Violet's Legal Position: Partnership or Not?

The case involves the legal position of Violet and Sonny, who have provided loans to a business owned by Rose and Mary. Violet has entered into an agreement with Rose that provides for her to share 20% profit and losses in the business, examine its books, and receive quarterly business statements. She is also not considered a partner of the business. In contrast, Sonny has loaned $10,000 to the business as part of a contract with Mary, entitling him to a one-eighth share of the firm's profits or losses. The assignment aims to determine whether Violet and Sonny are partners in the business and therefore bound by its liabilities.

Running Head: PARTNERSHIP LAW
Partnership Law
Name of the Student
Name of the university
Author note

1
PARTNERSHIP LAW
1. Introduction
Just like sole proprietorship and incorporated business organizations, a partnership is a business
structure used to carry out business operations. The meaning of partnership in Australia is the same
across all states and territories in spite of different legislations governing it. Every definition provided by
such legislation provides the same meaning in relation to the existence of a partnership. Firstly a
partnership comes to an existence through a valid agreement between two or more partners. The
agreement must satisfy all the essential elements of a contract. The agreement must be for the purpose
of carrying on a business activity comprising of various business transaction. In case an agreement is
formed between two or more parties to carry out a particular transaction it results in joint venture and
not a partnership. The partnership provides mutual rights to all partners in the business as per the terms
of the agreement. The partners are in accordance to the law of agency bound to each other actions and
each partner is regarded as an agent of the business. Therefore if one partner gets into a contract on
behalf of the business the contract would be binding on all the partners of the business. A partnership
has to be initiated for the purpose of making a profit. Non profit businesses like sporting clubs and
charities are not considered as partnership and neither governed by the Partnership Act ( Callison &
Sullivan, 2012). The commonwealth legislation which governs partnership in Australia is the Partnership
Act 1963.
In order to find out the position of mary, violet, sonny and rose it has to be firstly determined
that whether a relationship of partnership exists between them on not. In case they are partners they
would be liable to the third party for the actions of each other. Whether a partnership between the
parties exists or not would be determined through the application of the elements of partnership in
relation to the scenario.
2. Existence of a partnership
This section of the paper determines whether a relationship of partnership is present or not between
Mary, Violet, Sonny and Rose through applying case laws and legislation to the facts of the case. As
provided by Morse (2010) a partnership is a association among individuals indulging in business
activities for the general purpose of making profit. It requires an agreement between two or more
parties which is binding legally and contractual in nature. In the case of Green v Beesley (1835) 2 Bing N
C 108 at 112 Tindal CJ defined partnerships as mutual participation however no legal entity is created by
a partnership. In the case of Smith v Anderson (1880) 15 Ch D 247 at 273 it was provided by James LJ a

2
PARTNERSHIP LAW
partnership is a relationship between fixed person who are bound to each other with respect to an
agreement which is carried out for a mutual objective, both in times of profit and loss. However a
limited number of people are only allowed to form a partnership as provided by the Corporation Act
2001. The law of partnership is taken from both common law and statutory provisions. In the case of
Lang v James Morrison & Co Ltd (1911) 13 CLR 1 at 11 it was ruled by the court that partners while
performing their duties in relation to the course of business acts as the agents of each other.
The Partnership Act 1963 (PA) through section 6 provides the meaning of partnership. The
section states that relationship between people having a common aim of profit making is a partnership
which also includes an incorporated partnership. An external partnership is also included in the
partnership as per section 6.
2.1 Mary and Rose
It has been provided by the scenario that Rose and Mary run a business known as the Busy Bee Florist
Shop as partners. This means that they are bond to each other’s action which is committed during the
course of business. There has been unseasonal weather and a drought which have resulted in losses for
the business. They have also taken loan from friendly bank which is according to the provisions of
partnership binding on each other. The profits and losses also have to shared by them equally as a
contrary agreement has not been provided. Rose has approached one of her friends Violate to obtain a
loan by providing her a share of profit. She has the authority to enter into contracts on behalf of the
partnership therefore the contract is valid. Latter Mary had approached Sonny who is also the employee
of the partnership for a lone in return of profit sharing in the business. After obtaining the loan both
Mary and Rose go for a vacation even when the business was declining. They had also informed the
bank from which they have taken loan that they have incorporated Sonny and Violet as partners. The
question which has to be determined is that whether Violate and Sonny are the partners of the firm and
thereby bond to the bank loan.
2.2 The legal position of violet
The agreement which Violet has entered upon with Rose in relation to providing the loan of
$20000 to the business had the following terms. Firstly violet would have the right to share 20% profit
and losses in relation to the business. Secondly violet would have the right to examine the books of
account of the partnership. Thirdly, she would be entitled to be provided with a business statement
quarterly. Finally, the money provided by her has to be considered by a mere loan and she is not to be

