Liability Of Violet And Sonny To Friendly Bank For Busy Bee Florist Shop

Essential Elements

Discuss about the Friendly Bank in Relation for Bee Florist Shop.

After considering all the facts that have been given in this case, the issue that needs to be decided is if Violet and Sonny can be held liable to repay the loan taken from Friendly Bank to run the operations of Busy Bee Florist shop. In order to decide this issue, it needs to be seen if Violet and Sonny can be treated as partners in the Busy Bee Florist Shop.

The relevant provisions that can be applied in this case are present in the Partnership Act (Vic), according to section 1 of this legislation, the presence of three elements is necessary in order to establish that a person can be described as a partner. Therefore, the law requires that in such a case, there should be

Carrying on of the business;

In common; and

For the purpose of making a profit.

On the other hand, even if a single element does not exist, the law does not consider the relationship to be a partnership. In order to decide the meaning of the term 'carrying on business', it has to be seen if some repetitiveness of action is necessary to be established as against a one off action by the parties. However, the courts have laid stress in a number of cases that there is a need for recognition of action. For example, in one case, a group of depositors had subscribed in order to purchase the shares of a trust in various submarine cable companies. These shares were sold to investors by the trustees. They also issued them certificates. The issue that was present in this case was if it can be described as a partnership. In order to decide this issue, the court had to look at the nature of the trust and it was also required to consider the relationship that was present between the parties who were involved in it (Smith v Anderson, 1880). Therefore the court, particularly pointed out towards the fact that authority was not present on part of the trustees to speculate. The trustees did not have natural rights and obligations. In view of these circumstances, the court was of the opinion that the trust cannot be treated as a partnership due to the reason that there was a lack of association to 'carry on a business'..

Rules to Decide Partnership

In this regard, section 2 of the Partnership Act provides certain rules that are relevant in this regard. These tools can be used for the purpose of deciding if a particular relationship present between the parties can be called a partnership. But at this point, it needs to be mentioned that the rules mentioned in this section are not the only determinants of the question related to the existence of a partnership. Therefore, when a court has to decide if a partnership is present between the parties, the court will be under an obligation to consider all the facts related with the situation in order to arrive at the true substance of the agreement that was created among the parties. Therefore, both express and implied intentions of the parties have to be considered by the court for the purpose of finding if a relationship of partnership exists between the parties. In this regard, Roper J. has express the opinion that after arriving at the conclusion that the parties had the intention to do everything that would make them partners, the declared the intention of the parties according to which they were not going to be partners, cannot be described as valid (Wiltshire v Kuenzli, 1945). Therefore the intention of the parties in this regard is off the utmost significance, irrespective of the description given by them to the relationship. An example in this regard can be given of the case titled Stekel v Ellice (1973). In this case, the defendant had employed the plaintiff in his accounting firm in 1967. The parties had entered into an agreement in 1968. This agreement provided that the plaintiff was going to become a salaried partner. Andy was going to earn a salary. At the same time, it was also provided by the agreement between the parties that the term of employment of the plaintiff was going to end in April 1969. Moreover, it was also mentioned in this agreement that the defendant owned the capital of the partnership. Similarly, all the losses will also be borne by the defendant. However, it was noted by the court that there was applause present in the agreement according to which the parties were going to create another agreement before April 1969. It will be provided by this agreement that the plaintiff was going to become a full partner in the partnership. But this beginning was never created by the parties and they continued with the older the agreement. In August 1970, there was a breakdown of relations between the parties and the plaintiff left the business. He also took his clients along with him. Then, a declaration was sought by the plaintiff from the court according to which the partnership has been dissolved and the court should make an order, winding up the partnership. Under these circumstances, the issue that was present before the court was considered in the agreement created between the parties can be described as an employment agreement or if the agreement was a partnership.. After going through all the facts of the case, the court was of the opinion that a partnership has been created between the parties and this partnership continued even if the parties have not entered into an express agreement later on (Exparte Coral Investments Pty Ltd., 1979).

