Case Study: Partnership Law Issues in Busy Bee Florist Shop Business

This case study analyzes the legal issues surrounding a partnership, specifically focusing on Violet and Sonny's Busy Bee Florist Shop and their liability to Friendly Bank regarding a business loan. It delves into the essential elements required to establish a partnership under the Partnership Act (Vic), including the carrying on of a business in common with a view to profit. The analysis examines the interpretation of 'carrying on business' and the significance of repetition of actions. The case references key legal precedents like Smith v Anderson, Canny Gabriel Castle Advertising Pty Ltd v Volume Sales Pty Ltd, Wiltshire v Kuenzli, Stekel v Ellice, Exparte Coral Investments Pty Ltd, Cox v Hickman, Re Ruddock, and Badeley v Consolidated Bank to determine whether Violet and Sonny can be considered partners. It explores factors such as profit sharing, the intent of the parties, and the role of creditors. The study concludes that Violet can be held as a partner, but Sonny cannot, based on the nature of their agreement and the application of partnership law principles.

Advise for Violet and Sonny
The Legal Issues: On the basis of the facts that have been provided in the present question, the
issue is if Violet and Sonny can be considered as the partners of the business running the Busy
Bee Florist Shop and therefore if can they be held liable to Friendly Bank regarding the loan
taken by the business. For the purpose of the establishment of a partnership, it has been provided
by section 1, Partnership Act (Vic) that there are three elements that need to be satisfied in this
regard. Hence there should be (i) the carrying on of a business; (ii) in common and (iii) with a
view to make profit. In case any of these elements is not present, the relationship cannot be
described as a partnership. While deciding the meaning of the expression 'carrying on business',
the issue arises if it is required that some repetitiveness of action should be established as
compared to a one-off action on the part of the parties. In a number of early decisions, stress has
been laid on the need for repetition or the continuity of action. In a particular case, there was a
group of depositors who had subscribed for purchasing the shares lower trust in different
submarine cable corporations. The investors were sold these by the trustees and they issued
certificates to them. The issue in this case was if the trust was a partnership (Smith v Anderson,
1880).
Deciding the Presence of Partnership: For deciding this issue, the court considered the nature
of the trust and also the relationship among the persons involved in it. The court noted the fact
that the trustees did not have the authority to speculate. They did not have mutual rights and
obligations among these persons. Under the circumstances, it was held that the press cannot be
described as a partnership, because there a lack of association for "carrying on a business"
(Canny Gabriel Castle Advertising Pty Ltd v Volume Sales Pty Ltd., 1974).

Section 2, Partnership Act: According to section 2, Partnership Act, certain rules have been
provided that can be used to decide if the particular relationship can be described as a
partnership. However, it is important to note that these rules are not the only determinative if this
question. While dealing with the question, the court will have to consider all the circumstances to
find the true substance of the agreement created by the parties. The express, as well as the
implied intention of the parties also needs to be considered in order to find if a partnership
relationship is present. It has been stated by Roper J. that after finding out that it was the parties
intended to do everything that would make them partners in law, the declared intention of the
parties not to become partners was not valid (Wiltshire v Kuenzli, 1945). Hence, this invention
will be of the utmost significance, regardless of the stated description of their relationship by the
parties. An example can be given of Stekel v Ellice (1973), where the plaintiff was employed by
the defendant in this accounting firm in 1967. They entered into an agreement in October 1968.
According to this agreement, the plaintiff became 'salaried partner' who was going to earn a
salary. According to the agreement, term of employment was going to cease in April 1969. The
agreement provided that the capital of the partnership belonged to the defendant and all losses
will be borne by the defendant. Significantly, it was also provided in the agreement that the
parties will enter a further agreement before April 1969, and according to this agreement, the
plaintiff will assume the role of a full partner. However, the parties never entered into the later
agreement and they continued as before. In August 1970, the relations of the parties broke down
and the petitioner left the dealing and took his clients along. Then the plaintiff sought a
pronouncement from the court that their partnership has been dissolved and it should be ordered
to be wound up. Hence the issue was if the arrangement amounted to an employment agreement

