Question

Please read the case below and answer in the following format: 1) Relevant Law 2) Conclusion - the outcome, and why.

The book for this course is Business Law with UCC application - 14th edition

The case is the following one:

McCoy and Gugelman borrowed money from State Security Bank for their partnership, Antiques, Etc. When McCoy and Gugelman failed to pay back the debt, the bank sued them as individuals. At trial, McCoy and Gugelman argued that their partnership, Antiques, Etc., was an entity, not an aggregate, of the partners. Therefore, they concluded, the bank would have to show that the partnership funds were insufficient to answer the judgment before it could proceed against them individually. Are they correct? Why or why not? Security State Bank v. McCoy, 361 N.W.2d 514 (NE).

Answer 1

The relevant law for this case is that in a partnership business, the partners have unlimited liability. In other words, it can be said that the liabilities of the partnership business will be extended not only to the assets of the business but also to the personal assets of the partners. Thus, the outcome in this case will be that McCoy and Gugelman are both liable to pay the debt that their partnership business has taken. If the partnership has sufficient to repay the debt then it can be used otherwise the personal assets of the partners will have to be used for repaying. The bank can sue the partnership or the partners to get its money back as the partners are not different from the partnership business. Thus, McCoy and Gugelman are wrong in their argument.