7. Questions Flashcards
X and Y are separate companies. They both agreed to create a new partnership for the next two years without any filing of documents with the Secretary of State or a written agreement. Although they never formally agreed to own the partnership together, they continued to promote their business in the partnership’s names and earn profit equally as well as paying debts and rental liabilities. Has a partnership been formed?
NOT limited partnership
- NO certificate of limited partnership filed
NOT limited liability partnership
- NO statement of qualification filed
General partnership
- 2 entities (X + Y)
- Co-ownership (partners’ intent from objective standpoint, partners’ subjective intent NOT relevant)
- For profit (debts + rents NOT relevant)
- N written agreement required (only land sale transactions - SOF)
Partnership ABC consisted of 15 partners. ABC specialised in manufacturing automobiles. One day, Partner Z wanted to produce separate phone chargers in cars. 7 of the 15 partners voted in favour, including Z. Z argues he is entitled to more votes than the others because he is the head partner. Can Z start producing the phone chargers?
No
- General partnership
- 1 partner = 1 vote
- Ordinary course of business (car chargers, car manufacturing) => Majority vote required (+50% partners’ votes)
- 7/15 votes is less than 50% => NO partners’ consent
Partnership ABC consisted of 15 partners. ABC specialised in manufacturing automobiles. Partners X and Y believed they dissociated without giving any notice at all. One day, Partner Z wanted to produce mobile phones as well as cars. All the partners voted in favour, including Z. Can Z start producing the mobile phones?
No
- General partnership
- 1 partner = 1 vote
- Not ordinary course of business (phone manufacturing vs car manufacturing) => Unanimous vote required (ALL partners’ votes)
- At-will partnership (NO term) => Notice of dissociation required (X + Y did NOT give notice) => X + Y did NOT dissociate
- 13/15 votes is NOT unanimous (X + Y’s votes required) => NO partners’ consent
Partnership ABC consisted of 15 partners. ABC specialised in manufacturing automobiles. After their first financial year, ABC suffered a $300,000 loss. After their second financial year, ABC enjoyed a $75,000 profit. How much is each partner entitled to and liable for?
$5,000 profit
- Profit entitlement is equal
- $75,000 / 15 partners = $5,000
$20,000 loss
- Profit entitlement is equal
- Loss liability is same as profit entitlement (equal)
- $300,000 / 15 partners = $20,000
Partnership ABC consisted of 15 partners. ABC specialised in manufacturing automobiles. The partners agreed that they would be entitled to $3,000, but their loss liability will be limited to $10,000. After their first financial year, ABC suffered a $300,000 loss. After their second financial year, ABC enjoyed a $75,000 profit. How much is each partner entitled to and liable for?
$3,000 profit
- Profit entitlement is $3,000 (as agreed)
$10,000 loss
- Loss liability is $10,000 (as agreed)
X is a partner of ABC, a car manufacturer. X entered a deal with a retailer. X knew that the retailer had a low P/L the last financial year, but decided to enter the deal anyway. ABC discovered X’s deal and was not happy. ABC wanted to assert an existing judgment against X. Can ABC sue X?
Breach of fiduciary duty of care
- X acted negligently (failed to consider Retailer’s low P/L)
- X did NOT act in good faith
- X did NOT act as reasonably prudent person would in like position (would have walked away from deal)
- ABC had outstanding judgment vs X
X is a partner of ABC, a car manufacturer. X’s cousin from a retailer rang X to ask him about entering a deal. X entered the deal in return for $1m. ABC discovered X’s deal and was not happy. ABC wanted to assert an existing judgment against X. Can ABC sue X?
Breach of fiduciary duty of loyalty
- X entered deal with related person (Cousin) => Conflict of interest
- X had knowledge Cousin was at Retailer
- X had knowledge Cousin would influence his judgment
- ABC had outstanding judgment vs X
X is a partner of ABC, a car manufacturer. X also ran another car manufacturing company, Speed. X received an offer from a retailer about a lucrative deal that would benefit both companies. X knew the deal would help Speed, which was in financial decline at the time. Therefore, X entered the deal with Speed. ABC discovered X’s deal and was not happy. ABC had no existing judgment against X. Can ABC sue X?
