Dammann's Partnership MCQs

Question 1

On January 1, Maria and Reuben decide to open a law firm (“Maria & Reuben Law Partners”). They agree that the firm will open its doors to the public on January 15. On January 5, Reuben, acting in the name of “Maria & Reuben Law Partners,” calls Peter, a printer, and orders 5000 business cards. When, on January 6, Maria learns of this order, she promptly calls Peter and tells him that she does not approve of the purchase and “won’t be held responsible.” Peter insists that both Reuben and Maria are liable to him. Can Peter hold Maria and/or Reuben personally liable?

(A)Reuben and Maria are jointly and severally liable to Peter.

(B)Reuben is liable to Peter, but Maria is not.

(C)Maria is liable to Peter, but Reuben is not.

(D)Maria is not liable to Peter, and neither is Reuben.

Answer 1

(A) is the correct answer.

According to UPA §15, RUPA §306, all partners are jointly and severally liable for the debts of a partnership.

Has a partnership been formed? Under UPA §6(1), RUPA §202(a), the formation of a partnership requires (a) an association of two or more persons (b) to carry on a business (c) as co-owners (d) for profit. A law firm constitutes a business within the meaning of these provisions (cf. RUPA §101(1)), and it is reasonable to assume that Reuben and Maria intend to make a profit. Furthermore, Reuben and Maria are two persons forming an association. Moreover, the fact that the law firm had not opened its doors to the public is irrelevant. Rather, it is sufficient that the carrying on of a business is the purpose of the association. Hence, a partnership was created on January 1. Given that Reuben and Maria are partners in that partnership, they are both jointly and severally liable.

(B) is incorrect.

Maria is also liable (see the answer to choice A).

(C) is incorrect.

Reuben is also liable (see the answer to choice A).

(D) is incorrect.

Both Maria and Reuben are liable (see the answer to choice A).

Question 2

On January 1, Rosalind and Viola agree to launch a repertory theater company together. Under the written “theater company agreement,” which they both sign, each of them shall get 50% of the profits. On January 10, Rosalind negligently causes a traffic accident while delivering some promotional materials, a task that she undertakes several times a week. As a result of that accident, a pedestrian, Will, is injured and incurs medical costs in the amount of $100,000. On January 15, Rosalind and Viola sign an agreement with Cordelia, according to which Cordelia “joins the firm.” The agreement also provides that henceforth, Rosalind, Viola, and Cordelia shall each be entitled to one-third of the profits made by the theater company. In the following, the firm sells off its assets to be able to pay Will, but even after all assets are sold, only $60,000 out of the $100,000 have been paid. Are any of the three entrepreneurs (Rosalind, Viola, and Cordelia) personally liable to Will with respect to the remaining $40,000?

(A)Rosalind is liable to Will, but Viola and Cordelia are not.

(B)Rosalind and Viola are jointly and severally liable to Will, but Cordelia is not.

(C)Rosalind, Viola, and Cordelia are jointly and severally liable to Will.

(D)Neither Rosalind nor Viola nor Cordelia is liable to Will.

Answer 2

(B) is the correct answer.

According to UPA §15, RUPA §306, all partners are jointly and severally liable for the debts of the partnership. In the case at hand, the firm constitutes a partnership because Rosalind and Viola (and later Cordelia) formed an association of two or more persons to carry on a business as co-owners for profit (cf. UPA §6(1), RUPA §202(a)). Does the liability towards Will constitute a debt of the partnership? A partnership is liable for any wrongful act that a partner has committed either with authority or in the ordinary course of business of the partnership, UPA §13, RUPA §305(a). Given that the delivery of promotional materials was part of the company’s ordinary course of business, the partnership is liable for the tort (negligence) that Rosalind committed when she caused the accident. It follows that Rosalind and Viola, at least, are jointly and severally liable.

But what about Cordelia? When she signed the agreement with Rosalind and Viola, she also became one of the partners (cf. RUPA §401(i)). However, an incoming partner is not personally liable for “old debts,” i.e., liabilities incurred before the new partner joined the partnership, UPA §17, RUPA §306(b). In other words, the creditor can lay his hands on all the partnership assets, even those contributed by the new partner, but the creditor cannot touch the personal assets of the incoming partner. In other words, Cordelia is not liable to Will.

(A) is incorrect.

Viola is also liable (see the answer to choice B).

(C) is incorrect.

Cordelia is not liable to Will (see the answer to choice B).

(D) is incorrect.

Rosalind and Viola are jointly and severally liable (see the answer to choice B).

Question 3

On January 1, Alexei and his brothers Ivan and Dmitri start a comic book store together in a state that has adopted the Revised Uniform Partnership Act. The three brothers all sign an agreement under which Alexei and Ivan each get 30 percent of the profits, whereas Dmitri gets the remaining 40 percent. The agreement does not mention losses. The partnership agreement further provides that each of the three brothers shall contribute $15,000 in cash to the firm. On February 1, all three partners pay their promised contributions. In the first six months of the year, the firm incurs a net loss in the amount of $10,000. From June 1 to December 31, the partnership makes a net profit in the amount of $100,000. From January 1 to December 31, the partnership never pays any money to Alexei or Ivan. By contrast, the partnership pays Dmitri $5,000 on December 1, and another $2,000 on December 15. What do the partners’ accounts look like on December 31?

(A)Each of the three brothers’ accounts shows a plus of $72,000.

(B)The accounts of Alexei and Ivan show a plus of $42,000. Dmitri’s account shows a plus of $51,000.

(C)The accounts of Alexei and Ivan show a plus of $42,000. Dmitri’s account shows a plus of $44,000.

(D)None of the answers above is correct.

Answer 3

(C) is the correct answer.

According to RUPA §401(a), each partner is deemed to have an account. Let us start with Alexei’s account. On February 1, Alexei made a contribution in the amount of $15,000. Contributions are credited to the partner’s account, RUPA §401(a)(1). That same year, however, the partnership made a loss in the amount of $10,000. Because each partner has to bear a share of the losses equal to his share of the profits, RUPA §401(b), and because Alexei was to get 30 percent of the profits, Alexei has to bear $3,000 of the loss. Under RUPA §401(a)(2), each partner’s account is charged with his share of the partnership losses, so the amount of $3,000 is charged to his account. That leaves Alexei with 12,000 at the end of the first six months.

In the second half of the year, the partnership made a profit in the amount of $100,000, and under the distribution rule chosen by the partnership, Alexei gets $30,000 out of the $100,000. Accordingly, the $30,000 is credited to his account, RUPA §401(a)(1). If one sums up these various entries, Alexei’s account shows a positive balance of $42,000.

Ivan, of course, is in exactly the same position as Alexei, so Ivan’s account will show the same entries as Alexei’s account, leading to a positive balance of $42,000.

Dmitri’s account, by contrast, looks somewhat different. On February 1, Dmitri also made a contribution of $15,000, which is credited to his account. However, because under the partnership agreement, Dmitri was to get 40 percent rather than 30 percent of the profits made by the partnership (and therefore has to bear an equal proportion of the losses, RUPA §401(b), his account is charged with $4,000 rather than $3,000 during the first six months. Hence, at the end of the first six months, Dmitri’s account shows a positive balance of $15,000 – $ 4000 = $11,000.

In the second half of the year, Dmitri’s account is credited with $40,000, namely his share of the profits. However, in December Dmitri received two distributions totaling $7000, and under RUPA §401(b), distributions are charged to the partner’s account. Accordingly, on December 1, his account shows a positive balance of $11,000 + $40,000 – $7000 = $44,000.

(A) is incorrect.

See the answer to choice C.

(B) is incorrect.

See the answer to choice C.

(D) is incorrect.

See the answer to choice C.

Question 4

Fred, George, and Percy are partners in a partnership that owns and operates a store for fine foods. Under the partnership agreement, only Fred and George are to manage the business, whereas Percy has no right or duty to participate in the firm’s management; his sole role is to contribute money. On Sunday, January 13, Percy visits the store and notices that the roof of the shop is leaking. He tries to contact Fred and George but cannot reach either one. Therefore, Percy calls a repairman. The repairman comes right away and fixes the roof, but Percy has to pay him $150. Percy uses his own personal credit card because he does not have access to the partnership’s bank account. Can Percy demand to be reimbursed?

(A)Yes, but only to the extent that the partnership is unjustly enriched.

(B)Yes, and that is true regardless of whether the elements of an unjust enrichment claim are present.

(C)No, because Percy was not entitled to interfere with the management of the partnership.

(D)None of the answer choices above is correct.

Answer 4

(B) is the correct answer.

Under UPA §18(b), RUPA §401(c), a partnership will reimburse a partner for payments made for the preservation of partnership property. In the case at hand, the repairs were necessary for the preservation of the partnership property, and Percy can therefore demand to be reimbursed.

(A) is incorrect.

Percy’s claim against the partnership is based on partnership law, not on unjust enrichment (see the answer to choice B).

(C) is incorrect.

The fact that Percy had no role in the management of the partnership does not preclude him from asserting a claim under RUPA §401(c).

(D) is incorrect.

Answer choice B is correct (see the answer to choice B).

Question 5

Fred, George, and Percy are partners in a partnership that owns and operates a store for fine foods. On January 5, the brothers buy a car for the enterprise. One day, after the shop has closed, Percy takes the car for a ride to pick up his girlfriend Penelope. He mentioned this to George in advance, and George said he was o.k. with it. Neither George nor Percy notified Fred. Has Percy violated his duties as a partner?

(A)Yes, because Fred did not consent to the use of the car.

(B)Yes, and this would be true even if Fred, too, had consented to the use of the car.

(C)No, because two of the three partners consented to the use of the car.

(D)No, and this would be true even if George had not consented to the use of the car.

Answer 5

(A) is the correct answer.

Under UPA §25(2)(a), RUPA §401(g), a partner may possess partnership property only for partnership purposes. An exception applies where all other partners consent, but that was not the case here.

(B) is incorrect.

Had all three partners consented to the use of the car, then Percy would not have breached his duties as a partner (see the answer to choice A).

