The firm later becomes insolvent, and Harold seeks to hold Stephanie liable as a partner. Should Harold succeed? Explain.

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The firm later becomes insolvent, and Harold seeks to hold Stephanie liable as a partner. Should Harold succeed? Explain.

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Paula, Fred, and Stephanie agree that Paula and Fred will form and conduct a partnership business and that Stephanie will become a partner in two years. Stephanie agrees to lend the firm $50,000 and take 10 percent of the profits in lieu of interest. Without Stephanie’s knowledge, Paula and Fred tell Harold that Stephanie is a partner, and Harold, relying on Stephanie’s sound financial status, gives the firm credit. The firm later becomes insolvent, and Harold seeks to hold Stephanie liable as a partner. Should Harold succeed? Explain.

Explanation & AnswerSolution by a verified expert

Explanation

Individual S cannot be considered a partner, by estoppel, because Individual S is not aware of the wrong statement of fact by Individuals P and F to Individual H. Now that Individual S is not a partner, they cannot be held liable for the same.
According to the contract, Individual S would have become a partner in the firm after the completion of two years. The same has not taken place, leaving the status of Individual S as merely a creditor to the firm.

Verified Answer

Individual S cannot be held as a partner because the partnership has not come into effect.

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