Irwin was the manager of Highlights Grill, a sports bar and restaurant. Irwin opened a bank account in Highlights's name, signing the account signature card as "owner." Jody, who was often at Highlights and had free access to its office, told others that she was "an owner" and "a partner." She also opened a bank account in Highlights's name, and signed the account signature card as "owner." Irwin told Kelton, the owner of Natural Cheeses, Inc., that Jody was a member of a partnership that owned Highlights. On this basis, Natural Cheeses delivered its goods to Highlights on credit. In fact, Highlights was owned by a corporation. When the unpaid account totaled more than $10,000, Natural Cheeses filed a suit against Jody to collect. On what basis might Jody be liable for the debt?

Question

What will be an ideal response?

Answer 1

The theory under which Jody would most likely be liable for Highlights's debt to Natural Cheeses is partnership by estoppel. The first requirement of this theory is a representation, by a nonpartner or by another with the nonpartner's consent, that the nonpartner is a partner. The second requirement is reliance on that representation. In this case, Natural Cheeses could prove both elements. Both Irwin and Jody made representations with respect to Jody's status in relation to Highlights¾they both signed bank cards as "owner," Jody was often at Highlights and had free access to its office, Jody told others that she was a "partner" in the business, which is what Irwin also told Kelton. As for the reliance element, Natural Cheeses extended credit to Highlights only because Natural Cheeses believed that Highlights was owned by a partnership.