B.

Law (CAF - 3) Page | 141 ICAP Recommended Answers

Chapter 11 – NATURE OF PARTNERSHIP

1 (i) Existence of partnership:

No, Adeeb’s widow is not a partner in the firm. The receipt by a person of a share of the profits of a
business, is a prima facie evidence of the existence of partnership. However, the receipt by the widow
of a deceased partner, as annuity, does not of itself make the receiver a partner with the persons
carrying on the business. In determining whether Adeeb’s widow is a partner in the firm regard shall
be had to the presence of mutual agency relationship among Moiz, Mumtaz and Adeeb’s widow, which
is a conclusive evidence, of the presence of partnership, and which in this case does not exist.

2 Determination of rights and duties of partners by contract between them:

The contract between the partners may be varied by consent of all the partners, and such consent may
be expressed or may be implied by a course of dealing. In view of above, the suit filed by Rehan and
Bali against Aftab is not maintainable because by accepting profits for the past many years in a ratio
different from the agreed ratio they have impliedly consented to the variation in the contract. i.e.
partnership deed.

3 Circumstances in which a non-partner could benefit from the profits of a partnership.

Following are the circumstances in which a non-partner could benefit from the profits of a
partnership:
(i) Lender of money to persons engaged or about to engage in any business
(ii) Servant or agent as remuneration
(iii) Widow or child of a deceased partner as annuity
(iv) Transferee of a partner's interest
(v) A minor who is admitted to the benefits of partnership
(vi) Previous owner or part owner as consideration for the sale of goodwill or share thereof.

4 Mode of determining existence of partnership:

In determining whether X and Y are partners, regard shall be had to the real relationship between the
partners, as shown by all the relevant facts taken together.

A partnership exists where following conditions are complied with:

(i) There is an agreement between two or more persons;
(ii) They run a business with the intention of sharing profits; and
(iii) The business is run by all, or by any one of them acting for all.
The Partnership Act, does not require that a partner must contribute money or capital in the
partnership.
Therefore, since both X and Y have a common interest in the same business inwhich they are sharing
profit and have a mutual agency relationship between them, partnership does exist in above situation
unless it can be proved that real relationship of being partners does not exist

5 (a) Under the following circumstances the receipt by a person of a share of profits of a business does
not of itself make him a partner with the persons carrying on the business:

where profit or payment is received

(i) by a lender of money from persons engaged or about to engage in any business
(ii) by a servant or agent as a remuneration
(iii) by the widow or child of a deceased partner, as annuity
(iv) by the previous owner or part owner of the business, as consideration for the sale of goodwill or
share thereof
(v) by a transferee of a partner’s interest
B.Law (CAF - 3) Page | 142 ICAP Recommended Answers

(vi) by the persons holding a joint or a common interest in any property

(vii) by the minor who is admitted to the benefits of existing partnership
(viii) by a sub partner from a partner in the firm.

6 Mode of determining existence of partnership:

In determining whether Munaf and Lari constitute a partnership, regard shall be had to the real
relation between the parties, as shown by all relevant facts taken together.
The essentials of a partnership are:
(i) There should be a relationship by agreement between two or more persons;
(ii) They should run a business with the intention of sharing profits; and
(iii) The business should be run by all, or by any one of them acting for all.
The Partnership Act does not require that a partner must contribute money or capital.
Similarly the partners may also agree that any one of them shall not be liable for losses.
Thus, in the presence of the above essentials and the fact that Lari is entitled to exercise all the powers
of a partner Munaf and Lari are said to have constituted a partnership.

7 Sharing profits is not a conclusive evidence of a partnership:

These situations are:
 The joint owners of a property who share profits or gross returns arising from the property are
not partners.
 Where the profits are received by a creditor in payment of a debt or as interest on loan.
 Where the profits are received as wages by an employee.
 Where the profits are received as an annuity by a widow or child of a deceased partner.
 Where profits are received as consideration for the sale of property/goodwill or share thereof.
 A transferee of a partner’s interest.
 A minor who is admitted to the benefits of an existing partnership.

8 In the absence of any agreement, D will be entitled to 1/4th of the profits and A, B and C will share the
balance of the profits in the ratio of 4:3:2.

9 Partnership at will: where no provision is made by contract between the partners for the duration of
their partnership, or for the determination of their partnership, the partnership is “partnership at
will”. Particular Partnership: A person may become a partner with another person in particular
adventures or undertakings. The partnership so formed will be called particular partnership.