or if it was a partnership agreement. The court arrived at the conclusion that there was a
partnership politics and this continued even if there was no express agreement (Exparte Coral
Investments Pty Ltd., 1979).
Receiving a Share in the Profits: It has been mentioned by section 2(3), Partnership Act
receiving a share in the profits by a person is a prima facie proof that the person is a partner,
however, receiving such share or a payment contingent or varying on the basis of the profit of the
business does not by itself mean that such person can be held as a partner in that business.
However, the difficulty that is present in interpreting this sub-clause is present in the use of the
expression, prima facie, which qualifies the term evidence. Therefore, it appears that the fact of a
profit-sharing scheme can be considered as evidence regarding the presence of a partnership,
however. This fact alone is not sufficient to arrive at the conclusion that a partnership was
present between the parties (Television Broadcasters Ltd v Ashtons, 1979). Another important
days related with this issue is that of Cox v Hickman (1880). In this case, B. and J. Smith were
trading as partners in the company and they faced financial problems. They entered into a deed
of arrangement with the creditors. Accordingly, the business and partnership property was
assigned to them. They were allowed to continue the business under the new name. The future
income of the business was going to be divided among all the creditors. The arrangement also
mentioned that when the creditors were paid in full, they would return the business to Smiths.
There were two creditors, Fox and Wheatcroft, who were appointed trustees. But Cox did not act
as a trustee, and similarly Wheatcroft acted only for a very short period. After Wheatcroft had
seized to act the other trustees incurred debts to Hickman. They also gave some bills of exchange
that have been drawn on the partnership. Hickman wanted to make Cox and Wheatcroft liable for
these bills. It was held by the court that Cox and Wheatcroft have not been held out as partners.

Similarly, Hickman did not have any knowledge regarding them on the deed of arrangement.
Therefore, Fox and Wheatcroft can deny their liability even if they were entitled to share the
profits. The court said that this fact alone was not sufficient to make them partners. While
deciding the case, the court stated that the arrangement according to which future profits were
going to be applied to pay the old debts, and the creditors wanting to give up the right be paid
from the capital, does not appear to amount to a partnership of the third parties, who are not
aware of the deed.
Person sharing Net Profits: Hence, the court stated that the person who shares the net profits of
the business can be called a partner but this is not true in all the cases. It may be significant to
consider in what sense the term 'sharing the profits' has been used. For example, in this case, the
court had doubts if the creditors, who only obtained payment of a debt by being paid the exact
amount of the debt from the profits of the business, can be considered to share the profits. In this
case, the property of the business has been assigned to the trustees for carrying on the business
and to divide the net profits among all the creditors, not only the creditors who had signed the
deed, until the debt has been paid and if by receiving rateable proportion from the profits, can be
considered as a partner. In the opinion of the court, this was not the case.
In view of the above mentioned opinion of the Court, this is considered as the general rule.
Partnership Act provides in section 2(3) (a) to (e) the five cases in which this presumption is not
available. Therefore the law provides that the receipt of a debt are the liquidated demand by a
person from the growing profits of the business does not in itself make the person partner in the
business and liable. The rule is based on the judgment given in Cox v Hickman (1860). However,
the law provides that if circumstances are present, which revealed that the relationship was really

a partnership, the lender can be treated as a partner irrespective of their stated intentions (Re
Ruddock, 1879).
Another example that can be given in this regard is that of Badeley v Consolidated Bank (1888).
In this case, the lender (plaintiff) had given money to the borrower and the security over the plant
that was owned by the borrower. Moreover, the lender was going to receive interest and also to
share out of the net profits. It was also agreed by the borrower that the loan money will be
applied to carrying out the work related with the business. And similarly a right has been
provided to the lender to enter the property in case the borrower becomes bankrupt. In its
decision, the Court of Appeal had stressed upon the need to ascertained the 'real agreement' that
has been concluded between the parties. The court stated that merely sharing of the prophet is
not sufficient in order to infer a partnership. In this case, the court said that the real truth had
been expressed by the formal document that was signed by the parties. Hence it was a contract of
loan upon security. The lender did not participate in the loss, if any of the business.
Conclusion: Therefore, in the presentation can be said that Violet is a partner in the business
running the Busy Bee Florist Shop even if it has been mentioned in the event that the lender
(Violet) is not to be treated as a partner of the business. On the other hand, Sonny cannot be held
as a partner because the law provides that the receipt of a share of the profits of the business can
be prima facie evidence that such person is a partner but this fact alone does not make the person
as a partner in the business. The law provides that the contract for the remuneration of a servant
or agent by a share of the profits does not in itself make such servant or agent as a partner in the
business and therefore liable for the debts of the business as a partner.

On these grounds, it can be concluded that while Violet can be held liable as a partner of the
business and Friendly Bank can recover the amount, but Sonny cannot be treated as a partner and
therefore is not liable to Friendly Bank regarding the debt of Busy Bee Florist Shop.

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