What should be the result (b) with regard to Leroy’s home?
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Anthony and Karen were partners doing business as the Petite Garment Company. Leroy owned a dye plant that did much of the processing for the company. Anthony and Karen decided to offer Leroy an interest in their company, in consideration for which Leroy would contribute his dye plant to the partnership. Leroy accepted the offer and was duly admitted as a partner. At the time he was admitted as a partner, Leroy did not know that the partnership was on the verge of insolvency. About three months after Leroy was admitted to the partnership, a textile firm obtained a judgment against the partnership in the amount of $50,000. This debt represented an unpaid balance that had existed before Leroy was admitted as a partner. The textile firm brought an action to subject the partnership property, including the dye plant, to the satisfaction of its judgment. The complaint also requested that in the event the judgment was unsatisfied by sale of the partnership property, Leroy’s home be sold and the proceeds applied to the balance of the judgment. Anthony and Karen own nothing but their interest in the partnership property. |
Explanation
Every partner is responsible for the obligations of the partnership, even if it is something that took place before an individual entered into the partnership. Individual M is not personally liable to the partnership but the dye plant is not the personal property of Individual L. The dye plant is a partnership property and can be sold, if agreed by the partnership. Individual L has the obligation to the actions of the partnership under Section 17 of the Uniform Partnership Act (UPA).
Sample Response
The dye plant of Individual L can be sold since it has become a partnership property. If the dye plant was the personal property of Individual L, which had not been entered into the partnership, such a sale would not take place.
Explanation
Individual L entered into the partnership when the existing partnership was already at the brink of bankruptcy. The liabilities of the partnership, before Individual L entered into it, do not personally affect Individual L. Since the home is a personal property of Individual L, the partnership cannot sell it. If the home was a partnership property, only then can such a sale take place, which is not the case here.
Sample Response
Individual L’s home cannot be sold since it is not a partnership property. If Individual L’s home was a partnership property, only then can it be sold. Individual L is also personally liable to the actions of the partnership, which happened before Individual L entered into the partnership.
