## Facts

- Hacienda Farms, Limited was organized in early 1943 as a California limited partnership to farm land near Escondido, with Ricardo de Escamilla named as general partner and James L. Russell and H. W. Andrews named as limited partners.
- The partnership grew and marketed crops; marketing was principally through a produce concern controlled by Andrews.
- De Escamilla testified that major operational decisions, especially crop selection, were made jointly with Russell and Andrews, and that he was sometimes overruled on planting decisions.
- Russell and Andrews visited the farms about twice a week and consulted on what crops to plant.
- The partnership’s bank account required at least two partner signatures on checks, preventing De Escamilla from withdrawing funds alone while allowing Russell and Andrews, acting together, to withdraw funds without him.
- Russell and Andrews requested that De Escamilla resign as manager; he resigned and a successor manager was selected.
- The partnership entered bankruptcy in December 1943, and Lawrence Holzman was appointed trustee of the bankrupt estate.
- The trustee sued to impose general-partner liability on Russell and Andrews on the ground that they took part in control of the partnership business.

## Issues

1. Whether individuals designated as limited partners became liable as general partners to partnership creditors by taking part in the control of the partnership business under California’s limited partnership statute.

## Decision

- The Court of Appeal affirmed the judgment for the trustee.
- The court held that Russell and Andrews took part in control of the partnership business and were therefore liable as general partners to the partnership’s creditors for the relevant period.
- The court relied on evidence that they participated in core operational decisions, controlled access to partnership funds through the check-signature arrangement, and exercised managerial authority by requiring the general partner’s resignation and selecting a successor.

## Legal Principles

- Under California’s limited partnership statute (derived from the Uniform Limited Partnership Act), a limited partner is not liable as a general partner unless the limited partner takes part in the control of the business.
- Courts determine “control” by examining the substance of the parties’ conduct, not merely the partnership certificate’s labels.
- Sustained involvement in key management functions—such as directing business operations, controlling partnership finances, and hiring or removing management—supports treating a limited partner as a general partner for creditor liability.

## Conclusion

Because Russell and Andrews exercised substantial operational, financial, and managerial control beyond the rights of limited partners, the court treated them as general partners and held them liable to the partnership’s creditors notwithstanding their formal designation as limited partners.


Holzman v. De Escamilla, 86 Cal. App. 2d 858 (Cal. Ct. App. 1948)