(C) is incorrect.

The consent of one of the other partners is insufficient (see the answer to choice A).

(D) is incorrect.

Answer choice A is correct (see the answer to choice A).

Question 6

Fred, George, and Percy are partners in a partnership that owns and operates a store for fine foods. Soon, the brothers find themselves arguing over whether to buy caviar for the store. Percy has ethical objections to this purchase. Fred and George are in favor of it. Do Fred and George violate their duties towards Percy if they buy some caviar on behalf of the partnership?

(A)Yes, because Percy did not consent to the purchase.

(B)No, because two out of three partners favored the purchase.

(C)No, in fact, even if two partners had opposed the purchase, the third partner could have purchased the caviar for the partnership without violating his duties.

(D)None of the answer choices above is correct.

Answer 6

(B) is the correct answer.

The general default rule is that each partner is allowed to undertake acts that are within the ordinary course of business of the partnership. However, under UPA §18(h), RUPA §401(j), differences arising regarding matters in the ordinary course of business of a partnership can be decided by a majority of the partners. In the case at hand, buying caviar is a matter in the ordinary course of business for a fine foods store. Accordingly, the matter could be decided by a simple majority of the partners. Hence, George and Fred did not violate their duties.

(A) is incorrect.

A decision regarding a matter in the ordinary course of the partnership’s business does not have to be unanimous (see the answer to choice B).

(C) is incorrect.

As a general rule, each partner is allowed to undertake acts that are within the ordinary course of business of the partnership. However, under UPA §18(h), RUPA §401(j), differences arising regarding matters in the ordinary course of business of a partnership can be decided by a majority of the partners; and once a matter has been decided, that decision has to be respected by all partners.

(D) is incorrect.

Answer choice B is correct (see the answer to choice B).

Question 7

Fred, George, and Percy are partners in a partnership that owns and operates a record store. As it turns out, Percy, who is a rather annoying fellow, scares off most of the customers. Therefore, George and Fred tell him: “Look, you can remain a co-owner of the enterprise, but leave the running of the business to us. You are way too embarrassing.” Does Percy have to comply?

(A)Yes, because questions pertaining to the running of the business can be decided by a simple majority of the partners.

(B)Yes, but only because George and Fred had a legitimate reason to exclude Percy from the running of the business.

(C)No, because every partner has a right to participate in the management of the firm.

(D)None of the answer choices above is correct.

Answer 7

(C) is the correct answer.

Under UPA §18(e), RUPA §401(f), the default rule is that all partners have “equal rights in the management and conduct of the partnership business.” While the partnership agreement can deviate from this principle, there are no indications that the agreement between Percy, George, and Fred opted out of the legal default. Moreover, in order to amend the partnership agreement, a unanimous consensus among the partners is needed. This is explicitly stated in RUPA §401(j), and the same is true under the Uniform Partnership Act (1914).

(A) is incorrect.

See the answer to choice C.

(B) is incorrect.

See the answer to choice C.

(D) is incorrect.

Answer choice C is correct (see the answer to choice C).

Question 8

Fred, George, and Percy are partners in a partnership that owns and operates a car parts store. Ginevra, their younger sister, wants to join the enterprise. She has an MBA from a top business school. Contrary to Percy’s wishes, Fred and George enter into a written agreement with Ginevra, according to which she becomes a co-owner of the enterprise. Does the partnership now include Ginevra as a partner?

(A)Yes, because the admission of new partners can be decided by a majority of the partners.

(B)Yes, but only because Percy could not, in good faith, refuse to admit Ginevra as a partner.

(C)No, because the admission of new partners requires the consent of all the existing partners.

(D)None of the answer choices above is correct.

Answer 8

(C) is the correct answer.

Under UPA §18(g), RUPA §401(i), the general default rule is that a person can only become a partner with the consent of all existing partners. Given that Percy refuses to agree to Ginevra’s admission to the partnership, she cannot become a partner.

(A) is incorrect.

The admission of new partners requires unanimity (see the answer to choice C).

(B) is incorrect.

The admission of new partners requires unanimity (see the answer to choice C).

(D) is incorrect.

Answer choice C is correct (see the answer to choice C).

Question 9

Homer, Ovid, and Lucan are partners in a partnership that owns and operates a bicycle store. The partnership is governed by the RUPA. On March1, Homer tells Lucan that he wants to see the firm’s books. Lucan refuses. He points out, truthfully, that the written agreement between the partners contains the following clause: “Lucan will be the firm’s bookkeeper. No one else shall have access to the firm’s books.” Does Homer have a right to see the books anyhow? Can Homer demand that the books also be shown to his attorney Horace?

(A)Homer has a right to see the books, and he can also demand that the books also be shown to his attorney, Horace.

(B)Homer has a right to see the books, but he cannot demand that the books also be shown to his attorney, Horace.

(C)Homer has no right to see the books, but he can demand that the books be shown to his attorney, Horace.

(D)Homer has no right to see the books, and he cannot demand that the books be shown to his attorney, Horace.

Answer 9

(A) is the correct answer.

Under RUPA §403(b), a partner has the right to inspect the partnership’s books. RUPA §403(b) also makes it clear that the partner’s “agents and attorneys” may inspect the book as well. Moreover, these rights cannot be “unreasonably restricted”, RUPA §103(b)(2). Accordingly, the provision in the partnership agreement that prohibits partners other than Lucan from inspecting the books is void.

(B) is incorrect.

A partner can demand that his attorney be given access to the partnership’s books (see the answer to choice A).

(C) is incorrect.

A partner has the right to inspect the partnership’s books (see the answer to choice A).

(D) is incorrect.

Both the partner and his attorney(s) must be given access to the partnership’s books (see the answer to choice A).

Question 10

Thelma and Louise run a store that only sells firecrackers. Effective January 1, the state legislature enacts a statute prohibiting the sale of firecrackers for safety reasons. However, only thirty days later, the legislature repeals that statute. Thelma and Louise want to know what the legal status of their firm is. Assuming that the firm is governed by the RUPA, has the partnership been dissolved, and is it still dissolved?

(A)The partnership was dissolved when the first statute became effective, but, due to the second statute, we treat the partnership as though it had never been dissolved.

(B)The partnership was dissolved by the first statute and remains dissolved despite the second statute.

(C)The partnership was dissolved by the first statute, but was newly formed when the second statute went into effect.

(D)The partnership was never dissolved in the first place, and this would be true even if the second statute had not been enacted.

Answer 10

(A) is the correct answer.

Note, first, that the firm is a partnership because Thelma and Louise have formed an association of two persons to carry on a for-profit business as co-owners, RUPA §202(a). A partnership is dissolved when its business becomes illegal, RUPA §801(4). Accordingly, the first statute caused the dissolution of the partnership. However, under RUPA §801(4), “a cure of illegality within 90 days after notice of the partnership of the event is effective retroactive to the date of the event for purposes of this section.” In other words, if the business becomes legal again within 90 days, then we treat the partnership as though it had never been dissolved. In the case at hand, only 30 days passed between the two laws, meaning that the firecracker store partnership is treated as though it had never been dissolved.

(B) is incorrect.

While the first statute made the partnership business illegal and thereby caused the dissolution of the partnership, the second statute was adopted within 90 days, so that the partnership is treated as though it had never been dissolved (see the answer to choice A).

(C) is incorrect.

The second statute was adopted within 90 days, so that the partnership is treated as though it had never been dissolved (see the answer to choice A).

(D) is incorrect.

Answer D overlooks the fact that the first statute made the partnership business illegal and thereby caused the dissolution of the partnership under RUPA §801(4).

Question 11

On January 1, Larry, Moe, and Bearle sign a written “partnership agreement” according to which they shall form, own, and operate a book store. The agreement provides that each of the three shall receive one-third of the profits. The agreement also contains the following provisions:

“This partnership shall last ten years. However, any partner can be expelled at any time if the other partners unanimously agree that he or she should be expelled.”

In the following months, Larry complains regularly about the state of the firm’s business. Moe and Bearle are more optimistic, and they grow tired of Larry’s constant complaints. Therefore, on December 31, when Larry, Moe, and Bearle meet, Moe and Bearle vote to expel Larry. Which, if any, of the following statements is correct?

(A)Larry has been dissociated from the partnership, but the other two partners violated their fiduciary duties when they expelled Larry.

(B)Larry has not been dissociated from the partnership, but only because the other two partners violated their fiduciary duties when they expelled Larry.

(C)Larry has not been dissociated from the partnership because partners cannot be expelled without good cause, and this rule is mandatory.

(D)Larry has been dissociated from the partnership, and the other partners did not violate their fiduciary duties.

Answer 11

(D) is the correct answer.

According to RUPA §601(3), a partner may be expelled from the partnership pursuant to a provision in the partnership agreement. The UPA contains no explicit rule of this type, but the same principle applies under the UPA since the partners are free to shape the internal structure of the partnership via agreement. Here, Moe and Bearle have made use of their right to expel Larry, and there is no indication that they violated their fiduciary duties in doing so.

(A) is incorrect.

See the answer to choice D.

(B) is incorrect.

See the answer to choice D.

(C) is incorrect.

See the answer to choice D.

Question 12

What sorts of entities can be partners in a partnership?

(A)A natural person, a corporation, a trust, and a partnership.

(B)A natural person, a corporation, a trust, but not a partnership.

(C)A natural person, a corporation, a partnership, but not a trust.

(D)A natural person, a trust, a partnership, but not a corporation.

Answer 12

(A) is the correct answer.

The formation of a partnership requires an association of two or more persons to carry on a for-profit business as co-owners, UPA §6(1), RUPA 202(a). However, the term “person” is defined generously in this context. According to RUPA §101(10), the term “person” includes, inter alia, an individual, a corporation, a trust, and a partnership. Under UPA §2, the term “person” covers individuals, corporations, partnerships, and “other associations.” Because a trust is another association within the meaning of this provision, it can be a partner under the UPA.

(B) is incorrect.

Under UPA §2, RUPA §101(10), a partnership is a person within the meaning of partnership law and can therefore be a partner in a partnership (see the answer to choice A).

