Joan and Don own "Hot Diggety Dogs," (HDD) a vending cart business, which sells gourmet hot dogs on the Streets of Richmond, Virginia. The partners operate four hotdog carts scattered at various points in the downtown area close to the office and retail shops. They have a vendor's license from the City to operate their business. HDD is very successful. Their best selling gourmet dog, "The French Doogle," is so popular that it was the subject of a Food Network, "Show Down" with Iron Chef, Bobby Flay. The, "French Doogle," won the competition. Joan and Don are understandably, very proud of their products.
Currently, the partnership has no formal agreement that outlines profit distribution, managerial responsibilities, and liabilities of the parties. Joan and Don want to expand the business. The have agreed to expand the cart business to include four new carts in the city and a kiosk in the mall. They also decide to franchise the cart business around the state. Joan has agreed to the expansion only if they bring in a new partner, with money, for the express purpose of getting the franchise contracts. Jack, one of Joan's friends, has agreed to become a partner for the time it takes to set up the franchise business. Jack offers to contribute $50,000 to the partnership with the understanding that he will double his money by the end of the 1st twelve months of continuous operation of the four new carts in the city, the kiosk in the mall, and no less than 10 additional franchises around the state. No written agreement was made between the partners.
Every year The Women's League sponsors an old fashioned Fourth of July Festival. It begins on the second of July and culminates with the fireworks display on July 4th. The proceeds of the festival are given to the local children's hospital. The three day festival is a big money maker for HDD because of all the activity in the downtown area leading up to the festival and because of the large number of people who come to the festival. It comprises almost 25% of their annual income. Historically, HDD has had their usual four carts around the city during the festival. This income goes to HDD.
HDD also sponsors one cart during the festival which is located in the festival area, itself. The proceeds from this cart go the festival sponsors. This year, the sponsors anticipate an increased attendance of 15%. Joan and Don are excited about this, and hope that they can use the additional funds to help fund their business expansion.
One month before the Festival, Joan and Don received a mailed notice from the City of Richmond informing them that, due to a new City Ordinance brought about because of excessive traffic flow, licensed street vendors would no longer be able to set up in the immediate downtown area of Richmond. The city passed the ordinance at the last city council meeting without prior notice of any kind. The ordinance was written to go into effect on the 1st of July. Vendors could only sell their wares in a concentric circle some 15 blocks from the main street of Richmond. Not only would all the street vendors be more or less together, but the proposed area has very little foot traffic and customers. Failure to abide by the law would result in the loss of a vendor's license for ten days and a five thousand dollar fine.
The HDD partners were angry and devastated. If this law were allowed to stand, they could no longer do business in the downtown area, they could not participate in the Festival, and their expansion plans would go up in smoke. Worse yet, in anticipation of the Festival, Joan and David ordered and made payment on thirty thousand hot dogs, thirty thousand buns of various types, and condiments from Salvo Food Distributors, their usual supplier. After much discussion, Joan and Don decide that they were going to set up for the festival as usual and take the chance of getting a fine and suspension. Joan and Don make this decision because they think it will be cheaper to pay the fine and lose the ability to do business for ten days than to do business on the city's terms. The serious financial pressure from having already prepaid Salvo for the hot dogs, condiments, buns, etc. has added real urgency to their decision to pursue business as usual.
From their point of view, it means that HDD can live to fight another day. Joan and Don agreed to this course of action without asking Jack who was not around.
July first arrives, and HDD set up for the Festival. Business at the Festival was going great. The money was pouring in and all the carts are really busy. People having seen the Show Down show were anxious to try the French Doodle. One customer was so excited that he raced to the cart, tripped over a nearby box of hotdogs which caused him to fall into the steaming water, seriously burning his arm and that of the young women manning the cart. Both sue HDD. The suits total $60,000. Moreover, in the midst of the accident, the police arrive. HDD receives a summons and ticket for violation of the new city ordinance. HDD was given a ticket on each remaining day of the festival.
As if this were not enough, three thousand of the buns delivered by Salvo Food on the second of July contained mold. This was not discovered until the final day of the festival. Once discovered HDD was forced to close two of their carts completely before the end of the festival. Joan and Don estimate they lost four thousand five hundred dollars of business.
In addition, while Joan and Don where busy with the festival happenings. Jack, signed three new HDD franchise contracts, and took deposits totaling fifty thousand dollars. Upon his arrival back in Richmond he finds out the problems with the festival and wants out of the partnership. He feels his partners did not include him in their decision-making and that he should not have to pay for their mistakes. He does inform them of the franchise agreements. However, he also informs them that he is leaving with the fifty thousand dollars he collected from the companies, because it is the same amount he put in to the business.
Joan and Don look to you for advice. They have come with the following list of questions for you to answer:
MULTIPLE CHOICE:
Instructions: Select the correct answer and give a two-to-three sentence explanation as to why you believe it is correct
1. If the law suits are successful against HDD will Jack have to pay too?
A. No, because he didn't get to vote on the decision to participate in the festival.
B. No, because no one knew that he had become a partner.
C. Yes, only to the extent of his fifty thousand dollar contribution.
D. Yes, because an incoming partner is personally liable for debts and obligations incurred by the partnership after becoming a partner.
2. Does the fact that there is no written partnership agreement for HDD mean that no partnership exists?
A. No, a partnership may be oral or written.
B. No, a partnership can be implied by the actions of the party toward others.
C. Yes, because no one on the outside can tell if they are partners or not.
D. Both a and b
3. If the law suits are successful, and if HDD does not have enough money to pay for what has been ordered, do the partners have to personally pay the difference?
A. No, because the partnership is considered a person in the eyes of the law and the partners are not personally liable for what the partnership does.
B. Yes, partners are both jointly and severally liable for torts against third parties.
C. Yes, they will each be equally liable for torts against third parties.
D. Yes, because partners are jointly liable for debts of the partnership.
4. Joan and Don feel that they should not be responsible for the customer's damages, because they told all HDD employees never to leave the hotdog boxes lying around the cart. Will this fact get them off the hook?
A. No, because as an agent of HDD the employee's actions are deemed their actions.
B. No, because the act was committed within the scope of employment.
C. Yes, because the employee was acting outside the scope of employment by not adhering to the rules.
D. Both a and b
5. Joan and Don do not want to continue with the Franchise business with Jack gone. Is it possible for them to get out of the contracts by claiming they did not know Jack was making them?
A. Yes, because they can show how busy they were at the Festival.
B. Yes, because they can show that they did not authorize Jack to make the contracts.
C. No, because partners are agents of each other and the partnership.
D. No, because contracts entered into on behalf of the partnership are binding on the partnership.