In 1991, Mario Smith and Luigi Joseph signed a lease for 3960 South State Street

Question

In 1991, Mario Smith and Luigi Joseph signed a lease for 3960 South State Street in Philadelphia, Pennsylvania. Joseph paid $6,000 for the first and last month's rent, and said to Smith, “We are in this together, partner.” Smith bought business cards for “Perfect Auto” with his and Joseph’s names on the cards. Both men were listed on Perfect Auto’s insurance policy. Smith bought the firm’s furniture. Joseph did the bookkeeping and bought the inventory. Smith did not have access to the books but wrote checks on the firm’s account, sold its inventory, and managed the sales staff. In March 1993, Joseph gave Smith a check for $10,000. Otherwise, Smith was paid a fixed amount each month. Later that year, without telling Smith, Joseph bought the leased property with the firm’s funds but titled it in his name. In 1995, Smith learned of this deal and confronted Joseph, who said, “Don’t worry, we’re partners.” Joseph filed the firm’s tax returns in his name only, despite Smith’s repeated objections. Finally, in 1997, Smith quit the firm and filed a suit in a Pennsylvania state court against Joseph to dissolve the partnership and obtain a share of the profits.

1)        What factors indicate that Smith and Joseph were partners? What factors indicate that they were not partners? If you were the judge, how would you resolve this dispute?

2)        Is Smith entitled to a share of the value of the real property that Joseph bought in his own name? If so, how much? From an ethical point of view, what solution appears to be the fairest? Discuss.

3)        Is Smith entitled to a share of Perfect Auto’s profits? Why or why not?

Explanation / Answer

1)

As Both of them signed a lease deed in 1991 and both names were entered in the policy this makes clear that they were partners.

As smith did not have access to books and both of them did not share the expenditure equally or in any proportion so this makes doubt that they are not partners.

As both are partners the income/profits generated in the business must be shared in the profit sharing ratio, and the expenditure must be born by both of them , now as joseph had deceived smith, so joseph must pay compensation and damages for smith.

2) As smith and joseph are partners of the firm , and joseph bought the property in his name by utilising firms funds, smith is equally entitled to share the value of that property.

form ethical point of view as the property is in the name of joseph and the seller has no idea of the background and might be acted in good faith, so it is not ethical to cancel the contract , instead of that joseph must pay the share to smith.

3) Yes, smith is entitled to the profits of Auto`s profits because they are partners of the firm ,

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