ILAC

ISSUES:

Under the Partnership Act 1891 or the common law:

Was Christian a valid partner in the general partnership?

If so, did he have to get the other partner’s consent before he made a transaction that will involve the partnership?

Can Fantastic file a suit to claim the balance?

If so, does he bring file the suit against one partner or the partnership?

LAW: Business Law – Partnership

Statute: Partnership Act 1891 (Qld)

Chapter 17.50: Subsistence of a partnership

Chapter 17.57: Creation of a business with a view to profit

Chapter 17.220: Implied terms in a partnership

Chapter 17.350: Relationship of partners to third parties

Common Law:

M Young Legal Associates Ltd v Zahid (2006) WLR 2562- it is possible for a person to be a partner even though they do not have a claim to a share of the profit.

Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) 155 CLR 541- each partner is an agent of the firm and their other partners for the purpose of the business of the partnership.

APPLICATION

As per Chapter 17 (Partnership Act), the onus of proof, the plaintiff, Fantastic, must establish the following elements in order to prove that he deserves the balance:

Christian is a valid partner in the general partnership.

He transacted with Christian on the basis of apparent authority.

IF this is proved by the plaintiff then the defendant Guisepi Café will have to create a defense and the possible remedies will be evaluated.

This case poses a number of legal issues that one has to consider before reaching an effectual elucidation. One of the core issues involved in this case is the determination of the kind of entrepreneurial relationship that Allan, Harry and Christian share. With regard to this concern, one is poised with the challenge of whether the party elucidates a proper partnership. The legal sub-issue is whether the Christian forms a valid partner of the partnership. Under a partnership the parties have to voluntarily come together to run the business with the mutual objective of making profits. The partnership can be formed through oral or written accord. The final issue is the determination of whether Fantastic can claim the balance of $ 4,000 or not.

The law applicable to this case is the Partnership Act of 1891. Under chapter 17 of the Act, the term ‘partnership’ is defined to mean any form of business relations that subsist between persons with the core view of generating profit. In this case, Harry, Allan and Christian arrived at a mutual consent to commence the restaurant business since they all shared the passion of the hospitality and generating profit. All the individuals in the business consented to the idea voluntarily without any kind of coercion. This falls within the realm of a partnership.

Chapter 17.50 proceeds to state that a partnership agreement begins with the implementation of a business plan. The three individuals satisfied this rule since they had agreed that they would venture in the hospitality field (to be precise open up a restaurant). This proved to be an effective business plan that the parties had designed. The contentious issue in this case was to ascertain whether the act committed by Christian was done so under the realm of a partner or an agent. Chapter 17.57 of the Act lifts the veil of the contentious issue by stating that it is possible for an individual to be a partner even though they do not claim a share to the profits generated. This imperative was upheld in the ruling of M Young, in this case the Court of Appeal passed the decree that the recipients of a fixed-sum payment could be partners in the firm. This was the case with Christian. Initially, during the agreement phase Christian made it clear that he would only be a partner if he was excluded from contributing to the business’s capital and shares of its profit. The mere fact that a person does not share the capital generated from the business does not exclude one from being a valid partner.

Since it has been established that Christian is a valid partner, the next step is to ascertain the rights and duties of the partners. Chapter 17.220 states the various rights and duties of the partners and it is worth noting that every partner in the agreement is entitled to basic management of the partnership. This is subjected to variance with regard to the specific agreement between the partners. In this case, Christian was charged with the responsibility of making purchases for the business, supervision of the activities of Harry and Allan and to give advice. With due regard to the purchase of the commodities from Fantastic, Christian was acting within the realms of his authority and the third party was aware of the fact that Christian was a partner. The realization of the fact that Christian was a partner is attributed to the fact that he faxed the letterhead of the firm to Fantastic. The act was not ultravires. Christian acted as an agent of the other partners thus the act was legally binding to all of them (chapter 17.350). In the Construction Engineering case the court passed the decree that where a partner has no authority to legally bind a co-partner and the third party is unaware of this situation such a transaction shall not be legally binding on a co-partner.

Fantastic can bring a claim for compensation of the balance of $4,000 and any other damage collectively to the co-partners and Christian since the third party and the partnership and not the former entered into the agreement and Christian as a sole trader. The Partnership Act under chapter 17.350 stipulates that an act done by one of the partners under the partnership is legally binding to the co-partners. Furthermore, the third party has the right to assumption of authority when dealing with a partner in a partnership relationship.