Agency And Business Organization Law: The Furniture Hood (Essay Sample)

Question 3: Agency and Business Organisation (20 marks)
The Furniture Hood is a carpentry workshop started by Dan Donovan and Kylie Donovan in 2014.
They are siblings who inherited the business from their father, who was the sole proprietor of the business (originally known as The Wood Doctor). They decided to invest their resources into the business to expand it and enhance its profitability.
Their plan was that they would resign from their different employments and focus entirely on the furniture business as self-employed persons. They lack vocational carpentry skills, as they are only highly skilled and experienced in business generally. Therefore, they considered it good to invite their childhood friend, Allan Rainham, a highly skilled carpenter to join them. The three of them agreed that profits earned from the business would be shared equally. Given the level of valuation they placed on Allan’s expertise, they promised to pay him $4,000 monthly if no profits were made. Also, that they would give him an appropriate sum as settlement payment if the business had to wind down.
On the 10th of December 2018, at a meeting with their bankers, Auckland City Bank (ACB), to discuss a $50,000 loan arrangement, Dan and Kylie introduced Allan as a partner of Furniture Hood. They expressed their desire to have half of the loan (i.e., $25,000) of the loan paid into Allan’s bank account with ACB so that Allan could use the money to buy materials for the business. On 18th of December, the sum of $25,000 was paid by ACB into Allan’s bank account with ACB.
In September 2019, ACB informed Dan, Kyle, and Allan that the $50,000 loan was due for repayment and that they had 4 weeks to make the payment. Allan replied to the bank’s notice that he is not a partner of the Furniture Hood but only an employee. In response to Allan’s reply, the bank deducted $25,000 from Allan’s bank account with them, which has a balance of $200,000. This was to make up for the $25,000 the bank had paid into his account toward the loan arrangement to Furniture Wood.
You are invited to address the following questions:
1) Is The Furniture Wood a partnership? If yes, what factors make it a partnership?
2) (taking the assumption that The Furniture Wood is a partnership), is Allan Rainham a partner?
3) Is the ACB entitled to deduct $25,000 from Allan’s account?