Chrissie and Mark have formed a partnership under the firm name of "Fresh Face," to make and market their own line of natural cosmetics. Each contributed $15,000 in capital, but they needed a further $30,000 to start up. They persuaded Mark's mother and Chrissie's father to contribute $15,000 each as limited partners. The limited partnership was properly registered. Mark's mother, a lawyer, occasionally gave them some free legal advice. Chrissie's father, a plastics manufacturer, advised them on aspects of managing a business, and at one point, found them a better and cheaper packaging supplier through his own industry contacts.
Maggie, a famous model, tried their products, and became permanently scarred by a piece of glass in one of their pots of face cream. Maggie sued for $1 million for damages for breach of warranty of fitness for the purpose intended. The business has assets of $120,000. Chrissie and Mark each have personal assets of $20,000. Mark's mother has personal assets of $50,000, and Chrissie's father is a millionaire twice over. The capital accounts of the partners are still $15,000 each. There are no other creditors.
a. If you were representing Maggie, what action would you take, and against what parties? Assess the success of your action as against each party you name.
b. Regardless of your answer in a), if your argument was successful against Chrissie, Mark, and Chrissie's father, but not against Mark's mother, who would pay (and what amount) Maggie's million dollar claim?
c. Would any of the foregoing be different if the limited partnership had not been registered?

This case looks at the liability of a partnership and at general and limited partners.
a. Maggie may bring a claim in contract under the Sale of Goods Act for breach of implied warranty or an action in tort for negligence of the manufacturer. Maggie is well advised to bring the action against the partnership itself, both Chrissie and Mark as general partners and also against the limited partners.
If liability is proven, the partnership will be responsible for payment of damages. In this type of product liability action, the finding of liability is almost certain on the principal of res ipsa loquitor and the associated burden of proof. Also, if partnership assets are insufficient to cover the claim, Chrissie and Mark as general partners have exposed their total personal assets to the claim of Maggie, and will also be liable for damages to the extent of their total assets.
To succeed in overcoming the protection of limited liability of the two limited partners Maggie must show that they have in some way acted beyond their scope as limited partners, either by appearing in the firm name or on letterhead or by actively participating in the control of the business. If any of these occur, the limited partners are treated as general partners and would lose their limited liability protection.
The action against Chrissie's father will likely succeed in this regard as he has taken an active role in assisting and managing the partnership business. As a result his personal assets will also be exposed to the claim as if he were a general partner.
The case against Mark's mother will not be successful as her role in providing occasional legal advice cannot be said to have any direct control in the business, thus making her a general partner. She will retain her limited liability status.
b. Award to Maggie = $1,000,000
Distribution of Liability: The partnership will be responsible for payment of the damages to the extent of its assets. If the assets are insufficient, and on the presumption that Chrissie's father is found to be a general partner, the general partners, jointly and severally, would be personally liable.
c. Only registered partnerships in some provinces may take or respond to actions in the courts. Thus, the partnership is not entitled to defend this action until it is registered. The consequences may be default judgment and imposed liability for the full amount.
NOTE: Bonus marks could be awarded if students recognize that if a limited partner's capital contribution is not paid up it may be liable to pay the remainder to satisfy a judgment.