## Facts

- On November 6, 1989, Audrey Serge entered into a written agreement with her brother, Donald Fenimore, under which Serge advanced $12,500 for Fenimore to conduct a business buying and selling motor vehicles.
- The agreement provided that Serge and Fenimore would share in profits from the vehicle sales.
- The agreement described Serge’s contribution as an advance for the venture and contemplated that Fenimore would run the vehicle-buying and selling activity.
- Fenimore later became insolvent.
- Villabona obtained a judgment against Fenimore for about $32,000.
- Fenimore had recently inherited about $20,000 in property.
- Serge and Villabona each sought to recover from that inherited property as creditors of Fenimore.
- Villabona argued that Serge’s 1989 arrangement with Fenimore was a partnership rather than a loan, and that Villabona therefore should have priority over Serge in reaching the inherited property.

## Issues

1. Whether the November 6, 1989 agreement between Serge and Fenimore created a partnership (making Serge a partner rather than a creditor) or instead created a debtor-creditor relationship despite the profit-sharing term.
2. If the agreement was a partnership, whether Serge’s claim would be treated as a partner’s interest rather than as a creditor claim for purposes of distributing the inherited property among Fenimore’s claimants.

## Decision

- The Court of Chancery characterized the Serge–Fenimore arrangement as a financing arrangement rather than a partnership.
- The court treated Serge as a creditor of Fenimore for purposes of the priority dispute over the inherited property.
- The court rejected Villabona’s attempt to recharacterize the agreement as a partnership solely to improve Villabona’s recovery position against Fenimore’s estate assets.

## Legal Principles

- Partnership status depends on the parties’ relationship as shown by the agreement and the surrounding arrangement, not merely by the labels the parties used.
- A right to share profits is evidence that may suggest a partnership, but profit sharing can also serve as a method of compensating an investor or lender and is not conclusive by itself.
- Facts that tend to weigh against partnership formation include lack of shared management or mutual control, absence of co-ownership features, and an arrangement that functions primarily as one party providing funds and the other operating the business.
- In disputes among competing claimants to an insolvent person’s assets, courts may look to the substance of the transaction to decide whether an insider advance should be treated as debt (a creditor claim) or equity (a partner’s interest), because the classification affects priority.

## Conclusion

In *In Re Estate of Fenimore*, the Delaware Court of Chancery resolved a priority dispute between Audrey Serge and judgment creditor Villabona by determining that Serge’s $12,500 profit-sharing advance to Donald Fenimore for a used-car venture did not make her a partner, and therefore she could assert a creditor claim against estate property alongside Villabona rather than being displaced on a partnership theory.


In Re Estate of Fenimore, 1999 WL 959204 (1999)