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ANSWERS TO PROBLEMS
1. Lynn and Jack jointly own shares of stock of a corporation, have a joint bank account,
and have purchased and own as tenants in common a piece of real estate. They share
equally the dividends paid on the stock, the interest on the bank account, and the rent
from the real estate. Without Lynn’s knowledge, Jack makes a trip to inspect the real
estate and on his way runs over Samuel. Samuel sues Lynn and Jack for his personal
injuries, joining Lynn as defendant on the theory that Lynn was Jack’s partner. Is Lynn a
partner of Jack?
Answer: Tests of Partnership Existence. Lynn is not liable. No partnership exists between
Lynn and Jack merely by reason of their joint ownership of shares of stock of a
2. James and Suzanne engaged in the grocery business as partners. In one year they
earned considerable money, and at the end of the year they invested a part of the profits
in oil land, taking title to the land in their names as tenants in common. The investment
was fortunate, for oil was discovered near the land, and its value increased many times.
Is the oil land partnership property? Why?
Answer: Partnership Capital and Property. The oil land was most likely a partnership asset
because it was acquired with partnership funds. R.U.P.A. Section 204(c), U.P.A. Section
8(2). Property is presumed to be partnership property if purchased with partnership
3. Sheila owned an old roadside building that she believed could be easily converted into
an antique shop. She talked to her friend Barbara, an antique fancier, and they executed
the following written agreement:
(a) Sheila would supply the building, all utilities, and $100,000 capital for purchasing
antiques.
(b) Barbara would supply $30,000 for purchasing antiques, Sheila to repay her when the
business terminated.
(c) Barbara would manage the shop, make all purchases, and receive a salary of $500
per week plus 5 percent of the gross receipts.
(d) Fifty percent of the net profits would go into the purchase of new stock. The balance
of the net profits would go to Sheila.
(e) The business would operate under the name “Roadside Antiques.”
Business went poorly, and after one year a debt of $40,000 is owed to Old Fashioned,
Inc., the principal supplier of antiques purchased by Barbara in the name of Roadside
Antiques. Old Fashioned sues Roadside Antiques, and Sheila and Barbara as partners.
Decision?
Answer: Co-ownership. Old Fashioned will clearly recover from Roadside Antiques and
Sheila. Recovery from Barbara would be based upon showing that a partnership actually
existed between Sheila and Barbara. R.U.P.A. Section 202(c)(2) and U.P.A. Section 7(3)
4. Clark, who owned a vacant lot, and Bird, who was engaged in building houses, entered
into an oral agreement by which Bird was to erect a house on the lot. Upon the sale of
the house and lot, Bird was to have his money first. Clark was then to have the agreed
value of the lot, and the profits were to be equally divided. Did a partnership exist?
5. Grant, Arthur, and David formed a partnership for the purpose of betting on boxing
matches. Grant and Arthur would become friendly with various boxers and offer them
bribes to lose certain bouts. David would then place large bets, using money contributed
by all three, and would collect the winnings. After David had accumulated a large sum of
money, Grant and Arthur demanded their share, but David refused to make any split. Can
Grant and Arthur compel David to account for the profits of the partnership? Why?
Answer: Nature of Partnership. Grant and Arthur are not entitled to an accounting against
6. Teresa, Peter, and Walker were partners under a written agreement made in January
that the partnership should continue for ten years. During the same year, Walker, being
indebted to Smith, sold and conveyed his interest in the partnership to Smith. Teresa and
Peter paid Smith $50,000 as Walker’s share of the profits for that year but refused Smith
permission to inspect the books or to come into the managing office of the partnership.
Smith brings an action setting forth the above facts and asks for an account of
partnership transactions and an order to inspect the books and to participate in the
management of the partnership business.
(a) Does Walker's action dissolve the partnership?
(b) To what is Smith entitled with respect to (1) partnership profits, (2) inspection of
partnership books, (3) an account of partnership transactions, and (4) participation in
the partnership management?
Answer: Transfer of Partnership Interest.
(a) No. Walker's action does not dissolve the partnership. R.U.P.A. Section 503(a)(2),
U.P.A. Section 27(1).
