13. Ames, Bell, and Cole were equal partners in the ABC Construction Company. Their
written partnership agreement provided that the partnership would dissolve upon the
death of any partner. Cole died on June 30, and his widow, Cora Cole, qualified as
executor of his will. Ames and Bell wound up the business of the partnership and on
December 31 they completed the sale of all of the partnership’s assets. After paying all
partnership debts, they distributed the balance equally among themselves and Mrs. Cole
as executor.
Subsequently, Mrs. Cole learned that Ames and Bell had made and withdrawn a net
profit of $200,000 from July 1 to December 31. The profit was made through new
contracts using the partnership name and assets. Ames and Bell had concealed such
contracts and profit from Mrs. Cole, and she learned about them from other sources.
Immediately after acquiring this information, Mrs. Cole made demand upon Ames and
Bell for one-third of the profit of $200,000. They rejected her demand. What are the
rights and remedies, if any, of Cora Cole as executor?
Answer: Winding Up. Mrs. Cole as executor is entitled to one-third of the dissolution net
profits. The surviving partners have the right to continue possession of the firm’s assets
14. The articles of partnership of the firm of Wilson and Company provide
William Smith to contribute $50,000; to receive interest thereon at 13 percent per
annum and to devote such time as he may be able to give; to receive 30 percent of
the profits.
John Jones to contribute $50,000; to receive interest on same at 13 percent per
annum; to give all of his time to the business and to receive 30 percent of the
profits.
Henry Wilson to contribute all of his time to the business and to receive 20 percent
of the profits.
James Brown to contribute all of his time to the business and to receive 20 percent
of the profits.
There is no provision for sharing losses. After six years of operation, the firm is dissolved
and wound up. No distributions to partners have been made since the partnership was
formed. The partnership assets are sold for $400,000 with a loss of $198,000. Liabilities
to creditors total $420,000. What are the rights and liabilities of the respective parties?
Answer: Distribution of Assets. RUPA: Smith and Jones are entitled to have their partners’
accounts credited with interest of $39,000, as the partnership agreement expressly
provides. Each of the partners’ accounts is charged with each partner’s share of the
15. Adam, Stanley, and Rosalind formed a partnership in State X to distribute beer and
wine. Their agreement provided that the partnership would continue until December 31,
2017. Which of the following events would cause the ABC partnership to dissolve? If so,
when would the partnership be dissolved?
(a)Rosalind assigns her interest in the partnership to Mary on April 1, 2015.
(b)Stanley dies on June 1, 2017.
(c)Adam withdraws from the partnership on September 15, 2016.
(d)A creditor of Stanley obtains a charging order against Stanley’s interest on October 9,
2014.
(e)In 2015, the legislature of State X enacts a statute making the sale or distribution of
alcoholic beverages illegal.
(f)Stanley has a formal accounting of partnership affairs on September 19, 2016.
Answer: Causes of Dissolution.
RUPA
a. No dissociation and no dissolution. A partner can transfer her transferable interest in a
partnership to another. The assignee does not become a partner.
16. Phillips and Harris are partners in a used car business. Under their oral
partnership, each has an equal voice in the conduct and management of the business.
Because of their irregular business hours, the two further agreed that they could use any
partnership vehicle as desired. This use includes transportation to and from work, even
though the vehicles are for sale at all times. Harris conducted partnership business both
at the used car lot and from his home. He was on call by Phillips or customers at his
home and he went back to the lot two or three times after going home. While driving a
partnership vehicle home from the used car lot, Harris negligently hit a car driven by
Cook, who brought this action against Harris and Phillips individually and as copartners
for his injuries. Who is liable?
Answer: Torts of Partnership. Both the partnership and the individual partners are liable.
17. Voeller, the managing partner of the Pay-Out Drive-In Theater, signed a contract to
sell to Hodgea small parcel of land belonging to the partnership. Except for the last
twenty feet, which was necessary for the theater’s driveway, the parcel was not used in
theater operations. The agreement stated that it was between Hodge and the partnership,
with Voeller signing for the partnership. Voeller claims that he told Hodge before signing
that a plat plan would have to be approved by the other partners before the sale. Hodge
denies this and sues for specific performance, claiming that Voeller had actual and
apparent authority to bind the partnership. The partners argue that Voeller had no such
authority and that Hodge knew this. Who is correct? Explain.
