If a lender makes a loan to a partnership but provides the funds to a single partner individually is the partnership liable?

Asked over 1 year ago - Redondo Beach, CA

This is a CA General Partnership with 2 general partners. A real estate loan was obtained and executed by 1 partner without the knowledge or consent of the other. The funds were given directly to the partner obtaining the loan made payable personally via check and the funds were not used for partnership purposes.

Attorney answers (4)

  1. Charles Richard Perry


    Contributor Level 16


    Lawyers agree

    Answered . I assume the borrower named on the loan documents is the Partnership.

    In this case, the Partnership is liable to the lender, and the partner who signed the documents and obtained the funds is liable to the other. Indeed, the partner who obtained the funds may be liable for breach of fiduciary duty to the other.

    In any event, the partner who did not sign the documents should retain counsel to help him straighten this out.

  2. Michael Charles Doland

    Contributor Level 20


    Lawyers agree

    Answered . Each general partner is liable for the debts of the general partnership, and it is not limited by the amount of the investment in the business. That is one of the dangers of a general partnership compared to an LLC or corporation.

    The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may... more
  3. Michael Leo Potter

    Contributor Level 20


    Lawyers agree

    Answered . One of the 'down sides' of a General Partnership is that the other General Partners are in fact liable. The funds should have been giving to the Partnership itself rather than any one individual partner. If the funds were not used for Partnership purposes but were obtained by misrepresenting to the Lender that they would be, then both you and the Lender have a probable claim against the other General Partner. I'd recommend you meet with a Business Law attorney practicing in your area. See Avvo.Com under Find-A-Lawyer. Good Luck on getting this resolved.

  4. Gary Stephen Brown

    Contributor Level 10

    Answered . You need to hire a lawyer. An answer here would be like guiding heart surgery over the phone.

    The advice provided is in good faith but not a guaranty of accuracy under all circumstances.

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