Reference no: EM13915791

Paul Salvy established a partnership with Lisa Witlow. The new company, S&W Fuels, purchased coal directly from mining companies and contracted to ship the coal via waterways to a seaport where it was delivered to ships that were owned and operated by international utilities companies. Salvy was primarily responsible for running the day to day operations of the business. Witlow negotiated the buy and sell agreements. She recently signed a deal to purchase and deliver $2,000,000 of coal to Solar Utilities. S&W Fuels purchased the coal on account from Miller Mining Company. After accepting title to the coal, S&W Fuels agreed to deliver the coal under terms FOB destination, Port of Long Beach. Unfortunately, Witlow failed to inform Salvy of the deal in time for Salvy to insure the shipment. While in transit, the vessel carrying the coal suffered storm damage that rendered the coal virtually worthless by the time it reached its destination. S&W Fuels immediately declared bankruptcy. The company not only was responsible for the $2,000,000 due to Miller Mining Company but also was sued by Solar for breach of contract. Witlow had a personal net worth of virtually zero, but Salvy was a wealthy individual with a net worth approaching $2,500,000. Accordingly, Miller Mining and Solar filed suit against Salvy's personal assets. Salvy claimed that he was not responsible for the problem because Witlow had failed to inform him of the contracts in time to obtain insurance coverage. Witlow admitted that she was personally responsible for the disaster. 

Required: 

Write a memo describing Salvy's risk associated with his participation in the partnership. 
Comment on how other forms of ownership would have affected his level of risk.