Litigator's perspective

Here is a little problem to warm up and introduce some basics of agency and partnership. Before attempting the problem, please read (!): Uniform Partnership Act (1914) §§ 6(1), 7(4), 9(1), 13, 15, 21(1), 29, 31(1)(b), 37, 38(1); Restatement of the Law (Third) Agency §§ 1.01, 1.04(7), 2.01, 2.03, 2.05, 3.01, 3.03, 4.01(1), 4.02(1), 6.01, 7.03, 8.01-03.

Louis comes to you in distress. He tells you the following:

“Kathryn and I have been operating a pizza shop here in Cambridge for years. From a business perspective, we are doing extremely well. Personally, however, things have not been going so well lately. We have been fighting a lot. Today, I received a letter from Kathryn’s attorney ‘demanding and declaring that the business be dissolved and all assets liquidated to pay off the debt.’ I have no idea what that means but I guess it’s serious?

“’All assets’ is a fancy term, too! It is essentially one big pizza oven that we bought a year ago. We lease the store and our three delivery cars. We just renewed the leases a year ago for a five-year term. They all include penalties for early resolution, and they are not assignable. I reckon the penalties would collectively amount to $50,000 if we had to terminate the contracts now! And that oven, there’s a problem there if we have to sell it now, too: it was custom-fit to our location, so I doubt we’d get more than $50,000 for it. But we still have that bank loan for about $100,000 that we used to finance it.

“Is that all? Well, actually, there is another issue that came up right after I received the letter. That guy Steve – he generally buys our veggies and stuff. Goes to the wholesalers every week, they know he works for us. He gets the stuff, they debit our account, and we pay them by check later. Of course, after I got the letter, I told him not to buy anything today – who knows if we’ll ever need it! But he just goes off and buys everything – and then crashes the car on the way back! Apparently he did major damage because now I am getting all these phone calls from various people and their attorneys demanding that I pay some crazy amounts. But I didn’t drive that car, or put in those orders. Why should I pay for them?

“And I sure hope I can keep the shop running. At least I don’t want to be settled with that bank loan if we do have to close. What do you think? Is there anything else you need to know?”

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