Liability and Business Structure in Partnership

Running head: LAW OF CONTRACTS AND TORT
Law of Contracts and Tort
Name of the Student
Name of the University
Author Note

1LAW OF CONTRACTS AND TORT
Answer 1:
Issue:
To establish the business structure within which Julio, Carolyn, Trisha and Sarah fall.
Additionally, to establish their status and subsequent liability to each other and the business.
Rule:
When a Business is carried on with the common intention of making profit by two or
more people, the same is incorporated in the nature of partnership as per Section 6 of the
Partnership Act 1963. Receipt of portion of profit alone does not make one a partner in a firm
Section 7 Partnership Act.
Application:
The firm was set up by Julio, Carolyn and Trisha by contributing equal amount of
money towards the business. Each one of them possess a special expertise and area of interest
using which they aim to provide financial services for their client. Sarah joins the trio as a
mentor and invests additional funds of $60,000 in return for 10% of the firm’s gross profits.
The sharing of profits with Sarah is limited to a five-year period.
In the present instance Julio, Carolyn and Trisha started their business in a form that
makes them all partners and jointly and severally liable to each other and the firm – section 9
and 13 Partnership Act. By applying Section 7 of the Act it becomes evident that Sarah does
not become a partner of the firm. Sarah has no liability for the actions of the firm or its
partners.
Julio, Carolyn and Trisha all have the same responsibility and role as the rules for
determining partnership apply to three of them and not Sarah. This relationship implies that
all acts done by any one of them, in the course of business and to further actions of the firm

2LAW OF CONTRACTS AND TORT
making them an agent will invariably bind the other two partners and the firm. Each partner
is at the same time an agent of the firm and the other partners. All partners are liable for acts
authorized by the firm. The partners are jointly liable for debts and obligations of the firm.
On the demise of any of the partners their personal and private property becomes the subject
of such liability. Sarah being just an investor who has contributed $60,000 towards the
business has no real role or responsibility for the firm. Wang v Rong [2015] NSWSC 1419
has established that all partners in a Partnership firm are jointly and severally liable for all the
debts and obligations that arise in the Partnership firm.
Conclusion:
Julio, Carolyn and Trisha are partners of the firm as per the provisions of Partnership
Act. Sarah is an investor and merely sharing the profits does not make her a partner. All the
rights and obligations that apply to partners and a partnership firm apply to Julio, Carolyn and
Trisha however none of them are applicable to Sarah.

3LAW OF CONTRACTS AND TORT
Answer 2:
Issue:
Following Julio’s advice on tax the client, A acts on real estate property, the same
advice being incorrect and not verified leads to an error that costs A $15,000 in tax. Whether
the acts of Julio amount to negligent misrepresentation and the onus of responsibility on Julio
and the firm.
Rule:
Relying on the Hedley Byre & Co. V Heller & Partners case negligent
misrepresentation or negligent misstatement arises when actions or advice of an expert gives
rise to negative results or has a detrimental effect on the client’s finances. Additionally, as per
the Civil Liability Act ordinary laws of negligence govern cases of financial loss that arise as
a result of negligent misrepresentation / negligent misstatement. The Golden Rule of
Negligence as set forth in Sullivan v Moody and other similar cases, assumes that there has
been compliance and fulfilment of all the relevant duties, unless evidence expressly suggests
otherwise.
Section 9 of the partnership Act make all the partners in a firm, agents of one another
and the firm as a whole. All the acts of partners if done in the course of ordinary business and
within the limit of their authority and expertise, binds the firm and all the other partners.
Section 10 prescribes that all acts done on behalf of the firm by individuals who are
authorized to do so in the firm’s name or with the intention of binding the firm subsequently
binds all the partners.
Section 13 makes all partner in a firm jointly liable for all the debts that a firm owes
to its clients and debtors.