Tutorial 2 Business Structures
Advise Violet and Sonny regarding their liability to Friendly Bank in relation to the Busy Bee Florist Shop. Your answer must make reference to relevant provisions of the Partnership Act and precedents.
In order to advise Violet and Sonny regarding their liability to Friendly Bank in relation to the Busy Bee Florist Shop, firstly it is necessary to examine whether a partnership relationship exists between (a) Violet and Busy Bee Florist Shop; and (b) Sonny and Busy Bee Florist Shop.
Does a partnership exist?
Sonny is an employee and a lender instead of a partner of Rose & Mary/Busy Bee Florist Shop.
The Partnership Act in each jurisdiction (e.g. NSW section 1)…show more content…
However, Sonny knows nothing about the loan, so he is not a partner.
Violet’s case is similar to the case Re Megevand; Ex parte Delhasse (1878) 7 Ch D 511 in which the court considered the creditor a partner of the business concerned given that the creditor (Delhasse) had the right to control the property, had all the rights a dormant business partner would be expected to have, and rights to share profits and liability to share in losses.
In Violet’s case, she has the rights of a partner: a right to share profits; to examine partnership books and receives a quarterly business statement and has a partner’s liability to share losses. She is in fact a partner in addition to a lender, though it is expressly stated in the loan agreement that Violet, being the lender, is not to be regarded as a partner of the business.
Violet’s and Sonny’s liability
As Sonny is not a partner of Busy Bee Florist Shop, he has no liability to pay the debt to Friendly Bank in relation to the Busy Bee Florist Shop.
As stated in the Partnership Act, “Each partner in a firm…is liable jointly with the other partners for all debts and obligations of the firm incurred while the partner is a partner, and after the partner’s death (his or her) estate is also severally liable in a due course of administration for such debts and obligations so far as they remain unsatisfied..”. Thus being a partner of Busy Bee Florist Shop, Violet is liable jointly with the