Un-Corporations Flashcards
Fred, Ginger, Bing and Bob are partners in a software company. The partnership agreement provides that a majority of the partners may vote to expel any partner for any reason. One day, Bob wears pajamas on a Zoom call with a client. Fred, Ginger and Bing, who have been warning Bob about his slovenly appearance for quite some time and the negative effect it is having on clients and customers, vote to expel Bob. Bob sues, claiming that the other 3 partners breached their fiduciary duties to him. Is Bob likely to win?
A. No, since the partnership agreement allows for a partner to be expelled for any reason, Bob does not have any basis on which to bring a claim.
B. Yes, partners are required to put the interest of their partners ahead of their own and that was not done here.
C. No, Bob can be expelled for a slovenly appearance, provided the other partners acted in good faith.
D. Yes, the fact that Bob’s expulsion will result in greater profits for Fred, Ginger and Bing is, by definition, bad faith and shows that the expulsion violates the other partners’ duty of loyalty.
A. Incorrect. Even if the agreement allows the other partners to expel Bob for any reason, there is still a question of fact as to whether the expulsion constituted a violation of the other partners’ obligation of good faith and fair dealing. Partners may not exercise rights in a violation of good faith.
B. Incorrect. The other partners had a contractual right to take action. However, that action still may not be taken in bad faith, and there is a question of fact as to whether the expulsion constituted a violation of the other partners’ obligation of good faith and fair dealing.
C. Correct. Since the other partners had a contractual right to expel Bob, they may do so, provided that they did not act in bad faith.
D. Incorrect. The other partners had a contractual right to take action. Even if the other partners will receive greater profit, there is a question of fact as to whether the expulsion constituted a violation of the other partners’ obligation of good faith and fair dealing.
Andrew is Sylvia’s full time assistant. Sylvia instructs Andrew to order three brand new computers from Giant Computer Company, Inc (“GCC”). Sylvia provides Andrew with all of her personal information, including her credit card number, date of birth, home address and all relevant passwords. She also emails a letter to GCC, authorizing Andrew to make computer purchases on her behalf in amounts up to $10,000 in any calendar year. In January Andrew orders three refurbished computers from GCC in Sylvia’s name, for a total purchase price of $5,000. When Andrew purchases them, he is told that all purchases of refurbished computers are nonrefundable, but Andrew is so excited to get them for half price he agrees to the deal without talking to Sylvia first. When Sylvia sees that the computers are refurbished, she is furious. She calls GCC and demands that she be allowed to return the refurbished computers. GCC says, “A deal is a deal. We will not refund your money.” Sylvia calls them some names, posts an angry review online, and hangs up. Is Sylvia bound to pay GCC for the computers?
A. Yes, because Andrew had authority to act on her behalf.
B. No, because Andrew bought refurbished computers, and Sylvia asked him to buy new computers.
C. No, because Dell should not have made a deal with Andrew without Sylvia’s approval.
D. Yes, but only if it can be shown that Andrew was acting as an employee and not as an independent contractor.
A. Correct. Andrew acted with apparent authority that was created by Sylvia in her letter to GCC and by providing Andrew with her personal information to complete the purchase.
B. Incorrect. Although Andrew did not act with actual authority, Andrew did act with apparent authority that was created by Sylvia in her letter to GCC and by providing Andrew with her personal information to complete the purchase.
C. Incorrect. GCC was under no obligation to seek additional approval from Sylvia; Andrew acted with apparent authority that was created by Sylvia in her letter to GCC and by providing Andrew with her personal information to complete the purchase. GCC was justified in relying on that apparent authority.
D. Incorrect. Sylvia is bound because Andrew acted with apparent authority that was created by Sylvia in her letter to GCC and by providing Andrew with her personal information to complete the purchase. Andrew’s apparent authority is NOT dependent upon whether he was an employee or an independent contractor.
