The Family Clothing Market

Baker, Felice, and Toby carried on business for many years as clothing retailers under the firm name of Family Clothing Market. The store premises were large and consisted of three separate smaller shops located side by side in the downtown shopping district of a large city. Different clothing lines were sold in each shop, and each shop was managed exclusively by one of the partners. Baker managed the children's clothing shop; Felice, the women's clothing store; and Toby, the men's clothing store. Each shop had its own distinctive name displayed on its shop window and entrance door.

Toby eventually grew tired of the business and decided to retire. He did so on March 1st. The two remaining partners purchased Toby's interest in the partnership and placed an employee (who had previously been the buyer for men's clothing) as manager in charge of the men's clothing store. This employee continued to act as the buyer for men's clothing and to deal with the clothing suppliers, without informing them of the change in the partnership. Nor was any notice of change in the makeup of the partnership filed under the provincial partnership registration legislation.

On April 1st, Baker died. Following his death, the auditors discovered that he had been systematically concealing the true state of the children's clothing operation from the other partners by creating fictitious assets to offset the losses. When the overall loss was calculated, the business was determined to be in serious financial straits.

News of the discovery soon leaked to the suppliers. When all of the creditors' claims were presented, the liabilities of the business exceeded its assets by some $50,000.

Rogers, a supplier, brought an action against the partnership for payment of his account in the amount of $5,000.

Discuss the status and liability of the partners, indicate any defenses that might be raised, and render a decision.