Business Law Study Set 13

Business

Quiz 42 :

Partnerships

Quiz 42 :

Partnerships

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Thomas Smith and Jackie Lea were partners in the logging business. In January 1981, they joined Gordon Redd and went into business running a sawmill, calling the business Industrial Hardwood Products (IHP). Smith and Lea used their logging equipment at the mill site. Smith hauled 400 loads of gravel, worth some $26,000, from his father's land for the mill yard in the process of getting the mill operational. Smith and Lea received $300 a week compensation for their work, which was reported on federal W-2 forms. They worked up to 65 hours per week and were not paid overtime. All three discussed business decisions. Smith and Lea had the authority to write checks and to hire and fire employees. Lea left the business in 1983 and was paid $20,000 by Redd. The testimony indicated that the three individuals agreed in January 1981 that as soon as the bank was paid off and Redd was paid his investment, Lea and Smith would be given an interest in the mill. No written agreement existed. Redd invested $410,452 in the business and withdrew $500,475 from it. As of December 31, 1986, IHP had sufficient retained earnings to retire the bank debt. In April 1987, Smith petitioned the Chancery Court for dissolution of the "partnership" and an accounting. Redd denied that any partnership agreement was formed and asserted that Smith was an employee because he was paid wages. He offered to pay Smith $50,000 for the gravel and use of his equipment. Decide. [Smith v Redd, 593 So2d 989 (Miss)]
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Refer to the case Smith v Redd to answer question as below:
Facts to this case
• S joined a business with R and contributed his equipment for the business.
• S received wages but not paid overtime.
• S had management authority including business operation and hiring and firing.
• S was also given an option to retain interest in the business.
• R claimed S is not a partner.
Case Issue
The issue is whether S is a partner in the business.
Relevant Terms, Laws, and Cases
Partnership - is a business formed between two or more people to share profit and risk.
Analysis and Conclusion
The court should hold for S. In determining whether, S had a partnership relationship with R look at the party's intent, control of business, and share of profit. It can be found that:
• There was a clear intent that R and S wanted to form a partnership. Such as the repayment of R 's capital and debt, and investment of capital from S. This satisfies the intent factor.
• S and R both had management decisions, this satisfies control factor of partnership.
• S did not share the profit does not mean there was no partnership agreement as S and R had an agreement on the business interest.
Thus, there was a partnership between S and R.

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Friedman, the "O" Street Carpet Shop, Inc., and Langness formed a partnership known as NFL Associates. "O" Street Carpet's net contribution to capital was $5,004; Langness contributed $14,000 in cash; and Friedman contributed his legal services, on which no value was placed by the articles of partnership. The articles stated that Friedman was entitled to 10 percent of the profits and that Langness was to receive payments of $116.66 per month. The partnership's accountant treated the payments to Langness as a return of her capital. Years later, the partnership sold the rental property owned by the partnership, and the partnership was wound up. Friedman claimed that he was entitled to 10 percent of the partnership capital upon dissolution. Langness claimed that Friedman was not entitled to a capital distribution and that the monthly payments to her should not have been treated as a return of capital. Decide. [Langness v "O" Street Carpet, Inc., 353 NW2d 709 (Neb)]
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Refer to the case Langness v "O" Street Carpet, Inc. to answer question as below:
Facts to this case
• L , F, and O formed a partnership.
• L contributed cash and F contributed legal services.
• The partnership contract gave L monthly payments for the capital she contributed.
• F was given 10% of the profits.
• The partnership later dissolved and wound up.
• L claimed she is owed the entire compensation on her contributed capital.
• F claimed he is owed the 10% of the dissolved capital.
Case Issue
The issue is whether L and F are owed the amount they claimed.
Relevant Terms, Laws, and Cases
Partnership - is a business formed between two or more people to share profit and risk.
Analysis and Conclusion
On the issue of L 's amount, it can be found that:
• The monthly payment to L was for the capital she contributed.
• Thus the amount of capital contribution owed by L is reduced by those payments.
On the issue of F 's claim to 10% of the profits:
• F did not contribute any capital (cash or equipment) to the business.
• Legal services provided him are not capital contribution.
• Thus, F is not owed any capital contribution.
• Furthermore, while F is granted 10% of profit this doesn't allude to 10% of the partnership's dissolution assets.
Thus, L and F are incorrect for their claim on the capital contribution.

