Question

QUESTION (To be completed within one hour) Lucas and Peter were university colleagues. They planned to establish an online food ordering business through a developed computer application ('App) called "Eat-Easy as they believe that an online business should fit well with social interaction increasingly being more dependent on the internet. They have a mutual understanding that they will share any profit from the business. Lucas is willing to provide his parents' owned commercial shop as their business office space for a period of two years. Lucas's parents are aware of Lucas's and Peter's business plan and are happy to provide their commercial shop with a low rent of $200 per week as assistance. Also, Lucas will invite two of his good friends, Pat and Monty, who have an extensive network that can assist to advertise their newly developed "Eat-Easy" App, within the Sydney and South Coast regions Lucas promised to Pat and Monty that they would receive 2% of the business' retum if they are able to market the App up to 50 restaurants (as contracted users of the App) every three months. For Lucas and Peter to get the business started they needed $50,000 capital. However, as a result of the nature of the business and the economic climate, they couldn't find a financial institution that was prepared to provide the necessary loan. Rod, a friend of Peter, was prepared to put up the capital if the loan agreement expressly stated that there was not any intention to create a partnership agreement between Rod, Peter and Lucas for the business. The loan agreement further stated that Rod was to have a share of the profit and losses, access to the partnership financial records, and that the loan was not to be repayable until after the dissolution of the business between Lucas and Peter. The food ordering business has been running for 6 months and started to have some success in that 60 restaurants have contracted to use the "Eat-Easy" App. However, Lucas and Peter constantly had disagreements on how to run the business. Peter discovered that Lucas had made a promise to Pat and Monty as to 2% business return arrangement without Peter's consent. Peter was not happy to continue the business with such an arrangement. Lucas also found out that Rod was permitted to share their business profit with the right to access to the business financial records. Lucas totally rejected this arrangement made by Peter Due to a lack of business acumen, Lucas and Peter were eventually declared bankrupt. Rod then made a claim as a creditor. Pat and Monty also requested to have their 2% share of the business' retum paid to them, which was rejected by the trustee in bankruptcy on the basis that Rod, Pat and Monty were partners. In your opinion, was the trustee in bankruptcy correct? Give reasons 1. What form of business organisation has been formed (if any) and between whom? (9 marks) 2. Advise Rod, Pat and Monty as to from whom they could recoverſclaim the money and their chances of success in any such action(s). (6 marks)

Answer 1

Ans.1. In the given case Patnership was created initially between Lucas and Peter to establish an app based onlne food ordering business. Howeverno written agreement was signed by any of them as this business was totally based on the mutual agreement of the two partners.

In this arrangement Lucas was to povide his parents owned space to be used as their office which costed them a rent of $200 per week. Also Lucas invited two more of his friends Pat and Monty as advertising partners in exchange of 2% share in profits if they could add 50 restraunts to the contracted users of their app. This arrangement was however not in knowledge of Peter, it will still prevain and not be cosnsidered void as there was no written agreement or partnersheep deed between Peter and Lucas. Hence we can say that the Partnership had been formed between all four of them ie, Peter, Lucas, Pat and Monty.

Rod however cannot be considerer a partner in the business as his contract clearly mentioned that he would like to be treated as a creditor and not as a partner in the firm.

Ans.2. Remedy to Peter: Since the business has gone Bankrupt Rod as an outsider will be given preference when paying back. If the firm refuses to pay back to Rod his money on the ground that any of the partner did not agree upon the arrangement, he shaell establish the fact that evey partner owes the responsibility to fulfill the promises made by any of the partner to the outsider. And hence whether or not Lucas likes the arrangement between firm and Rod, they will have to pay the entire amount due to him.

But on discovering that there is no written agreement of partnership between Lucas and Peter, they will be treated as individual citizens in the eyes of law. And since Rodhas entered in to loan agreement with Peter, Rod can sue Peter solely if he refuses to pay his amount due.

Remedy to Pat and Monty: Pat and Monty however could be treated as partner by Mutual agreement who were supposed to add 50 restraunts as contracted users every 3 months. And in return they will get a 2% share in profit. But as the question doesnot mention clearly that whether or not there was a written contract between the parties, I am supposing there was only verbal promise. Also we need to remember the fact that there is no partnership firm registered here. Hence Pat and Monty can only sue Lucas and not Both Lucas and Peter for theirshare due. Another fact to be kept in mind is that Pat and Monty were not able to completely fulfill their promise to market and add 50 restraunts every 3 months. They could only add 60 restraunts in 6 months. So if they are able to prove in the court of law that there was such arrangement made, they might get a partial payment for their contribution from Lucas.