(b)(1) Smith is entitled to receive Walker's share of the partnership profits. R.U.P.A.
Section 503(b)(1), U.P.A. Section 27(1).
7. Horn’s Crane Service furnished supplies and services under a written contract to a
partnership engaged in operating a quarry and rock-crushing business. Horn brought
this action against Prior and Cook, the individual members of the partnership, to recover
a personal judgment against them for the partnership’s liability under that contract.
Horn has not sued the partnership itself, nor does he claim that the partnership property
is insufficient to satisfy its debts. What result? Explain.
Answer: Entity Theory. Judgment for Prior and Cook. A partnership is a legal entity
distinct and apart from the members composing it. Therefore, in order to hold the
individual partners liable, it is necessary for a creditor to show that the partnership
8. Cutler worked as a bartender for Bowen until they orally agreed that Bowen would have
the authority and responsibility for the entire active management and operation of the
tavern business known as the Havana Club. Each was to receive $300 per week plus half
of the net profits. The business continued under this arrangement for four years until the
building was taken over by the Salt Lake City Redevelopment Agency. The agency paid
$30,000 to Bowen as compensation for disruption. The business, however, was
terminated after Bowen and Cutler failed to find a new, suitable location. Cutler, alleging
a partnership with Bowen, then brought this action against him to recover one-half of the
$30,000. Bowen contends that he is entitled to the entire $30,000 because he was the sole
owner of the business and that Cutler was merely his employee. Cutler argues that
although Bowen owned the physical assets of the business, she, as a partner in the
business, is entitled to one-half of the compensation that was paid for the business’s
goodwill and going-concern value. Who is correct? Explain.
Answer: Tests of Partnership Existence. Judgment for Cutler. The appellate court upheld
the trial court's determination that a partnership had been formed. One of the primary
9. In 2004, Gauldin and Corn entered into a partnership for the purpose of raising cattle
and hogs. The two men were to share equally all costs, labor, losses, and profits. The
business was started on land owned initially by Corn’s parents but later acquired by
Corn and his wife. No rent was ever requested or paid for use of the land. Partnership
funds were used to bulldoze and clear the land, to repair and build fences, and to seed
and fertilize the land. In 2008, at a cost of $2,487.50, a machine shed was built on the
land. In 2013, a Cargill unit was built on the land at a cost of $8,000. When the
partnership dissolved in 2014, Gauldin paid Corn $7,500 for the “removable” assets;
however, the two had no agreement regarding the distribution of the barn and the Cargill
unit. Is Gauldin entitled to one-half of the value of the two buildings? Explain.
Answer: Partnership Property. Yes, judgment for Gauldin. The well-established rule is that
improvements made upon lands owned by one partner, if made with partnership funds for
10. Anita and Duncan had been partners for many years in a mercantile business. Their
relationship deteriorated to the point at which Anita threatened to bring an action for an
accounting and dissolution of the firm. Duncan then offered to buy Anita’s interest in the
partnership for $250,000. Anita refused the offer and told Duncan that she would take no
less than $360,000. A short time later, James approached Duncan and informed him he
had inside information that a proposed street change would greatly benefit the business
and that he, James, would buy the entire business for $1,000,000 or buy a one-half
interest for $500,000. Duncan made a final offer of $350,000 to Anita for her interest.
Anita accepted this offer, and the transaction was completed. Duncan then sold the
one-half interest to James for $500,000. Several months later, Anita learned for the first
time of the transaction between Duncan and James. What rights, if any, does Anita have
against Duncan?
Answer: Right to an Account. Anita has a right against Duncan for an accounting of the
$150,000 difference in the sale price, and Anita may bring a suit in equity to impress a
trust thereon. R.U.P.A. Section 404(b)(1) provides that a partner’s duty of loyalty to the
11. ABCD Company is a general partnership. It consists of Dianne, Greg, Knox, and Laura,
whose capital contributions were as follows: Dianne, $5,000; Greg, $7,500; Knox,
$10,000; and Laura, $5,000. The partnership agreement provided that the partnership
would continue for three years and that no withdrawals of capital were to be made
without the consent of all the partners. The agreement also provided that all advances
would be entitled to interest at 10 percent per year. Six months after the partnership was
formed, Dianne advanced $10,000 to the partnership. At the end of the first year, net
profits totaled $11,000 before any moneys had been distributed to partners. How should
the $11,000 be allocated to Dianne, Greg, Knox, and Laura? Explain.
