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Partnerships Act of 1963

  1. Legal relationship Between Denice and Emily:

Section 6 of the Partnership Act of 1963 states defines Partnership. According to Section 6 of the act, a partnership is a relationship between a person for carrying a business with a common intention of running a business and earning profit. The relationship between members of the corporation that are incorporated outside the act does not form a partnership. Section 7 of the Act prescribes the rules which determine whether there is an existence of a partnership or not. So, the rules which determine the same are as follows: -

  • A joint property or a joint tenancy should be there in common to create a partnership between a person as to anything which is held or owed.
  • The person must share profit with the other person whether the person has a joint interest or not, it is the duty of the other person to provide him with the share.[1]

There are two types of partnership – "General" and "limited". In. general partnership all the partners are responsible for the conduct of the business whereas in a limited liability partnership the obligations and work of the partnership are limited. A partnership can be in the form of a company, an association, trustee, and corporate body established by the same. In the following case, the partnership between Denice and Emily was a limited liability partnership as both of them at the beginning defined the work that both of them will be covering.[2] So, the partnership was a limited liability Partnership.

As per the facts of the case, Emily and Denice started a business together of collecting children from school and dropping them at tutoring, music, sports, dance lessons, and other activities. They both decided on the work that they will be performing in the course of their duty. Emily was driving the van whereas the work of Denice included allocating and collecting funds for the same. In the case of Wang V Rong, it was held that partners in a firm are entitled to the profits and losses equally.[3]

Therefore, as per the facts of the case and the provisions and sections of Partnerships Act 1963, the legal relationship between Denice and Emily comprises carrying the business together and sharing profit and losses arising from the course of action. The legal relationship will be determined as per the provisions of the Partnerships Act of 1963. The legal relationship between Denice and Emily is comprised of a Limited Liability partnership.

  1. Is Denice liable for the $10,000: -

As per the Facts of the case, Denice was given the work of financing the start-up cost of the business and for the same, he took a loan of $40,000 from his friend Ryan. Later when he was returning back the money to Ryan, Ryan refuses to accept $10,000 telling him that he wants to be part of the business. He keeps the money with himself only without informing Emily about the same and uses the money for his personal expenses.

Section 11 of the Act states that a partner is not entitled to use the credits unless authorized by the other partner.

Section 13 of the Partnership Act 1963 specifies that if a partner or a person of a firm other than LLP( Limited Liability Partnership) uses the credit amount of the firm for a thing which is not connected with the work of the firm, the partner cannot be allowed to use the same unless it is authorized by the other partners of the firm. Subsection (2) of the Act specifies that the other partners should not be the effect of the liability is incurred by an individual or single partner. As per Sub Section (3) of the same section, also specifies that if the partner of the firm uses the credit of the firm other than the works of the partnership firm, the partner will not be liable for the same unless the partner is authorized by the partnership to use the amount.[4]

If there is a relationship of partnership in a firm then each partner as well as the creditors are liable for the debts as well the profits of the firm then each partner will be liable for profits as well as the losses[5]. Each partner of the partnership firm is liable for the actions of the other partner in the ordinary course of action, whether

 As per the provisions of the Act, and the facts of the case, Denice was not liable for $10,000 as this particular amount was received from the credits of the business only. The money should have solely used for the business transactions only or the works related to the business as per Section 13 of the Partnership Act of 1963. The money can be solely used for the business only. Denice buying high end bag and taking his family out was against the provisions of law.

Therefore, Denice will not be liable for $10,000 which was received from Ryan on account of becoming a partner in the business executed.

  1. Legal Relation between Tracy, Denice, and Emily: -

As per the facts of the case, Tracy was the first person who was hired by the partners of the firm. Her work comprised of picking up students from their respective schools and dropping them at the classes.

Section 9 of the Partnership Act of 1963 states that a person who works for the partners other than them in an incorporated limited partnership is known as an agent of the firm. So, in this whole situation, Tracy was acting as an agent of the firm. Division 6.4, Section 65 of the ACT states that a partner of a firm has the right to appoint an agent or an attorney for other persons to act on their behalf. In the whole situation, Tracy was acting as an agent on behalf of both the partner. The legal relationship was an agent-principal relationship. Section 16 of the Partnership Act of 1963 specifies that if any presenting herself ort himself as a partner of the firm and he is only the person appointed for the course of action. The person will be liable who has represented himself and created the liability.

Therefore, above we can conclude the legal relationship between Tracy, Denice, and Emily is – Denice and Emily are the main partners whereas are appointed by both of them to perform the duties. Therefore, the actions of Tracy in the course of her duty will be confided to the partnership only.

  1. The Obligation of Emily and Denice towards Tracy’s action with the RSL club: -

As per the facts of the case, Tracy was taking 20% from Carol if she was able to convince the students to join Carol's dance academy. Tracy started approaching small businessmen to bring small students at a competitively low fee. She made her own business working under them where she was advertising other businesses and taking her share from them.