(C) is incorrect.

Under UPA §2, RUPA §101(10), a trust is a person within the meaning of partnership law and can therefore be a partner in a partnership (see the answer to choice A).

(D) is incorrect.

Under UPA §2, RUPA §101(10), a corporation is a person within the meaning of partnership law and can therefore be a partner in a partnership (see the answer to choice A).

Question 13

On January 1, Brad, Tom, and Sandy agree that they will start a bakery together and that each of them will get one-third of the profits. They also agree, without putting it into writing, that the firm shall go on for “at least 10 months even if business is horrible.” On January 15, the bakery opens its doors to the public.

Soon afterward, the three have a bitter disagreement about whether to use solely organic flour or non-organic flour as well. During a heated discussion on January 20, Tom says: “This firm is finished, let’s shut the whole thing down.” Brad replies: “Oh yeah? Fine with me, this business is over.” Sandy simply says: “I agree.” On January 25, Sandy dies in a traffic accident. On January 30, Brad dies of a heart attack. Has the partnership been dissolved and, if so, when?

(A)The partnership was dissolved on January 20.

(B)The partnership was dissolved on January 25.

(C)The partnership was dissolved on January 30.

(D)The partnership has not been dissolved.

Answer 13

(A) is the correct answer.

Because the partners had agreed on a minimum duration for their partnership, the partnership was a partnership for a definite term within the meaning of UPA §31(1)(a), RUPA §801(2). (After ten months, the partnership would have transformed into an at-will-partnership within the meaning of UPA §31(1)(b), RUPA §§101(8), 801(1). However, even partnerships for a definite term can be dissolved before the expiration of that term. In particular, a partnership for a definite term can be dissolved by unanimous agreement of the partners, UPA §31(1)(c), RUPA §801(2)(ii). On January 20, all three of the partners consented to the dissolution of the partnership. Therefore, the partnership was dissolved that day.

(B) is incorrect.

The partnership had already been dissolved on January 20 (see the answer to choice A). Moreover, under the RUPA, the death of a partner does not dissolve the partnership if at least two other partners remain; rather, the partner’s death will only cause that partner’s dissociation from the partnership under RUPA §601(7)(i). The old UPA (1914) takes a different approach. Under the UPA, the death of any partner dissolves the partnership under UPA §31(4). However, in the case at hand, the partnership could not be dissolved under UPA §31(4) because it had already been dissolved earlier by unanimous resolution of the partners.

(C) is incorrect.

The partnership had already been dissolved on January 20 (see the answer to choice A). If the partnership had not been dissolved by unanimous consent on January 20, then the timing of the dissolution would have depended on whether the partnership is governed by the Revised Uniform Partnership Act (1997)—the RUPA—or the older Uniform Partnership Act (1914)—the UPA.

Under the RUPA, Sandy’s death on January 25 would have been insufficient to dissolve the partnership (see the answer to choice A). By contrast, Brad’s death would have dissolved the partnership, for even though the general rule is that dead partners are only dissociated under RUPA §601(7)(i), a partnership needs to consist of at least two persons, RUPA §202(a), and the partnership is therefore dissolved when only one partner remains.

Under the UPA, the death of any partner will dissolve the partnership under UPA §31(4). Accordingly, if the partnership had not already been dissolved on January 20, it would have been dissolved by Sandy’s death on January 25.

(D) is incorrect.

The partnership was dissolved on January 20 (see the answer to choice A).

Question 14

Four once-famous musicians, Mick, Keith, Charlie, and Ron, leave their retirement to undertake a four-month comeback tour that shall take them across all continents. They agree that they will stay together at least as long as it takes to complete the comeback tour, and they also agree that each of them shall get one-quarter of the profits from the tour. However, only two weeks into the tour, Keith surprisingly dies after falling off a palm tree. Mick wants to go on nonetheless, but Charlie and Ron declare that they want to wind up the business. One week later, Ron dies of a drug overdose. Has the partnership been dissolved and, if so, when? Assume that the state whose law governs this case has adopted the RUPA.

(A)The partnership was dissolved when Keith died.

(B)The partnership was dissolved when Charlie and Ron declared that they wanted to wind up the business.

(C)The partnership was dissolved when Ron died.

(D)The partnership has not been dissolved.

Answer 14

(B) is the correct answer.

The musicians formed a partnership was because they formed an association to carry on, as co-owners, a for-profit business, UPA §6, RUPA §202(a). Since the four musicians had agreed to stay together for at least as long as it would take to complete the tour, the partnership was for a definite term or undertaking within the meaning of UPA §31(1)(a), RUPA §801(2).

The question of when the partnership was dissolved depends on whether the case is governed by the 1997 RUPA or by the old 1914 UPA. Under the RUPA, the death of a partner does not dissolve the partnership if at least two other partners remain; rather, the partner’s death will only cause that partner’s dissociation from the partnership under RUPA §601(7)(i). Under the old UPA (1914), the death of any partner will dissolve the partnership under UPA §31(4). Given that the question stipulates that the case is governed by the RUPA, the partnership was not dissolved when Keith died.

However, Keith’s death is nonetheless important. According to RUPA §801(2)(i), a partnership for a definite term or particular undertaking is dissolved if, within 90 days after a partner’s dissociation by death, at least half of the remaining partners express their wish to wind up the partnership business. In the case at hand, only three partners remained after Keith’s death, and two of them wanted to wind up the partnership business. Accordingly, the partnership was dissolved when Charlie and Ron declared that they wanted to wind up the business.

Note that if Charlie and Ron had not declared their wish to wind up the partnership business, then the partnership would not have been dissolved at all, not even when Ron died. As previously noted, under the RUPA, the death of a partner does not dissolve the partnership if at least two other partners remain, and that was the case here because even after Keith and Ron died, Mick and Charlie remained.

(A) is incorrect.

Under the RUPA, the death of a partner does not dissolve the partnership if at least two partners remain. See the answer to choice B.

(C) is incorrect.

By the time that Ron died, the partnership had already been dissolved, and in any case, under the RUPA, the death of a partner does not dissolve the partnership if at least two partners remain. See the answer to choice B.

(D) is incorrect.

The partnership was dissolved when Charlie and Ron declared that they wanted to wind up the business. See the answer to choice B.

Question 15

Giles and Anya own and operate a magic shop together. The statement of partnership authority that they have filed makes it clear that under the partnership agreement neither Anya nor Giles is allowed to enter into contracts for more than $400. One day, Giles, claiming to act for the partnership, enters into a contract with Willow according to which the partnership will pay Willow $450 for two secondhand spellbooks. Assume that Willow did not know and was not notified of the restriction on Giles’ authority to act for the partnership. Furthermore, assume that the case is governed by the RUPA. Has the purchase created a partnership liability?

(A)Yes, because the partnership agreement cannot limit a partner’s authority to enter into transactions in the ordinary course of business.

(B)Yes, because the statement of partnership authority cannot be invoked to Willow’s detriment.

(C)No, because the partnership agreement limited the authority of the partners. This would be true even if no statement of partnership authority had been filed.

(D)No, but only because of the statement of partnership authority.

Answer 15

(B) is the correct answer.

As a general rule, each partner has the authority to enter into transactions in the normal course of the partnership business, and her actions bind the partnership vis-à-vis third parties, UPA §9(1), RUPA §301(1). Within the partnership agreement, the authority of some or all of the partners can be curtailed. However, even when the partnership limits the authority of the partners, the partner may still be able to bind the partnership vis-à-vis third parties, cf. UPA §9, RUPA §301. In other words, the fact that the partner was not allowed to act for the partnership does not necessarily mean that his actions don’t bind the partnership. To what extent third parties are protected in this situation depends on whether it is the RUPA or the UPA which applies.

Under the UPA, an act “for apparently carrying on in the usual way the business of the partnership” binds the partnership unless the third party “has knowledge of the fact” that the partner lacks authority, §9(1) UPA. Under the RUPA, an act “for apparently carrying on in the ordinary course the partnership business” binds the partnership unless the third party “knew or had received a notification that the partner lacked authority,” RUPA §301(1). In the case at hand, the purchase was a typical purchase for a bookstore, and Willow neither knew nor had received notification that Giles lacked authority to enter into the transaction. Therefore, the contract binds the partnership regardless of whether one applies the RUPA or the UPA.

But what about the statement of partnership authority? Whereas the UPA does not provide for such statements, the RUPA gives the partners the option of filing a statement of partnership authority, which may describe the limitations on the authority of the partners, RUPA §303(a)(2). As a general rule, though, a third party is not deemed to know of a limitation on authority simply because that limitation is mentioned in a statement of partnership authority, RUPA §303(f). The only exception to this rule concerns the transfer of real estate: under RUPA §303(e), “a person not a partner is deemed to know of a limitation on the authority of a partner to transfer real property held in the name of the partnership if a certified copy of the filed statement containing the limitation on authority is of record in the office for recording transfers of that real property.” In the case at hand, the transaction had nothing to do with real estate, so that the statement of partnership authority could not be invoked to Willow’s detriment.

(A) is incorrect.

The partnership agreement can—and often does—limit the authority of the partners. Whether such limitations prevent the acting partner from binding the partnership is another question and one that depends on the circumstances and the nature of the transaction, cf. UPA §9, RUPA §301.

(C) is incorrect.

Except in certain cases involving the transfer of real estate, a third party is not deemed to know of a limitation on authority simply because that limitation is contained in a statement of partnership authority (see the answer to choice B).

(D) is incorrect.

See the answer to choice B.

Question 16

Harry and Sally decide to start an enterprise selling hats. On January 1, they both sign a “business agreement.” According to that agreement, Harry is to contribute $50,000 and will receive 20% of the profits, but he will not bear any of the losses. Sally is to get 80% of the profits. In addition, Sally is to bear all the losses and do all the work. The written agreement also stipulates that Sally can decide, without Harry’s consent, to let the business obtain loans up to $200,000. The written agreement between Harry and Sally furthermore contains the following clause: “This is not a partnership, but a joint venture. Only Sally will be liable to third parties.”

