- What right does the deceased partner's estate have with respect to the partnership? Select one.
Answer: The right to compel the liquidation of the business and receive the value of the deceased partner's interest in cash.
The correct answer is B. The death of a partner causes a dissociation. Here, the partnership agreement specifies that death causes dissolution. Upon dissolution, the partnership is supposed to be wound up, its assets liquidated, and creditors paid. The remaining value is then distributed to the partners. The deceased partner's estate has the right to compel this winding up and receive the value of the deceased partner's interest. Because the agreement mandated dissolution, the default RUPA rules allowing continuation and buyout do not apply. Choice A describes the buyout right that typically applies upon dissociation when the business is continued, but here the agreement mandated dissolution. Choice C is incorrect; an estate does not automatically become a partner. Choice D is incorrect because the estate's rights are not extinguished.
- Is the partnership bound by the contract for the oven? Select one.
Answer: Yes, because the chef had apparent authority to purchase equipment for the restaurant in the ordinary course of business.
The correct answer is A. Under the Revised Uniform Partnership Act (RUPA), a partner is an agent of the partnership. A partner's act for apparently carrying on in the ordinary course the partnership business binds the partnership, unless the partner had no authority to act for the partnership in the particular matter and the person with whom the partner was dealing knew or had received a notification that the partner lacked authority. Here, purchasing a new oven is an ordinary business activity for a restaurant. The supplier was unaware of the internal restriction in the partnership agreement. Therefore, the chef acted with apparent authority, and the partnership is bound. Choice B is incorrect because while the chef lacked actual authority, apparent authority is sufficient to bind the partnership to a third party. Choice C incorrectly imposes a duty of inquiry on the third party. Choice D is too broad; a partner's authority to bind the partnership is limited to acts in the ordinary course of business.
- What is the legal characterization of the partner's withdrawal? Select one.
Answer: A wrongful dissociation, because the withdrawal occurred before the expiration of the partnership's term.
The correct answer is B. A partner has the power to dissociate at any time, but whether the dissociation is rightful or wrongful depends on the circumstances. In a partnership for a definite term or a particular undertaking, a partner's withdrawal before the completion of the term or undertaking is a wrongful dissociation. Because the partner withdrew before the end of the five-year term, the dissociation is wrongful. A partner who wrongfully dissociates is liable for any damages caused by the dissociation. Choice A is incorrect because while the partner has the power to dissociate, he does not have the right to do so without consequences. Choice C is incorrect because dissociation does not automatically cause dissolution. Choice D is incorrect because a partner can withdraw; the issue is whether it is wrongful.
- What is the extent of the other two partners' personal liability for the remaining $240,000 of the judgment? Select one.
Answer: They are jointly and severally liable for the entire remaining $240,000 of the partnership's debt.
The correct answer is C. In a general partnership, partners are jointly and severally liable for all obligations of the partnership, including torts committed by a partner in the ordinary course of the partnership's business. This means that a creditor can sue any one partner for the entire amount of the partnership's debt after exhausting partnership assets. While the partners may have rights of contribution among themselves, each is fully liable to the third-party creditor. Choice A is incorrect because the partnership is liable for the torts of a partner acting in the ordinary course of business, and all partners are liable for partnership obligations. Choice B describes contribution rights between partners, not the liability to a third party. Choice D describes the liability of a limited partner or a member of an LLC, not a general partner.
- Following the liquidation of all assets for $100,000 in cash, how should the funds be distributed? Select one.
Answer: All creditors, including partners who are creditors, have equal priority and are paid before any capital is returned to partners.
The correct answer is D. Under RUPA's default rules for winding up, partnership assets must first be applied to discharge obligations to creditors, including partners who are creditors. There is no distinction in priority between outside creditors and partner-creditors—both have equal status. After all creditors are paid, any surplus is distributed to partners. Here, total creditor claims ($120,000) exceed available assets ($100,000), so creditors would be paid pro rata as described in choice C. However, choice D states the fundamental legal principle that governs distribution priority, which is what the question tests. Choices A and B incorrectly create a priority distinction between creditor types.
- Have the partner's actions violated any fiduciary duty owed to the partnership? Select one.
Answer: Yes, because she breached her duty of loyalty by usurping a partnership opportunity.
The correct answer is D. Partners owe a fiduciary duty of loyalty to the partnership and the other partners. This duty includes refraining from usurping a partnership opportunity. An opportunity belongs to the partnership if it is closely related to the partnership's line of business. Here, the land development project was squarely within the partnership's scope. By taking the opportunity for herself without first offering it to the partnership and obtaining their consent, she violated her duty of loyalty. Choice A is incorrect; partners are not free to pursue interests that conflict with the partnership's business. Choice B is incorrect because the duty to disclose the opportunity is part of the duty of loyalty; she cannot avoid liability by failing to disclose it. Choice C is incorrect because this is a classic breach of the duty of loyalty (self-dealing/usurping an opportunity), not the duty of care, which relates to negligent or reckless conduct in managing partnership business.