Andrew is Sylvia’s full time assistant. Sylvia instructs Andrew to order three brand new computers from Giant Computer Company, Inc. (“GCC”). In January Andrew orders three refurbished computers in Sylvia’s name from GCC for a total purchase price of $5,000. When he purchases them, he is told that all purchases of refurbished computers are nonrefundable, but Andrew is so excited to get them for half price he agrees to the deal without talking to Sylvia first. When Sylvia sees that the computers are refurbished, she is furious. She calls GCC and demands that she be allowed to return the refurbished computers, but GCC says, “A deal is a deal. We will not refund your money.” Sylvia yells at Andrew and tells him to just unpack and set up the refurbished computers. When Andrew unpacks the refurbished computers, he is so mad that Sylvia has yelled at him that, instead of carefully unpacking the boxes, he negligently throws, what he believes to be, empty boxes across the office toward an empty corner. Andrew is so frustrated that he does not realize a window is open, and a few of the boxes, which unfortunately still have some equipment in them, sail across the office and out the 10th story window. One of those boxes lands on a man name Harry who is walking by the window. Harry needs seven stitches and misses a few days of work. Assuming that negligent behavior is prohibited under the terms of Andrew’s employment and Andrew’s actions (i.e. carelessly throwing the boxes toward the corner of the office) were not authorized by Sylvia, from whom can Harry likely recover in a suit for the tort?
A. Just Andrew, since Andrew threw the box, and such actions were prohibited under the terms of Andrew’s employment and were not authorized by Sylvia.
B. Just Sylvia, since Andrew was only acting as Sylvia’s employee at the time of the incident.
C. Andrew directly and Sylvia vicariously through respondeat superior.
D. GCC only, under the “strict liability for defective products agency” exception.
A
Incorrect. Harry can recover from both Andrew and Sylvia since Andrew was acting as Sylvia’s agent within the scope of his employment, and employers are vicariously liable for the torts of their employees committed within the scope of employment.
B
Incorrect. Harry can recover from both Andrew and Sylvia since Andrew was acting as Sylvia’s agent within the scope of his employment, and employers are vicariously liable for the torts of their employees committed within the scope of employment. However, vicarious liability does not change the fact that an employee is liable for his, her, or their tortious acts.
C
Correct. Since Harry can recover from both Andrew and Sylvia since Andrew was acting as Sylvia’s agent within the scope of his employment, and employers are vicariously liable for the torts of their employees committed within the scope of employment.
D
Incorrect. Although Harry can recover from both Andrew and Sylvia since Andrew was acting within the scope of his employment for Sylvia, and employers are vicariously liable for the torts of their employees committed within the scope of employment; GCC is not liable for the tortious actions of the employee of a customer, and there is no “strict liability for defective products agency” exception.
Andrew is Sylvia’s full time assistant. Sylvia instructs Andrew to order three brand new computers from Giant Computer Company, Inc. (“GCC”). Sylvia provides Andrew with all of her personal information, including her credit card number, date of birth, home address and relevant passwords. She also emails a letter to GCC, authorizing Andrew to make computer purchases on her behalf in amounts up to $10,000 in any calendar year. In January Andrew orders three refurbished computers from GCC in Sylvia’s name, for a total purchase price of $5,000. When Andrew purchases them, he is told that all purchases of refurbished computers are nonrefundable, but Andrew is so excited to get them for half price he agrees to the deal without talking to Sylvia first. When Sylvia sees that the computers are refurbished, she is furious. Sylvia fires Andrew, and Andrew is so mad that he takes Sylvia’s personal information, calls GCC again, and buys himself a brand new computer for $3,000 to compensate himself for his lost job. Sylvia does not discover the unauthorized computer purchase until Andrew has received his new computer and left town. Assuming that no one can find Andrew, is Sylvia or GCC going to bear the cost of Andrew’s actions?
A
Sylvia, assuming that GCC had no notice that Andrew had been fired at the time of his computer purchase.
B
Sylvia, regardless of whether GCC had notice that Andrew had been fired at the time of his computer purchase.
C
GCC, based on constructive notice principles and the passage of time following Andrew’s initital purchase.
D
GCC, because Sylvia has not ratified the transaction, and GCC sold merchandise to an unauthorized purchaser and assumed the risk even though GCC had no knowledge that Andrew had been fired.
A
Correct. Assuming that GCC had no notice about Andrew’s firing, Andrew is still acting with apparent authority that was created by Sylvia in her letter to GCC.
B
Incorrect. Assuming that GCC had no notice about Andrew’s firing, Andrew was still acting with apparent authority that was created by Sylvia in her letter to GCC. However, if GCC did have notice, then GCC could not claim apparent authority, so it matters whether GCC had notice of Andrews firing.
