Case Study

Cydella, Dalton and Euphemia started a partnership business over 20 years ago dealing in auto parts trading. Three years ago, the partnership employed Francella as its manager and last year Dalton retired from the partnership, which held a send-off party for him. However, Dalton's name was still appearing on the firm's letterhead and signs for the next few years. Cydella and Euphemia were pressed by personal business and so they left most of the day-to-day work of the partnership to Francella. Francella started telling people that she has become a partner although this was not in fact true. When Cydella and Euphemia became aware of Francella's representation to customers, they shrugged it off. She was doing an exceptional job. In February of this year, Francella entered into a very sizeable contract with one of the partnership's longstanding customers, Cosmo of the company Cosmo Distributors Ltd. The company has dealt with the partnership for the past seven years. Cosmo, who had been dealing with Francella for a long time, was happy to know that Francella had become a partner in the firm because he believed her to be a very good and effective worker. However, things have gone very badly, and the partnership ended up owing Cosmo Distributors over $2,000,000 (Two Million Dollars). The partnership is now insolvent, being in a position to pay only $200,000 (Two Hundred Thousand Dollars) of the full debt. The partnership has declared bankruptcy, leaving a number of its former customers "holding the bag." Francella and Dalton are protesting that they are not partners in the firm.

You are required to advise Cosmo and the other creditors of the partnership as to how they might recover their money or any part of it. You should consider the liability of:

i. The Partnership

ii. Dalton

iii. Euphemia

iv. Cydella

v. Francella