Subsequently, Harry contributes the promised $50,000. Nonetheless, the firm soon runs out of cash. Harry makes it clear to Sally that he, Harry, does not want the firm to take on any loans. Furthermore, Harry contacts all local banks and lets them know that he has instructed Sally “not to take on any loans for the joint venture.” On April 1, however, Sally, acting in the name of the enterprise, requests and obtains a loan from a local bank in the amount of $10,000. The firm’s business is not going well, and by May 1, the firm no longer has any assets. Assume that the applicable state law is identical to the RUPA (1997). Can the bank hold Harry personally liable for all or at least part of the $10,000?

(A)Yes, Harry is personally liable to the bank for the full $10,000.

(B)Yes, Harry is personally liable to the bank, but only in the amount of $5,000.

(C)No, Harry is not personally liable because the firm was not a partnership.

(D)No, Harry is not personally liable because the bank knew that Harry was opposed to the loan.

Answer 16

(A) is the correct answer.

Note, first, that the firm is a partnership because Harry and Sally have formed an association of two persons to carry on a for-profit business as co-owners, UPA §6(1), RUPA §202(a). If these conditions are met, the partnership is formed regardless of whether the partners wanted to form a partnership. This is expressly noted in RUPA §202(a), but is true under the UPA as well. In particular, the fact that the parties called their firm a “joint venture” does not prevent the formation of a partnership. Also note that Harry is a partner rather than, say, a mere lender. Harry and Sally were to share the profits, so the presumption in favor of a partnership under RUPA §202(c)(3) applies. The mere fact that Sally alone was to bear any loss is insufficient to rebut that presumption. Hence, all of the conditions for the formation of a partnership are satisfied.

Sally created a partnership liability when she took on the loan. The allocation of authority in a partnership is determined, first and foremost, by the partnership agreement, RUPA §103(a). If the partnership agreement is silent, then each partner has the authority to enter into transactions in the normal course of the partnership business. When, in the ordinary course of business, a difference arises between the partners regarding some matter, that matter can be decided by a simple majority, UPA §18(h), RUPA §401(j). How that rule applies when there are only two partners is controversial; courts disagree regarding whether a partner has authority to undertake a transaction if the only other party has indicated that he opposes the relevant transaction. In the case at hand, however, this controversy is without relevance. That is because the partnership agreement explicitly gives Sally the authority to obtain loans of up to $200,000 for the partnership, and Harry cannot unilaterally eliminate this authority. Rather, the partnership agreement can only be changed with the consent of all the partners. It follows that Sally had the authority necessary to obtain the loan, and her actions therefore bound the partnership under UPA §9(1), RUPA §301(1).

As a general rule, the partners are jointly and severally liable for all of the partnership’s debts, RUPA §306(a). The UPA imposes joint liability for contractual obligations of the partnership, UPA §15(b). Either way, each partner is liable for the full amount, though the bank cannot obtain the full amount more than once. Moreover, the provision in the partnership agreement, according to which only Sally shall be personally liable, has no effect vis-à-vis the bank. While RUPA §306(a) allows the partners to limit their personal liability via an agreement with the creditor, mere agreements between the partners cannot limit the partners’ liability vis-à-vis third parties. In sum, Harry is personally liable for the full amount.

(B) is incorrect.

Partners are jointly and severally liable, RUPA §306(a), meaning that Harry is liable for the full amount (see the answer to choice A).

(C) is incorrect.

The firm is a partnership because Harry and Sally have formed an association of two persons to carry on as co-owners a for-profit business, UPA §6(1), RUPA §202(a) (see the answer to choice A). Whether they intended to form a partnership does not matter.

(D) is incorrect.

Given that the partnership agreement explicitly granted Sally the necessary authority, the fact that Harry opposed the loan was irrelevant (see the answer to choice A).

Question 17

On January 1, Bruce, Arnold, Denzel, Jackie, and Sylvester start a restaurant together. They have agreed to keep the firm running until December 31. However, on January 11, Bruce dies in a high-speed car chase. At a meeting on January 12, Denzel and Jackie want to keep going, but Arnold and Sylvester express their wish to wind up the firm’s business. On January 20, Jackie buys twenty new restaurant tables from Tom. Tom has been familiar with the restaurant since it was formed. Moreover, at the moment of the purchase, Tom does not know that Bruce has died, or that Arnold and Sylvester have expressed their wish to wind up the firm’s business. As no news of the events at the restaurant was mentioned in any newspaper, Tom could not have been expected to know more than he does about the matter. Does the contract with Tom still bind the partnership? Assume that the RUPA is the applicable law.

(A)The contract with Tom does not bind the partnership because the partnership has been dissolved and therefore no longer exists.

(B)The contract with Tom does not bind the partnership. Even though the partnership did exist at the moment of the transaction, Jackie did not have the authority to bind the partnership.

(C)The contract with Tom binds the partnership but only because Tom did not know, and did not have reason to know, of the partnership’s dissolution.

(D)The contract with Tom binds the partnership, and the partnership has not been dissolved.

Answer 17

(C) is the correct answer.

Note, first, that the firm is a partnership because Bruce, Arnold, Denzel, Jackie, and Sylvester have formed an association of five persons to carry on a for-profit business as co-owners, UPA §6(1), RUPA §202(a).

This partnership was dissolved regardless of whether one applies the RUPA or the UPA. The timing of the dissolution does, however, depend on whether it is the UPA or the RUPA that is applicable. The death of any partner will dissolve the partnership under UPA §31(4). Under the RUPA however, the death of a partner does not dissolve the partnership if at least two other partners remain; rather, the partner’s death will only cause that partner’s dissociation from the partnership under RUPA §601(7)(i). In other words, Bruce’s death would have dissolved the partnership if it were governed by the UPA, but since the RUPA applies, Bruce’s death does not dissolve the partnership. However, under RUPA §801(2)(i), a partnership for a definite term or particular undertaking is dissolved if, within 90 days after a partner’s dissociation by death, at least half of the remaining partners express their wish to wind up the partnership business. In the case at hand, four partners remained after Bruce’s death, and two of them wanted to wind up the partnership business. Accordingly, under the RUPA, the partnership was dissolved when Arnold and Sylvester expressed their wish to wind up the partnership business.

The dissolution does not terminate the partnership. Rather, the partnership continues for the purpose of winding up the firm’s business, UPA §30, RUPA §802(a). However, dissolution impacts the ability of the partners to bind the partnership. The rules of the UPA and the RUPA vary somewhat on the details of this impact, but the result is the same.

Under RUPA §804(1), a partner can bind the partnership after it has been dissolved to the extent that (a) “the transaction is appropriate for winding up the partnership business.” While some purchases, especially minor ones, may be completely appropriate for winding up a business, Jackie’s purchase of 20 new tables does not fall into this category. However, under RUPA §804(2), a partner can also bind the partnership after it has been dissolved if the third party did not have notice of the dissolution and if, before the dissolution, the contract would have been binding on the partnership under RUPA §301. According to RUPA §102(b), a person has notice of a fact if he knows the fact, has received notification of the fact, or has reason to know the fact. In the case at hand, Tom did not even have reason to know the fact and therefore did not have notice. The only question therefore, is whether the transaction would have bound the partnership under RUPA §301 RUPA before the dissolution. Before the dissolution, each partner had the authority to enter into contracts in the ordinary course of business and such contracts were binding on the partnership under RUPA §301(1). For a restaurant, buying tables qualifies as a transaction in the ordinary course of business. It follows, then, that Jackie’s transaction would have bound the partnership before the dissolution and is therefore binding on the partnership under RUPA §804(2).

If the case were governed by the UPA, the applicable rules would be slightly different. Under UPA §35(1)(a), a partner can bind the partnership by “any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution.” As previously noted though, the purchase of the tables cannot be characterized as a transaction for winding up the partnership business, and it did not serve the completion of unfinished transactions either. Under UPA §35(1)(b), the partner can also bind the partnership by any transaction that would have bound the partnership prior to the dissolution. As under the RUPA, the UPA requires that the third party did not have notice of the and also imposes some additional requirements: either a) the third party must have “extended credit to the partnership prior to [its] dissolution,” or b) the third party must both have “known of the partnership before [its] dissolution” and the dissolution must not have been “advertised in a newspaper of general circulation” in the place where “the partnership business was regularly carried on.” In the case at hand, these requirements were met: Tom has known the partnership since its formation, no newspaper mentioned the series of events that took place within the partnership, and Tom had no reason to know of the dissolution. Matters get a little more complicated though because the UPA imposes some additional limitations on the protection of third parties. First, the partnership is not bound by contracts concluded after the dissolution, if the partnership was dissolved because its business became illegal. Of course, that is not the case here. Rather, under the UPA, the partnership was dissolved because Bruce died. Second, subject to certain exceptions, the third party is not protected if the partner who concluded the contract became bankrupt, UPA §35(3)(b). In the case at hand, that’s not a problem either since nothing in the facts suggests that Jackie has become bankrupt. Third, as a general rule, the contract fails to bind the partnership if the partner who concluded the contract did not have authority to wind up the partnership business. To determine whether Jackie had authority to wind up the partnership business, we have to look to UPA §37. Under that provision, the default rule is that every partner who has not wrongfully dissolved the partnership and is not bankrupt has the right to wind up the partnership’s business. Accordingly, Jackie had the authority to wind up the firm’s affairs. In sum, even under the UPA, Jackie managed to bind the partnership.

(A) is incorrect.

Dissolution does not terminate the partnership, UPA §30, RUPA §802(a), and Jackie managed to bind the partnership (see the answer to choice C).

(B) is incorrect.

Admittedly, the dissolution of the partnership terminates the partners’ authority for all acts that are not part of winding up the partnership, cf. UPA §33, RUPA §803. Moreover, Jackie’s purchase could not be qualified as appropriate for winding up the partnership business. However, Jackie nonetheless managed to bind the partnership under the rules designed to protect third parties in case of dissolution (see the answer to choice C).

(D) is incorrect.

