Question

BUSINESS LAW "Michael Sark operated a logging business as a sole proprietorship. To acquire equipment for the business, Sark and his wife, Paula, borrowed funds from Quality Car & Truck Leasing, Inc. When his business encountered financial difficulties, Sark was unable to pay his creditors, including Quality. The Sarks sold their house (valued at $203,500) to their son, Michael, Jr., for one dollar, but they continued to live in it.

Three months later, Quality obtained a judgment in an Ohio state court against the Sarks for $150,481.85 and then filed a claim to set aside the transfer of the house to Michael, Jr., as a fraudulent conveyance. From a decision in Quality’s favor, the Sarks appealed, arguing that they did not intend to defraud Quality and that they were not actually Quality’s debtors."

Given that Paula jointly borrowed funds from Quality Care & Truck for the benefit of the business, could it be argued that she was a partner of the logging business with her husband Michael? Why or why not?

If you were the attorney advising Michael Sark (we will assume this would have taken place prior to the business encountering financial difficulty), what advice might you have given him about ways in which he could prevent the loss of his family home?

Answer 1

Answer- In this case,It is given that Paula jointly borrowed funds from Quality Care & Truck for the benefit of the business,But it could not be argued that she was a partner of the logging business with her husband Michael because partnership business form with the agreement between two partners under uniform partnership act,Which controls the operations of any partnership business but in this case there is no partnership agreement between Michael Sark and his wife.Michael Sark was doing his business as a sole proprietary.

If i were the attorney and had to advice Michael Sark. After taking into consideration his unlimited liability being a sole proprietor, I might advice him to take insurance for the protection of his business because if there will be any financial difficulty creditors can ask for his personal property to cover their loss and if Sark would have taken the insurance and due to the liabilities it would be easy to increase the policy limit. This way Sark would prevent the loss of his family home and Other option ; if they have realised the financial difficulties, they could have convinced the other party to renegotiate the terms of their debt with Quality, or could have tried to renegotiate for mortgage or attempted for HELOC.