Liability when a firm becomes insolvent

Paula, Fred, and Stephanie agree that Paula and Fred will
form and conduct a partnership business and that Stephanie will become a
partner in two years. Stephanie agrees to lend the firm $5,000 and take 10
percent of the profits in lieu of interest. Without Stephanie’s knowledge,
Paula and Fred tell Harold that Stephanie is a partner, and Harold, relying on
Stephanie’s sound financial status, gives the firm credit. The firm later becomes
insolvent, and Harold seeks to hold Stephanie liable as a partner.

Should Harold succeed?

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