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[PDF] The theory of partnership

Added on - 26 Nov 2019

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Advise for Violet and SonnyThe Legal Issues: On the basis of the facts that have been provided in the present question, theissue is if Violet and Sonny can be considered as the partners of the business running the BusyBee Florist Shop and therefore if can they be held liable to Friendly Bank regarding the loantaken by the business. For the purpose of the establishment of a partnership, it has been providedby section 1, Partnership Act (Vic) that there are three elements that need to be satisfied in thisregard. Hence there should be (i) the carrying on of a business; (ii) in common and (iii) with aview to make profit. In case any of these elements is not present, the relationship cannot bedescribed as a partnership. While deciding the meaning of the expression 'carrying on business',the issue arises if it is required that some repetitiveness of action should be established ascompared to a one-off action on the part of the parties. In a number of early decisions, stress hasbeen laid on the need for repetition or the continuity of action. In a particular case, there was agroup of depositors who had subscribed for purchasing the shares lower trust in differentsubmarine cable corporations. The investors were sold these by the trustees and they issuedcertificates to them. The issue in this case was if the trust was a partnership (Smith v Anderson,1880).Deciding the Presence of Partnership: For deciding this issue, the court considered the natureof the trust and also the relationship among the persons involved in it. The court noted the factthat the trustees did not have the authority to speculate. They did not have mutual rights andobligations among these persons. Under the circumstances, it was held that the press cannot bedescribed as a partnership, because there a lack of association for "carrying on a business"(Canny Gabriel Castle Advertising Pty Ltd v Volume Sales Pty Ltd.,1974).
Section 2, Partnership Act: According to section 2, Partnership Act, certain rules have beenprovided that can be used to decide if the particular relationship can be described as apartnership. However, it is important to note that these rules are not the only determinative if thisquestion. While dealing with the question, the court will have to consider all the circumstances tofind the true substance of the agreement created by the parties. The express, as well as theimplied intention of the parties also needs to be considered in order to find if a partnershiprelationship is present. It has been stated by Roper J. that after finding out that it was the partiesintended to do everything that would make them partners in law, the declared intention of theparties not to become partners was not valid (Wiltshire v Kuenzli, 1945). Hence, this inventionwill be of the utmost significance, regardless of the stated description of their relationship by theparties. An example can be given ofStekel v Ellice(1973), where the plaintiff was employed bythe defendant in this accounting firm in 1967. They entered into an agreement in October 1968.According to this agreement, the plaintiff became 'salaried partner' who was going to earn asalary. According to the agreement, term of employment was going to cease in April 1969. Theagreement provided that the capital of the partnership belonged to the defendant and all losseswill be borne by the defendant.Significantly, it was also provided in the agreement that theparties will enter a further agreement before April 1969, and according to this agreement, theplaintiff will assume the role of a full partner. However, the parties never entered into the lateragreement and they continued as before. In August 1970, the relations of the parties broke downand the petitioner left the dealing and took his clients along. Then the plaintiff sought apronouncement from the court that their partnership has been dissolved and it should be orderedto be wound up. Hence the issue was if the arrangement amounted to an employment agreement
or if it was a partnership agreement. The court arrived at the conclusion that there was apartnership politics and this continued even if there was no express agreement (Exparte CoralInvestments Pty Ltd., 1979).Receiving a Share in the Profits: It has been mentioned by section 2(3), Partnership Actreceiving a share in the profits by a person is a prima facie proof that the person is a partner,however, receiving such share or a payment contingent or varying on the basis of the profit of thebusiness does not by itself mean that such person can be held as a partner in that business.However, the difficulty that is present in interpreting this sub-clause is present in the use of theexpression, prima facie, which qualifies the term evidence. Therefore, it appears that the fact of aprofit-sharing scheme can be considered as evidence regarding the presence of a partnership,however. This fact alone is not sufficient to arrive at the conclusion that a partnership waspresent between the parties (Television Broadcasters Ltd v Ashtons,1979). Another importantdays related with this issue is that ofCox v Hickman(1880). In this case, B. and J. Smith weretrading as partners in the company and they faced financial problems. They entered into a deedof arrangement with the creditors. Accordingly, the business and partnership property wasassigned to them. They were allowed to continue the business under the new name. The futureincome of the business was going to be divided among all the creditors. The arrangement alsomentioned that when the creditors were paid in full, they would return the business to Smiths.There were two creditors, Fox and Wheatcroft, who were appointed trustees. But Cox did not actas a trustee, and similarly Wheatcroft acted only for a very short period. After Wheatcroft hadseized to act the other trustees incurred debts to Hickman. They also gave some bills of exchangethat have been drawn on the partnership. Hickman wanted to make Cox and Wheatcroft liable forthese bills. It was held by the court that Cox and Wheatcroft have not been held out as partners.
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