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Nicolas Flamel formed a limited partnership with his father-in-law, Tom Riddle, to open a seafood restaurant in a mid-western town. Mr. Flamel was the general partner and Mr. Riddle was the limited partner and invested $100,000. After one year, difficulties in the restaurant operation caused business to drop off, and Mr. Flamel called Mr. Riddle for advice.

After hearing of the difficulties, and concerned with the security of his investment, Mr. Riddle traveled to visit the operation. Upon observing the operation for two days, the two partners decided to launch a large and expensive television ad campaign to increase lagging sales. Mr. Riddle designed the campaign with the help of Brandon Advertising and Video, a local advertising agency specializing in television commercials.

Despite an immediate increase in sales, volume continued to decline, and finally, three months after the ad campaign launched, the restaurant closed its doors. Total debts at the time the restaurant closed equaled $400,000, with assets of the partnership only being $200,000. The advertising agency sought payment directly from Mr. Riddle.

Mr. Riddle claimed that his liability was limited to the $100,000 he had previously invested in the business and refused to pay any additional money. The Brandon Advertising Agency sued the partnership, as well as Nicolas Flamel and Tom Riddle individually.

1. By advising Mr. Flamel and hiring the advertising agency, did Mr. Riddle forfeit his limited partner status? Why or Why not?

2. Is Mr. Riddle liable for the outstanding debts of the partnership? Why or why not? If so, how much and under what concept?

Reference no: EM133316543

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