Question 1

Fact Pattern 27-2
Kristin and Lindsey are partners in Mobile Devise, an online marketing firm.
-Refer to Fact Pattern 27-2. Kristin signs a contract with Nature's Best Chocolate, a candy maker and seller, apparently on Mobile's behalf. The contract is binding on​
A) ​Kristin, Lindsey, and Mobile.
B) ​Kristin only.
C) ​Mobile only.
D) ​Nature's Best only.

Accepted Answer

As partners in Mobile Device, Kristin's actions bind not only herself but also her partner Lindsey and their business Mobile Device. Thus, the contract with Nature's Best Chocolate is binding on all three.

Question 2

Erwin, a partner in Farm Equipment Rentals & Sales, applies for a loan with Garden Valley Bank allegedly on Farm Equipment's behalf but without the authorization of the other partners. The bank knows that Erwin is not authorized to take out the loan. Liability in the event of default will be imposed on​
A) ​none of the choices.
B) ​Erwin.
C) ​Farm Equipment.
D) ​Garden Valley Bank.

Accepted Answer

The answer of Erwin, a partner in Farm Equipment Rentals...

Question 3

Blythe and Cali do business as Diamond Investments. In acting on the firm's behalf, Blythe makes an honest error in overestimating the value of a particular stock purchase. To her firm, Blythe is
A) ​liable for breach of the duty of care.
B) liable for breach of the duty of accounting.
C) ​liable for breach of the duty of loyalty.
D) ​not liable.

Accepted Answer

Blythe is not liable for her honest error in judgment because it does not amount to a breach of any duty owed by her to the firm. Her actions were taken in good faith and with the intent to further the firm's interests. As long as Blythe was not acting with a conflict of interest or engaged in intentional wrongdoing, she would not be personally liable for her mistake.

Question 4

Rosalee is a partner in Silver Dragon, a partnership consisting of the owners of a Chinese and American restaurant. Silver Dragon incurs debt for new dining tables and chairs. With respect to this debt, Rosalee is​
A) ​not liable.
B) only liable to the amount of her capital contribution.
C) only liable in proportion to the number of partners in the firm.
D) ​personally liable to the full extent.

Accepted Answer

As a partner in a partnership, Rosalee is personally liable for the debt incurred by the partnership to the full extent. This means that if the partnership is not able to pay the debt, Rosalee can be held personally responsible and her personal assets can be used to pay off the debt. This is a key feature of partnerships, where the partners have unlimited liability for the debts of the partnership.

Question 5

Fact Pattern 27-2
Kristin and Lindsey are partners in Mobile Devise, an online marketing firm.
-Refer to Fact Pattern 27-2. Lindsey dissociates from Mobile. Kristin signs a contract with Organic Olives, a food seller, apparently on Mobile's behalf. Organic Olives does not know of Lindsey's dissociation. The contract is binding on​
A) ​Kristin, Lindsey, and Mobile.
B) ​Kristin only.
C) ​Mobile only.
D) ​Organic Olives only.

Accepted Answer

The contract is binding on Kristin, Lindsey, and Mobile because Organic Olives was not aware of Lindsey's dissociation, and thus, Lindsey is still considered a partner with apparent authority to third parties.

Question 6

Emily is one of three partners in Fast Work, a commercial janitorial service. With respect to Emily's interest in the firm, when she dies, her heirs are most likely entitled to​
A) ​nothing.
B) a payout of Emily's capital contribution without more.
C) ​the buyout price paid by the firm for the interest.
D) ​one-third of the value of the interest.

Accepted Answer

When a partner in a firm dies, their interest in the firm is typically purchased by the remaining partners or the firm itself. This is known as a buyout, and the price paid is usually based on the value of the partner's interest in the firm. In the case of Emily's interest in Fast Work, her heirs would likely be entitled to the buyout price paid by the firm for her interest. This would provide them with a fair value for Emily's share of the business, while allowing the remaining partners to continue operating the firm without interference from outsiders. Option A is incorrect because Emily's heirs would have some claim to her interest in the firm, even if it's just through the buyout process. Option B is also incorrect because Emily's capital contribution is only one factor in determining the value of her interest in the firm. Option D is possible, but would depend on the specific terms of the partnership agreement and the valuation of the business at the time of Emily's death.

Question 7

Bo and Clancy decide to do business as Marketing & Promotion Services. To be a partnership, this association can result from an agreement that is
A) ​express, but not from an agreement that is implied.
B) ​implied, but not from an agreement that is express.
C) ​oral, written, or implied by conduct.
D) ​written, but not from an agreement that is oral or implied.

