Argue both sides to this case
Bill runs a dry cleaning store called Bill’s Dry Cleaning. Heis in deep financial trouble. His bank will no longer give him anycredit and is threatening to demand immediate repayment of allmoney it has loaned to his business. Bill also owes money to othercreditors and vendors.
Bill is desperate, so he approaches Christine, a very richlady, and asks her to refinance his business. Christine reviews thebusiness and its operations and says to Bill, “Listen, you’re agreat dry cleaner but a lousy businessman. I’ll bail you out, butwe have to divide up responsibilities a bit. If we’re going to makethis business work, we have to be stricter about it. First, no morecredit to professors. They’re lousy at paying their bills on time.Second, I want to determine who gets paid when. One of the arts ofstaying in business is stretching out your accounts payable. So,before you pay anyone, you check with me. Also, I want some upsidepotential. So long as you owe me money, I want 12% interest onwhatever you owe me or 12% of the profits, whichever is higher. Youpay me the 12% monthly, and quarterly I’ll decide whether to keepthe past three month’s interest or take my share of the past threemonth’s profits.”
?Bill accepts Christine’s terms, with one condition: “We haveto pay the employees on time. If we have the money, we pay them.”Christine accepts Bill’s condition, pays off the loan from thebank, and provides additional working capital to thebusiness.
?The business continues to operate under the same name, and noone except Bill knows about Christine’s involvement. Bill stopsextending credit to professors. Each month Christine reviews Bill’saccounts payable and sets the priorities for payment as follows:(1) pay Christine the money owed her; (2) pay overdue bills frompeople Bill intends to buy from again; (3) pay overdue bills fromother people who are threatening to sue; and (4) pay others.Christine never does take a percentage of the profit because the12% interest figure is always higher.
?Bill makes all decisions about which vendors to use. He alsomakes all personnel decisions (hiring, firing, salaries, etc.).Despite Christine’s help, the business fails in less than a year.Bill owes Christine $350,000; he owes creditors a total of $150,000and $25,000 in unpaid wages to three employees. Bill has no moneyleft.
Question: Are Bill and Christine partners, and if so, whatkind of partners are they, and how (if at all) can the creditorsand the employees collect from Christine? Explain.
