1. Walton, Sr., the sole owner of a small retailing business, was attempting to purchase some goods on credit from a manufacturer with whom he had not done business previously. In talking in person with the manufacturer's representative, Walton pointed to his daughter, Waltona (a nationally known retailer who was also visiting for a few days). Walton then stated that: "my partners and I have always paid our bills on time." Waltona heard and saw what her father had said and done, but she made no comment in the presence of the manufacturer's representative. The manufacturer's representative knew, however, that Waltona was neither her father's partner nor otherwise involved in business with him. The manufacturer thereafter sold Mr. Walton goods on credit, and Walton failed to pay for them when payment was due. If the partnership has no assets, and the manufacturer sues Waltona and Walton under these facts, against whom (if anyone) will it be successful?

2. Barry, Greg, and Victor form a partnership that sells diet supplements to athletes. Greg spends far more time working in the business than do the other two partners. How would the partners arrange to pay Greg a salary?

3. John, Michelle and Al are partners in a pizza restaurant. John owes Shark Finance Co. a great deal of money. Can Shark attach to any partnership property? How could John arrange to pay off Shark from his partnership profits? What could Shark do to try to seek repayment through John's interest in the business?

4. Ally is a partner in an accounting firm. Can Ally accept after-hours tax and accounting clients as a sideline business?

5. Bob, Caryl, Ted, and Alice formed a partnership to operate a restaurant called "Our Town." They each contributed funds and/or equipment for use in the restaurant, and Ted contributed a used van he already owned. Several months later, Ted "borrowed" the van to take it on vacation. He claims he has the right to use partnership property so long as it benefits at least one party. Is he correct?

Case Problem

Gershunoff, Silk, and Oliker became equal partners in a business designed for the syndication and management of apartment houses. They never executed a written agreement setting forth the term of the partnership. Later, when Oliker voluntarily withdrew from the partnership, Gershunoff and Silk continued to operate the business, acquiring new assets and incurring new obligations. For the next two and one-half years, the parties met on numerous occasions to discuss the financial details of Oliker's withdrawal. Finally, Oliker demanded that the business be liquidated and that he be paid a one-third interest in the partnership assets at the time of termination. Silk and Gershunoff argued that Oliker's interest should be based on the value of the partnership at the time of dissolution and should not include the increase in partnership property that occurred during the two and one-half years after his withdrawal. May Oliker now compel a liquidation and receive one-third of the assets at the time of termination?

Short Answer Questions

1. Sharon, Sandy, and Linda want to form a corporation for the floral shop that they are planning to open. They are confused about the differences between the articles of incorporation and the bylaws. Briefly distinguish between articles and bylaws. Which of these would control more of the day-to-day operations of the corporation?

2. Tammy is a promoter for Acme Co. Briefly describe Tammy's duties as a promoter. Also describe Tammy's liability to the corporation and to third parties. Is the corporation required to pay Tammy for her services as a promoter?

3. Under what circumstances may the court decide to pierce the corporate veil?

4. Harold, Hillary, and Heidi form a close corporation for their cleaning business, Happy Cleaners. What are some of the primary characteristics of a close corporation?

5. Johnny Walker wants to start up a pet walking service in New York City. He intended to incorporate the business, but because his business was so successful, he never got around to dealing with all the paperwork. Under the proposed incorporation, he was to be the sole shareholder of the corporation. Last week, one of Johnny's client's dogs broke loose from the pack and knocked over Peter Pedestrian, causing severe injury. What are the consequences to Johnny?

Case Problem

Following the death of L. E. Ward in 1 969, his widow, three children, and a grandson formed a corporation for the purpose of holding the family farmlands. Leroy Ward controlled 50 percent of the corporation, Ward Farms, Inc. Throughout the life of the corporation, numerous conflicts existed between Leroy and the other shareholders. The corporation had never declared a dividend. The shareholders instituted several lawsuits concerning the corporation. Leroy had been enjoined from entering the property despite his control of 50 percent of the corporate stock. Leroy petitioned the court to dissolve the corporation on the grounds that it was deadlocked and its assets were being wasted.

Should the corporation be dissolved by the court?