- What is the legal effect of your client's withdrawal from this partnership? Select one.
Answer: Her withdrawal causes the dissolution of the partnership, and its business must be wound up.
The correct answer is B. This business is a partnership at will because it has no definite term or particular undertaking specified in an agreement. Under RUPA, in a partnership at will, a partner's notice of express will to withdraw causes both dissociation and dissolution of the partnership. Once dissolution occurs, the partnership must wind up its affairs. Choice A is incorrect because dissociation from a partnership at will is not wrongful. Choice C is incorrect because a partner has the power to dissociate at any time. Choice D is partially correct that she is entitled to payment for her interest and remains liable for past debts, but it misses the critical effect in a partnership at will: her dissociation triggers dissolution, not just a buyout with continuation of the business.
- Is the decision to hire the administrative assistant binding on the partnership? Select one.
Answer: Yes, because hiring an employee is an ordinary business matter that is decided by a majority of the partners.
The correct answer is A. Under the default rules of RUPA, each partner has equal rights in the management and conduct of the partnership's business. A difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners. Hiring a low-level employee like an administrative assistant is clearly an ordinary business matter. Therefore, the two-to-one majority vote is sufficient to bind the partnership. Choice B is incorrect; unanimity is generally required only for extraordinary matters or acts outside the ordinary course of business. Choice C incorrectly describes the effect of a majority vote. Choice D is a nonsensical condition not supported by partnership law.
- What is your client's strongest argument that his expulsion was wrongful? Select one.
Answer: That the power of expulsion, even if authorized by the agreement, must be exercised in good faith.
The correct answer is C. While a partnership agreement can provide for the expulsion of a partner, the partners' power to expel must be exercised in good faith and fair dealing. An expulsion motivated by a desire to deprive the expelled partner of his share of the business's future profits or to punish him for exercising his rights could be considered a breach of this duty. Your client's strongest argument is that the other partners used the provision as a pretext to expel him in bad faith. Choice A is incorrect because a partnership agreement can change the default unanimity rule. Choice B is unlikely to succeed, as such clauses are common. Choice D, while appealing, is less likely to succeed because constitutional free speech protections generally do not apply to actions by private entities like a partnership.
- Which fiduciary duty, owed among the partners of the accounting firm, did the partner most clearly breach by his silence? Select one.
Answer: The duty of disclosure, by failing to furnish material information concerning the partnership's business to his partners.
The correct answer is C. RUPA codifies a partner's duty to furnish, without demand, any information concerning the partnership's business and affairs reasonably required for the proper exercise of the other partners' rights and duties. The discovery of embezzlement by a major client is material information that the other partners would need to properly manage the firm's business and legal exposure. The partner's failure to disclose this information is a direct breach of this duty. While the conduct may also touch on loyalty (A) and care (B), the most direct and clear breach related to the silence among partners is the duty of disclosure. The duty to account (D) typically relates to holding partnership property or profits, which is not the primary issue here.
- Is the partner liable to the partnership for the financial loss? Select one.
Answer: No, because a partner is not liable to the partnership for losses arising from simple negligence or poor judgment in the ordinary course of business.
The correct answer is D. A partner owes a duty of care to the partnership. However, under RUPA, this duty is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law. A partner is not liable for simple negligence or for business judgments that turn out badly, as long as they were made in good faith. The facts describe a poor business judgment, not gross negligence or intentional misconduct. Choice C is incorrect because while the principle is similar, the 'business judgment rule' is a term of art typically applied to corporate directors, not partners, though the underlying concept is analogous. Choices A and B state an incorrect, higher standard of care (ordinary negligence) than what RUPA requires.
- How will the $20,000 loss be allocated between the two partners? Select one.
Answer: The loss will be split in the same proportion as profits, 60/40.
The correct answer is B. According to the default rules under the Revised Uniform Partnership Act (RUPA), if a partnership agreement specifies the division of profits but is silent on the division of losses, losses are shared in the same proportion as profits. Since the agreement specifies a 60/40 profit split, the $20,000 loss will also be split 60/40. Choice A is incorrect because the default rule for equal sharing of losses applies only when the agreement is silent as to both profits and losses. Here, the profit-sharing ratio dictates the loss-sharing ratio. Choices C and D are incorrect statements of the law.
- Can the client hold the expert liable for the $25,000 loss under a partnership-by-estoppel theory? Select one.
Answer: No, because the expert did not consent to the representation nor was she aware of it.
The correct answer is C. Liability under a partnership-by-estoppel theory requires that the person held out as a partner either consented to the representation or knew of it and failed to take reasonable steps to deny it. Here, the expert was completely unaware of the consultant's misrepresentation. Without knowledge or consent, the expert cannot be held liable as a partner by estoppel. Choice A is insufficient; the representation must be made by or with the consent of the person being held out as a partner. Choice B incorrectly creates a broad duty to monitor that does not exist in partnership law. Choice D incorrectly shifts the burden to the victim; while due diligence is wise, its absence does not create liability for the non-consenting expert.
