Test 3 Ch. 32

Astrid and Razi formed a partnership in which they agree to share profits 60 percent to Astrid and 40 percent to Razi. Losses will be shared

60 percent to Astrid and 40 percent to Razi, unless otherwise agreed.

How may a partnership ratify an unauthorized partner transaction?

Accepting the benefit of the transaction, Failing to repudiate it

Partnership property is owned by

All partnership property belongs to the partnership as a whole, not to the individual partners. A partner has no right to use or sell property except for the benefit of the partnership.

Anne and Mike were winding up their partnership. Mike was approached by a person who wanted the partnership to do some work for him. Mike agreed that the partnership would do the work. Generally speaking, in such a situation

Anne is liable unless she filed a statement of dissolution with the Secretary of State within 90 days of when Mike entered the contract.

Belinda and Franco are partners in a jewelry business. Without Franco's knowledge, Belinda buys a ring from Janice for $2,200. Janice has no reason to question the transaction since she is a regular customer of the store and assumes Belinda has authority to buy her ring. When Franco finds out he is furious and does not want to honor the agreement. Which of the following is TRUE?

Belinda acted with apparent authority and the partnership must honor the transaction.

Which of the following are steps in the termination of a partnership?

Dissociation Termination Winding up

____applies when the parties _____, in fact, ____but are _____ as if they were.

Partnership by estoppel, are not, partners, held liable

Which of the following are types of conduct for which a partner is liable to the partnership?

Recklessness, Knowing violation of the law, Gross negligence

Sandy, Ramon, and Bonnie were partners. Sandy dissociated from the partnership. Bonnie and Ramon decided to continue the business. When Sandy dissociated, there was a $50,000 debt owed to Great State Bank. Which statement is correct?

Sandy remains liable on the $50,000 debt owed to Great State Bank.

The court in Jefferson Insurance Co. v. Curle made which of the following conclusions?

Shelley's cancellation of the policy was binding on the partnership and Curle Shelley had a fiduciary obligation to Curle

What are the requirements for partnership by estoppel to apply?

The participants tell others they are partners A third party relies on the assertion that the participants are partners The third party suffers harm

A partner has a conflict of interest whenever the partnership does business with which of the following?

The partner, A company the partner has an ownership interest in, The partner's family

Under which of the following circumstances is a partnership not created?

The partners operate a charitable organization and do not intend to make a profit, The partners do not share profits

Randy, Joan, and Arnie are partners. Their agreement did not address dissociation nor how long the partnership would last. Randy decided to leave the partnership. What happens when Randy serves notice he intends to withdraw?

The partnership can either buy him out and continue in business or wind up the business and terminate the partnership

The court in Moren v. Jax Restaurant reached which of the following conclusions?

The partnership must indemnify Moren for the damages caused by her negligence Moren's conduct was in the ordinary course of business, so the partnership is bound by it

The Uniform Partnership Act (UPA) rules governing the relationship among partners are default rules that may be modified by partners if they expressly agree. T or F.

True

The court in Marsh v. Gentry found that transactions between two partners require a higher degree of good faith than transactions between a partnership and a third party. T or F.

True

The rules governing liability of the partnership under the Uniform Partnership Act (UPA)

Under the UPA, the rules governing the liability of the partnership to outsiders are mandatory. Partners may not change them. In contrast, most of the rules governing the relationship among partners are default provisions, meaning that the partners can change these rules if they desire.

Gary and Herman are partners in a lawn mower repair business in Ohio. While Gary is on vacation, visiting his sister in Georgia, his sister's neighbor has trouble with her mower and Gary fixes it for her. She insists on paying him. Gary

must turn the money over to the partnership because he earned it doing the kind of work that the partnership does.

In a _________, the partners are free to leave the partnership at any time, whereas in a _________, the partnership lasts for a specified period of time set by the partners.

partnership at will; term partnership

When two parties incur the liability of a partnership without actually being partners, it is referred to as

partnership by estoppel.

