Alex and Stephanie, close friends who regularly worked out together and shared a love of healthy living, opened a healthy lifestyle-themed store selling organic foods and supplements. Stephanie provided all startup and additional capital from time to time, and they agreed that Alex would run the business. The business was popular and profitable and operated under the name “A&S Health Foods” (A&S). Because they were good friends, Alex and Stephanie never bothered to write up a formal business agreement or business plan. They just trusted each other and treated each other as equal partners when it came to running the business.

For the first three years, they split the profits evenly and agreed to invest their profits back into the business to upgrade the store and expand inventory selection. At the start of year four, they decided to upgrade the refrigerators to more efficient models. This cost $30,000 and Stephanie agreed to loan the business this amount so they could get the new refrigerators as soon as possible. Alex agreed to split the cost of the new refrigerators with her.

A&S rented the building where the store was located in. After the long-term prospects of the business became favorable, Alex and Stephanie asked the landlord/owner of the building several times if they could purchase the building. The owner did not want to sell the building despite these periodic requests from Alex and Stephanie.

Three months ago, on a day when Stephanie was not at the store, the building owner visited the store and said to Alex, “I’m planning to retire and would like to see if you’re still interested in purchasing the building.” Two days later, Alex texted Stephanie the following:

Just want to let you know that after a lot of soul-searching, I am withdrawing from our partnership. I will wind up the partnership’s business and send you a check for half your share. I promise to do this fairly and apologize for telling you this over text.

Without letting Stephanie know, Alex called the building owner and made an offer for the building. The building owner accepted, and Alex and the building owner executed a contract for the purchase/sale of the building. Four weeks later, Alex took ownership and title to the building, and two weeks ago, Alex sent to Stephanie a check for her half of the remaining proceeds after dissolution.

After receiving the check, Stephanie sent Alex the following text:

Received your check, but I am not cashing it. I never agreed to end the partnership. It isn’t fair that you did this without talking to me first and then purchased OUR building without me. It is indeed OUR building, so you should convey the title to the building to OUR partnership.

Alex replied by text:

I am so sorry. I needed a change in my life. I feel like I had to do something on my own. I enjoyed our partnership, but it is dissolved, and I’ve moved on. Please understand and do the same.

Alex then proceeded to operate their store as “A’s Health Foods,” with the same employees and selling the same products.

Stephanie sues Alex for withdrawing from the partnership and purchasing the building on his own without her consent.

1. Addressing Stephanie’s texts and allegations, explain fully the rights of both parties, Stephanie and Alex.

2. What is the legal effect of Alex’s withdrawal from the partnership? Explain fully.

3. Assume the following are the valuations for winding up:

• liabilities to third-party creditors are $100,000
• assets are $500,000 with a loss of $20,000
• Stephanie’s capital contributions to date totaled $200,000

If Alex calculated Stephanie’s check correctly, how much was the check Stephanie received? Please also explain how you arrived at your answer.

Answer rating: 100% (QA)

ANS WER Step han ie s text alleging that Alex withdrew from the partnership and purchased the buildi... View the full answer