Question

FACT PATTERN

Alfred, Beth, and Charles orally agreed to start ABC Computers (“ABC”), a business to manufacture and sell computers. Alfred contributed $100,000 to ABC, stating to Beth and Charles that he wanted to limit his liability to that amount. Beth, who had technical expertise, contributed $50,000 to ABC. Charles contributed no money to ABC but agreed to act as salesperson. Alfred, Beth, and Charles agreed that Beth would be responsible for designing the computers, and that Charles alone would handle all computer sales.

ABC opened and quickly became successful, primarily due to Charles’ effective sales techniques.

Subsequently, without the knowledge or consent of Alfred or Charles, Beth entered into a written sales contract in ABC’s name with Deco, Inc. (“Deco”) to sell computers manufactured by ABC at a price that was extremely favorable to Deco. Beth’s sister owned Deco. When Alfred and Charles became aware of the contract, they contacted Deco and informed it that Beth had no authority to enter into sales contracts, and that ABC could not profitably sell computers at the price agreed to by Beth. ABC refused to deliver the computers, and Deco sued ABC for breach of contract.

Thereafter, Alfred became concerned about how Beth and Charles were managing ABC. He contacted Zeta, Inc. (“Zeta”), ABC’s components supplier. He told Zeta’s president, “Don’t allow Charles to order components; he’s not our technical person. That’s Beth’s job.”

Charles later placed an order for several expensive components with Zeta. ABC refused to pay for the components, and Zeta sued ABC for breach of contract.

Not long afterwards, ABC went out of business, owing its creditors over $500,000.

1. How should ABC’s debt be allocated? Discuss.
2. Is Deco likely to succeed in its lawsuit against ABC? Discuss.
3. Is Zeta likely to succeed in its lawsuit against ABC? Discuss.

1 paragraph for each answer, five sentences per paragraph. Remember, provide the definition of the principle, explain how the definition applies to the fact pattern, and draw a conclusion of whether or not the legal principle is met. I will expect to see at least 3 paragraphs in your answer and 15 sentences.

Answer 1

1. In given question, assets allocated in following manner :- first Creditor, then Partners Loan then Partners capital and then surplus ,if any, equally among partners unless there is a agreement otherwise. ABC's debted should be first provided to creditors for $500,000 then it should be Alfred's capital contribution of $100,000 and Beth's of $50,000 would be repaid. Since Charles performed services instead of making capital contribution. Hence Charles will not recieve any money for his capital contribution.If any fund remain it would be equally distributed between Alfred, Beth and Charle.

2. Apparent authority allows partner to act to carry ordinary partnership business and doing so will bind the partnership. Each partner is agent of partnership for conducting its business. In given case, although the parties agreed to delegate tasks but there is no agreement that limited the partners authority to act on behalf of ABC. Beth likely atleast had the apparent authority to enter in contract with Deco, Since Beth is active partner, he would seem to have authority to carry out ordinary partnership business, such as selling computers, which is their business. Any limitation on Beth's authority was unkown to Deco. So ABC will be bound on Deco Contract.

3. Apparent authority allows partner to act to carry ordinary partnership business and doing so will bind the partnership. Beth is supposed to be incharge of designing and Charle is to be incharge of sales, since ABC has no formal agreement, each partner may equally in the management duties. And each partner is having authority to bind the partnership. As charle is active partner, hence having apparent authority to bind ABC. Alfred has attempted to unilaterally limit's Charles's ability to enter into contract on behalf of ABC. But Alfred doesnot have authority to revoke Charles's power of authority. Hence, ABC will be bound to Zeta contract.