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Agency Relationship Between Partners in a Partnership Essay

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Issues
The issue is whether Violet and Sonny are partners in, rather than creditors to, Busy Bee as represented by Rose and Mary to Friendly Bank and if they are determined to be partners, whether they would be liable for Busy Bee’s debts to Friendly Bank because of the agency relationship between partners in a partnership.
Rules
In determining whether there is a partnership, the essential elements of a partnership must first be satisfied, that is:
 a business is being carried on;
 the business is carried on ‘in common’; and
 there is ‘a view to profit’.
If these definitional elements for a partnership are met, one can next consider the rules for the determination of the existence of the partnership:
 co-ownership of property, …show more content…

Examining the loan agreement between Violet and Rose first, the sharing of profits and losses to the extent of 20% by Violet strongly suggests a partnership. This presumption, however, is subjected to exceptions, the most applicable of which are debt paid out of profit and payment of interest. The loan agreement does not state that the share in profits and losses is a payment of debt or interest. These exceptions allow for the sharing of profit but not for the sharing of loss. The sharing of profit and losses is a right of partners.
The right to examine the partnership books at will is consistent with the right of a partner as well. A creditor may be allowed to examine the partnership books but it is unlikely that the examination can take place at will.
The right to receive a quarterly business statement is a reasonable right for a creditor for the protection of interests. But a partner is also entitled to such a right. A limited partner is allowed to access the partnership books at will and ‘examine the state and prospects of the business of the partnership’. Violet and Rose have expressed that Violet, by providing a loan, is not a partner. The courts however, have demonstrated that they would not take the label of a relationship by the parties at face value. This is evident in Megevand, when the courts decided that Delhasse, who made a loan to Megevand and Schoeppi on terms highly similar to the current case, such as an

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