Discuss about the Television Broadcasters v Ashtons Nominees Pty Ltd.
The issue that arises in this case is if Violet and Sonny can be considered as being liable Friendly Bank regarding the loan taken by Busy Bee Florist Shop. For deciding this question, it has to be seen if Violet and Sonny can be considered as partners and therefore liable to repay the loan.
According to the Partnership Act, a partnership has been mentioned as a relationship that exists between the parties who are carrying on business in common and for making a profit. Hence, in case of a partnership, two or more parties enter into an agreement. According to which they were going to join the legally binding relationship. As a result, this relationship can be described as being contractual in nature. In this regard, Tindal J. had stated in Green v Beesley (1835), that the definition of partnership has always provided to be a medium of participation, but in such a case, the result is not the creation of a legal entity even when a partnership is created by the participants. There is another decision given in Smith v Anderson (1880), where the concept of partnership has been described by James LJ. According to them, there are definite individuals present in case of partnership for bound together by the contractor has been formed between such persons to jointly make efforts to achieve a joint objective, either during the pleasure or for the time prescribed by them. Such agreement essentially comprises of the persons who originally intended to become a part of the contract with each other. On the other hand, although a number of definitions of partnership are present, but still limitations are present on the number of persons who may become partners. The Corporations Act also provides the relevant provisions in this regard. According to the law of partnership, the partnership will have its own name and it will be called the name of the firm (Lang v James Morrison & Co Ltd., 1911).
The partnership law finds its origin in case law and also in statute law. The rendering legislation in this regard is the Partnership Act, 1892. According to the partnership law, it has been mentioned as a special type of agency. The reason given in this regard is that when a partner is acting in course of business of the partnership, the partner is treated to be acting as an agent of the other partners (Lang v James Morrison & Co Ltd., 1911). In order to decide the presence of a partnership, the law requires that there are three elements, the presence of which is necessary in order to come to the conclusion that the relationship between the parties can be described as a partnership. Hence, in order to create a partnership, it is necessary that the parties should be carrying on business; the business should be carried on in common are the parties and in order to make profit. The law provides that all the above-mentioned elements be present for the purpose of creating a partnership. Therefore even if a single element is missing, the relationship between the parties cannot be termed as partnership.
For the purpose of deciding the meaning of "carrying on business", it has to be seen if some reputed business of action needs to be established as against a single action on the part of the parties. However, the courts have stated in several cases that it is necessary to establish a reputation or continuity of action. An example can be given of Smith v Anderson (1880), where a group of investors decided to purchase the shares in submitting cable companies. For this purpose, they decided to form a trust. The shares were sold by the trustees to the investors along with the certificate. After some time, Smith made an application to wind up the trust. It was alleged that the trust was illegal association as a result of the application of section 4, English Companies Act, 1862. It was mentioned in this section that it was not possible to form a company, association of partnership having more than 20 persons for carrying on business, if it has not been registered. Therefore in this case the issue before the court was to see if the trust formed by the parties can be described as a partnership. In order to deal with this issue, the court looked at the nature of the trust and also the relationship between the parties were formed the trust. The court noted that even if the persons holding certificate were allowed to elect trustees and to receive a trust report, the trustees were also given some powers of management but at the same time, it was also noted that there just isn't not have the authority to speculate. In the same way, mutual rights and obligations have not been imposed on the persons involved in the trust. Under these circumstances, the court arrived at the conclusion that in this case, the trust was not a partnership as there was no association in order to "carry on business".
The Partnership law contains certain rules that can be applied for making a decision if a particular decision can be described as a partnership,. In this regard, section 2(2) has provided that only due to the fact that a person is sharing the gross returns of the business, does not in itself mean that the person is a partner, where the persons sharing their returns do not have a joint or a common right in the property. Therefore, only as a result of the fact that the gross profit of the business is being shared, it cannot be claimed that a partnership has been created. For example, in Cribb v Korn (1911) Korn was given employment by a land owner as a rural worker. At the same time, the landowner had also entered into a contract with Cribb. The provisions of this agreement provided that the landowner was going to have exclusive control and observation over a particular part of the land belonging to Cribb.
It was also mentioned in this agreement that Cribb will provide the machinery and stock and in return, the land owner will give half of the proceeds of sale. These were the circumstances when Korn suffered an injury while working on the land. Our very decided to claim compensation from Cribb. The reason given by Korn, was that there was a relationship of partnership between landowner and Cribb. By deciding the case, the conclusion of the High Court was that the relationship between the parties cannot be described as a partnership and it was merely a tenancy. The reason given by the court was that in the present case, the landowner has been given the exclusive right over the land while Cribb did not have any control on the working of the landowner on the land. As a result, the parties had not intervened to partnership and the relationship was that of tenancy. The court also stated that view of the legal position with provides that merely sharing the gross returns cannot be treated as sufficient in order to establish a partnership, it only amounted to rent.