3
PARTNERSHIP LAW
considered as a partner of the business. The document of loan was executed before the money had
been advanced by Violet.
Section 7 of the PA provides provisions for the purpose of determining whether a relationship of
partnership exists between the parties or not. 7(1) states that for the purpose of determining a
relationship of partnership exists or not is based in the application of subsection 2-4 of this section.
In the case of Canny Gabriel Castle Advertising Pty Ltd & Anor v Volume Sales (Finance) Pty Ltd
(1974) 131 CLR 321 the defendants Volumes sales had indulged into an agreement to finance Fourth
Media Management Pty Ltd. The agreement specified that the business was a joint venture and the
money is provided only as a loan to the business. However the judges in this case ruled that the contract
is an implied partnership and not a joint venture or a loan agreement. This was because the view of both
the parties to the contract was to make profit. The profit which was made were to be shared equally.
The parties were interested in financial well being of each other, thus this was a partnership and not a
joint venture agreement.
In the case of Re Ruddock (1879) 5 VLR (IP & M) 51 the court ruled that even where the
agreement stated that a person should not be considered as a partnership of the business they can be
considered as partners in case it is evident they the requirements of partnership have been fulfilled. The
right to participate in profit was held to be an authority of establishing partnership. The case provided
that the relationship with respect to a partner is determined with respect to their rights in the business
and not the wordings of the agreement.
In the case of Wiltshire v Kuenzli (1945) 63 WN 47 Roper J stated that in order to determine the
relationship of partnership not only the statutory rules but the whole circumstances surrounding the
case has to be considered by the court. The court provided that if the parties to the partnership
agreement agree to all things which show that they have indulged in a partnership, no contrary words
can show that they do not have the intention to be bound to each other actions. In case the facts of the
situation are ambiguous than the expressed intention of the parties stating that they do not want to be
bound as partners has to be considered to determine partnership. However if there are clear facts which
state that the relationship is a partnership the expressed intention by the parties to it is meaningless.
As per the partnership act the receipt by a person to share profits is the main evidence to
establish the relationship of partnership however mere contingency and profit variation in relation to
the business done not establish a partnership relationship by itself. The principles have also been

4
PARTNERSHIP LAW
discussed in the case of Cox v Hickman (1880) 8 HL Cas 268 and Television Broadcasters Ltd v Ashtons
Nominees Pty Ltd (No 1) (1979) 22 SASR 552.
In the given circumstances it has been provided that violet not only wants to share profits but
also wants additional control over the business. It has been expressly stated in the agreement that she
does not want to be a partner of the business. However as per the above discussed case laws it has been
analysed that even if the agreement states that a person does not want to be a partner he can be held
as a partner upon the analysis of the other circumstances of the agreement. Therefore the fact that it
has been provided by agreement between Violet and Rose that Violet is not a partner would not make
her evade the liabilities of a partner.
In addition the Violet is not only sharing profits in the business but by checking the books of
accounts and with the right of quarterly business statements she has a significant involvement in the
business. From such terms it can be determined that the she is also impliedly carrying on the business in
common cause with Rose and Mary. Therefore giving relevance to the overall agreement she has with
Rose she has to be regarded as a partner.
2.3 Legal position of Sonny
Section 7(4)(b) of the PA states that an agreement with an agent or employee of a person for
remuneration through share of a profit does not make such person a partner of the business itself.
Section 7(4)(d) further states that if a person lends money to the business and has a contract in writing
with respect to which such person is entitled to get a interest rate changing with, or a sharing of profit
from carrying out business does not become itself a partner of the business.
In the given situation Sonny who is also the employee of the business has provided a loan of
$10000 to the business in relation to a contract with Mary. The terms of the contract state that as a
consideration of making the loan Sonny is entitled to receive a profit or loss of one-eight share of the
firm. As discussed above as per the principles of the Ashton and Cox case mere sharing profit in the
business does not make a person a partner. In addition the PA through the above discussed subsection
7(4)(b) and 7(4)(d) mere profit sharing does not make a person a partner of the business.
In the case of Federal Commissioner of Taxation v Whiting (1943) 68 CLR 199 it was specifically
provided by the court that advancing money in the form of loan by a person does not make him a
partner of the firm itself. In the given situation as per the consideration of providing loan Sonny is only

5
PARTNERSHIP LAW
entitled to profit or loss and not other control over the business. Therefore through the application of
the common law and statutory provisions it can be said that Sonny is not a partner of the firm
3. Conclusion
It has been derived through the above discussion that Violet is a partner of the firm along with Rose and
Mary, whereas Sonny is not. As per the provisions of partnership all partners are agents of each other
and bound to each other actions. Here Rose and Mary have gone on a vacation and the business is still
suffering losses. Even of this fact was not disclosed to Violate and even when the agreements provides
that Violet is not a partner, she is liable to be bound to all actions of the business. Therefore she has the
liability to repay the loan to Friendly bank along with Mary and Rose.

6
PARTNERSHIP LAW
References
Callison, J. W., & Sullivan, M. A. (2012). Partnership Law and Practice: General and Limited Partnerships.
West.
Canny Gabriel Castle Advertising Pty Ltd & Anor v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321
Corporation Act 2001 (Cth)
Cox v Hickman (1880) 8 HL Cas 268
Federal Commissioner of Taxation v Whiting (1943) 68 CLR 199
Lang v James Morrison & Co Ltd (1911) 13 CLR 1 at 11
Morse, G. (2010). Partnership law. Oxford University Press.
Partnership Act 1963 (Cth)
Television Broadcasters Ltd v Ashtons Nominees Pty Ltd (No 1) (1979) 22 SASR 552.
Wiltshire v Kuenzli (1945) 63 WN 47