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Thomas Bartomeli decided to leave his employment to join his brother Raymond full-time in a small construction company. The brothers each contributed individual assets to the company and worked together to acquire equipment with both signing notes jointly to acquire certain equipment. Thomas considered himself a partner in the company; Raymond often referred to Thomas as his partner. It was the practice of the company to garage the equipment at Thomas's house. In 1983, the company was incorporated, but Thomas never held any shares in the company. On several occasions, Thomas's careless operation of equipment resulted in loss or damage to the company. Raymond became dissatisfied with Thomas's work performance, and on January 17, 1991, Thomas was removed as secretary of the corporation. On April 19, 1991, Thomas went to the company office and demanded a blank check from the secretary. Raymond found out about this demand and fired him. On April 20, 1991, Thomas demanded from Raymond either 50 percent of the company or certain equipment owned by the company. On April 22, 1991, Thomas was removed as vice president of the company. Raymond attempted to reach an agreement with Thomas on a division of company assets at that point but was not successful. Thereafter, Thomas sued his brother, alleging that Raymond had breached the brothers' contract of partnership. Because the company was a corporation, is it legally inconsistent for Thomas to contend that there was a contract for partnership in the company? How would you decide this case? [Bartomeli v Bartomeli, 783 A2d 1050 (Ct App)]
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Refer to the case Bartomeli v Bartomeli to answer question as below:
Facts to this case
• R and T ran a business as partners.
• The business was later incorporated with T having no shares in the company.
• T was later fired and sued for breach of partnership.
Case Issue
The issue is whether T can sue for breach of partnership when the business became a corporation.
Relevant Terms, Laws, and Cases
Partnership - is a business formed between two or more people to share profit and risk.
Analysis and Conclusion
There was a partnership relationship even though their business was incorporated. It can be found that:
When T was fired, R and T tried to split the company's assets; while, T didn't have shares in the incorporated company, this showed that T wasn't merely an employee.
• There can still be a partnership contract, even if their business was incorporated.
• There was a partnership relationship, as R and T both contributed assets to the company and T was acknowledged as a partner by R.
• Furthermore, R breached the partnership by not allowing T to retain interest in the company.
Thus, there was a partnership relationship and T can sue for breach of partnership.

