MGSC30H3 Y – Fall 2022

Assignment I – Homes by Linda

Submit your answer on Quercus by Sept 29, 2022 at 9am EST

Fact Pattern:
Linda and John are close friends and recent graduates of Military Trail University (“MTU”)
which is located in the Province of Ontario. Linda graduated from the engineering program
with a focus on construction, while John graduated from the Management program.
The Province is undergoing a housing affordability crisis, with home prices out of reach for
most people. This is fueled by increased building costs driven by rising costs of raw building
materials. Linda sees this as a prime opportunity to launch a residential development
company. This company would use “3-D printed parts” as a way to cut costs on materials and
speed up construction. She speaks to John about her idea, and John is very receptive. They
agree to work together: Linda will plan and execute the renovations, while John will manage
the business.
Linda’s mentor, Professor Holmes, is an Engineering Instructor at MTU and a retired general
contractor. Linda and John meet with Professor Holmes to get his guidance on starting a
residential development company. Professor Holmes advised that they need to create a
model 3-D printed house to demonstrate the durability and affordability of such homes. To
further help the pair, Professor Holmes donates an old 3-D printer he used in his former
construction business. As Linda and John take the printer, Professor Holmes jokes that “at
least this pile of junk is out of my garage.” Linda and John spend $1000 each to retrofit the 3-
D printer. They decide to call their fledgling organization “Homes by Linda.” John designs
branding and signage for their business.
John and Linda decide to build a 3-D printed home in the middle of the town square. Over the
course of a day, Linda prints out each of the house’s base components (walls, roof, floor) and
assembles them. Her work draws a crowd who are amazed at process. John livestreams the
process and Linda becomes a viral sensation on several social media platforms. People start
placing orders for 3-D printed homes. John believes that if they expand their operation and
hire additional help, they accept/fulfill more orders and make considerably more profit.
Linda and John lack the funds to expand and seek advice from Professor Holmes. Professor
Holmes is impressed by the initial success of the Homes by Linda and says that he is
prepared to offer $250,000.00 to fund their expansion. Professor Holmes wants to have his
investment amount paid back in a year’s time, plus 5% of Homes by Linda’s revenues for that
year. Linda and John agree to Professor Holmes’s proposal.
Using Professor Holmes’s funds, Linda and John expand their operations. They buy two
construction vans and an industrial 3-D printer, as well as hire two engineers to help Linda
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print and assemble the homes. Linda and John open a business bank account with both of
them having signing authority. Since Linda and John are close friends, they think it is
unnecessary to write down the terms of their arrangement with each other. They agree that
they will work things out once Homes by Linda becomes profitable.
To help plan Homes by Linda’s expansion, Linda and John consult Sean. Sean is a former
classmate of John’s and an accountant. Sean agrees to provide a pro-bono financial plan to
help scale their operations on the condition that he would manage Homes by Linda’s books
and records. Linda and John agree that Sean will handle Homes by Linda’s books and
records for a monthly fee of $2,500.00. This amount will be reviewed every three months and
will align with the profitability of Homes by Linda.
Implementing Sean’s financial plan, Homes by Linda has seen steady growth in the first three
months. Bolstered by word of mouth and viral social media marketing, orders continue to
come in and the expanded operations are able to fulfill them Strategy meetings are held
monthly to review Homes by Linda’s performance and to set strategy for the next month
(“Strategy Meeting(s)”). Sean attends each of these Strategy Meetings, but only provides a
report on the firm’s financial situation. Before each Strategy Meeting, Linda consults with
Professor Holmes on the latest construction trends, this helps her determine if changes to the
process is needed. At one Strategy Meeting, Linda invites Professor Holmes to attend and
share his experiences running a construction business and his advice for Homes by Linda to
grow their business.
After the first three-month period, Linda and John meet with Sean to discuss the fee for
managing Homes by Linda’s books and records. Sean says that he views Homes by Linda
as a partner of his own accounting practice, Sean Accounting LLP. Sean says that he tells
his other clients about how he guided Homes by Linda’s steady rise through his financial plan
and handling Homes by Linda’s financial records. Linda and John agree to start paying Sean
$3,000 a month for his services.