18. L. G. and S. L. Patel, husband and wife, owned and operated the City Center Motel
in Eureka. On April 16, Rajeshkumar, the son of L. G. and S. L., formed a partnership
with his parents and became owner of 35 percent of the City Center Motel. The
partnership agreement required that Rajeshkumar approve any sale of the motel. Record
title to the motel was not changed, however, to reflect his interest. On April 21, L. G. and
S. L. listed their motel for sale with a real estate broker. On May 2, P. V. and Kirit Patel
made an offer on the motel, which L. G. and S. L. accepted. Neither the broker nor the
purchasers knew of the son’s interest in the motel. When L. G. and S. L. notified
Rajeshkumar of their plans, to their surprise, he refused to sell his 35 percent of the
motel. On May 4, L. G. and S. L. notified P. V. and Kirit that they wished to withdraw
their acceptance. They offered to pay $10,000 in damages and to give the purchasers a
right of first refusal for five years. Rather than accept the offer, on May 29, P. V. and Kirit
filed an action for specific performance and incidental damages. L. G., S. L., and
Rajeshkumar responded that the contract could not lawfully be enforced. Discuss who
will prevail and why.
Answer: Authority to Bind Partnership. Judgment for the partnership selling the motel.
The trial court found the provisions of U.P.A. section 9 (3)(c) to prevail over those of
19. Davis and Shipman founded a partnership under the name of Shipman & Davis
Lumber Company. Seven years later, the partnership was dissolved by written agreement.
Notice of the dissolution was published in a newspaper of general circulation in Merced
County, where the business was conducted. No actual notice of dissolution was given to
firms that previously had extended credit to the partnership. By the dissolution
agreement, Shipman, who was to continue the business, was to pay all of the
partnership’s debts. He continued the business as a sole proprietorship for a short time
until he formed a successor corporation, Shipman Lumber Servaes Co. After the
partnership’s dissolution, two firms that previously had done business with the
partnership extended credit to Shipman for certain repair work and merchandise. The
partnership also had a balance due to Valley Company for prior purchases. Five months
later, two checks were drawn by Shipman Lumber Servaes Co. and accepted by Valley as
partial payment on this debt. Credit Bureaus of Merced County, as assignee of these three
accounts, sued the partnership as well as Shipman and Davis individually. Does the
dissolution of the partnership relieve Davis of personal liability for the accounts?
Explain.
Answer: Rights of Creditors. Judgment for the Credit Bureaus affirmed. A retired partner
may be relieved of liability for partnership debts incurred after his retirement if creditors
receive appropriate notice of the partnership’s dissolution. As to the firms having prior
20. In August, Victoria Air Conditioning, Inc. (VAC) entered into a subcontract for
insulation services with Southwest Texas Mechanical Insulation Company (SWT), a
partnership composed of Charlie Jupe and Tommy Nabors. In February of the following
year, Jupe and Nabors dissolved the partnership, but VAC did not receive notice of the
dissolution at that time. Sometime later, insulation was removed from Nabors’s premises
to Jupe’s possession and Jupe continued the insulation project with VAC. From then on,
Nabors had no more involvement with SWT. One month later, Nabors informed VAC’s
project manager, Von Behrenfeld, that Nabors was no longer associated with SWT, had
formed his own insulation company, and was interested in bidding on new jobs.
Subsequently, SWT failed to perform the subcontract and Jupe could not be found. VAC
brought suit for breach of contract against SWT, Jupe, and Nabors. Nabors claims that
several letters and change orders introduced by both parties show that VAC knew of the
dissolution and impliedly agreed to discharge Nabors from liability. These documents
indicated that VAC had dealt with Jupe, but had not dealt with Nabors, after the
dissolution. VAC denies that the course of dealings between VAC and Jupe was the type
from which an agreement to discharge Nabors could be inferred. Who is correct?
Explain.
Answer: Rights of Creditors. The general rule is that the dissolution of a partnership does
not of itself discharge any existing liabilities of a partner. U.P.A. § 36(1). (R.U.P.A. §
703(a) is similar.) However, an exception to the general rule exists when the retired
ANSWERS TO “TAKING SIDES” PROBLEMS
Stroud and Freeman are general partners in Stroud’s Food Center, a
grocery store. Nothing in the articles of partnership restricts the power or
authority of either partner to act in respect to the ordinary business of
the Food Center. In November, however, Stroud informed National Biscuit
that he would not be personally responsible for any more bread sold to
the partnership. Then, in the following February, at the request of
Freeman, National Biscuit sold and delivered more bread to the Food
Center.
a. What are the arguments that Stroud is not liable to National Biscuit
for the value of the bread delivered to the Food Center?
b. What are the arguments that Stroud is liable to National Biscuit for
the value of the bread delivered to the Food Center?
c. Explain which arguments should prevail.
ANSWER:
a. Stroud would argue that because he had informed National Biscuit of a
restriction on Freeman’s authority the contract was not binding on the
partnership and thus not binding on Stroud.