C
Incorrect. Assuming that GCC had no actual notice about Andrew’s firing, Andrew is still acting with apparent authority that was created by Sylvia in her letter to GCC. There was no time limitation in Sylvia’s letter other than the restriction of $10,000 within a calendar year.
D
Incorrect. Assuming that GCC had no actual notice about Andrew’s firing, Andrew is still acting with apparent authority that was created by Sylvia in her letter to GCC. Ratification is not necessary, and GCC does not assume the risk of entering into an agreement with someone who has apparent authority.
Andrew is Sylvia’s full time assistant. Sylvia instructs Andrew to order three brand new computers from Giant Computer Company, Inc. (“GCC”). Sylvia provides Andrew with her personal information and emails a letter to GCC, authorizing Andrew to make computer purchases on her behalf in amounts up to $10,000 in any calendar year. In January Andrew orders three refurbished computers from GCC in Sylvia’s name, for a total purchase price of $5,000. When Andrew purchases them, he is told that all purchases of refurbished computers are nonrefundable, but Andrew is so excited to get them for half price he agrees to the deal without talking to Sylvia first. When Sylvia sees that the computers are refurbished, she is furious. She calls GCC and demands that she be allowed to return the refurbished computers. GCC says, “A deal is a deal. We will not refund your money.” Sylvia fires Andrew, who leaves town and does not provide Sylvia with any contact information. Eventually, Sylvia decides to try out the refurbished computers. Two of them work fine, but one of them will not work at all. Each computer came with a 60-day warranty, and it has only been 45 days since the purchase. Sylvia asks GCC to service or exchange the broken computer under the terms of the warranty. GCC refuses. GCC says that they had no deal with Sylvia. They made their deal with Andrew, and the warranty is “nontransferable”. Sylvia explains that Andrew no longer works for her, and she has no way to contact him. GCC continues to refuse to fix Sylvia’s computer. Which of the following is the most accurate statement about Sylvia’s rights?
A
She has no personal rights to enforce the agreement; Only Andrew is authorized to enforce the agreement.
B
GCC is bound to Sylvia by the agreement, and Sylvia can enforce her warranty rights.
C
If Andrew had acted under actual authority, then Sylvia would be able to enforce the agreement, but since Andrew acted without express or implied authority from Sylvia, then Sylvia may not enforce the agreement with GCC.
D
Sylvia may enforce the warranty, but only because she “accepted the benefits” of the deal by commencing to use the computers.
A
Incorrect. Andrew was acting as Sylvia’s agent (whether through apparent authority or through ratification by Sylvia) and created a binding agreement between GCC and Andrew’s principal, Sylvia, that may be enforced by either party.
B
Correct. Since Andrew was acting as Sylvia’s agent (whether through apparent authority or through ratification by Sylvia) and created a binding agreement between GCC and Andrew’s principal, Sylvia, that may be enforced by either party.
C
Incorrect. Andrew was acting as Sylvia’s agent (whether through apparent authority or through ratification by Sylvia) and created a binding agreement between GCC and Andrew’s principal, Sylvia, that may be enforced by either party. It does not matter whether the contract was created through actual authority or apparent authority.
D
Incorrect. Ratification is not necessary to make the contracts enforceable by Sylvia. If there was apparent authority, then the agreement is enforceable. Andrew was acting as Sylvia’s agent (whether through apparent authority or through ratification by Sylvia) and created a binding agreement between GCC and Andrew’s principal, Sylvia, that may be enforced by either party.
Annie is Paul’s agent. Paul instructs Annie to enter into a contract with Toni on Paul’s behalf. Annie identifies herself to Toni as Paul’s agent and then enters into the contract requested by Paul, signing the contract as “Annie, agent for Paul.” Who is bound to Toni?
A
Annie alone.
B
Annie and Paul.
C
Paul alone.
D
No one, unless Paul ratifies the contract.
A
Incorrect. Annie is acting with actual authority for a disclosed principal, Paul, so only Paul would be liable under the contract with Toni.
B
Incorrect. Annie is acting with actual authority for a disclosed principal, Paul, so only Paul would be liable under the contract with Toni.