If Kay, a partner in an auction business, has a personal creditor who is aggressive about collecting the debt,

the creditor can attach partnership profits by obtaining a charging order.

Kayla and Marshall formed a partnership. Marshall incurred a debt in the ordinary course of the partnership business. If the debt is not paid, the creditor may sue:

the partnership and the partners together, or in separate lawsuits, or in any combination.

According to the UPA, the association of_____persons to carry on as _____a business ____forms a partnership _____ the persons intend to form a partnership.

two or more, co-owners, for profit, whether or not

In Banker v. Estate of Banker, the court found that Arnold, who was the only partner to actually operate the partnership's campground business.

was not entitled to compensation, pursuant to the default rule, even though the business' earnings were attributable to his efforts.

Which of the following are factors that a court will consider in determining a partnership exists?

Whether there is a partnership agreement Whether the parties are involved in the management of the business Whether the parties intend to make a profit How losses and profits are divided

A partnership is responsible for the intentional and negligent torts of a partner that occur under what circumstances?

With the actual authority of the partners, In the ordinary course of the partnership's business

Lori and Dan own a small restaurant as partners. Dan works several hours a day cooking, waiting on tables, doing the books, and so forth. Dan believes he is entitled to be paid at least a standard wage for all his work since, at the present time, the part-time kitchen helpers earn more than he does! Lori claims Dan is not entitled to anything other than one-half the net profits. Is Lori right?

Yes, if there is no agreement between Lori and Dan allowing for either of them to be paid wages for work done at the restaurant

Nancy was a partner of a small business. She could see that the business was beginning to fail and that it was very unlikely it would recover. Not wanting to lose her investment, she asked that the court require the partnership to dissolve since she did not have a legal right to withdraw at that time. Does a court have the authority to order a partnership to dissolve?

Yes. A court can dissolve a partnership when it is convinced that the partnership is unlikely to succeed.

Judy believed that Ray and Don were partners in an automotive repair business. Ray and Don were not partners. Ray owned the business as a sole proprietor. Ray, however, allowed Don, his unemployed brother-in-law, to be around the business. When Judy was having her car repaired, Ray told her "my partner here, Don, will give you a ride to work this morning so you can leave your car here. He will give you a ride back here after work and your car will be done." Judy allowed Don to drive her to work. While riding with Don, Don accidentally ran a stop light and caused an accident. Judy was hurt and claims that both Don and Ray are liable to her. Is she right?

Yes. This illustrates a partnership by estoppel.

Termination occurs

[automatically upon completion of winding-up] Once a partnership dissolves, it must go through a winding-up process to complete its unfinished business, sell its assets, pay-off creditors, and distribute any proceeds (or obligations) among partners. Once the wind up is complete, the partnership terminates automatically. It is not required to do anything official.

A dissociated partner is liable to outsiders for the debts incurred by the partnership

[only for two years after leaving the partnership and only if the creditor reasonably believe he is still a partner] A dissociated partner is liable to outsiders for the debts of the partnership incurred within two years after she leaves, but only if the creditor reasonably believes she is still a partner. The partnership must indemnify her for these debts.

A partner may sell her share in a partnership

[only with the unanimous approval of the other partners] Without the approval of the other partners, a partner cannot sell her share; she can only transfer her right to receive profits and losses. A new partner can only be admitted to a partnership by unanimous consent of the other partners. It would be unfair to force partners to work with, or face unlimited liability for, someone they do not consider trustworthy.

The Uniform Partnership Act (UPA)

[provides many default rules that apply to a partnership unless the partners agree otherwise] Traditionally, general partnerships were regulated by common law, but a lack of consistency among the states became troublesome as interstate commerce grew. To solve this problem, the National Conference of Commissioners on Uniform State Laws drafted the Uniform Partnership Act (UPA). More than two-thirds of the states have now passed the latest revision. Many of the rules in the UPA are so-called default rules, meaning that they apply unless the partners reach a different agreement.

