Reference no: EM133505997

Case Study: Bruce and Lauren, close friends shared a love of healthy living, opened a healthy-lifestyle themed store selling organic foods and supplements. Lauren provided nearly all the startup and additional capital from time to time, and they agreed that Bruce would run the business. The business was popular and profitable, and operated under the name "B&L Health Foods" (B&L). Because they were good friends, Bruce and Lauren never bothered to write up a formal business agreement or business plan. They just trusted each other and treated each other as equal partners when it came to running the business.

For the first three years, they split the profits evenly and agreed to invest their profits back into the business to upgrade the store and expand inventory selection. At the start of year four, they decided to upgrade the refrigerators to more efficient models. This cost $30,000 and Lauren agreed to loan the business this amount so they could get the new refrigerators as soon as possible. Bruce agreed to split the cost of the new refrigerators with her.

B&L rented the building that the store was located in. After the long-term prospects of the business became favorable, Bruce and Lauren asked the landlord/owner of the building several times if they could purchase the building. The owner did not want to sell the building despite these periodic requests from Bruce and Lauren.

Three months ago, on a day when Lauren was not at the store, the building owner visited the store and said to Bruce, "I'm planning to retire and would like to see if you're still interested in purchasing the building." Two days later, Bruce texted Lauren the following:

Just want to let you know that after a lot of soul-searching, I am withdrawing from our partnership. I will wind up the partnership's business and send you a check for half your share. I promise to be fair and apologize for telling you this over text.

Without letting Lauren know, Bruce called the building owner and made an offer for the building. The building owner accepted, and Bruce and the building owner executed a contract for the purchase/sale of the building. Four weeks later, Bruce took ownership and title to the building, and two weeks ago, Bruce sent to Lauren a check for her half of the remaining proceeds after dissolution.

After receiving the check, Lauren sent Bruce the following text:

Received your check, but I am not cashing it. I never agreed to end the partnership. It isn't fair that you did this without talking to me first and then purchased OUR building without me. It is indeed OUR building, so you should convey the title to the building to OUR partnership.

Bruce replied by text:

I am so sorry. I needed a change in my life. I feel like I had to do something on my own. I enjoyed our partnership, but it is dissolved, and I've moved on. Please understand and do the same.

Bruce then proceeded to operate their store as "B's Health Foods," with the same employees and selling the same products.

Lauren sues Bruce for withdrawing from the partnership and purchasing the building on his own without her consent.

Question a) Addressing Lauren's texts and allegations, explain fully the rights of both parties, Lauren and Bruce.

Question b) What is the legal effect of Bruce's withdrawal from the partnership? Explain fully.

Question c) Assume the following are the valuations for winding up:

• Lauren contributed $110,000 and Bruce $10,000 in capital contributions to date

• Assets are $800,000 • Bruce paid $20,000 in liabilities to third party creditors out of his own pocket

• The partnership owes $30,000 for property taxes

Explain and calculate how Lauren and Bruce should distribute the proceeds upon winding up.