The partnership was dissolved. If the partnership was governed by the UPA then, under UPA §31(4), the dissolution occurred when Bruce died. If the partnership was governed by the RUPA, then, under RUPA §801(2)(1), the dissolution occurred when half of the remaining partners declared their intent to wind up the partnership business.

Question 18

Dolly, Emmylou, Loretta, and Patsy own and operate a restaurant together. Each of them has contributed $10,000 to the restaurant. They have made an agreement regarding neither the duration of their enterprise nor the matter of how the restaurant’s profits will be distributed. However, they have agreed that the partnership shall not be dissolved by the dissociation of a partner as long as two or more partners remain. The restaurant has only once made a distribution to the partners, at which time each partner received $10,000.

On January 1, Dolly tells her fellow entrepreneurs that she has decided to take up a career as a country singer and that she has no more interest in running a restaurant. “In short,” she says, “I am out, effective immediately.” The next day, Dolly consults her lawyer to find out how much (if any) money she can expect in exchange for her partnership interest. Including all assets and liabilities, the restaurant has a going concern value of 1,000,000. Its liquidation value is $400,000. Assume that the state in which the restaurant is located has adopted the RUPA. Which of the following statements is most correct?

(A)Dolly cannot expect to be paid anything because the agreement does not mention any right to payment on dissociation.

(B)Dolly can only expect to be paid the value of her original contribution in the amount of $10,000.

(C)Dolly can expect to be paid $100,000.

(D)Dolly can expect to be paid $250,000.

Answer 18

(D) is the correct answer.

Note, first, that the firm is a partnership because Dolly, Emmylou, Loretta, and Patsy have formed an association of two persons to carry on as co-owners a business for profit, RUPA §202(a). Under RUPA §601(1), a partner can dissociate at any time by declaring her will to withdraw. In the case at hand, Dolly has made it clear that she no longer wants to be part of the partnership and has thereby dissociated herself from the partnership.

This dissociation has not dissolved the partnership. Admittedly, because the partners have not specified a particular term or undertaking, the partnership is a partnership at will, and a partnership at will is normally dissolved when any partner notifies the partnership of his will to withdraw as a partner, RUPA §801(1). However, under RUPA §103, that rule is only a default rule. Accordingly, the partnership agreement could (and in this case did) provide that the dissociation did not dissolve the partnership. (Note, however, that the dissociation of a partner always dissolves the partnership when less than two partners remain after the dissociation because, under RUPA §202(a), a partnership always requires at least two partners.)

Once a partner has dissociated without causing the partnership’s dissolution, the partnership has to purchase the dissociated partner’s partnership interest. Under RUPA §701(b), the buyout price is “the amount that would have been distributable to the dissociating partner under RUPA 807(b) if, on the date of the dissociation, the assets of the partnership were sold at a price equal to the greater of the liquidation value or the value based on the entire business as a going concern without the dissociated partner and the partnership were wound up as of that date.” RUPA §807(b) is tailored to a case in which the partnership has been dissolved and provides that, upon winding up the partnership business, the accounts must be settled, and each partner is entitled to distribution in an amount equal to any excess of the charges over the credits in the partner’s account.

What does Dolly’s account look like? The $10,000 that she has contributed are credited to Dolly’s account, RUPA §401(a)(1). However, the $10,000 that were later distributed to Dolly have to be charged to her account, RUPA §401(a)(2), meaning that the net balance of distributions and contributions is zero.

Also credited to the partner’s account are profits, whereas losses are charged, RUPA §401(a). This includes profits and losses from the liquidation of the business in the winding-up phase. As a legal default, each partner is entitled to an equal share of the profits and losses, RUPA §401(b). While the facts do not describe the losses and profits in detail, it does mention that, overall, the restaurant is worth $1,000,000 (going concern value) or $400,000 (liquidation value). Hence, after summing up the profits and losses, Dolly’s share in case of a sale of the restaurant would be $250,000 (going concern value) or $100,000 (liquidation value). Hence, if the partnership were dissolved and the restaurant sold, Dolly could expect a distribution in the amount of either $250,000 (going concern value) or $100,000 (liquidation value). Since RUPA §701(b) declares the higher of these two prices to be decisive in calculating the buyout price, Dolly can expect a buyout price in the amount of $250,000.

(A) is incorrect.

Even without any stipulation in the partnership agreement, the partner has the right to receive the appropriate buyout price for this partnership interest, RUPA §701(a).

(B) is incorrect.

Under UPA §701(a), RUPA §807(b), the buyout price paid to the dissociated partner takes into account not only the contributions that the partner has made but also the distributions that she has received as well as her share of the losses and profits.

(C) is incorrect.

Dolly could expect a payment of $100,000 if the buyout price were based on the liquidation value, but under RUPA §701(a), the buyout price is based on the higher of the liquidation value and the going concern value.

Question 19

Hank, Conway, Buck, and Johnny own and operate a restaurant together. On January 1, Hank persuades his fellow entrepreneurs that the firm should obtain a loan of $100,000. The next day, Hank signs a loan agreement on behalf of the firm with Bank Corp., a local bank. According to the loan agreement, the firm gets a loan in the amount of $100,000, which it promises to pay back on July 1. On January 3, Buck tells Hank, Conway, and Johnny that he no longer enjoys running a restaurant and that he wants out, effective immediately. The others give him their blessing, and the firm purchases “Buck’s stake in the firm” for $100,000. Two days later, Buck takes a plane to Mexico where he plans to open a radio station.

In May, it becomes clear that the restaurant cannot repay the loan on time. Therefore, Hank calls Bank Corp. and points out that because Buck has left the firm and received cash in exchange for his stake in the firm, the restaurant is a little low on cash. After some back and forth, Hank and Bank Corp. agree that instead of paying back the $100,000 on July 1, the restaurant will pay back $110,000 on December 1. However, business gets worse over time, and by December 1, the restaurant has no assets left and cannot pay Bank Corp. Can Bank Corp. hold Buck liable with respect to some or all of the $110,000? Assume that the state where the restaurant is located has adopted the RUPA.

(A)Buck is liable to Bank Corp. in the amount of $110,000.

(B)Buck is liable to Bank Corp., but only in the amount of $100,000.

(C)Buck is liable to Bank Corp., but only in the amount of $52,500.

(D)Bank Corp. cannot hold Buck personally liable.

Answer 19

(D) is the correct answer.

Note, first, that the firm is a partnership because Hank, Conway, Buck, and Johnny have formed an association of two or more persons to carry on a for-profit business as co-owners, RUPA §202(a). Moreover, the loan constitutes a partnership liability. Hank acted with authority when he obtained the loan for the firm, and his actions bind the partnership, RUPA §301. All partners are jointly and severally liable for debts of the partnership, RUPA §306(1).

Furthermore, the fact that Buck dissociated from the partnership did not eliminate his liability as a partner, RUPA §703(a). However, under RUPA §703(d), a “partner is released from liability for a partnership obligation if a partnership creditor, with notice of the partner’s dissociation but without the partner’s consent, agrees to a material alteration in the nature or time of payment of a partnership obligation.” In the case at hand, Bank Corp. knew that Buck had left the partnership, and, without Buck’s consent, agreed to change the time of payment by one year. Therefore, Buck was released from his liability for the loan under RUPA §703(d). Hence the bank cannot hold Buck liable at all. For many students, this provision is somewhat counterintuitive. They assume that the dissociated partner cannot be held liable for the alteration of the debt—in this case the additional $10,000—but still want to hold him liable for the original amount. However, the release under RUPA §703(d) covers the original debt as well. This makes sense if you consider that if the debt had not been modified, it would have come due earlier and might already have been paid.

(A) is incorrect.

Buck has been fully released from his liability under RUPA §703(d) (see the answer to choice D).

(B) is incorrect.

Buck has been fully released from his liability under RUPA §703(d) (see the answer to choice D).

(C) is incorrect.

Buck has been fully released from his liability under RUPA §703(d) (see the answer to choice D).

Question 20

Charlotte, Emily, Anne, and Branwell own and operate a vegetarian restaurant together. On January 1, Charlotte dissociates from the partnership. On January 4, the partnership files a statement of dissociation, which contains information about Charlotte’s dissociation. Elizabeth has long supplied tofu to the partnership’s restaurant and, based on her previous dealings with the partnership, believes that Charlotte is still a partner. Elizabeth does not know and has no reason to know that Charlotte has left the partnership. On January 6, Charlotte calls Elizabeth and, acting in the name of the partnership, buys 60 pounds of premium pressed tofu for a total price of $400. Charlotte takes the tofu with her and promises that Elizabeth will be paid the same week. Then Charlotte boards a ship to South America and is never seen again. It furthermore turns out that the partnership does not have any assets. Elizabeth now wants to hold Emily liable because she is the only one of the partners who has any assets. Assume that the state whose law is applicable has adopted the RUPA. Which of the following statements is most correct?

(A)Emily is liable for the full $400, but only because Elizabeth did not know or have notice that Charlotte had left the partnership.

(B)Emily is liable for the full $400, and the same would be true if Elizabeth had known about Charlotte’s dissociation when the contract was formed.

(C)Emily is not liable with respect to the $400, but only because of the statement of dissociation.

(D)Emily is not liable with respect to the $400, and this would have been true even if no statement of dissociation had been filed.

Answer 20

(A) is the correct answer.

Note, first, that the firm is a partnership because Charlotte, Emily, Anne, and Branwell have formed an association of two or more persons to carry on as co-owners a business for profit, RUPA §202(a). The big question is whether Charlotte created a partnership liability when she purchased the tofu from Elizabeth. For dissociated partners, the power to bind the partnership is governed by RUPA §702. Under that provision, a dissociated partner retains the power to bind the partnership for two years after leaving the partnership, if certain conditions are met.

To begin, the dissociated partner can only bind the partnership if the relevant act would have bound the partnership prior to the dissociation. For a vegetarian restaurant, buying tofu is a standard transaction, and every partner has the authority to enter into contracts in the ordinary course of business. Therefore, if Charlotte had purchased the tofu before her dissociation, she would have been acting with authority, and the transaction would have bound the partnership, RUPA §301.

