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Business Law Chapter 37 Homework When Specific Evidence That This Situation Existed

Page Count
9 pages
Word Count
5035 words
Book Title
Business Law: Text and Cases 14th Edition
Authors
Frank B. Cross, Kenneth W. Clarkson, Roger LeRoy Miller
1
CHAPTER 37
ALL FORMS OF PARTNERSHIPS
ANSWER TO CRITICAL THINKING QUESTION
IN THE FEATURE
ETHICS TODAYCRITICAL THINKING
Why might it be fair for the court to hold Coxeter liable for his partner’s fraud? As a
general partner and co-developer, Coxeter was in a better position to discover the fraud of
another general partner (Bisno) than the limited partners were. Therefore, it might be considered
fair to hold Coxeter liable for the fraud of his co-general partner, Bisno. It is not enough for
Coxeter to claim he did not know about Bisno’s wrongdoing.
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 37.1CRITICAL THINKING
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 about the offer would have met Salmon’s fiduciary duty of loyalty to his
partner. Without a breach of the duty, there would not have been the same ground on which to
award Meinhard “the value of half of the entire lease.”
CASE 37.2LEGAL REASONING QUESTIONS
1. Why would a partnership agreement contain one provision for a buy-out on a partner’s
divorce or death and another for a partner’s decision to quit the firm? A partnership
agreement might contain one provision for a buy-out on a partner’s divorce or death and another
for a partner’s decision to quit the firm due to the nature of the triggering events. A divorce or
death of a partner may occur unexpectedly, or at least against the will of the partner. A decision
2. How did the court’s interpretation of contract principles affect the result in this case?
In the Shamburger case, the court’s interpretation of contract principles applied to the buy-out
provisions in the parties’ partnership agreements led to the court’s conclusions and the result.
Three married couplessix individual partnersexecuted partnership agreements in
connection with five limited liability partnerships. The partners also executed partnership buy-
sell agreements to require certain procedures through which the partners could transfer their
3. The lower court awarded attorney’s fees to the defendants, who prevailed on their
motion for summary judgment. By reversing the summary judgment, does the appellate
court’s decision also require a reversal of the award of attorney’s fees? Yes, by reversing
the lower court’s grant of a summary judgment, the appellate court’s decision also requires a
reversal of the lower court’s award of attorney’s fees.
In the Shamburger case, three married couplessix individual partnersexecuted
partnership agreements in connection with five limited liability partnerships. The partners also
executed buy-sell agreements to require certain procedures through which the partners could
transfer their interests in the partnerships. The buy-sell agreements contained separate
CASE 37.3CRITICAL THINKING
LEGAL ENVIRONMENT
How are the penalties likely to be apportioned among the three defendants? Explain.
Whichever penalties the trial court determines to impose on remand, Valley View Enterprises,
Inc., is likely to be held liable for violations of the Phase I permit, and Valley View Properties,
Ltd., and Joseph Ferrara are likely to be held liable for violations of the Phase II permit.
The state charged three defendants with pollution control violationsValley View
4 UNIT EIGHT: BUSINESS ORGANIZATIONS
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.
2A. Authority of a partner
In a general partnership, all partners have equal rights in managing the partnership. Often, in a
large partnership, partners will delegate daily responsibilities to a management committee made
up of one or more of the partners. The partnership in this problem is not large, although the
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 question, even if the partner did not participate in, ratify, or know about
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 enters into a transaction if the third party reasonably believed that the dissociated
partner was still a partner. This same principle applies to the liability of the firm for transactions
entered into by dissociated partners within two years after their withdrawal. To avoid this
CHAPTER 37: ALL FORMS OF PARTNERSHIPS 5
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
ANSWERS TO ISSUE SPOTTERS
AT THE END OF THE CHAPTER
1A. Darnell and Eliana are partners in D&E Designs, an architectural firm. When Darnell
dies, his widow claims that as Darnell’s heir, she is entitled to take his place as Eliana’s
partner or to receive a share of the firm’s assets. Is she right? Why or why not? No. A
widow (or widower) has no right to take a dead partner’s place. A partner’s death causes
dissociation, after which the partnership must purchase the dissociated partner’s partnership
2A. Finian and Gloria are partners in F&G Delivery Service. When business is slow,
with out Gloria’s knowledge, Finian leases the delivery vehicles as moving vans.
Because the vehicles would otherwise be sitting idle in a parking lot, can Finian keep the
income that results from leasing the delivery vehicles? Explain your answer. No. Under
the partners’ fiduciary duty, a partner must account to the partnership for any personal profits or
benefits derived without the consent of all the partners in connection with the use of any
partnership property. Here, the leasing partner may not keep the money.
