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This assignment includes one question and is worth a total of 20 marks. The assignment is due at 11:59pm 7 September 2015.
Question 1 (20 marks)
Mark, Sophia and Ben are partners in a small book selling business called TWB Book. They have no written agreement. When they decided to open their business, it was agreed that each partner could purchase goods on behalf of the partnership up to a value of $5,000.00. Purchases above this amount were to be agreed to by all partners.
In the beginning of this year, Mark attended a trade fair in Sydney. There, he met representatives from Lemon International Ltd, a company dealing in children's entertainment films who was eager to do business with TWB Book. Believing that this would be a good line of business to diversify into, Mark placed an order for several films worth $8,000.00.
Sophia and Ben did not know about this order until the films were delivered at their shop, with a bill for $8,000.00. Sophia and Ben were furious on learning of this transaction and contacted Lemon International Ltd to pick these goods from their partnership premises, arguing that Mark had no authority to purchase them on behalf of the firm.
Discuss the rights and liabilities of the partners and Lemon International Ltd.
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The main issues that are arising are:
Mainly it is important to analyze the rights and liabilities of the partners of both TWB and Lemon International Ltd.
In Queensland, the main enactment that guides the rights and liabilities of partners is 'The Partnership Act 1891'.
Section 5 defines Partnership as an act of carrying on business amid persons in common with the main aim to earn profits. The scope of the partnership is rightly analyzed in Jolley v Federal Commissioner of Taxation. There are three major elements that originate from section 5. The same are:
Combination of all the above elements results in the establishment of partnership.
Considering that all the above elements are present in TWB Book. Thus, there is a valid partnership amid Mark, Sophia, and Ben.
Whenever there is a valid partnership, it results in the origination of several rights and obligations amid the partners. The same is analyzed hereinbelow.
The foremost obligation that arose because of the origin of any partnership is the element of trust and faith. That is, every partner has an obligation to act in a fiduciary manner with all the other partners and with the firm itself. Any deviation is nothing but the violation of trust on the part of the defaulting partner resulting in a breach of his foremost obligation and is held in Dubai Aluminium v Salaam.
Section 8 further specifies that every partner is considered to be an agent of the firm. That is, every partner has the right to represent the firm and its partners for all such actions for which he is authorized by the firm. Any authorized actions will make all the other partners and the firm liable for such an act and the act must be honor in all circumstances. This is known as the Rule of Agency and is discussed in Bowman v Bacon.
But the most important question that arises is that what is the scope of a transaction which is carried out by a partner outside his authority? Will any such transaction with an outsider bind the firm?
The general rule of law of agency that prevails in any partnership firm is guided by section 9. Section 9 submits that the firm and all the partners of a firm are liable only for such actions of partners which are authorized to him and is held in Walker v European Electronics Pty Ltd. Thus, if a partner undertakes any action with an outsider which is not authorized to him then such action will not bind the firm or other partners of the firm. The rule is applicable even when the outsider is aware of the authority of the partner is held in Construction Engineering (Aust.) Pty Ltd v Hexly Pty Ltd (1985) 155 CLR 541. Mainly section 9 establishes the joint liability obligation of the partners towards each other and with the firm.