Companies & Partnership Law

Alan was the owner of a restaurant called Peking Duck. He had been fortunate enough to buy the premises in which the restaurant was situated and to furnish it as he had wanted. Due to a huge increase in recent competition in the surrounding area, Alan’s profits declined and he struggled to meet costs. He approached his friend Bing for a loan of $100,000 and they agreed to draw up a loan agreement which included the following:- The lender will receive a share of the profits and losses to the extent of 40%. The lender has the right to examine the business books at will. The lender has a right to receive a quarterly business statement. The lender has the right to be consulted and contribute to any major decisions regarding the business. With the injection of money into the business, Alan and Bing decided that the way to improve trade was to refurnish the restaurant. Most of the money was spent on this and the business improved and made a profit. Bing spent considerable time at the restaurant and came to know many of the suppliers some of whom thought he was in a partnership with Alan. Three years later, Alan decided he wanted to retire and sell the business. He consulted with Bing who told Alan he would be happy to buy out Alan’s share of the partnership. Alan was surprised. He had never considered Bing to be a partner although Bing obviously thought himself to be one. Bing argued that the $100,000 was the equivalent to ¼ of the capital that Alan had contributed and that he was therefore entitled to ¼ of the proceeds of the sale of the assets of the business. Alan argued that even if Bing was a partner, the premises belonged to Alan alone and Bing had no right to the proceeds of the sale of the premises. Other assets in the business included stock in trade, which included $60,000 worth of wine, the furnishings now worth about $40,000 and an undetermined amount for goodwill. Using the Partnership Act 1891 (SA) and relevant cases discuss

 

1) whether Alan and Bing are in a business partnership and

 

2) IF we were to assume they are, how would the assets be divided?

 

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