Company Law Case Analysis: Violet, Sonny, and Partnership Issues

This case study analyzes a Company Law scenario involving Violet, Sonny, and their potential liabilities as partners in a business, Busy Bee Florist. The assignment examines the application of the Partnership Act 1958 (Vic) to determine whether Violet and Sonny should be considered partners or not, considering agreements and profit-sharing arrangements. The analysis considers key elements of partnership, including agreements, profit sharing, and the implications of loan agreements. The case explores whether Violet and Sonny are liable to Friendly Bank, examining whether their actions and agreements with Mary and Rose, the owners of Busy Bee Florist, constitute them as partners. The study references relevant case law, such as Badeley v Consolidated Bank and Mercantile Credit Co Ltd v Garrod, to support its conclusions. The conclusion suggests that Violet and Sonny are likely not partners and are not liable to the bank, based on their specific agreements and lack of intent to form a partnership.

RUNNING HEAD: COMPANY LAW
Company Law

COMPANY LAW
Part A
Issue
The main issue in the present scenario is whether Violet can be considered as partner or not.
Rule
The Partnership Act 1958 (PA) Victoria (Vic) defines about the partnership. A partnership is
a connection between two or more persons to carry out business with an object to profit
(Griggs, Cho, Mclaren, & Scheibner, 2018). Sec 3 of the PA defines about the partnership. It
is a business carried on by two or more person with an intention to distribute profit among
them (Graw, 2011).The main elements of partnership are; valid agreement that is also known
as partnership agreement, purpose to carry on business and to conduct business with a view to
revenue as well as to share liabilities in common (Curtis, 2012). The actuality of partnership
can be determined by these elements (Weitzenboeck, 2012). As per the sec 6 (3) (d) PA ,
lending money by the way of loan to an individual in or about to participate in any business
under a agreement with that individual that the lender receives a rate of interest that varies
with the earnings or receives a portion of the revenues from the business does not in itself
render the lender a partner with individual or individuals carrying or responsible (Bull, 2011).
Application
The main issue in the present scenario is whether Violet can be considered as partner. As per
the definition of partnership as given in sec 3 of the act, those who share profits in a business
as deemed as partner (Hepburn, 2013). In this scenario, Violet was entitled to share profit and
loss as mentioned in the agreement. However, as per the loan, agreement entered into
between Rose and Violet it was clearly mentioned in the document that the money advanced
is a loan and the lender is not to be regarded as partner of the business. Thus as per the loan
agreement Violet shall not be considered as partner.
As per sec 6 (3) (d) PA, Violet only advanced money to Rose and as per agreement between
them contained a clause stating that lender shall not treated as partner. Thus only on the basis
on profit sharing between them Violet shall not be considered as partner because as per the
act merely sharing of profit is not sufficient to become a partner in firm.
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COMPANY LAW
Conclusion
Thus, it can be concluded that Violet shall not be considered as partner.
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COMPANY LAW
Part-B
Issue
The main issue is, whether Sonny can be considered as partner and whether he is liable to
Friendly Bank.
Rule
As per sec 2(1) (3) of the PA the prima facie proof to determine whether partnership existed
between the parties is distribution share of profits among them (Duncan, 2012). Another
element is sharing of losses as per sec 24(1) (1) (Krebs, 2017). In the case of Badeley v
Consolidated Bank (1888) 38 Ch D 238, it was held by the court that profit sharing is not
sufficient for the tribunal to assume a partnership. The official document signed by the parties
articulated the true reality, i.e. it was a security loan agreement. There was no damages
involvement from the creditor. This made it distinct from the situation of Delhasse’s
Application
As per the abovementioned sec, it was written in the agreement that Sonny will receive
Mary’s salary plus an eight share of net profit or a one-eighth share of the firm’s losses in
contemplation of loan. Thus, only sharing profit of business does not make another person as
partner in firm. As applying the case of Badeley v Consolidated Bank, the reality of the
agreement can be seen to articulate the reality. Thus in the given scenario Sonny signed the
agreement which clearly shows that there were no such intention to enter into the business of
firm or to become partner.
Conclusion
Thus, it can be said that Sonny shall not be considered as partner as he approved to share
profit and losses of firm. To become a partner in firm merely sharing of profit is not
sufficient. There must also be intention of person advancing loan to partner.
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COMPANY LAW
Part-C
Issue
The main issue in the present scenario is whether Sonny and Violet both allowed themselves
to be held as partners.
Rule
In the case of Mercantile Credit Co Ltd v Garrod (1962) 3 All ER 1103, it was held by the
court that the partners will be liable as long as the deal was carried out within the usual ambit
of the business, i.e. the debts were used to finance the business subject to their intention.
Application
As applying the abovementioned case in the given situation, both were unaware of the fact
that Marry and Rose owe huge amount to the Friendly Bank, and as per their agreement with
Mary and Rose there were no intention on the part of Violet and Sonny to enter into business
as partner. Thus, they shall not be considered liable to held as partner.
Conclusion
Violet and Sonny did not allowed themselves to be partner there was no such intention on the
part of the Sonny to enter into partnership, her relationship was of principal and agent, so to
hold her liable it is necessary to prove that she was aware of the declaration of Busy Bee’s as
to his position as partner. Thus, both shall not be considered as partner.
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COMPANY LAW
Part D
Issue
The main issue is whether violet is a partner and liable to Friendly Bank.
Rule
As in the case of Smith v Anderson (1880) 15 Ch D 247, the tribunal stated that, a powerful
indication of a person-to-person company is whether there has been anything that creates any
mutual rights or responsibilities between those individuals in a contract with the delegated
power.
Application
As applying the above-mentioned case, looking at the terms of the loan agreement between
Violet and partnership, it is clear that the agreement was actually concluded and that mutual
rights and responsibilities were established. But if is mentioned in the loan agreement that
lender shall not be considered as partner then Violet shall not be liable to Bank.
Conclusion
Thus, as per the given facts, Violet is not likely to be responsible to a Friendly Bank. Her deal
with busy bee florist provides her all the privileges a partner would expect, but clause in the
agreement limits her powers as partner. Thus, Violet shall not be liable to the bank.
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COMPANY LAW
Bibliography
Bull, S. (2011). Binding Salaried Partners. SAclj, 23, 323.
Curtis, V. (2012). Small Business For dummies. Hoboken: John Wiley and Sons.
Duncan, W. (2012). Joint Ventures Law in Australia. Germany: Federation Press.
Graw, S. (2011). An outline of the law of Partnership. Connecticut: Thompson Reuters.
Griggs, L., Cho, G., Mclaren, J., & Scheibner, J. (2018). Commercial and Economic Law in
Australia. Netherlands: Kluwer Law International BV.
Hepburn, S. (2013). Principles Of Equity and Trusts. Abingdon-on-Thames: Routledge.
Krebs, P. (2017). Business Networks Reloaded. Abingdon-on-Thames: Edward Elgar
Publishing.
Weitzenboeck, E. (2012). A Legal framework from emerging business models;dynamic
networks as collaborative contracts. Abingdon-on-Thames: Routledge.
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