C
Correct. Annie is acting with actual authority for a disclosed principal, so only Paul would be liable under the contract with Toni.
D
Incorrect. Annie is acting with actual authority for a disclosed principal, Paul. Therefore, Annie has the authority to enter into a contract on Paul’s behalf, and only Paul would be liable under the contract with Toni. Ratification is not necessary.
Jane and Ryan are 50/50 partners in a bookstore that sells rare books. After 10 years in business together, Ryan decides he wants to retire. Ryan sells his entire interest in the partnership to Max for $75,000. Jane approves the sale. Max and Jane work together for 5 months when Max discovers that the bookstore has a $50,000 debt to its main supplier. Max discovers that Ryan intentionally hid this debt from him to increase the sale price of Ryan’s partnership interest. So, Max sues Ryan for $25,000, one half of the debt. Before the suit goes to trial, Max discovers an original Picasso sketch in the back of an old book that has been in the store for over 3 years. He has the sketch appraised for $550,000. Ryan finds out about the sketch and counter sues Max, claiming that the sketch was part of the property Ryan sold and had the parties known about it at the time of the sale, Ryan would have been entitled to more money for the sale of his partnership interest. What is the most likely outcome of Max’s claim and Ryan’s counterclaim?
A
Max collects $25,000 from Ryan, and Ryan gets no part of the sketch’s $550,000 value.
B
Given the amount of material information that was unknown to the parties, the entire purchase of Ryan’s partnership interest would be rescinded and the parties would be free to renegotiate for fair value.
C
Max collects $25,000 from Ryan, but Ryan gets half of the value of the Picasso sketch since it predated the sale.
D
The court would offset the $550,000 gain against the $50,000 debt, but the remaining $500,000 would belong to Max and Jane.
A
Correct. Since Ryan would be liable for his intentional deception of Max that caused Max damages of $25,000, and, since Max purchased a 50% interest in the partnership, Max, not Ryan, has a right to the partnership’s assets. Ryan sold his entire interest in the partnership, and we are not told of any reservation of rights. Therefore, Ryan would have not rights to the Picasso sketch or its value.
B
Incorrect. The unknown assets and liabilities of the partnership (other than those fraudulently concealed) would be part of the purchase. Ryan would be liable for his intentional deception of Max that caused Max damages of $25,000, and, since Max purchased a 50% interest in the partnership, Max, not Ryan, has a right to the partnership’s assets. Ryan sold his entire interest in the partnership, and we are not told of any reservation of rights. Therefore, Ryan would have not rights to the Picasso sketch or its value.
C
Incorrect. The unknown assets and liabilities of the partnership (other than those fraudulently concealed) would be part of the purchase. Ryan would be liable for his intentional deception of Max that caused Max damages of $25,000, and, since Max purchased a 50% interest in the partnership, Max, not Ryan, has a right to the partnership’s assets. Ryan sold his entire interest in the partnership, and we are not told of any reservation of rights. Therefore, Ryan would have not rights to the Picasso sketch or its value.
D
Incorrect. The unknown assets and liabilities of the partnership (other than those fraudulently concealed) would be part of the purchase. Ryan would be liable for his intentional deception of Max that caused Max damages of $25,000, and, since Max purchased a 50% interest in the partnership, Max, not Ryan, has a right to the partnership’s assets. Ryan sold his entire interest in the partnership, and we are not told of any reservation of rights. Therefore, Ryan would have not rights to the Picasso sketch or its value.
Two partners, Karen and Jamie, form a general partnership. Karen contributes 70% of the partnership capital, and Jamie contributes 30% of the partnership capital. Their partnership defaults on a loan of $100,000 to 1st National Bank, and the Bank sues the partnership. The partnership has no money to pay the debt, so the bank sues Jamie for the entire debt. (Karen has moved to a different state, and the bank does not want the hassle of locating her.) Assuming these events occur in a jurisdiction that has adopted the Revised Uniform Partnership Act, how much money can 1st National Bank recover from Jamie (who has a great deal of personal wealth) if it prevails in its lawsuit?
A
$30,000, based upon Jamie’s 30% capital contribution to the partnership.
B
$50,000, based upon the fact that there are two partners, who would each be liable for half of the partnership’s liabilities.
C
$100,000, based upon the fact that each partner is liable for all of the debts of a partnership.
