Craig and Shaun are close friends, who are currently studying business at an Adelaide university.
Both of them are musicians and had an idea last November to start an online music lesson business.
Craig and Shaun obtained an Australian Business Number (“ABN”), and registered the following business name: NetMuso.
They also registered the following domain: www.netmuso.com
Craig and Shaun struggled to get students to enroll during their first six months of operations.
They started out operating from Shaun’s Mum’s garage. There was some negative feedback, as Shaun’s Mum could be seen sometimes unloading groceries in her car.
This negative feedback was posted to Shaun’s personal Facebook page.
Online lessons didn’t prove as popular as they had hoped, and they were contacted by some people who wanted to take face-to face lessons.
Craig and Shaun discussed the possibility renting a studio and offering lessons face-toface.
Shaun decided that he would lease a music studio located in a hip inner-city neighborhood.
Shaun signed a formal three-year lease agreement.
Only Shaun signed the lease.
Shaun had borrowed $20,000 to his Dad in order to pay the rental bonds and the first six month’s rent in advance.
Craig said that he saw the new studio, but didn’t inquire about the rent or lease.
Craig transferred his entire collection of instruments and musical equipment, valued at approximately $25,000, to the studio on the following day.
The business began to grow slowly, and the fees were paid into an account in a joint bank account.
But there were some problems.
Shaun discovered that Craig had been taking extra lessons at Craig’s house outside the studio.
Craig kept the lesson fees for those lessons to his own benefit.
Craig was confronted on this.
Craig replied by saying, “You don’t have me, I can go where I want to.”
Although the business has seen modest growth, the fees it earned isn’t enough to pay next months rent and electricity bills.
Craig and Shaun do not have the funds to pay these expenses.
Shaun was teaching Ronnie, a student in school, face-to face guitar lessons on Tuesday afternoon.
Ronnie needed to use the bathroom during the lesson.
Ronnie used the studio’s small bathroom.
Unfortunately, the floor of the bathroom was covered in oily substance and water.
Ronnie fell on the toilet floor and bumped into the side of his head and forehead.
Ronnie was unconscious when he fell and was transported to hospital by an ambulance.
Ronnie is doing well, but he suffered a serious blow to his head and also broke both of his jaws.
Ronnie required a number medical tests to confirm that there wasn’t any permanent damage.
Ronnie also needed to have complex surgery on his jaw.
Craig and Shaun get a letter from Ronnie’s attorneys informing them that they have been sued for $12,000.
Craig and Shaun do not have public liability insurance.
Craig decided to quit the business after all of this.
Craig met Shaun in the studio and stated: “Sorry bro… but I am totally done with this …..”
Shaun was furious, and replied: “You cannot do that, we still have rent and bills to cover.
Without your help …., I cannot cover these expenses.
Craig ignored Shaun and began to load music instruments and other equipment into his van.
Craig ignored Shaun and began to load music instruments and other equipment into his van. Shaun shouted at Craig, saying:
“That property belongs in the business. You can’t take it!”
Craig continued to ignore Shaun. After he had loaded the equipment, Craig made a rude gesture towards Shaun. Then, he drove off ….
This information will allow you to use IRAC to answer these questions.
A. Does Shaun and Craig have a partnership?
You should assume that partnerships exist for questions B-F.
Craig can he leave the partnership the same way he left?
Craig. Are the additional lessons he has been taking entitled to him for the fees?
D. Is the partnership for music instruments and equipment a property?
E. Who will pay the remaining rent and electricity?