Wash. 1979).
Lieberman invokes the section of the ULPA, quoted above as D.C. Code § 41-202 (b) (1986), providing that a limited partnership is formed if there has been "substantial compliance in good faith" with the formal requirements. He invokes a line of cases which hold that the filing of the certificate within a "reasonable time" constitutes "substantial compliance" and has retroactive effect to activities undertaken by the partnership prior to the filing. See, e.g., Fabry Partnership v. Christensen, 794 P.2d 719, 720-21 (Nev. 1990) (per curiam); Franklin v. Rigg, 237 S.E.2d 526 (Ga. Ct. App. 1977).
The filing of the certificate is, however, a crucial statutory step. *fn15 We think analogous law in this jurisdiction impels us to follow a competing line of contrary cases, which hold that protection under the ULPA begins only from the time of the filing of the certificate. See Deporter-Butterworth Tours, Inc. v. Tyrrell, 151 Ill. App.3d 949, 503 N.E.2d 378, 104 Ill. Dec. 821, (Ill. Ct. App.), appeal denied, 511 N.E.2d 427, (Ill. 1987); Dwinnell's Central Neon v. Cosmopolitan Chinook Hotel, 587 P.2d 191 (Wash. Ct. App. 1978), review denied, 92 Wash. 1009 (Wash. 1979). *fn16
An analogy may be found in the law relating to the consequences of failure to properly form a valid corporation. Robertson v. Levy, 197 A.2d 443 (D.C. 1964), the defendant purported to enter into a contract on behalf of a corporation after the articles of incorporation had been filed but two weeks before the certificate of incorporation was issued. Interpreting our statute, we rejected any concept of de facto corporation and held the defendant personally liable even though the other contracting party thought he was dealing with the corporation and accepted one payment on the note in the corporate name. Id. at 446-47.
We note also that the Revised ULPA, see note 9 (supra) , in the form adopted and now in force here, necessarily rejects the concept that a filing can have retroactive effect as to all limited partners. D.C. Code § 41-434 (b) (1990) specifically provides that a person who erroneously believes he or she has become a limited partner is nonetheless "liable as a general partner . . . (1) If that person knew or reasonably should have known either that no certificate has been filed to show that he or she is not a general partner . . . ." *fn17 This provision is not found in the standard Revised ULPA but was apparently included as part of the modifications recommended by the D.C. Bar. See REPORT, (supra) note 10, at 4. While the 1987 Act cannot, of course, control events here, *fn18 it is nonetheless illustrative of the importance accorded here to the filing of the certificate.
This history and the wording of Section 11 itself make it plain that one is not absolved from any potential liability simply because one intended only to be a limited partner. The very purpose of the several provisions quoted above of both the ULPA and the Revised ULPA is to deal with the exact situation where a person indeed intends to be no more than a limited partner but for some reason or other the requisite formalities to confer that status are lacking. Thus, the trial court stopped too soon when it absolved Lieberman from liability simply because no certificate of partnership had been prepared and Lieberman had no intent to enter anything other than a limited partnership.
However, liability flowing solely from a status as a putative limited partner is not to be lightly imposed. One cannot be subject to liability in that capacity alone, apart from any representations or appearances relied upon by a creditor, until and unless one has taken steps to establish himself as a limited partner and has clearly bound himself in that capacity and the obligation at issue is clearly of that particular partnership. As Lieberman correctly points out, the burden of proof is on Reiman to establish the basis for liability. See Banze v. American Int'l Exports, Inc., 454 A.2d 816, 817 (D.C. 1983); see also Klein v. Weiss, 395 A.2d 126, 141 (Md. 1978); Kintz v. Read, 626 P.2d 52, 55 (Wash. Ct. App. 1981).
We do not think that the agreement to be so bound is absolutely dependent upon the execution of a certificate of partnership. *fn19 See Cooper v. Saunders-Hunt, 365 A.2d 626, 628 (D.C. 1976); Ruth v. Crane, 392 F. Supp. 724, 734 (E.D. Pa. 1975), aff'd, 564 F.2d 90 (3d Cir. 1977). That certificate is not the partnership agreement itself but rather the document which must be recorded in order to secure uncontestable limited liability. *fn20 See Heritage Hills v. Zion's First Nat'l Bank, 601 F.2d 1023, 1025-26 (9th Cir. 1979) (putative limited partnership prior to filing of certificate existed as business entity, with all partners having general liability). The very concept of putative limited partnership postulates a defect of one sort or another in creation of an effective limited partnership.