Section 14 of the Partnership Act of 1963 specifies that if there is any wrongful act committed in the course of duty, by a person other than the partner of the firm. The person will be liable for the loss in the same way as the relevant partner will be. Section 17 of the Act specifies that if any person who is incorporated in the partnership, uses the property of the firm's business, then the other partner will not be liable to the trust property to the people who are interested in the property. But the liability should not incur on the grounds that one person was already knowing about it. In the whole situation, Denice was knowing about the same. Section 14 clearly specifies that if the loss is incurred by someone who is not the partner of the firm, then the partners will not be liable for the same. Each and every partner in a partnership is liable for the debts, obligations, credits, and income during the course of the partnership. Since it is not a Limited Liability Partnership, where the Liabilities and income of the partners are fixed, therefore both Denice and Emily will be liable.

As per the definition of interpretation in the case of Minter V Minter it has been held that the business should be carried out commonly in partnership with the intention of earning profit.[6] No party is responsible for the action of another person and in this particular situation Tracy is not even the partner of the firm.

Hence as per the facts of the case and the application of the provisions of law, Emily and Denice will not be held responsible for Tracy's action in the course of their duty. If there is any loss to the business of the RSL club, the partners will not be held liable because their work is comprised of picking up the students from their respective schools and dropping them to their respective classes. They were not obliged with any of the classes whether they would be working for the specific class. The decision of Tracy providing discounts to the parents was something she was not authorized to do. The two main partners of the firm are Emily and Denice, Tracy being appointed as an agent to do the tasks. An employee has the right to act on behalf of the business but cannot take decisions for the business. They do not have the authority to do the same.

  1. Liability of Tracy: -

Section 24(1) of the Act specifies that all the property and the rights that have been solely bought for the business are known as Partnership Property. As per the facts of the case, the van was bought for business purposes only. Hence the Van would constitute to a partnership property. The property should be exclusively used for the purposes that have been mentioned in the partnership. The property which is bought from the money of the business should be solely used for the purpose of business only. If a person who is ordinary employed in the course of a partnership doing something outside the partnership, they are under an obligation to inform the partner regarding the same. A person is obliged to inform the partners properly informed about all the work that he is performing under the course of his duty.[7]

Section 66 of the act specifies that a general partner, an agent, or an employee of a partner is not a limited partner of the firm and the person should act on the partnership firm only if the property of the firm is the course of duty. Since tract was working for both the partners Emily and Denice in the course of his duty, so she was not in the legal position to make extra money using the property and assets of the firm.

As per the facts of the case, Tracy was approached by Carol to pay her 20$ extra for every student that she will be bringing to her academy. Tracy started approaching new businesses to bring the students for a small amount of consideration

Tracy made her own business cards and added the title to the same as 'NSW Promotional Coordinator' and started offering an additional discount to the parents so that the thing is kept away from Denice and Emily.

Therefore, all these actions are against the laws of the Partnership Act of 1963, Tracy cannot use any part of the business for earning. The property of the business should be solely used for business only. If Tracy is using the property of the business to generate more income, therefore she is under an obligation and liability to inform the partners about the same and hand over the income to them. Any income which is generated from the course of the partnership, the income should be duly handed over to the partners.

Bibliography for Partner Liability

Acts

  • Partnership Act 1963

Case Laws

  • Wang V Rong [2015] NSWSC 1419
  • Walker V Hirsch (1884) 27ch D 460,468.
  • Minter v Minter (2000) 10 BPR 18, 133.

Papers and others

  • Part 3- Relations of partners to persons dealing with them – Section 13- Liability of Partner [8]-[9]
  • Choose a legal structure for your business : partnership Ret from https://www.netlawman.com.au/ia/partnerships-ins-and-outs-australia
  • Fetcher Law – Conducting Business as Partnership – Ret from https://fletcherlaw.com.au/2018/03/conducting-business-as-a-partnership/

[1] Partnership Act 1963- Section 7-Rules for determine existence of partnership. Ret from http://classic.austlii.edu.au/au/legis/act/consol_act/pa1963154/s7.html

[2] Fetcher Law – Conducting Business as Partnership – Ret from https://fletcherlaw.com.au/2018/03/conducting-business-as-a-partnership/

[3] Wang V Rong [2015] NSWSC 1419

[4] Part 3- Relations of partners to persons dealing with them – Section 13- Liability of Partner [8]-[9] Ret from file:///Users/apple/Downloads/1963-5.PDF

[5] Walker V Hirsch (1884) 27ch D 460,468.

[6] Minter v Minter (2000) 10 BPR 18, 133.

[7] Choose a legal structure for your business : partnership Ret from https://www.netlawman.com.au/ia/partnerships-ins-and-outs-australia

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