Accepted Answer

A partnership can be oral, written, or implied by conduct. Therefore, Option C is the correct answer. Options A and D are not correct because a partnership can be both express and implied, and can be oral or written. Option B is not correct because a partnership can be implied, not just express.

Question 8

Nora and Owen do business as Profit & Property, a real estate investment partnership. In acting on the firm's behalf in a deal with Quaint Village Mall, Nora takes advantage of an opportunity to make a secret profit on her own behalf. To her firm, Nora is liable for​
A) ​breach of the duty of care.
B) ​breach of contract.
C) breach of the duty of loyalty.
D) ​nothing.

Accepted Answer

As a partner of Profit & Property, Nora owes a duty of loyalty to the partnership and its other partners, which includes the duty to act in the best interests of the partnership and not to personally benefit from any deals or opportunities that belong to the partnership. By making a secret profit on her own behalf, Nora breaches this duty of loyalty and is therefore liable to the firm for such breach.

Question 9

Chet is a partner in Diligent Accounting Service. Chet can inspect Diligent's books and records​
A) ​in their entirety.
B) ​only as the firm's management permits.
C) ​only for a reasonable purpose.
D) ​only in relation to Chet's capital contribution.

Accepted Answer

Partners in a partnership have the right to inspect the books and records of the partnership in their entirety. This right is fundamental to ensuring that partners can monitor the financial health and operations of the business, make informed decisions, and protect their investments.

Question 10

Fact Pattern 27-3
​Bryn, Cornell, and Duke are general partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
-Refer to Fact Pattern 27-3. The partners decide to dissolve Equity Lending. Duke collects and distributes the firm's assets. This results in
A) ​nothing with respect to the firm's existence.
B) ​the continuation of the firm's business.
C) ​the termination of the firm's legal existence.
D) ​the temporary suspension of the firm's business.

Accepted Answer

Once the partners have dissolved the firm and Duke has distributed its assets, the legal existence of the firm is terminated. This is because a partnership is not a separate legal entity from its partners, and therefore dissolution results in the termination of the partnership's legal existence.

Question 11

Oliana is a partner in Pacific Traders. In the majority of states, with respect to any partnership obligations that Oliana does not participate in, know about, or ratify, Oliana would be liable for​
A) ​none of the obligations.
B) ​all of the obligations, jointly and severally.
C) ​all of the obligations, jointly but not severally.
D) ​only the contractual obligations.

Accepted Answer

In a general partnership, partners are jointly and severally liable for all partnership obligations, regardless of their individual participation, knowledge, or ratification of those obligations. This means that if the partnership is unable to satisfy a debt or obligation, any or all partners may be held responsible for paying the full amount. Therefore, Oliana would be liable for all partnership obligations, jointly and severally, even if she did not participate in, know about, or ratify them.

Question 12

Quisa and Reilly are partners in Sport Bikes, which rents and sells bikes, bike accessories, and related gear. Quisa manages the business. Unless the partnership agreement states otherwise, Quisa is​
A) ​entitled to compensation in proportion to her effect on the business.
B) ​entitled to compensation in proportion to her effort.
C) ​entitled to compensation in proportion to her capital contribution.
D) ​not entitled to compensation.

Accepted Answer

In a partnership, unless the partnership agreement specifies otherwise, partners are not entitled to compensation for participating in the management of the business. They share in the profits and losses according to their partnership agreement.

Question 13

Craig, Donna, and Eve do business as FastTrak Career Consultants. Eve's relationship to FasTrak ends, but the firm continues to do business. This is​
A) ​dissociation.
B) ​dissolution.
C) ​disestablishment.
D) ​disrespectful.

Accepted Answer

Dissociation refers to the removal of one partner from a partnership, but the partnership itself continues to exist and do business. Dissolution would refer to the complete termination of the partnership. Disestablishment is not a term typically used in relation to partnerships, and disrespectful is not relevant to the situation described.

Question 14

Fact Pattern 27-3
​Bryn, Cornell, and Duke are general partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
-Refer to Fact Pattern 27-3. Cornell's assignment of his interest in Equity Lending to Financial Consultants Corporation results in
A) ​nothing with respect to Cornell or Equity Lending.
B) ​the automatic termination of Equity Lending's legal existence.
C) ​Cornell's liability for all of Equity Lending's debts.
D) Cornell's wrongful dissociation and liability for any damages.