D
$0, based upon the fact that the loan was made to the partnership and not to Jamie personally AND that 1st National Bank failed to sue Karen for her share of the debt.
A
Incorrect. Even though Jamie will likely have the right to seek contribution from Karen for Karen’s share of the debt each partner is jointly and severally liable for all of the debts and liabilities of the partnership. So, Jamie will be liable to the Bank for the entire $100,000.
B
Incorrect. Even though Jamie will likely have the right to seek contribution from Karen for Karen’s share of the debt, each partner is jointly and severally liable for all of the debts and liabilities of the partnership. So, Jamie will be liable to the Bank for the entire $100,000.
C
Correct. Each partner is jointly and severally liable for all of the debts and liabilities of the partnership. So, Jamie will be liable for the entire $100,000. (Note that Jamie will likely have the right to seek contribution from Karen for Karen’s share of the debt.)
D
Incorrect. Even though Jamie will likely have the right to seek contribution from Karen for Karen’s share of the debt each partner is jointly and severally liable for all of the debts and liabilities of the partnership. So, Jamie will be liable to the Bank for the entire $100,000.
Carol and Al have been partners in a hamburger stand for five years. Al put up most of the money and Carol runs the business. They split the profits 50/50, and they have no partnership agreement. Carol discovers that a huge office building is going to be built across the street in the next year. So, anticipating tha tmany of the tenats in the new building will like hamburgers, Carol dissolves the at-will partnership. A month later she opens up a new hamburger stand a few doors down from the stand she had with Al. Al sues Carol. What is the likely result?
A
Al will prevail if he can show that Carol dissolved the partnership in order to capture the partnership business for herself.
B
Carol will prevail; an at-will partnership may be dissolved at any time for any reason.
C
There is no way to answer this question without knowing whether the Uniform Partnership Act or the Revised Uniform Partnership Act had been adopted in the state in which the hamburger stand operated.
D
Al will prevail if he can show that Carol’s financing for her new hamburger stand came from her share of the distributed profits from the partnership with Al.
A
Correct. Since a partner may not dissolve a partnership in bad faith to take advantage of an opportunity that properly belongs to the partnership.
B
Incorrect. Even though an at-will partnership may be dissolved at any time, a partner still may not dissolve a partnership in bad faith to take advantage of an opportunity that properly belongs to the partnership.
C
Incorrect. The law is clear in this area: Regardless of which Act was adopted. Even though an at-will partnership may be dissolved at any time, a partner still may not dissolve a partnership in bad faith to take advantage of an opportunity that properly belongs to the partnership.
D
Incorrect. If the partnership were dissolved properly, Carol would be free to use her share of the distributed profits on any activity she deemed appropriate. The issue presented by the question is that a partner may not dissolve a partnership in bad faith to take advantage of an opportunity that properly belongs to the partnership.
Marius makes a deal to purchase a great work of art from a very respected artist, named Cossette, on behalf of Miserable Corporation. Marius tells the artist that he is purchasing the picture for Miserable Corporation so the artist should send the bill to Miserable. No one at Miserable Corporation has ever heard of Marius, and Marius had no authority to make the deal. When the picture arrives at Miserable’s headquarters in Seattle, along with a bill for $52,000, Hugo, Miserable’s President says, “I love this painting. I don’t care who purchased it. We are going to keep it and pay the bill.” Two weeks later the painting is ruined, because Cossette used water colors and the moist climate in Seattle has caused the colors to run together in a big ugly mess. Miserable sues Cossette for the $52,000 it paid for the painting. Cossette acknowledges that she was negligent in her selection of paint, but says that Marius has a claim against her not Miserable, and Marius loves her and would never sue. Who wins?
A
Cossette, because Miserable never ratified the agreement.
B
Miserable, because it did ratify the agreement.
C
Miserable, on a strict product liability theory.
D
Cossette, because, although Miserable ratified the agreement, Marius is a co-obligor and cab block the lawsuit and, therefore, Miserable’s claim.
A
Incorrect. Miserable, through its agent Hugo’s actions, expressly ratified the agreement, and therefore, Miserable has the right to enforce the agreement made by Marius as if Marius had authority to act on Miserable’s behalf at the time the agreement with Cossette was made.
