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Question 1: In 1992, Anchor, Chain, and Hook created ACH Associates, a general partnership. The partners
orally
agreed that they would work full time for the partnership and would distribute profits based on their
capital
contributions. Anchor contributed $5,000; Chain $10,000; and Hook $15,000.
For the year ended December 31, 1993, ACH Associates had profits of $60,000 that were distributed
to
the partners. During 1994, ACH Associates was operating at a loss. In September 1994, the
partnership
dissolved.
In October 1994, Hook contracted in writing with Ace Automobile Co. to purchase a car for the
partnership.
Hook had previously purchased cars from Ace Automobile Co. for use by ACH Associates partners.
ACH
Associates did not honor the contract with Ace Automobile Co. and Ace Automobile Co. sued the
partnership and the individual partners.
Determine whether (A) or (B) is correct. Select the answer that corresponds to the correct statement.
A. ACH Associates and Hook would be the only parties liable to pay any judgment recovered by Ace
Automobile Co.
B. Anchor, Chain, and Hook would be jointly and severally liable to pay any judgment recovered by
Ace
Automobile Co.
Correct Answer: B
Explanation:
Choice "b" is correct. Since Ace brought suit against both the partnership and the individual partners,
if
judgment is rendered against the partnership, all partners could be held jointly and severally liable.
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