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1
CHAPTER 37
ALL FORMS OF PARTNERSHIPS
ANSWER TO CRITICAL THINKING QUESTION
IN THE FEATURE
ETHICS TODAY—CRITICAL 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
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 37.1—CRITICAL THINKING
WHAT IF THE FACTS WERE DIFFERENT?
Suppose that Salmon had disclosed Gerry’s proposal to Meinhard, who had said that he
award Meinhard “the value of half of the entire lease.”
CASE 37.2—LEGAL 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
2 UNIT EIGHT: BUSINESS ORGANIZATIONS
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 couples—six individual partners—executed partnership agreements in
connection with five limited liability partnerships. The partners also executed partnership buy-
CHAPTER 37: ALL FORMS OF PARTNERSHIPS 3
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
CASE 37.3—CRITICAL 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.
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.
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
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
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
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
37-2A. Dissolution of a limited partnership
(a) A limited partner’s interest is assignable. In fact, assignment allows the assignee
(b) Bankruptcy of the limited partnership itself causes dissolution, but bankruptcy of
one of the limited partners does not dissolve the partnership unless it causes the bankruptcy of
the firm.
(c) The retirement, death, or insanity of a general partner dissolves the partnership
ANSWERS TO BUSINESS CASE PROBLEMS
AT THE END OF THE CHAPTER
37–3A . Fiduciary duties of partners
CHAPTER 37: ALL FORMS OF PARTNERSHIPS 7
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
37–5A. 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
8 UNIT EIGHT: BUSINESS ORGANIZATIONS
37–6A. BUSINESS CASE PROBLEM WITH SAMPLE ANSWER—Partnerships
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,
37–7A. 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.
37–8A. 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
37-9A. A QUESTION OF ETHICS—Wrongful 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
37–10A. 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