B
Correct. Miserable, through its agent Hugo’s actions, expressly ratified the agreement, and therefore, Miserable has the right to enforce the agreement made by Marius as if Marius had authority to act on Miserable’s behalf at the time the agreement with Cossette was made.
C
Incorrect. Miserable will win because, through its agent Hugo’s actions, Miserable expressly ratified the agreement, and therefore, Miserable has the right to enforce the agreement made by Marius as if Marius had authority to act on Miserable’s behalf at the time the agreement with Cossette was made, not because of a strict product liability theory.
D
Incorrect. Miserable, through its agent Hugo’s actions, expressly ratified the agreement, and therefore, Miserable has the right to enforce the agreement made by Marius as if Marius had authority to act on Miserable’s behalf at the time the agreement with Cossette was made. There is no requirement that Marius be a party to the lawsuit and Marius has not authority to block the lawsuit.
A works for P as a full time employee. P runs a clothing store, and A’s job is to purchase all of the inventory for sale in P’s store from various manufactures. Unfortunately, A only likes to buy shoes, not pants, jackets, sweaters, hats, etc. which P also sells. P instructs A not to buy any more shoes. P gives A his credit card and writes on a post-it note on the back, “Do not sell this man any more shoes.” A goes shopping, but just can’t help himself; he throws the post it note away and buys 500 shoes for the store from Van Rebok. P is furious and refuses to pay. Is P liable for the shoes?
A. No, because P gave specific instructions not to buy shoes and took reasonable means to assure it.
B. Yes, because A had apparent authority to purchase the shoes.
C. Yes, because A had implied authority to purchase the shoes.
D. No, because P did not ratify the purchase.
A
Incorrect. Even though A did not have actual authority to purchase the 500 shoes, he probably had apparent authority since (i) P gave A P’s credit card; (ii) A had been allowed to buy shoes for P in the past; and (iii) a post-it note that can be easily removed is not an effect means of providing notice to third party shoe sellers.
B
Correct. Even though A did not have actual authority to purchase the 500 shoes, he probably had apparent authority since (i) P gave A P’s credit card; (ii) A had been allowed to buy shoes for P in the past; and (iii) a post-it note that can be easily removed is not an effect means of providing notice to third party shoe sellers.
C
Incorrect. A probably had apparent authority but did not have actual authority (express or implied) to purchase the 500 shoes. P specifically told A not to buy any more shoes, so A could not have had implied authority.
D
Incorrect. Even though there is no evidence to support an argument that P ratified the purchase, ratification is not required for P’s liability if A acted with authority, even apparent authority.
Ralph, Rudy and Randy are partners in the Circle R Partnership. The Circle R owns a farm with several animals and several race horses. The Partnership is not for a term or for a particular undertaking. There is no partnership agreement. One day Randy says, “Boys, I know it is not the best time to tell you this, but I am sick of owning a farm. I want out. The farm was recently appraised for $3 million. I’d like to withdraw as a partner and get my million dollars.” Ralph and Rudy say the only way to get Randy her million dollars is to sell the entire farm or to borrow against the property, which would jeopardize the entire business. Randy says, “It’s ok with me if you want to continue the partnership without me, if you pay me my $1 million share. If not, then I am going to require you to sell the business as soon as possible and pay me my money.” They tell Randy she is going to have to wait a few years until she can get her money. Randy sues Ralph and Rudy for $1,000,000. Who wins?
A
Ralph and Rudy win, because Randy cannot force a sale that would jeopardize the business.
B
Ralph and Rudy win since they control 66.67% of the voting power of Circle R, and a majority vote is needed to require dissolution.
C
Randy wins. She is entitled to her share of the value of Circle R.
D
Randy wins, but only because there was a recent appraisal which established the value of Circle R so she can demand a definite sum.
A
Incorrect. The Circle R Partnership is an “at-will” partnership and does not have a partnership agreement with provisions that would override the default rules. Therefore, upon dissociation, Randy is entitled to receive the greater of her share of the going concern value of the partnership or the liquidation value of the partnership within 120 days of the dissociation.
B
Incorrect. The Circle R Partnership is an “at-will” partnership and, therefore, any partner may dissociate at any time. A majority vote is not required. Upon dissociation, Randy is entitled to receive the greater of her share of the going concern value of the partnership or the liquidation value of the partnership within 120 days of the dissociation.
