Reference no: EM131032404

FACT SITUATION:

Authentic Restoration (hereafter Authentic) is a general partnership engaged in the business of buying, selling and restoring used and antique furniture. Authentic's original partners were Wendy Darling, P. J. Pan and Clark Kent.  They formed the partnership on January 1, 2012. They signed Articles of Partnership that provided that the partners would share profits on a 2:1;1 ratio (one half for Darling, one-fourth for Pan, and one-fourthfor Kent).  There was no provision in the agreement as to how the partners would share losses. The articles also contained a buy-sell agreement funded by life insurance.  Under the provision in the Articles the premiums for the life insurance on Darling's, Pan's and Kent's lives are to be paid out of partnership funds and the beneficiary will be the partnership.  At the time the partnership was formed, Darling contributed $300,000 and Kent contributed $150,000 and Pan contributed $100,000.  Immediately thereafter, Darling contacted Life and Times Insurance Corp and negotiated life insurance contracts as specified in the Articles on all three partners, paying the premiums from business funds.

On December 1, 2015, Darling and Kent agreed to hire Karen Baker to be a salesperson and to assist in purchasing antiques for Authentic's inventory. Pan was outside of the United States on a buying trip and did not learn of the hiring until he returned.  According to the employment  arrangement, Karen was would work outside Authentic's sales facilities going to auctions and estate sales and negotiating private sales.  Karen signed a contract with Authentic specifying that she was an "independent contract" and that she would be paid on a commission basis and was responsible for all her own transportation and other expense.

On December 15, Darling instructed Baker to negotiate the purchase of certain antiques that Paulette Jackson had recently inherited from a deceased aunt.  Darling instructed Baker to make the purchase from Jackson without disclosing that Baker was acting on Authentic's behalf.  Darling had some legal problems with Jackson in the past and thought that Baker could negotiate a better price if Jackson was not aware that the antiques were being acquired for a business in which she was a partner.  Baker contracted with Jackson without disclosing that the antiques were being purchased for Authentic.  The agreement provided that Jackson would deliver the antiques on January 2, 2016, to a warehouse to be designated by Baker.  The purchase price was to be paid on delivery. When Baker informed Darling and Kent about the purchase terms, Kent objected to the purchase price and instructed Baker to refuse delivery and not to pay the purchase price.  After a lengthy argument Darling also agreed to have Baker repudiate.   On January 2, Jackson contacted Baker to discover to which warehouse she should deliver the antiques.  At that time Baker informed Jackson that she was repudiating the contract and not to deliver.

 

On the commute to one of the antique auctions, Karen's car collided with another motorist, John Damler.  The accident was due to Karen's negligence.  Damler is threatening a tort action against Authentic if it (or its insurance company) doesn't pay his damages.  Karen has inquired about filing workers' compensation insurance since she was working for Authentic at the time of the accident.

 

On December 20, 2015, Kent assigned his partnership interest in Authentic to George Grey, a creditor to whom Kent owed a substantial non-business related debt.  On December 31, Kent advised Darling and Pan of the assignment to Grey.  On January 11, 2005, Grey contacted Darling and Pan and demanded to inspect the partnership books and to participate in the management of partnership affairs, including voting on partnership decisions.

On January 13, it was determined that Authentic had incurred an operating loss of $160,000 in 2015.  Darling demanded that Kent contribute $40,000 to the partnership to account for Kent's share of the loss.  Kent refused to contribute.

On January 28, 2016, Fine Fabrics Corp., a business creditor of Authentic, sued Authentic and Darling and Kent  for unpaid bills totaling $92,000 from purchases made by Kent of reupholstering fabrics and supplies. Authentic had not paid the bills because of a cash shortfall caused by the 2015 operating loss.  Darling maintains that the purchases were not partnership debts since Kent purchased the items without the approval (or even the knowledge) of Darling. 

Jackson has taken the following position:

Baker is responsible for any damages incurred by Jackson as a result of her refusal to accept delivery or pay the purchase price.

Baker has taken the following position:

Only Authentic is liable on the contract with Jackson---not Baker---since Baker had express authority to contract.

Baker is not personally liable for the injuries to Damler since she was acting as an agent on Authentic's business at the time.

Baker can file for benefits under Authentic's workers' compensation insurance,

Damler has taken the following position:

Both Baker and Authentic are liable, jointly and severally, for his damages due to the collision with Baker.

Darling has taken the following position:

Grey is not entitled to inspect the partnership books or to participate in the management of the partnership.

Only Kent is liable to Fine Fabrics since he did not have authority to make the purchases.

Only Kent is liable to Fine Fabrics because, when Kent assigned his partnership interest to Grey, the assignment automatically dissolved the partnership and terminated Kent's authority to act as a partner.

Grey is liable to Fine Fabrics (jointly with Kent and Darling) since he is a partner by estoppel.

Kent has taken the following position:.

Any personal liability of the partners for the 2015 operating loss should be allocated equally between the Darling, Pan and Grey---Kent has no personal liability.

That the life insurance policy with the partnership as beneficiary is null and void.

Question:Determine whether each of the above positions is correct and state the reasons for your conclusions.  Be sure to state clearly whether each of the 11 statements above is CORRECT OR INCORRECT and state the LEGAL and FACTUAL basis for your conclusion in each case.