What is the extent of Muir’s personal liability and the personal liability of Jones and Ray as to (a) the judgment obtained by Ware? (b) the debt owing to XYZ Bank?

What is the extent of Muir’s personal liability and the personal liability of Jones and Ray as to (a) the judgment obtained by Ware? (b) the debt owing to XYZ Bank?

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June 10, 2021
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Jones and Ray formed a partnership on January 1, known as JR Construction Co., to engage in the construction business, each partner owning a one-half interest. On February 10, while conducting partnership business, Jones negligently injured Ware, who brought an action against Jones, Ray, and JR Construction Co. and obtained judgment for $250,000 against them on March 1. On April 15, Muir joined the partnership by contributing $100,000 cash, and by agreement, each partner was entitled to a one-third interest. In July, the partners agreed to purchase new construction equipment for the partnership, and Muir was authorized to obtain a loan from XYZ Bank in the partnership name for $200,000 to finance the purchase. On July 10, Muir signed a $200,000 note on behalf of the partnership, and the equipment was purchased. In November, the partnership was in financial difficulty, its total assets amounting to $50,000. The note was in default, with a balance of $150,000 owing to XYZ Bank. Muir has substantial resources, while Jones and Ray each individually have assets of $20,000.
 
What is the extent of Muir’s personal liability and the personal liability of Jones and Ray as to
 
(a) the judgment obtained by Ware?
(b) the debt owing to XYZ Bank?

Answer and ExplanationSolution by a verified expert

Explanation

According to Section 306(a) of the Revised Uniform Partnership Act (RUPA) and Sections 13 and 15 of the Uniform Partnership Act (UPA), Individual M is not liable to the judgement by Individual W since Individual M was not a partner while the injury happened to Individual W. If Individual M was a partner back then, only in that condition would Individual M is responsible, which not the case here is. But Individuals R and J are equally liable to the judgement by Individual W since the injury was caused to Individual W while Individual J was carrying out ordinary course of business. If Individual J and Individual R were not partners, only Individual J would have been responsible to Individual W. Individual R would not have been liable if such an injury was caused outside the course of business.

Sample Response

Individual M is not liable to the judgement by Individual W since Individual M was not a partner yet. Individuals J and R are liable to Individual W since Individual W was injured by Individual R, while acting in ordinary course of business. If Individual M was an initial partner, Individual M also would have been liable.

Explanation

According to Section 306(a) of the Revised Uniform Partnership Act (RUPA) and Sections 9 and 15 of the Uniform Partnership Act (UPA), all partners are equally liable to the bank. Individual M, being apartner in the partnership, was given authority to act on behalf of the partnership and collect a loan form the bank. Individual M acted according to the instructions given by the partners; that is why, the liability has to be shared by all three of them. If the loan was acquired by Individual M, without the consent of the partners, for the personal use, then the liability toward the bank would have been Individual M’s only.

Verified Answer

Individuals R, J, and M are all equally liable to the bank since Individual M acted as an agent of the partnership while obtaining a loan from the bank. If Individual M was acting individually for personal benefits, then Individual M would have been solely liable, which is not the case here.

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