Partnership and Liability Issues

This assignment examines the legal concepts of partnership and loan agreements. It analyzes specific cases, such as Badeley v Consolidated Bank and Cox v Hickman, to illustrate how sharing profits doesn't automatically constitute a partnership. The focus is on determining liability when profit-sharing arrangements exist, considering the intentions of the parties involved.

1
Title of the paper:
Student’s name:
Institution:

2
Advise for Violet and Sonny
After going through the sites that are present in this question, the issue arises if Violet and Sonny
can be treated as partners in Busy Bee Florist Shop and consequently if it can be said that they
are liable to Friendly Bank for the loan that was taken by the florist shop business. So as to claim
the presence of a partnership in the particular case, section 1, Partnership Act (Vic) provides that
the elements have to be satisfied for this purpose. As a result, the parties should be carrying on a
business, in common and for the purpose of making profit. On the other hand, if given a single
element is missing, such relationship cannot be treated as a partnership. When determining the
meaning of the term 'carrying on business' , the issue may arise if there should be some
repetitiveness of action as against a one-off action in this regard, there are several decisions
given by the court where the courts have stressed upon the need for repetitiveness of action or
the continuity of action. For example, in one case, the group of depositors subscribed for
purchasing the shares offered trust in media submarine cable corporations. These shares were
sold to investors by the trustees, and they also provide them with certificates. Therefore the issue
was with the rest can be treated as a partnership (Smith v Anderson, 1880).
If a particular relationship can be described as partnership: in order to determine if a particular
relationship can be considered as a partnership, the board shall look at the nature of the trust and
also the relationship of the persons who are involved in it. For example in the above-mentioned
case, it was noted by the court that there was no authority on part of the trustees to speculate.
Similarly, the trustees did not have individual rights and obligations. As a result of the
circumstances, the court arrived at the conclusion that in the present case, they trust cannot be
treated as a partnership because there was no association for getting on the business. A somewhat

3
similar decision was also given in Canny Gabriel Castle Advertising Pty Ltd v Volume Sales Pty
Ltd., 1974.
Another relevant provision in section 2 of the Partnership Act (Vic) that has provided the rules
that need to be applied in order to decide if a relationship is a partnership of not. But, it is worth
mentioning that these rules alone cannot be used for deciding this question. Therefore, while
dealing with the issue of the presence of a partnership, the court reflects on all the conditions so
as to find the real substance of the agreement. Similarly, the express and the implied intentions of
the parties are also kept in mind for this purpose. For example, Roper J had mentioned that after
it has been discovered that the parties had the intention of doing everything that would make
them partners, the intention declared by the parties, not to become partners cannot be treated as
valid (Wiltshire v Kuenzli, 1945). Therefore, the most significant issue that needs to be
considered is the intention of the parties, irrespective of the description of relationship mentioned
by the party. For example in Stekel v Ellice (1973), the defendant had given employment to the
plaintiff in his accounting firm in 1967. According to the agreement between the parties created
in 1968, the plaintiff was mentioned as a salaried partner. The agreement provided that the term
of employment was in April 1969. It was also mentioned in the agreement that the capital of the
partnership business belonged to the defendant and the defendant will bear all the losses, if any.
At the same time, the agreement also provided that the parties were going to enter a further
agreement after April 1969. In this agreement, the plaintiff will become a full partner. However,
the agreement was never created afterwards. In August 1970, there was a complete breakdown of
relations between the parties. The plaintiff left the business and he also took his clients with him.
Under the circumstances, the plaintiff won the declaration from the court regarding the definition

4
of the partnership and an order to wind up the partnership. The issue before the court was if the
arrangement was a partnership agreement or it was merely an agreement for employment. The
court held that a partnership was present and the continued even in the absence of an explicit
agreement (Exparte Coral Investments Pty Ltd., 1979).
Sharing the profits: Section 2(3) of the Act provides that when a person receives a share and
profits, it is a prima facie proof that such person is a partner. But merely receiving a share on a
payment that depends on the profit of the business does not in itself establishes that the person
can be treated as a partner. According to the bigger thing that exists in the integration of this
clause is related with the use of expression prima facie, that has qualified with evidence. Hence,
it appears that the presence of a profiteering scheme can be treated as evidence concerning the
existence of a partnership. But this fact alone cannot establish the presence of a partnership
created between the parties (Television Broadcasters Ltd v Ashtons, 1979). Cox v Hickman
(1880) is also a very significant gains in this regard. In this case B. and J. Smith were trading as
partners. The company faced financial problems. Therefore, they entered the deed of
arrangement with its creditors. Therefore the property of the business and partnership was
assigned to them. They were allowed to continue with the business under a new name. The future
income was decided to be divided by all the creditors. It was also provided by this arrangement
that when the creditors have been paid in full, the business will be returned to Smiths. However,
Cox and Wheatcroft, two creditors who have been appointed as trustees but Cox had not acted as
trustees. In the same way, Wheatcroft acted as a trustee for very short time. After Wheatcroft had
seized the way, the other trustees incurred debts to Hickman. Some bills of exchange were given
by them that were drawn on the partnership. Under these circumstances, Hickman wanted that
Cox and Wheatcroft should be held liable regarding these bills. But the board decided that Cox