However, an abstract intent to be a limited partner is not enough, much less an intent to become a limited partner at some undesignated point in the future. See Klein v. Weiss, supra, 395 A.2d at 141 ("An agreement to form a partnership may be made by the parties but such an agreement does not of itself create a partnership."). As the commentary to the UPLA makes clear, the purpose of a limited partnership is to provide a mechanism for a person to contribute to the capital of a business without being bound for the obligations of the business. UPLA § 1, 6 U.L.A. 562-65 (1969). In that regard, limited partner status resembles the status of shareholders in a modern corporation, although the limited partnership form of association may have advantages for certain business purposes. See Lewis, (supra) note 15, 65 U. PA. L. REV. at 717-18. The key, however, under the ULPA is contribution of capital: "The contribution of a limited partner may be cash or other property, but not services." D.C. Code § 41-204 (1986). *fn21 Indeed, Section 11 of the ULPA itself, dealing with the status of a person erroneously believing himself a limited partner, speaks to " person who has contributed to the capital of a business conducted by a person or partnership . . . ." D.C. Code § 41-211 (1986).
This then is an important, if not indispensable, concrete step to create such a clear establishment of limited partner status to justify the imposition of liability on that basis alone under Section 11, which covers "the exact nature of his liability." See note 11 a. sent such a contribution of capital or at least the entry into an enforceable agreement to make such a contribution, D.C. Code § 41-217 (a) (1986), no liability should accrue based solely upon one's status as a putative limited partner. This reading of Section 11, while not explicit, seems a necessary corollary of its language and is consistent with the fact that cases imposing unlimited liability on a putative limited partner on that basis alone in the main involve a functioning and on-going business enterprise in which the person sought to be held liable has a clear stake.
The time periods involved are also relevant. Focus cannot necessarily be confined to the date of the execution of the contract. It is, of course, true that a person's liability as a putative limited partner can relate only to obligations of the specific limited partnership of which he is putatively a member and not any other partnership, even if it bears the same name. However, obligations, like assets, may be transferred from entity to entity, perhaps with express assumption. See Dodek v. CF 16 Corp., 537 A.2d 1086, 1097-1100 (D.C. 1988). Thus, the defective creation of a limited partnership which assumes or receives by assignment or otherwise pre-existing benefits and burdens may also create liability for a putative limited partner under the principles mentioned above. *fn22
Furthermore, partnerships may continue with the addition of new partners. In this regard, D.C. Code § 41-116 could come into play. *fn23 The section, however, would seem to bear on limiting Lieberman's liability only if he was not a putative member of the partnership when the anticipatory repudiation occurred. We agree with the analysis and case law that distinguishes executed portions of contractual liability from executory portions, as to which both burdens and benefits accrue to the new partner, particularly where, as apparently true here, the contingent obligation became fixed only through an act of the partnership itself. See II ALAN R. BROMBERG & LARRY E. RIBSTEIN, BROMBERG AND RIBSTEIN ON PARTNERSHIP § 7.18(b) (1991) and cases cited. As Reiman I established, the obligation to pay Reiman's commissions was here subject to the condition precedent of a closing, with liability in fact arising only because of the prevention doctrine. Thus, for purposes of § 41-114, it appears that the "obligation to pay Reiman's commissions arose when [the purchaser] prevented the closing under the purchase agreement that it had with CIP." 558 A.2d at 1134 n.6.
He speak here of liability attempted to be imposed solely because of one's status as a putative limited partner. *fn24 If a representation has been made that one is a partner upon which a creditor has relied or at least had knowledge, different considerations may come into play based upon principles of estoppel, akin to the rationale upon which the trial court correctly imposed liability upon Smith. The Uniform Partnership Act's Section 16, D.C. Code § 41-115 (1990), deals with the liability of a person who represents himself as a partner in an existing partnership, and the Uniform Partnership Act applies to limited partnerships "except insofar as the statutes of the District of Columbia relating to such partnerships are inconsistent herewith." D.C. Code § 41-105 (1986). *fn25
The application of the foregoing principles to any specific set of circumstances is dependent upon resolution of intensely factual questions, on which the trial court's determination is generally binding unless plainly wrong or without support in the record. D.C. Code § 17-305 (a) (1989); Hershon v. Hellman Co., 565 A.2d 282, 284 (D.C. 1989). Here the trial court relied on the erroneous legal premise that the absence of an executed certificate of partnership at the time of the execution of the purchase agreement, coupled with Lieberman's intent to enter into no more than a limited partnership, was determinative on the issue of his liability. It thus had no occasion to examine the full factual contours of potential liability vel non which the law as expounded above requires. *fn26
Accordingly, we vacate the judgment in favor of Lieberman and remand the case for further consideration on the issue of his liability. The judgment against the two corporate defendants and Smith is affirmed.