Answer: Rights Among Partners: Right to Share in Distributions. RUPA: Dianne would
receive the entire $11,000. When a partner makes an advance to the firm above and
beyond her capital contribution she is entitled to repayment of this advance plus interest.
12. Donald Petersen joined his father, William Petersen, in a chicken hatchery business
William had previously operated as a sole proprietorship. When the partnership was
formed, William contributed the assets of the proprietorship, which included cash,
equipment, and inventory having a total value of $41,000. Donald contributed nothing.
They agreed to share the profits equally. For fifteen years Donald took over the operation
of the hatchery with very little help from his father. When the business was terminated
William contended that he was entitled to the return of his capital investment of $41,000
before Donald could recover anything. Donald asserted that he is entitled to one-half the
value of the business. Explain who is correct in his contention.
Answer: Distribution of Assets. Judgment for Donald. According to the Uniform
Partnership Act, the right of a partner to receive back the capital he contributed is subject
13. Smith, Jones, and Brown were creditors of White, who operated a grain elevator known
as White’s Elevator. Heavily in debt, White was about to fail when the three creditors
agreed to take title to his elevator property and pay all the debts. It was also agreed that
White should continue as manager of the business at a salary of $1,500 per month and
that all profits of the business were to be paid to Smith, Jones, and Brown. It was further
agreed that they could dispense with White’s services at any time and that he was free to
quit when he pleased. White accepted the proposition and continued to operate the
business as before. The agreement worked successfully and for several years paid
substantial profits, enough so that Smith, Jones, and Brown had received nearly all that
they had originally advanced. Were Smith, Jones, and Brown partners? Explain.
14. Virginia, Georgia, Carolina, and Louis were partners doing business under the trade
name of Morning Glory Nursery. Virginia owned a one-third interest, and Georgia,
Carolina, and Louis owned two-ninths each. The partners acquired three tracts of land
for the purpose of the partnership. Two of the tracts were acquired in the names of the
four partners, “trading and doing business as Morning Glory Nursery.” The third tract
was acquired in the names of the individuals, the trade name not appearing in the deed.
This third tract was acquired by the partnership out of partnership funds and for
partnership purposes. Who owns each of the three tracts? Why?
Answer: Partnership Property. The partnership. (a) The first two tracts were acquired for
the purpose of the partnership and title included the name of the partnership. RUPA
Sections 204 (a) and 204(b), UPA Section 8(3). (b) The third tract was acquired with
15. Charles and L. W. Clement were brothers who had formed a partnership that lasted forty
years until Charles discovered that his brother, who kept the partnership’s books, had
made several substantial personal investments with funds improperly withdrawn from the
partnership. He then brought an action seeking dissolution of the partnership,
appointment of a receiver, and an accounting. Should Charles succeed? Explain.
Answer: Fiduciary Duty/Duty to Disclose Material Facts. Yes. There is a fiduciary
relationship between partners such that a person does not have to deal with his partner as
though he were the opposite party in an arm’s length transaction. Where a partner
ANSWERS TO “TAKING SIDES” PROBLEMS
Chaiken entered into separate but nearly identical agreements with
Strazella and Spitzer to operate a barber shop. Under the terms of the
“partnership” agreements, Chaiken would provide barber chairs,
supplies, and licenses, while the other two would provide tools of the
trade. The agreements also stated that gross returns from the
partnership were to be divided on a percentage basis among the three
men and that Chaiken would decide all matters of partnership policy.
Finally, the agreements stated hours of work and holidays for Strazella
and Spitzer and required Chaiken to hold and distribute all receipts.
(a)What are the arguments that Strazella and Spitzer are partners
with Chaiken?
(b)What are the arguments that Strazella and Spitzer are employees
of Chaiken?
(c) Explain which arguments should prevail.
ANSWER:
(a)Arguments that Strazella and Spitzer are partners with Chaiken
include (1) they had entered into a partnership agreement, (ii) they