Hence, for the purpose of the creation of a partnership, it is necessary that the parties with be able to establish that they had an agreement to carry on some business. In the present case, for example, the parties were going to be involved in farming. The business should be carried on in, and with a view to make profit. Later on the profit was going to be divided among the parties or, it was going to be applied. For some agreed objective. On the other hand, if the case mentioned above, it would not be established that the appellant had the intention of being involved in forming or to be related with the transition that goes beyond the right to receive compensation.
The next rule that is relevant in this regard, deals with the sharing of profit and loss. According to the partnership law, when a person is going to receive a share from the profit of the business, prima facie, it has to be considered as evidence regarding the fact that the person is a partner. But it needs to be mentioned at this point than only the fact of sharing the profit on receiving a payment that is based on the profit of the business, does not provide that the person can be treated as a partner. The partnership law has not described the term profit. Dealing with decision, the court had stated in Re Spanish Prospecting Co Ltd [1908-10] that to decide the prophet, a company needs to be made between the position of the business on two particular dates. Generally these dates are separated by a year. In this way, the basic meaning of profit can be described as the amount that has been achieved by the business during that particular period.
In the present case, a difficulty may arise while applying the above mentioned test. The reason is that the term 'prima facie' has been used before the term evidence. Therefore, on these grounds can be stated that the fact of a profit sharing scheme between the parties can be considered to be evidence supporting the existence of a partnership, but only due to this thread, it cannot be claimed that there is a partnership present between the parties (Television Broadcasters Ltd v Ashtons Nominees Pty Ltd (No 1), 1979). Cox v Hickman (1880) is also an important case in this regard. In this case, the Smiths were acting as partners, and they were doing the business of iron masters and corn merchants. When the business started the face financial problems, they assigned the property of the business to its creditors as trustees. The agreement provided that the creditors were going to run the business as trustees. After paying the current expenses, the income generated by the business was to be divided among the creditors. After the creditors have received their payment in full, they were going to reconvene the property to the Smiths. In this regard, Wheatcroft and Cox, along with other creditors, have been appointed as trustees. But Cox never assumed the position of a trustee and Wheatcroft also acted as that only for six months. After some time, the other trustees had incurred a debt from Hickman. Therefore, Hickman started legal proceedings against Cox and Wheatcroft. He claimed that both of them were the partners in business. Therefore they should be held liable for these debts. However, the decision of the court was that while it was argued that the creditors including Cox and Wheatcroft were interested in the profit made by the business and consequently, they should be treated as partners, however generally the test related with the assistance of partnership requires to be seen if the person can receive an amount out of the profit. Generally, this is a sufficiently accurate test.
However the real test that is applicable in such cases is to see if some other person was acting on behalf of the other. And so in such cases it can be the person was liable for the obligations of the business. As a result, the court gave the verdict that in this case, Cox Wheatcroft cannot be held liable as they were not partners.
When the above-mentioned legal position is applied to the facts of this case, it can be concluded that Violet had given a loan of $20,000 to the business. It was provided by the loan agreement that the lender was to receive a share of 20 percent from the profit made by the business. However, the agreement provided that Violet was not going to be considered as a partner. But in the present case, all the requirements are fulfilled and therefore Violet needs to be treated as a partner.
Sonny had agreed to lend $10,000 to the business. The agreement provided that Sonny would be receiving his salary as well as one eighth share, from the profit of the business. But as mentioned above, it is not conclusive evidence that a person is going to receive a share from the profit of the business. Hence, in the present case, the essential elements are not present, therefore Sonny cannot be treated as a partner.
It can be concluded that Violet is liable to repay the loan, but Sonny is not liable to Friendly Bank regarding the loan.
Cox v Hickman (1880) 8 HL Cas 268
Cribb v Korn (1911) 12 CLR 205
Green v Beesley (1835) 2 Bing N C 108
Lang v James Morrison & Co Ltd (1911) 13 CLR 1
Re Spanish Prospecting Co Ltd [1908-10] All ER Rep 573
Smith v Anderson (1880) 15 Ch D 247
Television Broadcasters Ltd v Ashtons Nominees Pty Ltd (No 1) (1979) 22 SASR 552