Case Problem:

Bob Smith and Frank Smith, who are brothers, pooled their money and bought a red 1972 Mustang. They titled the car under the name "Frank Smith Classic American Cars," and spent long hours restoring it. The brothers found that many people loved the Mustang and often asked to borrow it for special occasions. Bob and Frank decided they could take advantage of this and decided to lease the Mustang. Leasing the Mustang became such a lucrative enterprise that Bob and Frank borrowed money from a bank and bought and restored a second car, a Corvette, for the same purpose. They titled the Corvette under the name "Bob Smith Classic American Cars."

Because things were going so well, Bob and Frank agreed to operate their business together for the next five years. They called the business "Classic American Cars." They also agreed that they would pay for all costs associated with the operation of the business and divide what was left equally. Three months after they made this agreement, Bob was killed in a traffic accident while driving the Corvette. The Corvette was completely destroyed in the accident.

Frank made a claim with the business's insurance company for the value of the Corvette. Shortly thereafter, a check for the loss of the car was sent to Frank. Bob's widow, however, believes that the insurance funds belong to her since the Corvette was titled in Bob's name.

QUESTIONS

1. Describe and define what kind of business relationship Bob and Frank established.

2. As a result of Bob's death, what should happen to the Mustang, the debt to the bank,

the insurance proceeds, and any cash from the operation of Classic American Cars?

3. What becomes of the business as a result of Bob's death? May Frank continue to operate the business if Bob's widow objects?