If the partnership ratifies an unauthorized partner action,

[the partner's action is valid as if it had been authorized from the beginning] As with every agency relationship, partners can ratify unauthorized acts. If the partnership accepts the benefit of the unauthorized transaction or fails to repudiate it, the partnership has ratified it. Once ratified, these actions are as valid as if they had been authorized from the beginning. Thus, Daniel exceeds his authority when he offers Matthew $10,000 for any Stephen King first edition. Tamika is outraged, but she never tells Matthew that the deal is no good. After scouring the city, Matthew finds a first edition of Misery. The partnership must pay for the book, no matter how miserable it makes Tamika.

The dissolution of a partnership means the same as its termination. T or F.

False

The rules set out in the UPA defining the liability of partners to outsiders can be modified by the partnership agreement. T or F.

False

Voting rights are divided among partners based on their initial contributions to the partnership. T or F.

False

When a partner dissociates, the partnership terminates. T or F.

False

The Uniform Partnership Act (UPA) provides default rules regarding the liability of partnerships to outsiders. T or F.

False

Ending a partnership involves which of the following three steps?

Dissolution, winding up, and termination

At what stage are the partnership debts paid and the proceeds distributed to the partners?

During winding-up

Which of the following are duties that partners owe the partnership?

Duty of faith and fair dealing, Duty to inform, Duty of loyalty

Which of the following must a partner turn over to the partnership?

Earnings from any activity related to the partnership's business Any profit earned from use of partnership property without the consent of the partners

A partner always has the right, though not the power, to leave a partnership. T or F.

False

A partner's liability for the partnership's obligations includes full liability for any debts incurred by the partnership prior to the partner joining the partnership. T or F.

False

A partner's rights is to profits is protected from the reach of creditors, and may only be used to pay a partner's personal debt if she chooses to transfer the right to creditors. T or F.

False

A partnership can be held liable for the negligence of a partner in the ordinary course of the partnership's business, but not for any intentional torts of a partner. T or F.

False

A partnership is liable for the ordinary negligence of a partner that occurs in the ordinary course of business only if the partner assumes liability to the partnership for such conduct in the partnership agreement. T or F.

False

A partnership must make a formal filing with the Secretary of State containing basic information about the entity. T or F.

False

Brock and Heidi agree to jointly run a fundraiser for the nonprofit children's hospital. Even if they don't have a formal, written agreement, they have formed a partnership. T or F.

False

Doyle contributed $10,000 when he became a general partner in the existing partnership of R & Z Heating. If Albert wins a judgment for $25,000 against R & Z on a claim that was incurred before Doyle became a partner, Doyle shares joint and several liability with his new partners for the whole obligation. T or F.

False

A partner must receive permission from the partnership to seize a business opportunity that the partnership could take itself. T or F.

True

A partnership must indemnify a dissociated partner for any obligations to outsiders incurred during her term. T or F.

True

Alicia and Ted have a written agreement wherein they will share the losses of their joint business. This agreement is strong evidence they are partners. T or F.

True

Although a partner cannot transfer his share in a partnership without approval of the other partners, a partner may freely transfer his right to receive the partnership's profits and losses. T or F.

True

Common law plays an important role in regulating partnerships. T or F.

True

Every partner is an agent of the partnership for the purpose of its business. T or F.

True

Historically, partnerships were the only form of organization available to professionals, such as accountants, lawyers, and doctors, but that is no longer the case today. T or F.

True

Jeremiah was a partner in a partnership, but he quit unexpectedly when he got his feelings hurt over an internal decision. Dissociation has occurred. T or F.

True

Kyle, Pedro, and Madeline form a partnership. There is no agreement as to the duration of the partnership. The partnership is a partnership at will. T or F.

True

Nicholas and Holly are partners in a toymaking shop. If Rudolph obtains a judgment against Nicholas for injuring Rudolph while Nicholas was on partnership business, Rudolph must try to collect from the partnership before going after Nicholas' personal assets. T or F.

True

Dusty dissociated from a partnership. To protect himself from debts of the partnership after he leaves, Dusty should

file a statement of dissociation with the Secretary of State.