5
and Wheatcroft were not held as partners. In the same way, Hickman did not have any
knowledge regarding the deed of arrangement. As a result, Cox and Hickman were allowed to
deny their liability although they were entitled to share the profit of the business. The court was
of the opinion that only the fact of sharing the profit was not sufficient to consider them partners.
It also stated that the arrangement, which provided that the future profits are to be applied to be
the old debts and the creditors ready to quit their right of being paid from the capital does not
appear to be a partnership of third parties who were not aware regarding the deed.
Profit-sharing: Therefore the board was of the opinion in this case that the persons sharing the
net profits of the business can be considered as partners but is not applicable in on the cases. For
this purpose, the sense in which the term 'sharing the profits' has been used, needs to be
examined. For instance, in the present case, the court doubted if the creditors, who were going to
receive the exact amount of debt out of the profits, can be treated as sharing the profits. The
assets of the business was assigned to the trustees. In order to carry on the business and to divide
the profit of the business to all the creditors and not only to the creditors who was signed with
the deed, until the whole debt has been repaid. As a result of the opinion mentioned by the court
in this case, this is treated as a common canon. Section 2(3) (a) to (e) of the Partnership Act
provides the white cases where this presumption cannot be made. Hence, the law provides that
receipt of debt at the liquidated demand by a person out of the profits of the business does not in
itself establish that that person is a partner and therefore liable. This rule has been firmly
established in Cox v Hickman (1860). On the other hand, if the circumstances revealed the
presence of a partnership under the law, the lender can be considered as a partner, regardless of
their stated intention (Re Ruddock, 1879).

6
Badeley v Consolidated Bank (1888) is another example of such a situation. The lender
(plaintiff) . In this case money was given to the borrower, and also the security over the plant that
belongs to the borrower. At the same time, the lender was going to receive interest, as well as a
share, from the profits made by the business. The borrower also agreed that the loan money is
going to be applied to carry out the work concerning the business. In the same way, a right was
given to the lender according to which she may enter the property if the borrower becomes
bankrupt. The Appeal Court reiterated the need for finding out the "real agreement" that had
been concluded between the parties. Therefore, it was held by the court that only the fact of
sharing the profit is not sufficient for the purpose of inferring a partnership. Therefore in this
case, the court expressed the opinion that the real truth was mentioned in the formal document
that had been signed by the parties. Therefore, it can be described as the contract of loan on
security. The court also noted the fact that the lender was not going to share the loss, if any,
suffered by the business.
In the present case, Violet can be described as a partner in Busy Bee Florist Shop, although it has
been mentioned that the lender (Violet) will not be considered as a partner. But Sonny cannot be
treated as a partner due to the reason that according to the law, even if the receipt of share of the
profit is prima facie evidence that the person is a partner, but only this fact alone is not sufficient
to make the person, a partner. According to the law, a contract for remuneration of a servant or
agent out of the share in the profit of the business does not in itself make the person as a partner
and hence liable for the outstanding amounts of the business.

7
References
Badeley v Consolidated Bank (1888) 38 Ch D 238
Canny Gabriel Castle Advertising Pty Ltd & Anor v Volume Sales (Finance) Pty Ltd (1974) 131
CLR 321
Cox v Hickman (1880) 8 HL Cas 268
Exparte Coral Investments Pty Ltd [1979] Qd R 292
Re Ruddock (1879) 5 VLR 51 (IP & M) 51
Smith v Anderson (1880) 15 Ch D 247
Stekel v Ellice [1973] 1 WLR 191
Television Broadcasters Ltd v Ashtons Nominees Pty Ltd (No 1) (1979) 22 SASR 552
Wiltshire v Kuenzli (1945) 63 WN 47