## Facts

- Briargate Homes was formed in 1984 to invest in and develop a condominium project; it functioned as a general partnership and no limited partnership certificate was filed.
- Judith Turner Carpenter contributed to the enterprise and claimed she believed she was only a limited partner and did not sign the partnership agreement.
- By 1987, materials at partnership meetings described Briargate Homes as a general partnership; Carpenter reviewed these materials and consulted counsel.
- In February 1988, after learning she might face personal liability as a general partner, Carpenter notified other partners and the condominium association that she was withdrawing from future equity participation.
- Briargate Homes failed to pay condominium assessments owed to the condominium association; unpaid assessments totaled $85,106.08 as of December 1, 1988, with some accruing before and some after Carpenter’s February 1988 withdrawal.
- After settlements by most co-defendants and one co-defendant’s bankruptcy, the district court entered judgment holding Carpenter personally liable as a general partner for $104,146.75 plus attorneys’ fees, expenses, and interest.

## Issues

1. Whether Carpenter had a good-faith belief, within the meaning of N.C. Gen. Stat. § 59-304(a), that she was a limited partner when she contributed to the enterprise.
2. Whether “good faith” under § 59-304(a) is determined by a subjective belief or by an objective reasonableness standard.
3. If § 59-304 applies and Carpenter withdrew, how her liability should be allocated between obligations incurred before withdrawal and those incurred after withdrawal, including the role of creditor reliance under § 59-304(b).

## Decision

- The Fourth Circuit vacated the judgment against Carpenter and remanded for additional factual findings.
- The court held that “good faith” under § 59-304 includes an objective component; the belief of limited-partner status must be reasonable under the circumstances.
- The court indicated that if Carpenter had an objectively reasonable good-faith belief when she contributed and she properly withdrew upon discovering the mistake, withdrawal could end general-partner liability for post-withdrawal obligations.
- The court further indicated that liability for pre-withdrawal obligations would turn on whether the association actually and in good faith believed Carpenter was a general partner when the relevant obligations were incurred.
- Remand was required because the district court had not made sufficiently specific findings about (i) Carpenter’s belief and its reasonableness over time and (ii) the association’s actual, good-faith belief regarding Carpenter’s status.

## Legal Principles

- Under N.C. Gen. Stat. § 59-304(a), a contributor who mistakenly believes in good faith that they are a limited partner can avoid general-partner liability by filing a proper limited partnership certificate or withdrawing from future equity participation upon discovering the mistake.
- “Good faith” under § 59-304(a) is not purely subjective; it requires objective reasonableness in light of what the contributor knew or should have known.
- Under § 59-304(b), even if § 59-304(a) is satisfied, a contributor may remain liable as a general partner to a third party that (i) transacted with the enterprise before the contributor’s withdrawal and (ii) actually and in good faith believed the contributor was a general partner at the time of the transaction.
- If the contributor lacked an objectively reasonable good-faith belief at the time of contribution, § 59-304 provides no protection and ordinary general-partnership liability principles apply.

## Conclusion

The Fourth Circuit required an objective reasonableness assessment of a contributor’s claimed limited-partner belief under N.C. Gen. Stat. § 59-304 and remanded for findings on both the reasonableness of Carpenter’s belief and the association’s actual reliance, which would determine any remaining liability for pre-withdrawal obligations and potential cutoff of post-withdrawal liability.


Briargate Condo. Ass’n, Inc. v. Carpenter, 976 F.2d 868 (4th Cir. 1992)