Accepted Answer

Cornell's assignment of his interest to Financial Consultants Corporation without the consent of the other partners is a breach of the partnership agreement. This amounts to wrongful dissociation, which could result in Cornell's liability for any damages caused by his dissociation. The assignment does not automatically terminate Equity Lending's legal existence, nor does it affect Cornell's liability for the debts of Equity Lending.

Question 15

Stefani and Tyler agree in an exchange of e-mail to form a partnership to buy and sell real property. Their partnership agreement is legally binding​
A) ​only if a copy of the agreement is filed in the appropriate state office.
B) ​only if the agreement is printed in hard copy and signed by the parties.
C) ​only if the parties exchange valid consideration.
D) ​without more.

Accepted Answer

A legally binding partnership agreement can be formed without any additional requirements. It is valid as long as the parties have a mutual understanding, intention to create a partnership, and agreement on the essential terms. There is no need to file the agreement or have it in hard copy, although it is recommended for evidentiary purposes. Valid consideration is also not required for the formation of a partnership, although it is necessary for the enforcement of certain provisions or modifications of the agreement.

Question 16

Sweet Selections, a general partnership, operates as a gift shop. Sweet Selections has ten partners. Jill and Amy each have a 25 percent interest in the partnership. All the other members have a 10 percent interest. With respect to management decisions
A) ​a majority of the partners must agree.
B) ​both Jill and Amy must agree.
C) ​the senior partner decides.
D) ​30 percent of the partners must agree.

Accepted Answer

In a general partnership, decisions are made by a majority vote. Therefore, in Sweet Selections, a majority of the ten partners must agree in order to make management decisions.

Question 17

Brad and Carolyn are partners in Doctors for Children, a medical clinic. Brad's dissociation from the firm results in
A) ​the automatic termination of the firm's legal existence.
B) ​the partnership's buyout of Brad's interest in the firm.
C) ​the immediate maturity of all partnership debts.
D) ​the temporary suspension of the partnership's business.

Accepted Answer

When a partner dissociates from a partnership, the partnership may choose to buy out their interest in the firm. This allows the partnership to continue operating without the dissociating partner. The other options are not necessarily true, as the legal existence of the firm may continue depending on the partnership agreement, the maturity of debts may not be affected, and the partnership's business may not be suspended permanently.

Question 18

Jim and Kyle are partners in J&K Sales, which exports technical equipment under a three-year partnership agreement. One year into the term, Congress declares that the equipment can no longer be exported. J&K​
A) ​can continue its business until the end of the three-year term.
B) can continue its business indefinitely.
C) ​dissolves immediately unless the partners change its business.
D) ​is immediately subject to criminal prosecution and penalties.

Accepted Answer

Since J&K Sales' primary business activity of exporting technical equipment can no longer be conducted due to the new law, the partnership would have to dissolve unless the partners decide to change their business model or venture into a new area. The other choices are not accurate as J&K Sales cannot continue business as usual, cannot continue indefinitely, and criminal prosecution would not be applicable in this scenario.

Question 19

Fact Pattern 27-3
​Bryn, Cornell, and Duke are general partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
-Refer to Fact Pattern 27-3. Bryn, Cornell, and Duke decide to admit Giselle as a new partner in Equity Lending. Giselle's liability for partnership debts incurred before her admission is​
A) ​limited to her capital contribution to the firm.
B) limited to her personal assets.
C) ​nothing.
D) ​unlimited.

Accepted Answer

Giselle's liability for partnership debts incurred before her admission is limited to her capital contribution to the firm. This limitation is a characteristic of general partnerships where each partner's liability is limited to the amount of capital they contributed to the partnership. However, if Giselle engages in any partnership activities after her admission, her liability becomes unlimited for partnership debts incurred during that time.

Question 20

Sara and Tony agree while talking on the phone to form a partnership-United Caretakers-to enter into the business of real property management. To be enforceable under the Statute of Frauds, their agreement must​
A) ​be filed in the appropriate state office.
B) ​be in writing.
C) ​be signed by a notary public.
D) ​not involve a third party.

Accepted Answer

The Statute of Frauds requires contracts related to real property to be in writing to be enforceable. Therefore, for their agreement to enter into the business of real property management to be enforceable, it must be in writing. The other choices are not necessary for the enforceability of the agreement under the Statute of Frauds.

