Chapter 5Non-corporate organisations – sole traders and partnerships6 The sharing of gross returnsby A and B will not norm-
ally indicate a partnership between A and B. Partners
share net profits, i.e. turnover less the outgoings of the
business. Section 2 says that the sharing of gross returns
does not, of itself, provide evidence of partnership, as
the following case shows.
7 Joint ownership according to s 2 does not of itself
make the co-owners partners. That means that there is
no joint and several liability for debt between the co-
owners, say, A and B. So if A and B are joint owners of
12 Acacia Avenue and A cannot pay a debt, say, for a
carpet which he has had fitted in his bedroom, B cannot
be made liable as a partner. Co-owners are not agents
one of the other as partners are. It should not be thought
from this that the joint owners of property can never be
partners. If A and B are left a row of houses in a will and
collect and spend the rents, their relationship will not be
one of implied partnership because English law does not
recognise joint ownership of property as a business and
s 2 affirms this. However, if the joint owners enter into
a partnership contract, written or oral, sharing the rents,
say 50/50, and appear to intenda partnership, then a
partnership there will be. But, if the only evidence of
partnership is joint ownership of property, this is not
enough to establish a partnership. This is the true mean-
ing of s 2.
8 Formalities,that is, writing, are not required for a
partnership agreement. In fact, there need not be a con-
tract at all. If the definition in s 1 is complied with and
the parties seem to intend a partnership, there will be
one, and the Partnership Act 1890 will then set down
the rules that will govern the arrangement if nothing
else is agreed. These are only a fallback position imposed
on the partners and most would-be partners would want
to change some of them, hence the desirability of an
agreement. In addition, and to make quite sure what has
been agreed by the partners, there should be a written
agreement.113that he did not share in the profits of Z. He also con-
tended that the sharing of profits had always been an
essential requirement before the Partnership Act 1890
and pointed to s 46, which stated in effect that the
former rules of equity and the common law were to be
retained unless they were inconsistent with the Act.
The Court of Appeal ruled that the 1890 Act was clear.
There was no reference in the s 1 definition to the shar-
ing of profit so that the Act was inconsistent with previ-
ous law and the Act must be applied according to its
words. Mr Lees was therefore a partner and the claim
could proceed.
Comment. There was no liability in Mr Lees under s 14
of the 1890 Act (holding out as a partner) because there
was no evidence that, although he had been held out
as a partner, the claimant had relied on that in any way
in deciding, e.g. to do business with Z, which is an
essential ingredient of liability under s 14. The case is an
important one and settles a major point of contention.
Salaried partners across all professions should be aware
of the potential liability that this ruling gives them, as
should also consultants on fixed salaries.Coxv Coulson(1916)Mr Coulson had a lease of a theatre. A Mr Mill was the
employer/manager of a theatre company. Mr Coulson
and Mr Mill agreed to present a play called ‘In time of
war’. Mr Coulson was to provide the theatre and pay for
the lighting and advertising and get 60 per cent of the
money which came in at the box office – the gross tak-
ings. Mr Mill paid those taking part in the play and pro-
vided the scenery and the play itself and got 40 per cent
of the gross takings.
Mrs Cox paid to see the play. As part of the perform-
ance an actor had to fire a revolver with a blank round
in it. Because of alleged negligence a defective cartridge
was put in the revolver and when the actor fired it Mrs
Cox, who was sitting in the dress circle, was shot and
injured. She wanted to succeed in a claim for damages
against Mr Coulson. He had more money than Mr Mill.
However, the actor was employed by Mr Mill and healone was liable vicariously for the actor’s negligence
unless Mrs Cox could convince the court that Mill and
Coulson were partners. The court decided that they were
not; they were merely sharing the gross returns. Only the
actor and Mr Mill were liable.
Comment.
(i)The sharing of profits suggests a partnerlike concern
with the expenses of the business and its general wel-
fare. Sharing gross returns does not produce an implied
agreement of partnership.
(ii)If there is an express agreement, oral or written, and
in it the partners agree to share gross returns, then there
would be a partnership.