After the first six months, the business is doing exceptionally well with total revenues
exceeding $350,000. Linda tells Professor Holmes about this during chat before the next
Strategy Meeting. Professor Holmes tells Linda that he believes he should be entitled to at
least a 7.5% share of Homes by Linda’s revenues by the end of year, stressing that Homes
by Linda would not exist without his donation of the first 3-D printer and his expert advice on
the construction industry. He also asks to be reimbursed for expenses he incurred for
attending a 2 day engineering and construction conference in Las Vegas, stating that he was
doing research for Homes by Linda.
As Homes by Linda grows, John develops many contacts. One day he has a chat with Daniel,
the owner of several Canadian Tires stores. Daniel wants a Homes by Linda popup to tour
between his Canadian Tire stores. Daniel also says that he is impressed with John’s work in
branding Homes by Linda and that he is considering retaining John to do promotion work for
his Canadian Tire locations. John says he will review the proposal with Linda. When John
meets with Linda, she is intrigued about the potential exposure Homes by Linda will receive
through pop-ups at Canadian Tire, although she is worried about the significant time
commitment it would entail. After some further deliberations, Linda agrees to arrangement

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with Canadian Tire. John does not tell Linda about his potential opportunity to do promotional
for Canadian Tire; as he sees it, it is not related to Homes by Linda’s business.

Homes by Linda receives a letter from the lawyers representing Ms. Bump. Ms. Bump is
claiming $100,000.00 in damages for an injuries suffered from door in her 3-D printed home
breaking and collapsing on her. Linda and John meet to discuss this letter. John tells Linda
that since she is responsible for 3-D printing the parts and assembling the home, he does not
have any liability for such claims. He also points out that the company name is “Homes by
Linda” so she is attached to each home they make. Linda counters stating that John created
all of the marketing materials with the company name.

Linda is worried about the problems that have come up in Homes by Linda’s operations and
consults you for legal advice.

Instructions:
Prepare a legal memorandum giving advice to Linda on the various issues and problems
raised in this fact situation. Use the principles of law outlined in class and those in the course
materials to formulate your answer. The emphasis in this assignment is on the law of
partnerships.
Follow the 5 Steps to Solving a Legal Question discussed in the first lecture. Note that just
spotting the legal issue or problem is not enough: you need to identify the legal issue or
problem, and make a legal argument using the facts and principles of law. If you can come
to a conclusion based on the facts set out in the assignment, do so. If there is no clear
answer, set out the alternative arguments or positions that apply. For example, you might
say “If we were to find that X is the case, then the conclusion would be Y. Otherwise, the
conclusion is Z.”
Make assumptions or even fill in facts that you think are missing (and state them). In real-life
situations, facts are often unclear, information may be missing, and sometimes the law itself
is not clear. Think about alternatives (i.e. both sides of the argument). This is the practice of
advocacy – making legal arguments to convince the reader that your conclusion is correct.
To develop your answer, you should work in groups of 2 or 3. If you can’t find a partner, you
may prepare your own answer. Please try to keep your answer to about 7 pages (double-
spaced, size 12 font, standard font). You may need less or more, but do not exceed 10 pages
(double-spaced, size 12 font, standard font) in total.
Answers must be uploaded onto Quercus by 9:00am EST on September 29, 2022 (when
class starts). Please submit the assignment as a Word (.doc or a .docx) file. Your submission
will be subject to Turnitin review. Formal citations are not required, but if you do reference a
case or test, state which one you are talking about. The assignment is marked out of 25 and
is worth 5% of your final grade. Bonus marks earned during class only apply to that person's
John and not the whole group.

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Marking Rubric
The Assignment is marked out of 25:

 General knowledge/ability to speak about partnership law and other legal concepts –
/3
 Assignment’s organization and readability – /2
 Identifying and dealing with specific issues raised in the fact pattern – /20
o Linda and John in a partnership – /5
o Professor Holmes – /5
o Role of Sean Accounting – /4
o John’s Fiduciary Duty – /3
o Ms. Bump’s Negligence Claim – /3

Answer Key
Issue 1: Are Linda and John in a partnership? Answer should by ‘Yes’, based on following factors:
- Apply the 3 part test – They are two people or more people carrying on a business in
common with a view to profit.
- They both contribute their skills and expertise (engineering vs. running the business)
and running the venture
- They attend and participate in the monthly management meetings
- They each have signing authority on the business bank account, and make business
decisions together.
- They also agree to work things out regarding terms between them once the business
is successful (i.e., generating profits).

