Partnership (note 3) 4n3zz

LAW OF PARTNERSHIP LECTURE NOTE 3

CONTENTS 

NATURE AND CHARACTERISTIC OF A PARTNERSHIP  



RELATIONS OF PARTNERS TO PERSONS DEALING WITH THEM



Concept of t & Several Liability Liabilities of partners- in contract, torts and crime Misapplication of money and property Improper employment of trust property for partnership purposes Duration of liability



Rights and duties of partners

   



Definition of a partnership and its differences with other type of business organization. Rules for determining of partnership - Sec. 4 of Partnership Act, 1961.

RELATIONS OF PARTNERS TO ONE ANOTHER   



Duty of good faith Partnership property Retirement & continuation of partnership after expiration of agreed term

DISSOLUTION OF PARTNERSHIP   

Dissolution without court’s intervention Dissolution by court Consequences upon dissolution

RELATIONS OF PARTNERS TO PERSONS DEALING WITH THEM • • • • •

Concept of t & several liability Liabilities of partners- in contract, torts and crime Misapplication of money and property Improper employment of trust property for partnership purposes Duration of liability

Power of partners to bind the firm  Every

partner is an agent of the firm and his other partners for the purpose of the business of the partnership.  Section 7: Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and The acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners

 Section

7  An act of a partner will bind the firm:  

The act must be done for the purpose of the business Case: Osman v Chan Kang Siew  The

act must be an act for carrying on business in the usual way

Partnership business  The

act must be an act for carrying on business in the usual way  Cases:      

Mercantile Credit Co Ltd v Garrod Polkinghorne v Holland Sithambaran Chetty & Ors v Hop Hing &Ors Chan King Yue v Lee & Wong Chop Cheong tuck v Chop Tack Loong Vasu Devan v VA NAir

 Mercantile 

Credit Co Ltd v Garrod

Mocatta J: I must have regard in deciding this matter to what was apparent to the outside world in general…to the facts relevant to business of a like kind to that of the business of this partnership so far as it appeared to the outside world.



Polkinghorne v Holland 

 

Mrs. P was a client of a firm of solicitors. She received advice from one of the partners about an investment in which the partner was financially interested. The investment was a failure and Mrs. P incurred heavy losses. She brought an action claiming damages Question: Whether the remaining innocent partners were liable for her loss? Held: They were liable 

Why? Court acknowledged it was difficult to determine what was within the course of a solicitor’s business. The giving of financial or investment advice was within the usual course of business of that firm of solicitors. When enquired about investment. Should furnish information and assistance or point out what inquiries may be made and if required undertake them or seek for assistance of those who will give such advice.

 Court 



Held:

Although investment analysis was not part of the firm’s (solicitor) business, when a solicitor is approached for enquiries and competent advice. His failure to provide this was related to the business of the firm. Borrowing was an act necessary for the carrying on of the partnership business. Thus the other partners were bound.

 Chop 



Cheong tuck v Chop Tack Loong

A managing partner represents to the borrower that he is borrowing for the purposes of the firm. held: the lender is under no duty to enquire whether the loan is necessary for the purposes of the firm. As the lender has no knowledge to the contrary, and there is no suggestion of fraud, the firm us bound to repay the loan.

In the usual way  Mercantile 

Credit Co Ltd v Garrod

To bind the firm, the act of a partner must be done in the usual way, this is a question of fact depending upon the nature of the business.

 Goldberg 

v Jenkins & Law

Borrowing of money by a partner was held not to amount to the usual way due to the exorbitant rate of interest charged by the lender on the loan.

What is usual? depends on whether it is trading business or non-trading business  Trading  





Higgins v Beauchamp “ Is one which depends on buying and selling goods“ Usual authority in trading: Contract, debts, borrow money and employ staff etc. Case: Chettinad Bank v Chop Haw Lee

 Non-trading 





nature of work is advisory, e.g. firm of professionals. Usual authority in nontrading: consultation, employment of staff Cases: Higgins v Beauchamp, Marsh v Joseph

Knowledge and belief  Mercantile 

Credit Co Ltd v Garrod

If Mercantile Credit was aware of the of the partnership which excluded the buying and selling of cars, Garrod will not be bound by the of Parkin, and therefore Mercantile Credit will not be able to recover from Garrod as Mercantile Credit knows that Parkin has no authority from the partnership.

 Section

7:  An act of a partner will not bind the firm  

 

The partner has no authority The third party knows that he has no authority The third party does not know that he is a partner The third party does not believe that he is a partner

Partners bound by acts on behalf of firm  Section

8:

An act or instrument relating to the business of the firm and done or executed in the firm-name, or in any other manner showing an intention to bind the firm, by any person thereto authorized, whether a partner or not, is binding on the firm and all the partners.  The

act must relate to the business of the firm or showing intention to bind the firm.  Section 8 applies to the act of partners or other person authorised by the firm; whereas Section 7 applies only to the acts of partners.



Sithambaran Chetty v Hop Hing 



A and B sells medicated wine, but their partnership was not make public. For the purpose of the business, they entrusted two persons to manage the business which is the second defendant (2D) and C. At the same time, of the public did not know that 2D was not the partners in the business. 2D then borrowed money from the plaintiff (P) using the partnership name. He later absconded. P then sued the partnership. Held: The firm is liable because there is no notice that the 2D is not a partner in the partnership. Not only that, they failed to mention that 2D only have apparent authority

 Hoch 

Hin Chan v Ng Kee Woo

Held: a bill of sale executed by one partner on behalf of the firm is valid as a partner in a firm can alone grant a bill for himself and on behalf of all the partners.

Partner using credit of firm for private purposes  Section

9:

Where one partner pledges the credit of the firm for a purpose apparently not connected with the firm’s ordinary course of business, the firm is not bound, unless he is in fact specially authorized by the other partners.

 This

section does not affect any personal liability incurred by an individual partner.  Therefore, a person who deals with a partnership can only make the firm liable for the debt if a partner with whom he dealt with had authority to contract it.

 The (i)

(ii)

authority is derived from two ways: The partner is acting within the ordinary course of business / the partners has ostensible authority to act. The partner is specially authorised by the other partner / he has express authority.

 Under

Section 9, ostensible authority exists because the act is ‘connected with the firms’ ordinary course of business’.  Example: not in the ordinary course of business of a partnership in a farming business to buy another farm, but if it is an ading farm be used with the existing farm, such purchase may be for the purpose of the business.

Effect of notice that firm will not be bound by acts of partner  Section

10:

If it has been agreed between the partners that any restriction shall be placed on the power of any one or more of them to bind the firm, no act done in contravention of the agreement is binding on the firm with respect to persons having notice of the agreement.

 Thus,

if a partner does an act which is within his apparent authority, his act will bind the firm as stated in Section 7 (PA), unless the partner has, in fact, no authority to do the act in question, and the third party knows of the lack of authority.  In this respect, Section 10 appears to be a restatement of a part of Section 7.

end of lecture 3

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