C
Correct. The Circle R Partnership is an “at-will” partnership and does not have a partnership agreement with provisions that would override the default rules. Therefore, upon dissociation, Randy is entitled to receive the greater of her share of the going concern value of the partnership or the liquidation value of the partnership within 120 days of the dissociation.
D
Incorrect. The Circle R Partnership is an “at-will” partnership. Upon dissociation, Randy is entitled to receive the greater of her share of the going concern value of the partnership or the liquidation value of the partnership within 120 days of the dissociation. There is no requirement that there have been a recent appraisal or that Randy demand a definite sum.
Lauren and Madison are limited partners in Choice Art, Limited Partnership. The general partners, David and Susan have run up tremendous debt, deceived creditors, and commingled their personal funds and Choice Art’s funds. Furthermore, Lauren and Madison would have discovered this fraud and wrongdoing had they merely reviewed the quarterly reports, which were delivered to them on a regular basis. Now, Choice Art is insolvent, and David and Susan have no money. Given this gross neglect, Carrie, one of the Choice Art creditors, sues Lauren and Madison personally for all the debts of Choice Art. What is the likely result?
A
Lauren and Madison are not liable, provided they filed a statement of “non-responsibility” with the Secretary of State.
B
Lauren and Madison are not personally liable, even if not reading the quarterly reports was negligent.
C
Lauren and Madison are personally liable for the debt but only to the extent of their percentage interest in Choice Art, L.P.
D
Lauren and Madison might be liable, but only if Carrie can show that they knew or should have known of the lack of formalities, the commingling of funds and the fraud-like conduct AND they took no action to stop it.
A
Incorrect. There is no requirement that limited partners file (and no such thing as) a statement of “non-responsibility.”
B
Correct. Since limited partners are not liable for the debts and obligations of a limited partnership, even if they are negligent in reviewing the reports.
C
Incorrect. Limited partners are not liable for the debts and obligations of a limited partnership, even if they are negligent in reviewing the reports.
D
Incorrect. Limited partners are not liable for the debts and obligations of a limited partnership. Even if they knew of the lack of formalities and fraud-like conduct by the general partners, Lauren and Madison had no duty to act and no right to manage the business. Provided that Lauren and Madison did not improperly participate in the management of Choice Art or participate in the fraud-like conduct, they will not be liable.
Ken goes to a Fancy Car dealership and buys a brand new car. As he is about to drive off the lot, a man in a nice suit with a name-tag on his lapel that says “Fred” approaches Ken. Fred says, “Hi, I work for Fancy Car as a warranty specialist. If you pay me $250 before you leave today, I can double your warranty on the car.” Ken says, “That sounds great, can you show me documentation?” Fred replies, “Sure. I just need your name and vehicle ID number from your purchase document, and I will provide you with everything by email. You have 48 hours to reject the deal and, if you do, you will receive a full refund. Of course, I will give you a receipt now, and if you can pay in cash, we give you an additional 20% discount down to $200.” Ken says, “You’ve got a deal!” He pays Fred $200 in cash gets a receipt and leaves. When Ken does not receive paperwork, he calls the Fancy Car dealership and is told, “I’m sorry Ken. There is nobody named Fred who works here. It sounds like you were swindled.” Ken says, “No, I’m sorry it sounds like you have been committed to a warranty by a stranger who you should have kept off your lot.” Under what theory will Ken have the best chance to prevail in his suit to enforce the “extended warranty?”
A
Actual Implied Authority
B
Ratification
C
Estoppel
D
Apparent Authority
A
Incorrect. Fred did not have actual authority (express or implied) to act on behalf of the Fancy Car dealership.
B
Incorrect. The Fancy Car dealership took no steps to ratify the warranty. In fact, the dealership disclaimed the warranty.
C
Correct. Since Ken might be able to show that negligent acts or omissions of the Fancy Car dealership created the appearance that Fred had authority to act on behalf of the dealership and Ken, in good faith, reasonably relied and altered his position (by paying cash) based upon on that appearance of authority.
D
Incorrect. Apparent authority requires a manifestation from the purported principal (here the Fancy Car dealership) to the third party, Ken, and that did not occur in the facts given.
