Ellen Doran is an accounting analyst. She made a name for herself in the Panhandle with several small businesses. Growing tired of working seven days a week, Doran formed a partnership with a local software saleswoman, Penelope Bitz. They agreed via e-mail as to how expenses and such would be handled—each department would be its own profit center, and each partner would be responsible for her individual departments. Although they agreed to this via e-mail, the partners failed to draft a formal signed partnership agreement. While Doran went about working with clients and reimbursing her expenses, Bitz grew resentful of Doran’s growing profits. Seven weeks into the partnership, Doran realized that Bitz had cleaned out the partnership account and closed it. Three years of litigation ensued over the $5,000 profits: The results were dismal. Hundreds of thousands of dollars were spent in legal and accounting fees, not to mention the time each former partner spent on the case. The judge ruled that in absence of a written partnership agreement, Doran had mutual agency liability for the actions of Bitz. Doran filed bankruptcy while Bitz lost most of her clients in the aftermath.

Requirements

1. Did either of the partner commit a fraud?

2. Should an electronic agreement be held identical to a formal, written partnership agreement? Does the fact that the two partners worked in an environment where most decisions and work are performed electronically make a difference?

3. What could the partners have done to protect themselves from the situation? (Challenge)