6 UNIT EIGHT: BUSINESS ORGANIZATIONS
ANSWERS TO BUSINESS SCENARIOS
AT THE END OF THE CHAPTER
37-1A. Partnership formation
Classen cannot hold Daniel liable as a partner, because a true partnership never existed; nor is
Daniel liable under a theory of partnership by estoppel. A partnership is defined as an
association of two or more persons to conduct, as co-owners, a business for profit [UPA 101(6)].
To determine that a partnership was created, the court must look for a sharing of profits and a
joint ownership of the business, with each party having an equal right to manage the business.
37-2A. Dissolution of a limited partnership
(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, however, does not dissolve the limited partnership.
ANSWERS TO BUSINESS CASE PROBLEMS
AT THE END OF THE CHAPTER
373A . Fiduciary duties of partners
Yes, Rüsen and Thomas breached their fiduciary duty to HRT and Horvath. The fiduciary duties
that a partner owes to the partnership include the duty of loyalty. The duty of loyalty requires a
partner to account to the partnership for any property, profit, or benefit derived by the partner in
the conduct of the partnership’s business or from the use of its property. The duty of loyalty can
be breached by dealing with the firm as an adverse party. Each partner must act in good faith
CHAPTER 37: ALL FORMS OF PARTNERSHIPS 7
for the benefit of the partnership. Of course, a partner may pursue his or her own interests
without automatically violating these duties.
Here, Merkur, which was owned by Rüsen and Thomas, leased HRT’s property and
sublet it to other companies owned by Rüsen and Thomas at a higher rent than Merkur paid to
HRT. The facts do not indicate that the lease agreement prohibited this arrangement. But there
37-4A. Partnership formation
Garcia and Lucero probably satisfied all three requirements for forming a partnership. They
owned the two properties equally, agreed to share both profits and losses, and enjoyed equal
375A. Winding up
Yes, Dan can be held liable for the amount of the debt owed to Flying Cat. Even after a
partnership has been dissolved, a partner may still bind the firm by engaging in a transaction
that would have bound the partnership if it had not been dissolved, provided the other party to
the transaction had known of the partnership before dissolution and had no knowledge or notice
of the dissolution.
In this problem, the Coles operated their business as a partnership during their marriage.
The partnership was dissolved by the parties’ divorce, but Dan could be held liable under the
376A. BUSINESS CASE PROBLEM WITH SAMPLE ANSWERPartnerships
Yes, Sacco is entitled to 50 percent of the profits of Pierce Paxton Collections. The
requirements for establishing a partnership are (1) a sharing of profits and losses, (2) a joint
ownership of the business, and (3) an equal right to be involved in the management of the
business.
The effort and time that Sacco expended in the business constituted a sharing of losses,
and his proprietary interest in the assets of the partnership consisted of his share of the profits,
which he had expressly left in the business to “grow the company” and “build sweat equity” for
377A. Formation
Yes, Leisa was a partner in L&R. In the circumstances of this problem, she is entitled to half of
the value of the partnership’s assets. Under the UPA, a partnership is “an association of two or
more persons to carry on as co-owners a business for profit. When there is no formal, written
partnership agreement, an agreement to form a partnership can be implied by conduct. If an
agreement does not apportion profits and losses, the UPA provides that they will be shared
equally. On a partner’s dissociation, he or she is entitled to have his or her interest in the
partnership bought by the firm.
Here, Randell and Leroy formed a cattle-raising operation and opened a bank account in
the name of L&R Farm. When Leroy quit the operation, Leisa and Randell each wrote a
378A. Formation and operation
Yes, the notice published by the York County Tax Bureau, mailed to FS’s address of record, and
posted on the partnership’s land, declaring that it would be sold at a sale for unpaid taxes, was
sufficient. Property acquired by a partnership is the property of the partnership and not of the
partners individually. This includes property that was acquired by the partnership or in the
CHAPTER 37: ALL FORMS OF PARTNERSHIPS 9
partnership’s name after its formation. A partner is not a co-owner of partnership property and
has no right to sell, mortgage, or transfer it to another.
Here, FS Partners is a general partnership. The partners are Stahlman and Fitz & Smith,
Inc. Timothy Smith represents Fitz & Smith in FS matters. Stahlman handles the payment of
37-9A. A QUESTION OF ETHICSWrongful dissociation
(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
(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 periods of time, even when she requested that she be
10 UNIT EIGHT: BUSINESS ORGANIZATIONS
ANSWERS TO LEGAL REASONING GROUP ACTIVITY QUESTIONS
AT THE END OF THE CHAPTER
3710A. Liability of partners
(a) Partnership agreements can be oral, written, or implied by contract. The elements
of a partnership are (1) a sharing of profits and losses, (2) a joint ownership of the business, and
(3) an equal right to be involved in the management of the business. Several months before the
(b) The partnership and all of the partners jointly or severally are liable on the notes.
In other words, each partner can be held individually and personally liable on the notes, but
could obtain reimbursement for the liability from the partnership and the other partners. Of

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