Quiz 27: All Forms of Partnership

Fact Pattern 27-2 Kristin and Lindsey are partners in Mobile Devise, an online marketing firm. -Refer to Fact Pattern 27-2. Kristin signs a contract with Nature's Best Chocolate, a candy maker and seller, apparently on Mobile's behalf. The contract is binding on​

Blythe and Cali do business as Diamond Investments. In acting on the firm's behalf, Blythe makes an honest error in overestimating the value of a particular stock purchase. To her firm, Blythe is

Rosalee is a partner in Silver Dragon, a partnership consisting of the owners of a Chinese and American restaurant. Silver Dragon incurs debt for new dining tables and chairs. With respect to this debt, Rosalee is​

Emily is one of three partners in Fast Work, a commercial janitorial service. With respect to Emily's interest in the firm, when she dies, her heirs are most likely entitled to​

Bo and Clancy decide to do business as Marketing & Promotion Services. To be a partnership, this association can result from an agreement that is

Nora and Owen do business as Profit & Property, a real estate investment partnership. In acting on the firm's behalf in a deal with Quaint Village Mall, Nora takes advantage of an opportunity to make a secret profit on her own behalf. To her firm, Nora is liable for​

Chet is a partner in Diligent Accounting Service. Chet can inspect Diligent's books and records​

Oliana is a partner in Pacific Traders. In the majority of states, with respect to any partnership obligations that Oliana does not participate in, know about, or ratify, Oliana would be liable for​

Quisa and Reilly are partners in Sport Bikes, which rents and sells bikes, bike accessories, and related gear. Quisa manages the business. Unless the partnership agreement states otherwise, Quisa is​

Craig, Donna, and Eve do business as FastTrak Career Consultants. Eve's relationship to FasTrak ends, but the firm continues to do business. This is​

Stefani and Tyler agree in an exchange of e-mail to form a partnership to buy and sell real property. Their partnership agreement is legally binding​

Sweet Selections, a general partnership, operates as a gift shop. Sweet Selections has ten partners. Jill and Amy each have a 25 percent interest in the partnership. All the other members have a 10 percent interest. With respect to management decisions

Brad and Carolyn are partners in Doctors for Children, a medical clinic. Brad's dissociation from the firm results in

Jim and Kyle are partners in J&K Sales, which exports technical equipment under a three-year partnership agreement. One year into the term, Congress declares that the equipment can no longer be exported. J&K​

Sara and Tony agree while talking on the phone to form a partnership-United Caretakers-to enter into the business of real property management. To be enforceable under the Statute of Frauds, their agreement must​

Fact Pattern 27-2 Kristin and Lindsey are partners in Mobile Devise, an online marketing firm. -Refer to Fact Pattern 27-2. Kristin signs a contract with Nature's Best Chocolate, a candy maker and seller, apparently on Mobile's behalf. The contract is binding on

Rosalee is a partner in Silver Dragon, a partnership consisting of the owners of a Chinese and American restaurant. Silver Dragon incurs debt for new dining tables and chairs. With respect to this debt, Rosalee is

Emily is one of three partners in Fast Work, a commercial janitorial service. With respect to Emily's interest in the firm, when she dies, her heirs are most likely entitled to

Nora and Owen do business as Profit & Property, a real estate investment partnership. In acting on the firm's behalf in a deal with Quaint Village Mall, Nora takes advantage of an opportunity to make a secret profit on her own behalf. To her firm, Nora is liable for

Chet is a partner in Diligent Accounting Service. Chet can inspect Diligent's books and records

Oliana is a partner in Pacific Traders. In the majority of states, with respect to any partnership obligations that Oliana does not participate in, know about, or ratify, Oliana would be liable for

Quisa and Reilly are partners in Sport Bikes, which rents and sells bikes, bike accessories, and related gear. Quisa manages the business. Unless the partnership agreement states otherwise, Quisa is

Craig, Donna, and Eve do business as FastTrak Career Consultants. Eve's relationship to FasTrak ends, but the firm continues to do business. This is

Stefani and Tyler agree in an exchange of e-mail to form a partnership to buy and sell real property. Their partnership agreement is legally binding

Jim and Kyle are partners in J&K Sales, which exports technical equipment under a three-year partnership agreement. One year into the term, Congress declares that the equipment can no longer be exported. J&K

Sara and Tony agree while talking on the phone to form a partnership-United Caretakers-to enter into the business of real property management. To be enforceable under the Statute of Frauds, their agreement must