Law- Partnership Act 1963: Document

Added on - Mar 2020

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Law2Issue:Whether status of both Violet and Sonny is determined as partner of the Busy Bee, and whetherany liability arises towards the Friendly Bank on part of Violet and Sonny in context of loantaken by Busy Bee Florist Shop?Law:Meaning of partnership is defined by Partnership Act 1963, and this section states thatpartnership is considered as relationship between two or more people who agreed to carrycommon business for the purpose of earning profit. This definition also includes incorporatedlimited partnership and external partnership. However, any relationship which exists between thecompany members cannot be considered as partnership, does not matter whether suchrelationship form as per the Act or not.This is understood in other form also, as partnership is the relationship under which contract issigned by two or more parties for carrying on the common business to earn profit. Partners mustintent to bind each other while entering into agreement which means relationship must becontractual in nature. It can also be considered in some other way also that partnership is themutual participation by partners and partners must not create legal entity while creating thepartnership. In case lawSmith v Anderson (1880) 15 Ch D 247 at 273, James LJ held thatordinary partnership include those individuals who were enter into an contract for the purpose ofbound themselves for joint object either for limited period of time or for indefinite period.Usually, partnership is for those who want to enter into a binding contract with each other.Partnership law imposed restriction on maximum number of partners which can be entered intosingle partnership. However, firm name must be registered under the partnership Act(Partnership Act, 1963).Law which governs the partnership is based on both statue law and case law. Partnership is alsoknown as special type of agency because partners of the firm while carrying on the business ofthe partnership are acting as the agent of each other.After considering above facts it is clear that agreement is the essential element for partnership,and such agreement must be legally enforceable.Whether partnership exist or not is the most difficult issue which is determined by Court innumber of cases and for this purpose section 7 of the Partnership Act 1963 defines rules throughwhich Court can determine whether partnership exists or not. Details of section are stated below:1.This section defines that rules for determining the existence of partnership are statedunder clause 2 to clause 4 of section 7.2.This clause defines the rule related to joint tenancy and common interest, which meansany joint tenancy, common interest, joint property, and ownership in part does not result
Law3in partnership itself just on the ground that person held and owned something. Courtconsiders the factor whether any profit shared by tenants or owners is earned throughusing these things held and owned by tenant or owner. This means that relationship ofpartnership does not exist on the basis that co-owners jointly held the property. In caselawDavis v Davis [1894] 1 Ch 393,Court determine the issue related to relationship ofpartnership between two brothers who hold real estate property as joint tenants. In thisbusiness and three houses were left by father of brother’s after his death. Brothersdecided to let one house and other two houses were used by brothers in their business.For the purpose of carrying on the business, two houses were used as security by brothersfor getting loan and brothers also used the amount earned by the business was taken bybrothers for their weekly expenses. In this case, court decided that there was relationshipof partners between the brothers for the purpose of carrying on the business, and Courtfurther stated that both the houses which were given as security will be considered asproperty of the partnership (Egert, 2007).3.This clause defines the sharing of profits and gross returns, and as per this clause anysharing of profits and gross returns of partnership business does not considered asexistence of partnership unless such return and profit is derived from the property inwhich person has common rights and interest. In case lawCribb v Korn (1911) 12 CLR205, High court stated that there was no relationship of partnership, and it was just atenancy. Court took this decision on the ground that owner of the land has exclusive rightin the land and there was no common interest, and no right was available to Cribb todirect the actions of owner of land.4.This clause defines the payments which were not considered while determining existenceof partnership. As per this clause, in case any profit or return is received by the personfrom the activities of partnership business then such receipt can be considered as primaryevidence for the purpose of determining the status of partnership. However, it must benoted that any receipt of such profit or return or any change occurred in the profit of thebusiness shall not be itself considered as existence of partnership. Following are somepayments which cannot be considered as primary evidence of sharing of profit.a.If any amount related to debt or any other amount in the form of installments asliquidated debt is received by the person or any other form of accruing profits thensuch person is not determined as partner of the firm and such person is also not liablefor any debt of the firm towards the third party.b.Any contract which is related to the remuneration of employee or agent of that personwho is engaged in the day to day activities of the business by sharing business profits,then such employee and agent is not considered as partner of the firm and suchemployee or agent is also not liable for any debt of the firm towards the third party.c.Any amount received by domestic partner and child of deceased partner in lieu ofprofit sharing of the business in way of periodic payments then such domestic partner
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