Without contributing any amount toward the payment of the liabilities, Dan moved to a destination unknown. Ben and Lilli are financially responsible. How much must each contribute?
Ben, Dan, and Lilli were partners sharing profits in proportions of one-fourth, one-third, and five-twelfths, respectively. Their business failed, and the firm was dissolved. At the time of dissolution, no financial adjustments between the partners were necessary with reference to their respective partners’ accounts, but the firm’s liabilities to creditors exceeded its assets by $24,000. Without contributing any amount toward the payment of the liabilities, Dan moved to a destination unknown. Ben and Lilli are financially responsible. How much must each contribute?
Section 807(c) conveys that when the required amount cannot be recovered from one partner, then the sum shall be compensated by the remaining partners in the profit-sharing ratio. The same is provided by Section 40 of the Uniform Partnership Act.
Since no ratio is mentioned in the agreement for settling the loss, losses will be compensated in the profit-sharing ratio.
Accordingly, the ratio in which the losses will be distributed is 3:4:5, which divides the amount as $6,000, $8,000, and $10,000. Since Individual B owed $8,000 that cannot be recovered from him, this amount shall be distributed in Individuals B and L in the ratio of 3:5. By doing the same, total amounts to be compensated by Individuals B and L are $9,000 and $15,000, respectively.
A sum of $9,000 shall be contributed by Individual B, whereas Individual L shall pay $15,000. This is based on Section 807(c) of the Revised Uniform Partnership Act.