Partnership act 1892

LAW00004 Company Law

SCHOOL OF LAW & JUSTICE

Session 2, 2018

TUTORIAL TOPIC 1.2 Activities 1.2.4 & 1.2.6

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Activity 1.2.4

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Question styles & Answer Structures

! Problem Style: I: Issue L/R: Law/Rule A: Apply to law to the facts C: Conclusion

! Essay Style: Introduction Body Conclusion

Is this a partnership?

•  Stated in question ‘A, B and C are in a partnership…..’

•  Partnership status is given and there is no need to apply the three essential elements.

Partnership Act - Section 24

•  Is there an agreement?

• Will section 24 apply?

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Comparative provisions

Partnership Act 1892 (NSW)- section 24

Rules as to the interests and duty of partners …subject to special agreement (1) The interests of partners in the partnership property and their rights and duties in relation to the partnership shall be determined, subject to any agreement expressed or implied between the partners, by the following rules: (1) All the partners are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses whether of capital or otherwise sustained by the firm. (2) The firm must indemnify every partner in respect of payment made and personal liabilities incurred by the partner. (a) In the ordinary and proper conduct of the business of the firm, … (3) A partner making, for the purpose of the partnership, any actual payment… beyond the amount of capital which the partner has agreed to subscribe is entitled to interest at the rate of seven per centum per annum from the date of the payment….

A’s position

•  The opportunity to purchase the grain arises in the course of her duties as a partner.

•  'A' purchased the grain using her personal account not that of the partnership.

•  Therefore 'A' would argue that purchase occurred in the ‘course of her duties as partner’, accordingly reimbursement should follow provided the conduct was "ordinary and proper" under 24(1)(2).

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Assessing A’s position Questions:

• Did A follow normal procedures in buying the grain as she did?

• Has the grain been used in the normal course of business of the partnership?

• Why is there a requirement for two partner signatures on a cheque drawn against the partnership bank?

'ordinary and proper'

• What is 'ordinary and proper' may be found by examining past practices of purchasing grain.

• What are the past practices for the partnership?

Activity 1.2.6

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Issue: Nature of business relationship

• What is the legal status of the relationship, if any, between W, H & B?

•  Is it a partnership?

Partnership

In determining whether or not a partnership exists, the most important factors are the intentions of the parties to carry on a business in common as expressed by mutual rights and obligations which is evident by looking at the total facts.

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Statutory definition of a “partnership”

Section (1)(1) of the Partnership Act 1892 (NSW) ‘Partnership is the relationship which exists between persons carrying on a business in common with a view of profit…’ Essential elements: 1.  Carrying on a business 2.  By persons in common 3.  With a view of profit

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Partnership - 3 essential elements

•  Set out the legal principles of the three essential elements (see Duke v Pilmer extract)

• Apply the three essential elements to the factual scenario

1: Persons carrying on a business • Refer to Study Guide & Partnership Act • ‘Persons’ includes any legally recognised person, including a company

• ‘Business’ defined section 1B(1) PA • Must be the same business Checker Taxicab Ltd v Stone [1930]

NZLR 169

• ‘Carrying on’ – no statutory definition • Judicial guidance

= ‘activities were systematically organised and involved continuous and continuing transactions’; Duke v Pilmer [1999] SASC 97 para 973

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Essential Element 2: In Common

• Not necessary for each partner to be actively involved in the business

•  The courts look for evidence that partners have "a

mutuality of rights and obligations between them" and that they each act as agent for all the other partners (mutual agency)

•  see Duke v Pilmer [1999] SASC 97 para 952-954 & 962

•  Fulfilled if agency relationship binds parties, where each party carrying on business is acting on behalf of the others

•  The intention of the parties is essential in determining the scope of the agency relationship

•  Judicial interpretation includes inactive capital contributors (‘sleeping partners’) Duke Group Ltd v Pilmer [1999] SASC 97

• More than agency – mutuality of rights and obligations between the parties Smith v Anderson (1880) 15 ChD 247.

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2: ‘in common’

3: ‘With a view to profit’