- Is the partnership bound by the contract with the marketing firm? Select one.
Answer: No, because the contract was for a new business initiative, not an act appropriate for winding up the partnership.
The correct answer is B. After dissolution, a partner's authority to bind the partnership is limited to acts that are appropriate for winding up the partnership's business (e.g., selling assets, paying creditors). Entering into a new, long-term advertising campaign is not an act appropriate for winding up; it is an act of continuing the business. Therefore, the partner lacked authority to bind the partnership to this contract. Furthermore, because the marketing firm knew of the dissolution, it could not rely on any lingering apparent authority. Choice A is incorrect because authority is limited during winding up. Choice C is incorrect; while extraordinary acts require unanimity, this act was simply unauthorized. Choice D is incorrect because the firm's actual knowledge of the dissolution is sufficient to negate the partner's apparent authority.
- Is the dissociated partner liable to the new client on the post-dissociation contract? Select one.
Answer: Yes, because the client was unaware of her dissociation and the contract was entered into within two years of her dissociation.
The correct answer is C. A dissociated partner may be liable for a partnership obligation incurred within two years after dissociation if, at the time of the transaction, the other party reasonably believed the dissociated partner was still a partner and did not have notice of the dissociation. Here, the client knew she had been a partner and was unaware she had left. The transaction occurred within the two-year window. Therefore, she has lingering apparent authority and is liable. To cut off this liability, the dissociated partner (or the partnership) can file a public statement of dissociation, which provides constructive notice to all third parties 90 days after filing. Choice B refers to this 90-day period, but there is no indication such a statement was filed. Choice A is an incorrect statement of the law. Choice D is incorrect as there is no requirement for direct, written notice to every potential future creditor.
- What are your client's rights regarding the $15,000 payment? Select one.
Answer: He is entitled to be indemnified by the partnership for the full $15,000.
The correct answer is A. Under RUPA's default rules, a partnership must indemnify a partner for liabilities incurred by the partner in the ordinary course of business on behalf of the partnership. Paying a legitimate partnership debt is such a liability. Therefore, the partnership as an entity owes the partner the full $15,000. Choice B describes the secondary right of contribution among partners if the partnership itself cannot pay, but the primary right is indemnification from the partnership. Choice C is incorrect; a partner paying a partnership debt is not a volunteer. Choice D is incorrect because the right is to indemnification, not necessarily a loan, although a payment made by a partner that is in excess of their required capital contribution can be treated as a loan.
- Despite your client's objection, the other two partners vote to admit the new partner. Is this action valid? Select one.
Answer: No, because the admission of a new partner requires the unanimous consent of all existing partners.
The correct answer is C. Under the default rules of the Revised Uniform Partnership Act (RUPA), which apply when the partnership agreement is silent, admitting a new partner is an extraordinary matter that requires the unanimous consent of all partners. It is not an ordinary business decision that can be made by a majority vote. Therefore, the action of the other two partners is not valid without your client's consent. Choice A is incorrect because admitting a partner is considered an extraordinary matter, not an ordinary one. Choice B is incorrect because the default rule requires unanimity. Choice D is incorrect because the division of votes was two-to-one, not an equal division, but more importantly, the issue is the unanimity requirement, not a deadlock.
- Is the new partner personally liable for the $30,000 deficiency from the pre-existing debt? Select one.
Answer: No, because a new partner is not personally liable for partnership obligations incurred before the person's admission as a partner.
The correct answer is C. Under the Revised Uniform Partnership Act (RUPA), a person admitted as a partner into an existing partnership is not personally liable for any partnership obligation incurred before the person's admission. The new partner's liability for pre-existing debts is limited to her capital contribution to the partnership. Since the supplier seeks to collect from her personal assets for a pre-existing debt, she is not liable. Choice A is incorrect because the joint and several liability rule applies to obligations incurred while the person is a partner. Choices B and D introduce conditions that are not part of the RUPA default rule.
- How should the remaining $30,000 be distributed between the two partners? Select one.
Answer: The cash-contributing partner receives her $10,000 capital back, and the remaining $20,000 is split equally as profit.
The correct answer is B. Under RUPA's default distribution rules upon winding up, the partnership must first settle each partner's account, which includes returning capital contributions, then distribute any surplus. The partner who contributed $10,000 cash has a capital account of $10,000 that must be returned first. Service contributions, unless specifically treated as capital in the partnership agreement, do not create a capital account. Since there was no agreement specifying otherwise, only the cash contribution constitutes returnable capital. After returning the $10,000 capital contribution, the remaining $20,000 represents partnership profits, which are shared equally under the default rule. Thus the process is: return capital ($10,000), then split remaining surplus equally ($10,000 each).