When a person is receiving a share in the profits

Section 2(3), Partnership Act mentions that when a person is receiving a share in the profits of the business, it needs to be treated as a prima facie proof that such person is a partner in the business. But at the same time, it also needs to be mentioned in receiving the share in the profits or a payment that depends on the basis of the profits earned by the business does not by itself be treated as a proof of the fact that such person is a career as a partner in the business. The difficulty that exists in the interpretation of this subclause is related to use of the expression prima facie that has qualified the term 'evidence'. Under the circumstances, it can be said that affect related with a profit-sharing scheme can be treated as the evidence in support of the fact that a partnership exists between the parties, but only this fact cannot be relied upon in order to determine that the relationship of the parties can be described as a partnership (Television Broadcasters Ltd v Ashtons, 1979). Cox v Hickman (1880) is a significant case related with this issue. Therefore the facts of this case need to be described briefly, in order to deal with this issue. B and J Smith have been trading as partners. The company started to face financial difficulties. Under these circumstances, both of them entered into a deed of arrangement with the creditors of the company. Consequently, the business and the partnership property had been assigned to the creditors. Similarly, the creditors were also allowed to carry on the business by assuming a new name. The deed provided that the future income of the business have to be provided by all the creditors. It was also mentioned in the deed that after the creditors have been paid in full, the business was going to be returned to Smiths. The two creditors, Cox and Wheatcroft have been appointed as the trustees. However Cox never acted as a trustee. In the same way, Wheatcroft also acted as a trustee for a very short period. After this period, the other trustees incurred some debts to Hickman. They also gave some bills of exchange drawn on the partnership business. Later on, Hickman wanted and established the liability of Cox and Wheatcroft regarding these bills. However, the court arrived at the conclusion that in this case Cox and Wheatcroft cannot be considered as partners. The court noted the fact that there was no knowledge present on part of Hickman regarding the deed of arrangement. Under these circumstances, Cox and Wheatcroft were allowed by the court to deny the liability although the arrangement provided that they were going to share the profits of the business. In this regard, it was stated by the court that only this fact cannot be treated as being sufficient to describe both of them as partners. Therefore, in his decision, the court was of the opinion that the arrangement which provided that the future profits of the business have to be applied in order to pay the old debts and the decision made by the creditors to give up their right to be paid from the capital of the business, does not appear to be a partnership with other parties who do not have any knowledge of the deed.

It was held by the court that although the person sharing the profits can be described as a partner but this does not apply in all the cases. For this purpose, the sense in which the term 'sharing the profits' has been used, needs to be considered. For instance, in the present case, the court had doubts if the creditors of the governing who were going to receive only the payment of their debt out of the profits of the business, can be said to be sharing the profits. As a result, this opinion is treated as a general rule. Section 2(3) (a) to (e) of the Act mentioned the cases where the above-mentioned resolution cannot be made. Hence, according to the law, receipt of debt on the liquidated demand made by a person out of the profits of the business does not in itself makes such a person, a partner. This rule is based on Cox v Hickman (1860). But at the same time, it has also been provided by the laws that if the circumstances are present, which indicate towards the fact that the relationship was a partnership, in such a case, the lender can be considered a partner, regardless of their intentions (Re Ruddock, 1879).

After going through the legal position mentioned above as well as the rules that apply to the facts of the present case, it can also be concluded in this case that Violet can be treated as a partnership in Busy Bee Florist Shop although the agreement concluded between the parties has stated that the lender (Violet) is not going to be a partnership in the business. But the situation is different in case of Sonny. In this case, it cannot be said the Sonny is also a partner in the business. The reason is that according to the law even if the fact that the person is receiving a share out of the profits of the business has to be treated as the prima facie evidence regarding the fact that the person is acting as a partner but only on the basis of this fact, it cannot be concluded that such a person is a partner in the business (Badeley v Consolidated Bank (1888). In such cases, the law provides that the contract for remuneration that is going to be provided to a servant or an agent in the form of a share, from the profits of the business does not in itself make the person, a partner in the business and as a result, liable for the obligations of the business.

Therefore, on the application of the above-mentioned legal rules to the effects of the present instrument can be concluded in this case that Violet needs to be treated as a partner in Busy Bee Florist Shop. As mentioned above, the viability of the partners is joint and several. Therefore, the law allows Friendly Bank to recover their pending amount from Violet. On the other hand, it cannot be said that Sonny is also a partner in the business. As a result, Friendly Bank cannot initiate action against Sonny for the recovery of the amount that was owed by 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