General partnerships — MCQs

Two architects orally agreed to operate a design studio as co-owners, share profits equally, and participate equally in management. They did not form a limited-liability entity. One architect, acting without consulting the other, signed a three-year office lease in the studio's name. Leasing suitable office space was ordinary for an architectural practice, and the landlord had no notice of any restriction on the architect's authority. The studio occupied the space for eight months but then stopped paying rent. The landlord sued the studio and both architects for the unpaid rent. The nonsigning architect argues that she cannot be personally liable because she neither signed nor approved the lease. Under generally accepted partnership principles, which of the following is the strongest conclusion?

Two architects formed a general partnership to operate a design practice, sharing profits and losses equally. Their partnership agreement was silent on outside business activities. While working on a joint project, one architect was approached by a wealthy client seeking a lucrative commission for a museum expansion, a matter closely related to the partnership's ongoing work. Without disclosing the opportunity to her partner, she accepted the commission for herself and completed it using her own time and resources, keeping all the fees. When her partner discovered this, he demanded that she turn over the profits from the museum project to the partnership. She refused, arguing that she completed the project on her own time and that the partnership agreement did not restrict outside business activities. Is the partner likely to prevail in requiring her to account for the profits?

Before a corporation was formed, its promoter signed a six-month equipment lease that expressly stated, “Landlord agrees to look solely to the corporation, once formed, for performance of this lease, and Jordan Lee shall have no personal liability.” After articles of incorporation were filed, the board learned all material terms of the lease, approved use of the equipment, and authorized corporate payments of rent. The corporation used the equipment and paid rent for three months before becoming insolvent. The landlord now seeks the remaining rent from both the corporation and the promoter. No later agreement altered the lease's disclaimer language. Under generally accepted rules governing preformation contracts, which of the following best states the parties' liability?

Two architects agreed orally to operate a design business as co-owners, divide profits equally, and share project decisions. They did not form another entity or address authority in their agreement. One architect, without consulting the other, signed a contract in the firm's name to purchase standard drafting software used in its projects. The vendor knew the signer was one of the firm's two co-owners but did not know of any disagreement between them. When the other architect learned of the purchase, she objected and told the vendor that the firm would not pay. The vendor seeks payment from the business and both architects. Which of the following is the vendor's strongest argument?

An architect owned a design studio as a sole proprietor. She hired a marketing consultant under a one-year agreement stating, “Consultant is an independent contractor and receives 8% of the studio’s monthly gross revenue.” The consultant could recommend advertising strategies but could not sign contracts, hire workers, set project prices, access bank accounts, or bind the studio. The architect retained all final decision-making authority and bore all business losses. After the studio failed to pay a supplier, the supplier argued that the consultant was a general partner and therefore personally liable for the studio’s debt. No partnership filing had been made. The supplier has no evidence that the consultant represented himself as a partner. Which of the following is the consultant’s strongest argument that no general partnership existed?

Two architects operated a design business as equal general partners under a written agreement. The agreement required both partners' approval before the firm borrowed more than $50,000. Without the other partner's approval, one partner obtained a $70,000 loan in the partnership's name from a bank to purchase ordinary design equipment. The bank had previously made smaller equipment loans to that partner on the firm's behalf, but it had received a copy of the partnership agreement before making this loan. The partnership used the equipment but defaulted on the loan. The bank sued the partnership and both partners. Which of the following is the strongest conclusion?

Two architects formed a general partnership without filing any organizational document. Acting within the partnership's ordinary business, both partners signed a five-year lease for studio space. One year later, the partners unanimously admitted a third architect as a partner. The third architect contributed cash, began voting on partnership matters, and received an equal share of profits. The third architect did not sign the lease or agree to assume existing partnership debts. Six months after the admission, the partnership stopped paying rent because it lost a major client. The landlord obtained a judgment against the partnership and now seeks to collect the unpaid rent directly from the third architect's personal assets. The jurisdiction follows the generally accepted rule governing an incoming general partner's liability for obligations incurred before admission. Is the landlord likely to succeed against the third architect personally?

A manufacturing company appointed an employee as purchasing manager and informed a longtime supplier that the manager would handle equipment purchases. During the next year, the manager placed several orders of up to $80,000, which the company accepted and paid. The company then privately instructed the manager not to place any order exceeding $25,000 without the president's approval, but it did not notify the supplier. One week later, the manager ordered a $60,000 machine from the supplier using the same company email account and purchase-order form used for prior orders. The supplier had no notice of the private limitation. The president promptly rejected the machine when it arrived. Which of the following is the supplier's strongest argument that the company is bound?

A landscaping business operates as a properly formed limited liability company. One member manages daily operations and owns 70% of the membership interests. To reduce disposal costs, the member personally instructed workers to discharge chemical herbicide into a drainage channel running onto neighboring property. The member knew that the channel emptied into the neighbor's pond. The discharge damaged fish and vegetation in the pond. The neighbor sued both the LLC and the member for the resulting property damage. There is no evidence that the LLC was undercapitalized, that business and personal funds were commingled, or that formation requirements were ignored. Which of the following is the neighbor's strongest argument for imposing personal liability on the member?

Before a software corporation was formed, its promoter signed a one-year server contract: "Nova Systems, Inc., by Jordan Lee, promoter." The supplier knew that Nova had not yet been incorporated but did not agree to look solely to the future corporation for payment. Two weeks later, Nova was properly incorporated. Its board reviewed the server contract and unanimously adopted it. Nova used the servers and paid the first two monthly invoices. After Nova stopped paying, the supplier demanded the unpaid balance from both Nova and the promoter. No agreement releasing the promoter or substituting Nova as the sole obligor was ever made. Under generally accepted rules governing preformation contracts, which of the following best states the parties' liability?