Question 1

Angie, Chloe, and Michele carry on business in partnership as landscape gardeners. Angie purchased a set of patio furniture on credit for her personal use from a firm where the partnership purchased most of its equipment. Angie failed to pay for the goods, and the equipment supplier charged the purchase of the furniture to the partnership, as the goods had been delivered to the partnership's place of business. The partnership is liable for the furniture, because the furniture was delivered to the partnership's place of business.

Accepted Answer

The partnership is generally not liable for Angie's personal purchases unless the purchase was made within the scope of the partnership's business or Angie was authorized by the partnership to make the purchase for personal use. The fact that the furniture was delivered to the partnership's place of business does not automatically make the partnership liable for Angie's personal debt.

Question 2

An ex-partner can never be liable for partnership debts incurred after he leaves the partnership.

Accepted Answer

An ex-partner can be liable for partnership debts incurred after they leave the partnership if the debts are related to transactions started before their departure, or if proper notice of their departure was not given to creditors or the public.

Question 3

John and Pat purchased a joint interest in a two-hectare campground with a variety store and mini-golf course and retained the existing manager to handle day-to-day operations. From time to time they made improvements to the site and each year they divided the profits (or losses) from the campground equally. If Pat takes over operational management and John assumes the administrative tasks associated with the campground, a partnership exists in respect of the business.

Accepted Answer

John and Pat's joint purchase of the campground, shared improvements, and equal division of profits or losses, along with their division of operational and administrative tasks, indicate a partnership. A partnership is formed when two or more persons carry on a business in common with a view to profit.

Question 4

Angie, Chloe, and Michele carry on business in partnership as landscape gardeners. Angie purchased a set of patio furniture on credit for her personal use from a firm where the partnership purchased most of its equipment. Angie failed to pay for the goods, and the equipment supplier charged the purchase of the furniture to the partnership, as the goods had been delivered to the partnership's place of business. If the goods were not purchased in the ordinary course of partnership business, and purchased in Angie's name only, the partnership would be liable, because the partnership is liable for the personal debts of the partner.

Accepted Answer

The partnership is generally not liable for personal debts of a partner that are not incurred in the ordinary course of its business or without the authority of the other partners.

Question 5

Angie, Chloe, and Michele carry on business in partnership as landscape gardeners. Angie purchased a set of patio furniture on credit for her personal use from a firm where the partnership purchased most of its equipment. Angie failed to pay for the goods, and the equipment supplier charged the purchase of the furniture to the partnership, as the goods had been delivered to the partnership's place of business. The sharing of business profits is insufficient to indicate the existence of a partnership agreement.

Accepted Answer

A partnership agreement can be inferred from the conduct of the parties, even if there is no formal written agreement. In this case, Angie's purchase of the patio furniture on credit for her personal use and the delivery of the goods to the partnership's place of business indicate that the parties intended to create a partnership.

Question 6

John and Pat purchased a joint interest in a two-hectare campground with a variety store and mini-golf course and retained the existing manager to handle day-to-day operations. From time to time they made improvements to the site and each year they divided the profits (or losses) from the campground equally. John and Pat are partners.

Accepted Answer

John and Pat's joint purchase of the campground, their shared decision-making on improvements, and the equal division of profits and losses indicate a partnership, as they are engaging in business with the intent to share profits, which meets the criteria for a partnership arrangement.

Question 7

Angie, Chloe, and Michele carry on business in partnership as landscape gardeners. Angie purchased a set of patio furniture on credit for her personal use from a firm where the partnership purchased most of its equipment. Angie failed to pay for the goods, and the equipment supplier charged the purchase of the furniture to the partnership, as the goods had been delivered to the partnership's place of business. The partnership is not liable, as the goods were not purchased in the ordinary course of partnership business.

Accepted Answer

The partnership is not liable because the purchase was for Angie's personal use and not related to the partnership's business activities.

Question 8

The partners of Green Grow Landscaping no longer feel that James is contributing to the firm's business. Green Grow has no partnership agreement. James may not transfer his share in the partnership to another person.

Accepted Answer

Without a partnership agreement specifying otherwise, a partner in a general partnership may transfer their economic rights (such as the share of profits or losses) to another person, but not their managerial or decision-making rights in the partnership.

Question 9

Any partner may terminate a partnership agreement that is for a specified period of time upon giving notice of dissolution to the remaining partners.

Accepted Answer

A partnership agreement for a specified period of time generally cannot be unilaterally terminated by any partner before the end of that period without a breach of the agreement, unless the partnership agreement specifically allows for such termination.

Question 10

Harry, Clyde, and Pete carried on business in partnership as hardware merchants. Clyde, who did most of the purchasing of stock for the partnership, would occasionally purchase (using his own money) an extra quantity of some items that could readily be sold to consumers. He would use the truck owned by the business on the weekends to travel to his cottage where he would sell the items to cottage owners in the area of his own cottage. Harry and Pete were unaware of Clyde's actions, as Clyde had not revealed his weekend business activity to either Harry or Pete. Clyde's actions were in breach of the partnership agreement, since the agreement is a contract of utmost good faith.

Accepted Answer

In a partnership, all partners are expected to act in good faith towards one another, which includes disclosing any business activities that could potentially compete with or affect the partnership. Clyde's failure to inform Harry and Pete of his side business, especially using the partnership's resources (the truck) for personal gain, breaches this principle of utmost good faith.

Question 11

The partners of Green Grow Landscaping no longer feel that James is contributing to the firm's business. Green Grow has no partnership agreement. Four out of six of the partners may vote to successfully dismiss James from the partnership.

