Ellen Doran Case

BUSINESS CASE

Presented to the

Accountancy Department

De La Salle University

In partial fulfilment

Of the course requirements

In ACTPACO C31

Olalo, Louis Alfonso N.

February 24, 2014

PARTNERSHIP BUSINESS CASE

Ellen Doran is an accounting analyst. She made a name for herself in the Florida

panhandle with several small businesses. Growing tired of working seven days a week,

Ellen 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 should be responsible for her individual

departments. Although they agreed to this via e-mail, the partners failed to draft a

formal partnership written agreement. While Ellen Doran went about working with

clients and reimbursing her expenses, Penelope Bitz grew resentful of Ellen's growing

profits. Seven weeks into the partnership, Ellen realized that Penelope had cleaned out

the partnership bank account and closed it. Three years of litigation ensued over

P200,000 profits and hundred of thousands of pesos 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 written partnership agreement, Ellen had mutual agency liability for

the actions of Penelope. Ellen filed bankruptcy while Penelope lost most of her clients

in the aftermath.

1. Did either of the partners commit a fraud?

For Penelope Bitz, she committed fraud when she emptied the partnership bank account and closed it without the knowledge of her partner Ellen Doran. This was all because of her jealousy of the profits Ellen was making from the partnership. Penelope deliberately did this to undermine the partnership in order to spite Ellen. Being a partnership bank account, it contained the cash both partners contributed to help in the running of the partnership business or part of their combined capital for short. So naturally, before Penelope was to make any withdrawal/s from that bank account, she should have at least informed her fellow partner, Ellen, and waited for her to give her consent. But in this case, she didn't and it even got to the point of Ellen finding out herself which only made the situation worse than what it already was. In addition to that, Penelope took the money for her own petty and selfish reason to spite her partner as opposed to using the money for the partnership's business operations. This itself can be considered as fraud. Also, because she deliberately emptied and closed the partnership bank account without Ellen's knowledge, Penelope acted in bad faith which constitutes fraud.

On Ellen's part, she may have committed fraud before Penelope emptied and closed the partnership