Business Law Chapter 37 Homework Because Dorinda Was The Only General Partner

325

CHAPTER 37

PARTNERSHIPS AND LIMITED

LIABILITY PARTNERSHIPS

ANSWERS TO QUESTIONS

AT THE ENDS OF THE CASES

CASE 37.1—QUESTION (PAGE 725)

WHAT IF THE FACTS WERE DIFFERENT?

Suppose that Salmon had disclosed Gerry’s proposal to Meinhard, who had said that he was not

interested. Would the result in this case have been different? Explain. Yes, because telling Meinhard

CASE 37.2—QUESTIONS (PAGE 733)

WHAT IF THE FACTS WERE DIFFERENT?

Suppose that instead of choosing Sutherland and Pearsall Development to be the general contractor, SP

had selected a party with no connection to any of 1515’s partners. Is it likely that the result in this case

would have been different? Why or why not? Possibly. In this case, the court cited the awarding of the

contract in particular as evidence of the general partner’s breach of fiduciary duty. If the contract had

been awarded to an unrelated third party, Bracken would have had to allege other facts to show a

breach.

THE ETHICAL DIMENSION

326 UNIT EIGHT: BUSINESS ORGANIZATIONS

Did any of the parties involved in this case commit an ethical violation? Discuss. Bracken might be

CASE 37.3—QUESTIONS (PAGE 735)

1A. Why did the court hold that a forced sale of the property of the limited partnership was not

appropriate? The court in this case concluded that the partnership agreement did not require the

business to be sold on the open market on the partnership’s dissolution. Under the agreement, during

liquidation, the firm’s property could be distributed in kind among the partners if it was first offered for

sale to a third party. In other words, only a decision to make an in-kind distribution of assets required

that the business be offered for sale on the open market. That did not occur in this case. Thus, the

majority partners were ordered only to pay the withdrawing partners the fifair market value” of their

interests based on the business’s fihypothetical transaction” value.

2A. Under what circumstances might a forced sale of the property of a limited partnership on its

dissolution be appropriate? The court in this case points out that fiif the majority owners refuse to pay

any amount owed to the Canevas after revaluation, then a forced sale is appropriate.” Also, under such

egregious circumstances as a general partner’s breach of fiduciary obligation or other unfair dealings or

deceptive conduct, a forced sale might be proper.

ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE

AT THE END OF THE CHAPTER

1A. Duration of a partnership

This is a general partnership, and the facts in the problem indicate that it is a partnership at will. A

partnership agreement can limit the duration of a partnership to a certain date or a particular project, in

which case it would be considered to be a partnership for a term. If no fixed duration is specified, as in

this problem, a partnership is a partnership at will.

3A. Liability of an existing partner

Al’s Feed Barn can bring action against Jason or Cowboy Palace. A partner is jointly and severally

(separately, or individually) liable for all partnership obligations, including such debts as the one in this

328 UNIT EIGHT: BUSINESS ORGANIZATIONS

question, even if the partner did not participate in, ratify, or know about whatever it was that gave rise

to the obligation. Nevertheless, Al’s Feed Barn would have to take several steps before succeeding in a

suit against Jason individually. Generally, a creditor cannot collect a partnership debt from a partner of a

non-bankrupt partnership without first attempting to collect from the partnership, or convincing a court

that the attempt would not succeed.

4A. Liability of a dissociated partner

A dissociated partner may be liable for partnership obligations entered into during a two-year period

following dissociation. In other words, the partner may be liable to a third party with whom the firm

ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE AT THE

END OF THE CHAPTER

A partnership should automatically end when one partner disassociates from the firm. Prior to a

change in the UPA, when a partner left the partnership, it had to be dissolved. That makes sense, given

that any partnership is an association of named partners. A new partnership can be created without the

partner who left. After all, one of the major distinctions between a corporation and a partnership used

to be that the corporation was not dependent on people who owe shares in it. Now, it seems as if a

partnership can live forever, too, even if partners come and go.

ANSWERS TO QUESTIONS AND CASE PROBLEMS

AT THE END OF THE CHAPTER

37-1A. Partnership formation

CHAPTER 37: PARTNERSHIPS AND LIMITED LIABILITY PARTNERSHIPS 329

(Chapter 37—Pages 720 & 722)

Classen cannot hold Daniel liable as a partner, because a true partnership never existed; nor is Daniel

37-2A. QUESTION WITH SAMPLE ANSWER: Partnership dissolution

(a) A limited partner’s interest is assignable. In fact, assignment allows the assignee to

become a substituted limited partner with the consent of the remaining partners. The assignment,

37-3A. Distribution of partnership assets

(Chapter 37—Page 729)

This problem points to the necessity of having a written partnership agreement specifically stating the

rights of the partners. Two basic property rights of the partners are an interest in the partnership

37-4A. Indications of partnership

(Chapter 37—Page 720)

To be considered a partnership, a business relationship must meet the following criteria: (1) the parties

37-5A. Partnership status

(Chapter 37—Page 720)

The court found that Charlie and Mack had fian equal partnership” in the business and that Mack was

entitled to Charlie’s share. The defendants appealed to a state intermediate appellate court, which

37-6A. CASE PROBLEM WITH SAMPLE ANSWER: Indications of partnership

The court ruled in Tammy’s favor on the question of her employee status. Cypress appealed to a state

intermediate appellate court, which affirmed this part of the lower court’s decision. The appellate court

37–7A. Partnership dissolution

(Chapter 37—Pages 723–725)

37–8A. Limited partnership

(Chapter 37—Pages 732–733)

General partners owe their partnership a duty of loyalty and a duty of care, as well as an obligation to

discharge their duties in good faith and in a reasonable belief that they are acting in the best interest of

37–9A. Partnership dissolution

(Chapter 37—Pages 728–729)

Yes, the court affirmed the decision. The order requiring the partner’s heir (Thompson) to wind up the

37-10A. A QUESTION OF ETHICS: Wrongful dissociation

332 UNIT EIGHT: BUSINESS ORGANIZATIONS

(a) Willensky’s dissociation occurred when he left for Florida and did not return. According

to the partnership agreement, he was to supply the labor and oversee the construction and renovation.

By effectively abandoning the project and failing to keep his side of the bargain, he breached the

partnership agreement. Whenever a partner’s dissociation constitutes a breach of the partnership

agreement, it is deemed wrongful.

(b) Many of Willensky’s actions represented poor management of the project, and some acts

were clearly unethical, if not illegal. Willensky failed to pay bills on time; did not keep Moran informed

of his expenditures and the status of the partnership accounts; incurred excessive and unnecessary costs

(at one point, he allegedly paid $320 for an ironing board); failed to communicate with Moran for long