Accepted Answer

In the absence of a partnership agreement, the default rules under the Uniform Partnership Act require unanimous consent of all partners to expel a partner, not just a majority.

Question 12

The partners of a small accounting firm delegate responsibilities among themselves for various duties. Davis is responsible for professional development. After reserving a banquet room and food for a seminar at which a leading tax accountant will speak, Davis learns on the eve of the seminar that the guest cannot attend. If at another time Davis arranges a Christmas party at a local restaurant for partners and their spouses, the restaurant can demand payment from Davis if the firm fails to pay the bill.

Accepted Answer

As the agent of the firm, Davis has apparent authority to enter into contracts on behalf of the firm for business-related events, including arranging events like seminars or parties. If the firm fails to pay, the restaurant can seek payment from Davis, who acted on behalf of the firm.

Question 13

Harry, Clyde, and Pete carried on business in partnership as hardware merchants. Clyde, who did most of the purchasing of stock for the partnership, would occasionally purchase (using his own money) an extra quantity of some items that could readily be sold to consumers. He would use the truck owned by the business on the weekends to travel to his cottage where he would sell the items to cottage owners in the area of his own cottage. Harry and Pete were unaware of Clyde's actions, as Clyde had not revealed his weekend business activity to either Harry or Pete. Clyde must pay over to the partnership the profit earned by his weekend selling, because he used partnership assets to earn the profits.

Accepted Answer

Clyde must pay over to the partnership the profit earned by his weekend selling because he used partnership assets (the truck) to earn those profits, which constitutes using partnership resources for personal gain without the consent of the other partners.

Question 14

Harry, Clyde, and Pete carried on business in partnership as hardware merchants. Clyde, who did most of the purchasing of stock for the partnership, would occasionally purchase (using his own money) an extra quantity of some items that could readily be sold to consumers. He would use the truck owned by the business on the weekends to travel to his cottage where he would sell the items to cottage owners in the area of his own cottage. Harry and Pete were unaware of Clyde's actions, as Clyde had not revealed his weekend business activity to either Harry or Pete. Clyde's only liability to Harry and Pete is for expenses for his use of the truck.

Accepted Answer

Clyde's actions could potentially expose him to liability to Harry and Pete for any profits he made using the partnership's assets (the truck) and possibly for breach of fiduciary duty by not disclosing his activities and competing with the partnership.

Question 15

Angie, Chloe, and Michele carry on business in partnership as landscape gardeners. Angie purchased a set of patio furniture on credit for her personal use from a firm where the partnership purchased most of its equipment. Angie failed to pay for the goods, and the equipment supplier charged the purchase of the furniture to the partnership, as the goods had been delivered to the partnership's place of business. The partnership is liable, because Angie, as a partner, could bind the firm in contracts made in the ordinary course of partnership business.

Accepted Answer

The partnership is not liable because the purchase of patio furniture for personal use is not within the ordinary course of the partnership's business as landscape gardeners.

Question 16

Harry, Clyde, and Pete carried on business in partnership as hardware merchants. Clyde, who did most of the purchasing of stock for the partnership, would occasionally purchase (using his own money) an extra quantity of some items that could readily be sold to consumers. He would use the truck owned by the business on the weekends to travel to his cottage where he would sell the items to cottage owners in the area of his own cottage. Harry and Pete were unaware of Clyde's actions, as Clyde had not revealed his weekend business activity to either Harry or Pete. The partnership is automatically dissolved because of Clyde's actions.

Accepted Answer

Clyde's actions, without more, do not automatically dissolve the partnership. Dissolution typically requires an agreement between the partners, a unilateral decision to leave the partnership in accordance with the partnership agreement, or a court order under certain circumstances, none of which are described here.

Question 17

A partner who acts beyond his actual authority in dealings with third parties will be liable to the other partners under the notion of "breach of warranty of authority."

Accepted Answer

The concept of "breach of warranty of authority" applies when an agent misrepresents their authority to third parties, not within the context of partners' liabilities to each other. In partnerships, the issue would typically be addressed under the principles of partnership law, which may involve breach of the partnership agreement or fiduciary duties, rather than a "breach of warranty of authority."

Question 18

The partners of a small accounting firm delegate responsibilities among themselves for various duties. Davis is responsible for professional development. After reserving a banquet room and food for a seminar at which a leading tax accountant will speak, Davis learns on the eve of the seminar that the guest cannot attend. The firm is liable for the banquet cancellation charge.

Accepted Answer

The firm is liable for the banquet cancellation charge because Davis, a partner, entered into the contract for the seminar on behalf of the firm, and partners have the authority to bind the firm in contracts related to the firm's business operations.

Question 19

The provisions of the Partnership Act supersede the terms of a partnership agreement with respect to the rights and obligations of the partners to one another.

Accepted Answer

The terms of a partnership agreement can override the default provisions of the Partnership Act, except where the Act specifies mandatory terms that cannot be altered by agreement.

Question 20

The partners of Green Grow Landscaping no longer feel that James is contributing to the firm's business. Green Grow has no partnership agreement. The partners must unanimously vote to dismiss James from the partnership.

Accepted Answer

In the absence of a partnership agreement, the Uniform Partnership Act or the Revised Uniform Partnership Act (depending on the jurisdiction) typically applies, which generally allows a partnership to expel a partner based on a majority vote, not necessarily a unanimous one.

Quiz 16: Law of Sole Proprietorship and Partnership