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Agency Relationship Between Partners in a Partnership

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Agency Relationship Between Partners in a Partnership

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  • May 13, 2011
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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, which does not necessarily indicate a partnership; sharing of gross returns, which does not necessarily indicate a partnership; and sharing of profit and losses, which can indicate a partnership unless it is: •debt paid out of profit;

payment to agents and employees;
payment to a deceased partner’s widow, widower or child; •payment of interest; or
payment of goodwill.
If one is found to be a partner, there would be joint liability for debt contracts entered into by any partner with actual authority with creditors of the business because of the agency relationship in a partnership. The agency relationship between partners means that ‘any act of a partner done within the scope of the partnership business and in the ordinary course of business is binding on all other partners.’ A general partner would have unlimited liability for the debts of the business but a limited partner would be liable for only the amount of capital he or she invested into the business. References would be made to the Partnership Act 1892 (NSW).

Case law that will be considered would be Re Megevand; Ex parte Delhasse (1878) 7 Ch D 511.  
Application
A partnership is already established with Rose and Mary as partners but whether Violet...