Furthermore, for the dissociated partner to bind the partnership under RUPA §702, the other party to the transaction must have reasonably believed that the dissociated partner was still a partner and must not have had notice of the dissociation. In the case at hand, Elizabeth reasonably thought that Charlotte was still a partner and had no reason to know of the dissociation. Note, in this context, that the mere fact that a statement of dissociation has been filed does not mean that third parties have notice of the dissociation.

Finally, the dissociated partner can only bind the partnership if the third party was not deemed to know of the dissociation under RUPA §704(c). Under that provision, third parties are “deemed to have notice of the dissociation 90 days after the statement dissociation is filed.” In the case at hand, a statement of dissociation was filed, but at the time that the contract was concluded, 90 days had not yet passed. It follows, therefore, that Charlotte managed to bind the partnership and thereby create a partnership liability. Under RUPA §306(1), all partners are jointly and severally liable for the relevant debt.

(B) is incorrect.

If Elizabeth had known about the dissociation, then Charlotte would not have been able to bind the partnership, RUPA §702(d).

(C) is incorrect.

Emily is liable (see the answer to choice A). The statement of dissociation did not prevent the creation of this liability because the contract was formed less than 90 days after the statement was filed, cf. RUPA §704(c).

(D) is incorrect.

Emily is liable (see the answer to choice A).

Question 21

Will, Jill, Hester, Chester, Peter, Polly, Tim, Tom, Mary, Larry, and Clarinda own and operate a restaurant together. On January 1, Will, Jill, Hester, Chester, Peter, Polly, Tim, Tom, Mary, and Larry discover that Clarinda has repeatedly stolen small sums of money from the restaurant, totaling about $1500 over two years. They therefore resolve, against Clarinda’s will, to expel her from the partnership with immediate effect. The partnership agreement is silent on the question of whether partners can be expelled. On January 2, Larry is involved in a car accident and suffers serious brain injuries. On January 10, a court appoints Will as Larry’s legal guardian. On January 12, Tom gets married. On January 14, Tim dies in a car accident. On January 16, Polly files for bankruptcy. On January 18, the remaining partners discover that Peter has secretly passed on the restaurant’s secret recipes to a competing restaurant in exchange for $10,000. Assume that the state in which the restaurant is located has adopted the RUPA. Which of the following statements is most correct?

(A)The partnership was dissolved before January 20, but not before January 10.

(B)The partnership was dissolved before January 10.

(C)On January 20, the partnership still has not been dissolved, and the remaining partners include Will, Jill, Hester, Chester, Peter, Tom, Mary, and Clarinda, but no one else.

(D)On January 20, the partnership still has not been dissolved, and the remaining partners include Will, Jill, Hester, Chester, Peter, Tom, and Mary, but no one else.

Answer 21

(C) is the correct answer.

Note, first, that the firm is a partnership because Will, Jill, Hester, Chester, Peter, Polly, Tim, Tom, Mary, Larry, and Clarinda have formed an association of two or more persons to carry on as co-owners a business for profit, RUPA §202(a). The decisive question is whether the events that occurred between January 1 and January 20 led to the dissolution of the partnership and/or to the dissociation of one or more partners.

The RUPA lists all dissolving events in RUPA §801. However, none of the events listed there have occurred in the case at hand. Admittedly, under RUPA §801(5), the partnership can be dissolved if “another partner has engaged in conduct relating to the partnership business, which makes it not reasonably practicable to carry on the business in partnership with that partner.” In the case at hand, both Clarinda, who stole from the partnership, and Peter, who sold the partnership’s secrets to a competitor, can be argued to have engaged in conduct that satisfies this condition. However, under RUPA §801(5), the partnership’s dissolution does not occur automatically. Rather, it takes a judicial determination in order to dissolve the partnership. Since there was no such judicial determination, the partnership was not dissolved.

The remaining question concerns whether any of the partners were dissociated from the partnership. Dissociating events are listed in RUPA §601. Needless to say, marrying is not a ground for dissociation, so Tom is still a partner.

Events that automatically cause the partnership’s dissolution, without any need for a formal judicial determination, include the death of a partner (RUPA §601(7)(i)), the appointment of a guardian (RUPA §601(7)(ii)), and the partner’s becoming a debtor in bankruptcy (RUPA §607(6)(i)). Hence, Larry, Tim, and Polly were dissociated from the partnership. Furthermore, a partner is automatically dissociated from the partnership in case of “the partner’s expulsion pursuant to the partnership agreement,” RUPA §601(3). The other partners tried to expel Clarinda, but this attempt at expelling her did not have any basis in the partnership agreement and therefore did not lead to her dissociation.

Under RUPA §605(i), a partner can be expelled because he has engaged in “wrongful conduct that [has] adversely and materially affected the partnership business,” and under RUPA §605(ii) the same is true if the partner has “willfully and persistently” breached his duty of loyalty to the other partners in a material way. In the case at hand, both Clarinda’s repeated theft and Peter’s sale of the partnership’s secret can be argued to satisfy these requirements. However, RUPA §601(b) requires a judicial determination on application by a partner, and, in the case at hand, no such judicial determination has taken place. Hence, despite their misdeeds, Clarinda and Peter are still part of the partnership.

In sum, the only partners who were dissociated are Larry, Tim, and Polly. That leaves Will, Jill, Hester, Chester, Peter, Tom, Mary, and Clarinda.

(A) is incorrect.

The partnership was never dissolved because none of the dissolving events listed in RUPA §801 are present (see the answer to choice C).

(B) is incorrect.

The partnership was never dissolved because none of the dissolving events listed in RUPA §801 are present (see the answer to choice C).

(D) is incorrect.

Clarinda was not dissociated from the partnership because the attempt of the other partners to expel her lacked a basis in the partnership agreement (see the answer to choice C).

Question 22

Chandler and Joey own and operate a bicycle store together. According to their written “business agreement,” each of them is entitled to 50% of the profits. The agreement does not mention losses. On January 1, Chandler causes a traffic accident while driving to a supplier to pick up some new bikes. In causing the accident, Chandler acted with simple negligence. As a result of the accident, Ross, a pedestrian, is injured and subsequently incurs medical costs in the amount of $1000. Because the partnership does not currently have any money in its account, Chandler pays the $1000 dollar by check from his personal account. Can he demand to be reimbursed by the firm?

(A)Chandler has no right to be reimbursed because the agreement between Joey and Chandler does not mention any claim to reimbursement.

(B)Chandler has no right to be reimbursed because the accident was due to his own negligence.

(C)Chandler has no right to be reimbursed because the partnership was never liable to Ross in the first place.

(D)Yes, Chandler has the right to be reimbursed by the firm.

Answer 22

(D) is the correct answer.

According to UPA §18(b), RUPA §401(c), the partnership has to reimburse partners for payments made in the ordinary course of the partnership business. Note that paying partnership liabilities is part of the ordinary course of business, such that Chandler has a right to be reimbursed if he discharged a partnership liability by paying Ross. A partnership is liable for any wrongful act that a partner has committed either with authority or in the ordinary course of business of the partnership, UPA §13, RUPA §305. Here, Chandler caused the accident when he was driving to a supplier to pick up bikes, and so he committed the tort (negligence) in the ordinary course of business. Accordingly, Ross’s tort claim was a partnership liability, so that paying that liability created a right to reimbursement.

But what about the fact that Chandler acted negligently? Under RUPA §404(a), the partners owe the partnership and each other a duty of care. The older UPA does not explicitly mention such a duty, but there is nonetheless wide agreement that partners owe the partnership a duty of care. Could one argue that Chandler violated that duty and therefore owed the partnership damages—a claim that the partnership could offset against Chandler’s claim for reimbursement? The answer is no. While the partners owe the partnership a duty of care, that duty “is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law,” RUPA §404(c). The same is true under the UPA. Because Chandler only acted with simple negligence, he did not breach his duty of care. Hence, he can demand to be reimbursed by the partnership.

(A) is incorrect.

Chandler’s right to be reimbursed follows from UPA §18(b), RUPA §401(c). Hence, it does not matter that the partnership agreement does not grant him a right to reimbursement.

(B) is incorrect.

Chandler’s negligence does not bar him from demanding reimbursement (see the answer to choice D).

(C) is incorrect.

The partnership is liable to Ross (see the answer to choice D).

Question 23

On January 1, Lisa, Mary, and Nora all sign a written agreement, according to which they will open a bookstore together. According to the agreement, each of them shall receive one-third of the profits. The agreement also provides that each of them shall make a contribution in the amount of $150.

On January 2, Lisa, Mary, and Nora each pay the promised $150.

On January 15, the bookstore opens its doors to the public.

On January 17, Lisa is putting books onto shelves in the bookstore. Acting with simple negligence, she bumps into an elderly customer, Mark. This causes Mark to fall and hurt his leg. As a result, the customer, Mark, has to receive medical treatment for $100.

On January 18, Lisa, Mary, and Nora enter into a written agreement with Alma, according to which Alma joins the firm in exchange for making a contribution in the amount of $150. Alma pays the $150 the same day. The agreement with Alma also provides that, henceforth, each of the four (Lisa, Mary, Nora, and Alma) shall receive one-quarter of the profits.

On January 20, Mark goes to the store and demands $100 to cover the medical expenses he has incurred as a result of hurting his leg. Regarding the $100 demanded by Mark, which, if any, of the following statements is true?

(A)Lisa, Mary, Nora, and Alma are jointly and severally liable. The partnership itself is not liable because it is not a legal entity distinct from the partners.

(B)The partnership is liable to Mark. Furthermore, Lisa, Mary, Nora, and Alma are jointly and severally liable for the partnership’s obligation to Mark.

(C)Lisa, Mary, and Nora are jointly and severally liable. The partnership itself is not liable because it is not a legal entity distinct from the partners. Alma is not personally liable to Mark.

(D)The partnership is liable to Mark. Furthermore, Lisa, Mary, and Nora are jointly and severally liable for the partnership’s obligation to Mark. Alma is not personally liable to Mark.