Issue 2: Is Professor Holmes a partner in the business? Is he entitled to reimbursement for the
conference? Answer could be “Yes” or “No”, based on how the following factors are analyzed:
- Does the components of the three part test apply?
- Professor Holmes contributed food truck that was used in core component of the
venture. However, the 3-D printer was in a state of disrepair and needed considerable
retrofits (which Linda and John paid for)
- Professor Holmes consulted for business venture and turned to for advice on
launching Homes by Linda. Professor Holmes is also consulted before each monthly
meeting by Linda for an update on the latest construction trends.
- Professor Holmes asks for 5% share from revenues, not profits, which undermines
idea he views himself as a partner. On the other hand, the Professor Holmes paints
himself as a partner by asking for reimbursement for the engineering and construction
conference he attended.
- Given his investment, Professor Holmes may be argued to be in Limited Partnership
with Linda and John. There are factors that go against this (no LP formation or
documents, and no appointment of a General Partner), although the Professor Holmes

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did invest in the business and does not participate in management of the business. It
could also be seen as a limited partnership with his involvement having a strict time
limit (one year until he gets his investment and return back).
- Whether or not he is entitled to reimbursement turns on whether he is considered a
partner or not.

Issue 3: Is Homes by Linda in a partnership with Sean Accounting LLP?

- Key factor in implying partnership is that $3,000.00 amount is paid with understanding
it is reviewable based on financial success of Homes by Linda. This initially looks like
an arrangement for payment out of profits.
- Sean attends some management meetings, but only provided fiscal updates. He did
do the initial business plan to scale the operations, but was compensated with being
allowed to manage the firm’s books and records.
- Sean was consulted only after the venture is started, no formal process to include him
as a partner.
- Students can argue that not once does Sean expressly or impliedly pledge to act in
Homes by Linda’s best interest. When Sean says that he considers Homes by Linda
as a partner his LLP, it is only a marketing ploy to promote his services.
- No arrangement for Sean to be paid out of profit of partnership, rather he receives
fixed amounts for his efforts.
- Another point to note may be that he is an agent of the partnership, should Sean be
considered a partner, could bind the partnership with implied authority in matters other
than joining an LLP as a partner.
- Sean could be holding himself as a partner to the firm. That could raise risks for Homes
by Linda (e.g. being bound by Sean’s actions).

Issue 4: Has John breached a fiduciary duty to his partner(s) by accepting the promotional work
from Don? Answer likely to be ‘Yes’ based on how Issue 1 was decided.
- If John is a partner, which should be established in Issue 1, then the fiduciary duty
should be established as partners have a fiduciary duty put partnership interests ahead
of their own and act in the best interest of the partnership. Also, partners are not
entitled to remuneration for acting in partnership business. Fiduciary duty includes
providing full information to partners. John likely breached the fiduciary duty from
withholding information about the promotional role.
- If John is a partner, may argue on the other hand that at all times he acted in the best
interest of the partnership since Linda agreed to the exclusive arrangement with the
FunTimes and thus consented to benefits derived by John. Additionally, the benefit to
John did not involve him competing with the partnership – which is one aspect of the
fiduciary duties of partners (albeit John likely failed in other aspects of fiduciary duty
imposed on him).
- If Issue 1 decided John is not a partner, then there was no breach of fiduciary duty.

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Issue 5: Who is liable for the claim of negligence? Most likely answer will be ‘No’, depending on
how Issues 1 to 3 are discussed.
- Fact pattern does not establish any written agreement in place. As a result, general
partnership principles apply.
- Partners at the time of the accident are personally liable for the damages caused.
Partner may be sued and recovered from, but such partner has right of contribution
against the other partners.
- If Issue 1 is decided as John is in a partnership with Linda, then John is liable. Linda
is not solely liable, and may seek contribution from John for liability she has to pay.
- If Issue 2 is decided as a Professor Holmes is in a partnership, then Professor Holmes
would also be liable. If Issue 2 is decided that Professor Holmes is in a limited
partnership, then Professor Holmes has limited liability, only his 250,000.00
investment is at risk.
- If Issue 3 is decided as Sean is not in the partnership, then Sean is not liable for the
negligence claim.