Jeffery Pickell was the sole proprietor of Kaleidoscope Books in Ann Arbor, Michigan. While Martin Herman’s daughter was a student at the University of Michigan, he became a customer of the store. At some point, the two men agreed that Herman would give Pickell $50,000.

That seems to be the last time they agreed on anything. Herman believed that the $50,000 was the purchase price for a 10 percent share of the business, while Pickell claimed that the money was a loan, and, furthermore, even if he and Herman had been in a partnership, they had subsequently dissolved it. Correspondence from their early relationship tells a story.

Letter No. 1: When Herman made the investment, Pickell wrote to Herman stating that Herman was now a 10 percent silent partner in the business. This means he was entitled to 10 percent of the net earnings, and, upon any sale of the business, would receive 10 percent of the value of the assets. Furthermore, although Herman was not responsible for any business decisions, Pickell would seek his advice because of his business experience. 

Letter No. 2: Four months later, Pickell reiterated that Herman owned 10 percent of the business until the $50,000 loan was completely repaid. Upon repayment, the two would dissolve the partnership.

Letter No. 3: In another five months, Herman wrote to Pickell referring to the $50,000 as both an “investment” and a “loan.” He mentioned that he would hold his “10% interest in Kaleidoscope until full payment was received.” 

Pickell ultimately repaid Herman about $20,000, but he never paid Herman a share of the profits, claiming there were none. (In fact, the business showed a profit of about $15,000 a year.) Pickell did allow Herman to take his choice of merchandise from the store. Herman characterized these items as small gifts with a total value of less than $100, but Pickell claimed that Herman loaded “box after box” of merchandise into a minivan over an eight-hour period.

Then, for 12 years, the parties had no contact. When Herman finally sought repayment, Pickell did not return his phone call. Herman then sued Pickell for his share of the partnership and its profits, alleging that he was a 10 percent owner.

Questions:

1. Did Pickell and Herman have a partnership Was Herman entitled to a share of the profits?

2. Herman contendedthere was a partnership. Pickell denied this, saying the $50,00 was a loan. What did the evidence say?

3. When was the partnership to end?

4. Was the money ever repaid?

5. Did the court agree?

6. Was Herman involved in the management of the business?