Answer 23

(D) is the correct answer.

Let us start with the question of whether the partnership is liable. Note, first, that Lisa, Mary, and Nora formed a partnership when they started the bookstore because they formed an association of two or more persons to carry on as co-owners a business for profit, UPA §6, RUPA §202(a). Under UPA §13, RUPA §305(a), the partnership is liable for loss or injury caused to a person as a result of a wrongful act or omission of a partner acting in the ordinary course of business of the partnership or with authority of the partnership. Lisa committed a tort (“negligence”) when she negligently bumped into Mark and caused him to fall. This tort constitutes a wrongful act, and Lisa was acting in the ordinary course of business of the partnership. Hence, the partnership is liable to Mark. At this point, a note on the terminology is in order. Under the Revised Uniform Partnership Act, the partnership is a legal entity distinct from its partners, RUPA §201, and can therefore be liable. Under the old UPA, the partnership is nothing else but the partners as a group. However, even under the old UPA, we say that the partnership is liable, cf. §13 UPA.

Lisa, Mary, and Nora are jointly and severally liable for the $100. This is because under UPA §15(a), RUPA §306(a), all partners are jointly and severally liable for the partnership’s tort liabilities.

But how about Alma? Under UPA §17, RUPA §306, a partner is not personally liable for partnership obligations that arose before the partner joined the partnership. In other words, new partners are not liable for old debts. Alma joined the partnership on January 18, and hence after the partnership had incurred the obligation to Mark (which happened on January 17). Therefore, Alma is not liable to Mark.

(A) is incorrect.

See the answer to choice D.

(B) is incorrect.

See the answer to choice D.

(C) is incorrect.

See the answer to choice D.

Question 24

On January 1, Richard, Clive, and Owen open a bookstore together. According to a written agreement, which they all sign the same day, each of them gets one-third of the profits. Furthermore, the agreement specifies that the “business shall continue until December 31 and shall then dissolve automatically.” On January 3, Richard dies in a car accident. He has no heirs. On January 5, Clive dies of a heart attack. His only heir is his wife Mary. On January 7, Mary meets Owen, and they both agree to “carry on the business together as co-owners.” Assume that the applicable state law on partnerships is identical to the RUPA. Which of the following statements is correct?

(A)On January 1, Richard, Clive, and Owen formed a partnership. That partnership was dissolved on January 3, when Richard died.

(B)On January 1, Richard, Clive, and Owen formed a partnership. That partnership was dissolved on January 5, when Clive died.

(C)On January 1, Richard, Clive, and Owen formed a partnership. That partnership was not dissolved by Richard’s death, and it was not dissolved by Clive’s death either. However, it was dissolved and replaced by a new partnership on January 7, when Mary and Owen decided to carry on the business as co-owners.

(D)On January 1, Richard, Clive, and Owen formed a partnership. That partnership was not dissolved by Richard’s death, and it was not dissolved by Clive’s death either. Nor was it dissolved on January 7, 2013. However, it will be dissolved automatically on December 31.

Answer 24

(B) is the correct answer.

Note, first, that on January 1, Richard, Clive, and Owen formed a partnership because they created an association of two or more persons to carry on a business as co-owners for profit (cf. RUPA §202(a)).

Under the RUPA, the death of a partner does not dissolve the partnership if at least two other partners remain; rather, the partner’s death will only cause that partner’s dissociation from the partnership under RUPA §601(7)(i). Under the old UPA (1914), the death of any partner will dissolve the partnership under UPA §31(4). Given that this partnership was governed by the RUPA, Richard’s death did not dissolve it.

What about Clive’s death. As noted above, a partner’s death does not generally dissolve a partnership under the RUPA. However, in this particular case, there is an additional factor to consider: as a result of Clive’s death, only one of the partners remains. This is crucial because by definition, a partnership requires two or more persons (cf. UPA §6(1), RUPA §202(a)). Therefore, even though RUPA §801 does not mention the death of a partner as a ground for dissolution, those courts that have addressed the issue have generally held that the death of one partner in a two-person partnership leads to the partnership’s dissolution. Therefore, the partnership was dissolved on the day that Clive died, i.e., on January 5.

(A) is incorrect.

See the answer to choice B.

(C) is incorrect.

See the answer to choice B.

(D) is incorrect.

See the answer to choice B.

Question 25

Pam and Joe are co-owners of a small soccer equipment store (“Soccer-Land”) that they operate together in Los Angeles. According to an oral agreement, Pam has authority to purchase all kinds of goods for the firm, not just those goods that are normally sold in a soccer equipment store. Moreover, on January 1, 2000, a statement of partnership authority is filed, according to which Pam has authority to purchase all kinds of goods for the firm, not just those goods that are normally sold in a soccer equipment store. On February 2, 2000, Joe and Pam agree that henceforth, Pam shall only have authority to purchase soccer balls for the firm.

On January 3, 2020, Pam, acting in the name of “Soccer-Land,” calls Robert, an antiquities dealer. Robert happens to know Soccer-Land because his children purchase all their soccer equipment there. Pam, acting in the name of “Soccer-Land” purchases a collection of antique violins at a price of $1,500,000 from Robert. Robert delivers the violins immediately but is not paid. Pamela bought the violins because she thought they were a “splendid deal.” Joe knew nothing of the purchase.

At the time of the purchase, Robert does not know about—and has not received notification of—the statement of partnership authority. Nor is he aware (or has any reason to be aware) of the February 2 agreement, according to which Pam shall only have authority to purchase soccer balls for the firm, and he (Robert) has not received any notification of that agreement either. Assume that the case is governed by the RUPA.

Is Joe personally liable with respect to the $1,500,000?

(A)Yes, but only because Robert could rely on the statement of partnership authority.

(B)Yes, and the same would be true if no statement of partnership authority had been filed.

(C)No, because a statement of partnership authority can never be invoked to the disadvantage of the partnership except in certain cases involving real estate.

(D)No, because the purchase was not for apparently carrying on in the ordinary course the firm’s business.

Answer 25

(D) is the correct answer.

Note, first, that Pamela and Joe were partners because they had formed an association of two or more persons to carry on a business as co-owners for profit (cf. RUPA §202(a)). According to RUPA §306, all partners are jointly and severally liable for the debts of a partnership. The question, though, is whether Pamela’s purchase of the violins has created a partnership debt. For a partner to bind the partnership to a contract, two conditions must generally be satisfied. First, the partner must have acted on behalf of the partnership. Since Pamela explicitly acted in the name of the store, this requirement is met. Second, the partner must have had the power to bind the partnership.

To determine whether a partner has the power to bind the partnership, one has to distinguish. If the partner acts with authority, then the acting partner always has the power to bind the partnership (cf. RUPA §301; UPA §9). However, note that the term “with authority” has a special meaning in partnership law: One must look at the internal division of power between the partners. If internally (i.e., as between the partners) the partner was allowed to act for the partnership, then she acted with authority and therefore, externally, she had the power to bind the partnership.

So how does one know whether the partner was allowed to act according to the internal division of power? That question is answered by RUPA §401(j) (or UPA §18(h)), and the relevant rules can be summarized as follows:

First, one has to look to the partnership agreement. The partnership agreement can only be amended with the consent of all the partners, so if the partnership agreement stipulates what the partners may or may not do, the relevant provision is binding unless all of the partners agree otherwise.

If the partnership agreement is silent, then the following rules apply: Any act outside the ordinary course of business can only be undertaken if all the partners consent. This rule is expressly contained in RUPA §401(j), but it also applies under the UPA (1914). With respect to acts within the ordinary course of business of the partnership, one has to distinguish. In principle, any partner is allowed to undertake them. However, one important restriction applies: Any difference of opinion between the partners can be decided by a majority of the partners (UPA §18(h) and RUPA §401(j).) This decision is then binding even on the partner who did not consent.

In the case at hand, Pamela and Joe had come to an agreement that Pamela could only purchase soccer balls for the store. As a general rule, a partnership agreement does not have to be in writing. Rather, oral agreements between the partners are binding as well. Of course, partnership agreements remain subject to the general Statute of Frauds. Hence, an oral partnership agreement is unenforceable if it is for a term of more than one year. However, a so-called at-will partnership—that is, a partnership that has been entered into for an indefinite time and can be terminated at any time by any partner—is generally thought to be capable of being performed within one year and therefore does not fall within the one-year rule of the Statute of Frauds. In the case at hand, the Statute of Frauds does not apply, and the partners’ agreement regarding the extent of Pamela’s authority is binding. Accordingly, Pamela did not have authority to purchase the violins.

However, Pamela’s lack of authority does not necessarily imply that she lacked the power to bind the partnership. Rather, if the acting partner lacked authority for the transaction that he has undertaken, one has to distinguish between those acts that appear to be for the carrying on of the partnership business in the usual way and those acts that do not fall into this category.

If the act does not appear to be for the carrying on of the partnership business in the usual way, then the partnership will not be bound by a partner acting without authority (RUPA §301(2)). By contrast, If the act appears to be for the carrying on of the partnership business in the usual way, then the general principle is that the partnership will be bound by the act, even though the acting partner acted without authority (RUPA §301(1)). However, the partnership is not bound if the third party knew or had received notification that the partner lacked authority (RUPA §301(1)). In the case at hand, the partnership’s business was a soccer equipment store, and so purchasing violins was not in the ordinary course of the partnership’s business.

Even so, our analysis is not quite finished. That is because the RUPA introduces an additional layer of protection for third parties in the form of the rules governing the statement of partnership authority. As a general matter, a grant of authority contained in such a statement is conclusive in favor of the third party, RUPA §303(d)(1). However, this protection is subject to various restrictions. In particular, the statement can be canceled, and, even if it has not been canceled by the partnership, it is canceled automatically five years after the most recent amendment, RUPA §303(g). In the case at hand, the statement of partnership authority was filed in the year 2000, and there is no indication that it has been amended since. Accordingly, it was canceled in 2005 and thus could not protect Robert when he sold the violins in 2020. It follows that the sale of the violins did not create a partnership liability. Therefore, Joe is not personally liable with respect to the $1,500,000.

