Limited Liability for General Partnerships: Another Louisiana Anomaly?

• Author: Magan Causey
• Position: Professor
• Pages: 527-541

Page 527

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. ¹

I Introduction

Dating as far back as the early 1800s, our legislature has resisted the pressure to conform with the rest of the common law jurisdictions in the United States for the sole sake of consistency.²

Rather than converting to a common law system, Louisiana legislators drew from both the French and Spanish legal traditions to arrive at a Digest of Civil Law that governed legal relationships and situations in Louisiana.³ Despite the deliberate rejection of a complete common law system by the early Louisiana legislators, common law principles still greatly influenced law in Louisiana, especially in areas where the civil law did not provide guidance.⁴

Thus, Louisiana is a jurisdiction that displays both civil and common law characteristics.⁵

As senseless and undesirable as foolish consistency seemed to be to the early legislators, foolish inconsistency in relation to the way we make law in Louisiana is much worse. Louisiana appears to be the only jurisdiction in the world, including both civil and common law jurisdictions, that provides for limited liability for its general partnerships.⁶ According to Louisiana Civil Code article 2817, each partner is bound only for his virile share of thePage 528 partnership debts.⁷ In every other jurisdiction, partners are jointly and severally liable for debts or obligations incurred by the partnership. Because there are few general partnerships in Louisiana today, the fact that Louisiana departs from the mainstream in this particular aspect of business law is economically insignificant. However, this anomaly in our law is significant from a jurisprudential standpoint because it misleads as to the nature of Louisiana business law by incorrectly implying that there may be many other inconsistencies in our law compared to other jurisdictions throughout the United States.

For the most part, Louisiana business law is consistent with other jurisdictions throughout the United States, thus reflecting the strong need for certainty and consistency in modern commercial law.⁸ Certainty in business law is especially important to Louisiana for practical reasons, such as helping to achieve one of Governor Kathleen Blanco's main initiatives for her administration-economic development.⁹ Uniform commercial law from state to state leads to cost reductions for both consumers and businesses, which enhances economic development throughout the United States.¹⁰ Furthermore, uniformity facilitates interstate commerce¹¹ and helps minimize any risks involved with doing business in foreign states.¹² Louisiana Civil Code article 2817, however, is grossly inconsistent with all other jurisdictions for no apparent reason.¹³ Since the purpose of the civil law is to providePage 529 a coherent, logical system of law to govern all legal relationships,¹⁴ the Louisiana Legislature should strive to amend all unsubstantiated "foolish inconsistencies" in our law that are neither coherent nor logical. Specifically, the legislature should address the unexplained limited liability of general partners and amend Louisiana Civil Code article 2817 to conform with every other jurisdiction in the world by changing the limited liability to solidary or joint and several liability.

In Part II, this paper analyzes both the civil and common law antecedents concerning partnership law. It compares the provisions in Louisiana Civil Code article 2817 to the partnership law of a number of economically advanced countries from both the civil law and common law traditions in order to note the key difference regarding liability. It also examines the law in every jurisdiction throughout the United States outside of Louisiana in order to understand their provisions on partnership law.

Part III seeks to ascertain why our law is different from other states and other countries-even the countries from which much of our civil law developed. To do this, the article traces the legislative history of partnership law in Louisiana. It also briefly examines general obligations law regarding the similarities between the liability of obligors to an obligation and general partners to a third party creditor to point out internal inconsistency within the Louisiana Civil Code. The purpose of these analyses is to identify whether this peculiarity in general partnership law was simply an oversight by the legislature or whether there actually is logic behind the anomaly, thus giving Louisiana a reason to be inconsistent.

Finally, this paper synthesizes the comparative and historical analyses and calls for legislative consistency with respect to this particular aspect of Louisiana business law. This article suggests a revision for Louisiana Civil Code article 2817 that replaces the limited liability provision with joint and several liability. Most importantly, this article represents the need for consistency in legislation that departs from every other jurisdiction in the Western world for apparently no logical reason.Page 530

II Comparative Analysis: Cicil and Commom Law Antecedents and American Law

A Civil Law Tradition: History of General Partnership Liability and the Current Law in France, Germany, Italy, Belgium, the Netherlands, and Spain

A chain of views across history is needed to attempt to arrive at the reasoning behind the Louisiana rule. France, a civil law giant, served as a model for law in Louisiana.¹⁵ A glance at the history of partnership law in France depicts the evolution of partnership law from the rule in antiquity to the current law. Early French law distinguished between two types of partnerships, namely, civil partnerships and commercial partnerships.¹⁶ This distinction was important primarily because of the difference in liability with each type of partnership.¹⁷ Partners in a civil partnership were fractionally liable in equal measure for the debts and obligations of the partnership;¹⁸ whereas, partners belonging to a commercial partnership were liable jointly and without limit for the debts of the partnership.¹⁹

Today, French law no longer distinguishes between the two different types of partnerships. A general partnership in France, societa en nom collectif (SNC), is considered to be a commercial form of business regardless of whether the partnership's activity consists of commercial or civil affairs.²⁰ French law considers each partner in a general partnership to be a merchant who is jointly and severally liable for the partnership's liabilities.²¹ The term "joint and several" in this context refers to the situation where each partner in a general partnership binds himself for the entire obligation, and the performance by one partner would release thePage 531 other partner(s) from liability.²² In other words, general partners receive unlimited liability in France today.²³

Germany is another prominent civil law country. Similar to former French law, German partnership law distinguishes between two types of partnerships-civil and commercial partnerships.²⁴

Rather than using the type of liability as a basis for the distinction between the two types of partnership, German law distinguishes between the two types based on the purpose for which the partnership is created.²⁵ The German codes confer joint and several liability on both civil partnerships and general commercial partnerships.²⁶ In other words, each partner is liable for the entire obligation regardless of his proportional interest in the partnership,²⁷ a provision similar to French partnership law.

Not only does Louisiana Civil Code article 2817 differ from the two most prominent civil law countries previously discussed, but it also differs from the partnership laws in many other civil law jurisdictions seen throughout the Western world. Countries such as Italy,²⁸ Belgium,²⁹ the Netherlands,³⁰ and Spain³¹ consistentlyPage 532 confer unlimited liability on general partners for the debts and obligations of the partnership.

B Current South American Law: Chile, Argentina, Bolivia, Uruguay, Paraguay, and Ecuador

In order to obtain an accurate reflection of the partnership law throughout the Western world, a few South American countries deserve a glance. Chile is one of the most economically advanced countries in South America. Both the French and Spanish legal systems served as models for Chilean law.³² Many other countries in Central and South America look to the Chilean Civil Code for guidance.³³ Partnership law in Chile reflects the law in France in that the liability of the partners in a general partnership is unlimited.³⁴

In addition to Chile, Argentina was also greatly influenced by continental law, more specifically the French Civil Code, when drafting its own civil code that dates back to 1869.³⁵ Because of this French influence, it follows that Argentina would also impose joint and several liability on partners for the debts of the partnership.³⁶

Chile and Argentina are two of many South American countries that provide for unlimited liability for general partners. Other countries, such...