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Calvin Johnson and Rudi Basecke did business as the Stockton Cheese Co., a partnership, which owned a building and equipment. The partners agreed to dissolve the partnership but never got around to completing the winding-up process. Calvin continued to use the building and to pay insurance on it but removed Rudi's name as an insured on the policy. When the building was later destroyed by fire, Calvin claimed the proceeds of the fire insurance policy because he and his wife were the named insureds on the policy and they had paid the premiums. Rudi claimed that although the partnership was dissolved before the fire, the winding up of the partnership was not completed at the time of the fire. He therefore claimed that he was entitled to half of the net proceeds of the policy. Decide. [State Casualty v Johnson, 766 SW2d 113 (Mo App)]
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Linda, and Nancy form a partnership. Ray and Linda contribute property and cash. Nancy contributes only services. Linda dies, and the partnership is liquidated. After all debts are paid, the surplus is not sufficient to pay back Linda's estate and Ray for the property and cash originally contributed by Linda and Ray. Nancy claims that the balance should be divided equally among Ray, Linda's estate, and Nancy. Is she correct?
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Leland McElmurry was one of three partners of MHS Enterprises, a Michigan partnership. Commonwealth Capital Investment Corp. sued the partnership and obtained a judgment of $1,137,285 against it, but the partnership could not pay the judgment. Commonwealth then sued McElmurry for the entire debt on the theory that, as a partner of MHS, he was liable for its debts. What, if any, is McElmurry's liability? [Commonwealth Capital Investment Corp. v McElmurry, 302 NW2d 222 (Mich App)]
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Ross, Marcos, and Albert are partners. Ross and Marcos each contributed $60,000 to the partnership; Albert contributed $30,000. At the end of the fiscal year, distributable profits total $150,000. Ross claims $60,000 as his share of the profits. Is he entitled to this sum?
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brothers, Eugene and Marlowe Mehl, formed a partnership to operate the family farm. One year, Eugene Mehl withdrew $7,200 from the partnership account and bought the Dagmar Bar. The warranty deed and the liquor license to the bar were obtained in the names of Eugene Mehl and his wife, Bonnie. In a subsequent lawsuit, Marlowe claimed that the bar was a partnership asset. Decide. [Mehl v Mehl, 786 P2d 1173 (Mont)]
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Baxter, Bigelow, Owens, and Dailey were partners in a New York City advertising agency. Owens, who was in poor health and wanted to retire, advised the partners that she had assigned her full and complete interest in the partnership to her son, Bartholomew, a highly qualified person with 10 years of experience in the advertising business. Baxter, Bigelow, and Dailey refused to allow Bartholomew to attend management meetings and refused his request to inspect the books. Bartholomew pointed out that his mother had invested as much in the firm as any other partner. He believed, as assignee of his mother's full and complete partnership interest, that he is entitled to (a) inspect the books as he sees fit and (b) participate fully in the management of the firm. Was Bartholomew correct?
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Mason and Phyllis Ledbetter operated a business in Northbrook, Illinois, as a partnership called Ledbetters' Nurseries that specialized in the sale of garden lilies. The grounds of the nurseries were planted with numerous species of garden lilies, and hundreds of people toured the Ledbetters' gardens every day. After a tour, Sheila Clark offered to buy the facilities at a "top-notch price." Mason felt he could not refuse the high offer, and he signed a contract to sell all the facilities, including all flowers and the business name. When Phyllis refused to go along with the contract, Clark sued the Ledbetters' Nurseries partnership, seeking to obtain specific performance of the sales contract. Decide.
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Gargulo and Paula Frisken operated as a partnership Kiddies Korner, an infants' and children's clothing store. They operated the business very successfully for three years, with both Paula and Amy doing the buying and Paula keeping the books and paying the bills. Amy and Paula decided to expand the business when an adjoining store became vacant. At the same time, they incorporated the business. Children's Apparel, Inc., was a major supplier to the business before the expansion. After the expansion, business did not increase as anticipated, and when a nationally known manufacturer of children's apparel opened a factory outlet nearby, the business could no longer pay its bills. Children's Apparel, which had supplied most of the store's stock after expansion, sued Amy and Paula as partners for bills due for expansion stock. Children's Apparel did not know that Amy and Paula had incorporated. Amy and Paula contended that the business was incorporated and that they therefore were not liable for business debts occurring after incorporation. Were Amy and Paula correct?
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Larson entered into a Special Manager Incentive Agreement (SMIA) with Tandy Corp. He agreed to manage a Radio Shack store for compensation equal to one-half of the adjusted gross profit of the store as computed by a specific formula and to provide the company with a $20,000 "security deposit" on equipment used to set up the store. The agreement was for a period of two years, automatically renewable annually until either party gave notice of termination 30 days prior to the end of a fiscal year. After some eight and onehalf years of operating under renewed agreements, Tandy gave Larson notice of his termination. Larson sued Tandy, claiming that the SMIA was a partnership agreement because there were shared risks, expenses, profits, and losses. He sought an accounting for his reasonable share in the value of the store. Tandy argued that under the SMIA, Larson was an employee-manager, not a partner, and that the ultimate decision making on all matters was Tandy's. Decide. [Larson v Tandy Corp, 371 SE2d 663 (Ga App)]
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Samuel Shaw purchased a ticket through Delta Airlines to fly a "Delta Connection" flight on SkyWest Airlines to Elko, Nevada. He was seriously injured when the SkyWest plane crashed near Elko. SkyWest's relationship with Delta was a contractual business referral arrangement, whereby Delta benefits through its charges for issuing tickets to connecting passengers to and from smaller communities, and SkyWest benefits from revenue generated by passengers sent to it by Delta. Both firms make a profit from this arrangement. SkyWest and Delta are often mentioned together by Delta in national print advertisements. Shaw believed that regardless of how the airlines characterize themselves, these airlines are in fact partners because they share profits from their combined efforts. Delta contended that it had no control over SkyWest's airplane operations and that sharing profits as compensation for services does not create a partnership. Decide. [Shaw v Delta Airlines, Inc., 798 F Supp 1453 (D Nev)]
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John Transportation Co., a corporation, made a contract with the partnership of Bilyeu and Herstel, contractors, by which the latter was to construct a ferryboat. Herstel, a member of the firm of contractors, executed a contract in the firm name with Benbow for certain materials and labor in connection with the construction of the ferryboat. In an action brought by Benbow to enforce a lien against the ferryboat, the James Johns, it was contended that all members of the firm were bound by the contract made by Herstel. Do you agree? [Benbow v The Ferryboat James Johns, 108 P 634 (Or)]
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