(A) is incorrect.

Joe is not liable. See the answer to choice D.

(B) is incorrect.

Joe is not liable. See the answer to choice D.

(C) is incorrect.

This answer contains an incorrect statement of law. As a general rule, the statement of partnership authority generally cannot be invoked against third parties, RUPA §303(f). An exception can be found in RUPA §303. Under that provision, “a person not a partner is deemed to know of a limitation on the authority of a partner to transfer real property held in the name of the partnership if a certified copy of the filed statement containing the limitation on authority is of record in the office for recording transfers of that real property.” By contrast, the statement of partnership authority typically can be invoked against the partnership, §303(d).

Question 26

On January 1, Carla, Maria, and Zachary sign a written “partnership agreement,” according to which they shall “own and operate” a shoe store together. According to the agreement, each of them will receive one-third of the firm’s profits. The agreement also provides: “This partnership shall last until at least December 31.”

On March 15, Carla tells Maria and Zachary that her (Carla’s) sister Melanie wants to join the partnership. Zachary is in favor, but Maria is opposed. Against Maria’s declared opposition, the three others—Carla, Zachary and Melanie—sign an agreement, according to which Melanie “becomes a partner in the partnership between Carla, Maria, and Zachary.”

On March 16, Melanie calls Jeff, who is one of the shoe store’s suppliers. She tells Jeff: “Hi, I am the fourth partner in the partnership that runs the shoe store—together with Zachary, Maria, and Carla, you know.” Then, professing to act in the name of the partnership, she orders 10 pairs of tennis shoes at a total price of $1,000. The shoes are delivered the same day. At the time that Melanie ordered the tennis shoes, both she and Jeff knew that Maria, Carla, and Zachary were firmly opposed to any such purchase.

On June 1, Zachary dies in a car accident. Prior to Zachary’s death, the partnership had frequently purchased hiking boots from Mark. On June 2, Maria tells Carla that she (Maria) does not want Carla to purchase any more hiking boots for the partnership. Carla tells Maria that she (Carla) disagrees and that she thinks the partnership should continue to purchase and sell hiking boots. Melanie, who happens to be present in the same room, joins the discussion and states that she, too, is in favor of purchasing more hiking boots.

On June 3, Maria calls Mark and tells him: “As you know, Zachary has died, and I have told Carla that I don’t want our partnership to buy any more hiking boots, and so she has no authority to buy any more hiking boots. If Carla orders more hiking boots, I will not be liable, and the firm won’t be liable either.” However, Mark replies: “Look, I believe you that Carla is not supposed to buy any more hiking boots. But, quite frankly, your arrangements are none of my business. If Carla orders hiking boots for the firm, then I will deliver them, and I don’t see why I should not be able to hold you and the firm liable.” On June 4, Carla—acting in the name of the partnership—orders twenty pairs of hiking boots from Mark at a total price of $1,000. The boots are delivered the same day.

Assume that the case is governed by the RUPA and that the judge hearing the case believes that in interpreting the RUPA, courts should, first and foremost, focus on the plain meaning of the RUPA’s provisions. Maria wants to know whether she is liable to Jeff and/or Mark. Which of the following statements is correct?

(A)Maria is liable to Jeff in the amount of $1,000, and she is liable to Mark in the amount of $1,000.

(B)Maria is liable to Jeff in the amount of $1,000. By contrast, she is not liable to Mark.

(C)Maria is liable to Mark in the amount of $1,000. By contrast, she is not liable to Jeff.

(D)Maria is neither liable to Mark nor to Jeff.

Answer 26

(C) is the correct answer.

Maria did not make either purchase. Therefore, the only question is whether she is liable in her capacity as a partner. Carla, Maria, and Zachary created a partnership on January 1: they formed an association of two or more persons to carry on a business as co-owners for profit (cf. RUPA §202(a)). According to RUPA §306, all partners are jointly and severally liable for the debts of a partnership. The question, though, is whether the purchases from Mark and Jeff created partnership debts.

The first contract, which involved the purchase of tennis shoes from Jeff, was concluded by Melanie in the name of the partnership. As a general rule, each partner has the authority to enter into transactions in the normal course of the partnership business, and her actions bind the partnership vis-à-vis third parties, UPA §9(1), RUPA §301(1). However, the question is whether Melanie is even a partner. Under RUPA §402(b)(3), becoming a partner requires the consent of all the existing partners. Incidentally, the same is true under UPA §18(g), though the question asked you to apply the RUPA. Since Maria never consented to Melanie’s admission into the partnership, Melanie was not a partner when she ordered the shoes. In theory, this still leaves the possibility that Melanie acted as an agent for the partnership under the rules of agency law. However, there is nothing to suggest that any of the partners (Carla, Maria, or Zachary) had authorized the purchase.

The second contract involved the purchase of hiking boots from Mark and was made by Carla in the name of the partnership. To begin, note that Zachary had died prior to the purchase. Under the UPA, his death would have dissolved the partnership (UPA §31(4)). By contrast, under the RUPA, as long as at least two partners remain, the death of the partners does not automatically dissolve the partnership (RUPA §801).

However, if the partnership was formed for a particular term or undertaking, the partnership can be dissolved by the affirmative vote, within 90 days, “of at least half of the remaining partners,” RUPA §801(2)(A). In the case at hand, the partnership agreement provided that the partnership should “last until at least December 31.” If a partnership agreement specifies a minimum duration, the partnership must be classified as a partnership for a particular term or undertaking for the specified minimum duration and then automatically becomes a partnership at will. Since Zachary’s death occurred before December 31, the partnership was still a partnership for a particular term. Moreover, given that Melanie had never become a partner, Zachary’s death left the partnership with two partners, Carla and Maria. Under RUPA §801(2)(A), either of them could have dissolved the partnership. However, this turns out to be irrelevant to the outcome of the case since neither Maria nor Carla chose to dissolve the partnership. By the way, even if the partnership had been a partnership at will, the outcome would have been the same. In a partnership at will, any partner can dissolve the partnership by expressing their will to withdraw from the partnership, RUPA §801(1). In other words, for the partnership at will, the more complicated rule in RUPA §801(2)(A) is unnecessary because any partner can dissolve the partnership at any time anyway.

We now know that the partnership had not been dissolved at the time that Carla made the purchase. The question, then, is whether this purchase created a partnership liability. For a partner to bind the partnership to a contract, two conditions must be met.

First, the partner must have acted on behalf of the partnership. Since Carla explicitly acted in the name of the partnership, this requirement is satisfied. Note that even if the hypothetical had not mentioned this, you should have come to the same conclusion. Jeff was one of the firm’s suppliers, and so he had to understand that the purchase was made for the partnership and not for Carla personally.

Second, the partner must have had the power to bind the partnership. To determine whether a partner has the power to bind the partnership, one has to distinguish. If the partner acts with authority, then the acting partner always has the power to bind the partnership (cf. RUPA §301; UPA §9). However, note that the term “with authority” has a special meaning in partnership law: One must look at the internal division of power between the partners. If internally (i.e., as between the partners) the partner was allowed to act for the partnership, then the partner acted with authority and therefore, externally, the partner had the power to bind the partnership.

So how does one know whether the partner was allowed to act according to the internal division of power? That question is answered by RUPA §401(j) (or UPA §18(h)), and the relevant rules can be summarized as follows: First, one has to look to the partnership agreement. The partnership agreement can only be amended with the consent of all the partners, so if the partnership agreement stipulates what the partners may or may not do, the relevant provision is binding unless all of the partners agree otherwise. In the case at hand, there is no indication that the partnership contained any provision dealing with the question of whether Carla had authority to make purchases on behalf of the partnership.

If the partnership agreement is silent, then the following rules apply: Any act outside the ordinary course of business can only be undertaken if all of the other partners consent. This rule is expressly contained in RUPA §401(j), but it also applies under the UPA (1914). With respect to acts within the ordinary course of business of the partnership, one has to distinguish. In principle, any partner is allowed to undertake them. However, one important restriction applies: any difference of opinion between the partners can be decided by a majority of the partners (UPA §18(h) & RUPA §401(j)). This decision is then binding even on the partner who did not consent.

In the case at hand, the purpose of the partnership was to own and operate a shoe store. Furthermore, the facts state that the partnership had frequently bought hiking boots in the past. Therefore, the purchase fell within the ordinary course of the partnership’s business.

Of course, we also know that Maria was opposed to the purchase. But does that matter? Under RUPA §401(j), a difference of opinion between the partners can be decided by a majority of the partners (UPA §18(h), but the common meaning of the word majority is “more than half,” and, in this case, only two partners—Carla and Maria—remained. Hence, Maria’s opposition to the purchase was meaningless, at least if one interprets the term “majority” in accordance with its plain meaning. In a famous case, National Biscuit Company, Inc. v. C.N. Stroud, 106 S.E.2d 692 (N.C. 1959), the Court, relying on the plain meaning of the word “majority,” concluded that the dissenting partner’s opposition to a purchase within the ordinary course of business of a two-person partnership had no impact on the purchasing partner’s authority. Another famous case, Summers v. Dooley, 481 P.2d 318, 321 (Idaho 1971), embraced the opposite view. In the case at hand, the hypothetical emphasizes that the court will apply the plain meaning rule, which should lead you to conclude that majority means “more than half.”

One final issue remains. Even though all partners are generally jointly and severally liable for the debts of a partnership (RUPA §306(a)), this rule only applies “unless otherwise agreed by the claimant or provided by law.” Therefore, if Mark had agreed not to hold Maria liable, she would be off the hook. Unfortunately for Maria, Mark had agreed to no such thing. In fact, Mark explicitly told her that he saw no reason not to hold her liable. In sum, Carla is liable to Mark for $1,000.

(A) is incorrect.

Maria is not liable to Jeff. See the answer to choice C.

(B) is incorrect.

Maria is not liable to Jeff, whereas she is liable to Mark. See the answer to choice C.

(D) is incorrect.

Maria is liable to Mark. See the answer to choice C.