Advise For Violet And Sonny: Legal Issues Essay

Question:

Write about the Advise for Violet and Sonny for Legal Issues.

Answer:

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

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