NO breach of fiduciary duty of loyalty
- X failed to give ABC time to act upon deal, which was within its line of business => Usurp corporate opportunity
- X received benefit from ownership in Speed
- BUT ABC had NO outstanding judgment vs X
X is a partner of ABC, a car manufacturer. X entered a deal with a retailer without consent from the other partners. X simply followed their partnership agreement that allowed him to enter such deals. ABC’s factory went bust, causing losses for retailer. Can Retailer sue ABC?
Yes
- X had actual authority (express - agreement)
- ABC is liable to Retailer for X’s actions (as principal of agent - RUPA)
X is a partner of ABC, a car manufacturer. X entered a deal with a retailer with consent from three of the five partners. ABC’s factory went bust, causing losses for retailer. Can Retailer sue ABC?
Yes
- X had actual authority (express - majority vote in ordinary course of business)
- ABC is liable to Retailer for X’s actions (as principal of agent - RUPA)
X is a partner of ABC, a car manufacturer. X entered a deal with a record label to advertise cars with music videos, with consent from everyone in the partnership. ABC’s factory went bust, causing losses for retailer. Can Retailer sue ABC?
Yes
- X had actual authority (express - unanimous vote outside ordinary course of business)
- ABC is liable to Retailer for X’s actions (as principal of agent - RUPA)
X is a partner of ABC, a car manufacturer. X was approached by a retailer about a lucrative deal. X spoke with the partners and they told him to find whatever good deal there is. X then entered a deal with Retailer. ABC’s factory went bust, causing losses for retailer. Can Retailer sue ABC?
Yes
- X had actual authority (implied - X’s reasonable belief that he had power to enter lucrative deal + X’s communication with partners)
- ABC is liable to Retailer for X’s actions (as principal of agent - RUPA)
X is a partner of ABC, a car manufacturer. ABC held a marketing forum at a trade show promoting their cars and interest in entering deals with retailers. A few weeks after the show, X received an email from a record label about shooting music videos with ABC’s cars. X then entered the deal. ABC’s factory went bust, causing losses for retailer. Can Retailer sue ABC?
No (RUPA)
- X had NO apparent authority (X’s authority was held out in forum BUT deal was NOT in ordinary course of business)
- ABC is NOT liable to Retailer for X’s actions
X is a partner of ABC, a car manufacturer. X received an email from a retailer about a lucrative deal. X responded saying he is not in charge of making decisions like this. Although Retailer did not read his response, Retailer asked again whether X is interested or not. X then entered the deal. ABC’s factory went bust, causing losses for retailer. Can Retailer sue ABC?
No (RUPA)
- X had NO apparent authority (Retailer had notice of X’s lack of authority, despite not reading it)
- ABC is NOT liable to Retailer for X’s actions
X, Y and Z are partners of ABC, a car manufacturer. Each owns $100,000 in the partnership. X received an email from a record label about shooting music videos with ABC’s cars. X then entered the deal. Shortly after, new partners B and C joined each owning $100,000 as well. ABC’s factory went bust, causing $200,000 loss for retailer. ABC is now worth $100,000. Who can Retailer sue?
NOT ABC
- ABC’s assets NOT sufficient ($100,000 vs $200,000)
NOT B/C
- Newly joined partners after deal
- BUT they can be liable for ABC’s obligations during dissolution
X/Y/Z
- Jointly + severally liable before deal
- Liable in contract (beyond scope of X’s authority) or tort (NO actual/apparent authority)
- One of the partners can pay $200,000 to Retailer + claim $50,000 each from other two partners (indemnification)
- One of the partners can pay more than their ownership amount ($100,000) to Retailer + claim 50% of difference (between paid amount and $100,000) from other two partners (contribution)
