You are on page 1of 31

SECTION 3 OF PARTNERSHIP ACT 1961

Partnership is the relation which subsists between persons carrying on the same business in a common view of profit Partnership contains five(5) elements: (i) (ii) (iii) (iv) (v) Relation Persons A business Carried in common With a view of profit

RELATION The word relation implies the existence of an agreement between persons. The relationship between the persons could be expressed or implied and it also means there is a contract that binds the partners to each other. PERSONS According to Section 47(2) of Partnership Act, partnership must consists of more than one person and the maximum number is twenty members.
Tan Teck Hee v Cheng Tian Peng

The court declared that a firm with 25 members could not take legal action in court, as it was not a valid partnership. Tan Ching Cheang v Estate & Trust Agencies The original membership of more than 20 was trimmed down before beginning a legal action. The court still did not recognize it as partnership. The fact that originally it was not valid still remained.

Shim Fatt v Leila Bus Road Co

The court decided that the plaintiff could not claim their money back from a firm that had more than twenty members, because legal action could not be taken against a firm that was not valid at law.

BUSINESS

Section 2 of Partnership Act states that a business includes every trade, occupation or profession.

Smith v Anderson

Court held that carrying on a business means to do an act repeatedly, If an association carried out a single act that is not repeated even though it obtains profit, its not considered as a business. Keith Spicer Ltd v Mansell The defendant and Mr.Bishop decided to go into business together and to form a limited company which was to carry on the business of the defendants restaurant. Mr Bishop ordered goods from plaintiff so that they could be used by the company after it had been formed. The goods were not paid for, so the plaintiff sued for the price on the grounds that he was liable because a partnership existed between Mr Bishop and defendant. Court held that the action failed because no evidence that they both was carrying on a business in common with a view of profit. Evidence is clearly shown that at the time the order was made, they were preparing to carry on business as a company as soon as they could. Gulazam v Noorzaman and Sobath

Three parties agreed orally among themselves to form a partnership to engage in the buying and selling cattle. They also agreed that each would contribute to the partners capital and to share of the profits. Court held that all essential elements including with a view of profit were present to constitute a partnership. CARRIED IN COMMON It means by or on behalf of both or all partners. Even where there is sharing of profits out of a business, it is not a partnership unless the business is carried on by or on behalf of all the partners. Ratna Ammal & Anor v Tan Chow Soo The parties in this case entered into agreement to form a syndicate for the purpose of selling condensed milk. The word partnership was not used in the agreement. Instead, the word syndicate was used. Court held that they had agreed to carry on this business in common with a view of profit. Moreover the facts and the relation of parties had the business character of a partnership.

WITH A VIEW OF PROFIT For a partnership to exist, the business must be one which is carried on with a view of profit. Profit here means that the net profit obtain (after deducting expenditure from income). It must fulfills the requirements defined by Section 3(1) even though in actual fact, no profit has been made. Cox v Coulson Mr. Coulson was a theatre manager who agreed with Mr. Mill to provide his theatre for one of Mills productions. Mr. Coulson was to pay for the lighting and the posters. Mr. Mill to provide the company and the scenery. Under the agreement Mr. Coulson was to receive 60% of the gross takings and Mr. Mill the other 40%. The plaintiff was injured by a shot fired by an actor during the performance of a play at the theatre. She sought to make the defendant liable on the ground that he was a partner of Mr. Mill. Court held that the defendant is not liable because he was not a partner as sharing gross profit returns didnt itself create a partnership.

SECTION 4 OF PARTNERSHIP ACT 1961 Section 4(a) Joint tenancy, tenancy in common, joint property, common property or part ownership does not itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof. Davis v Davis A father left his two sons his business and three freehold houses in equal shares as tenants in common. They let one of them and employed the rent in enlarging the workshops attached to the two houses. They continued to carry on the business. They each drew out from it a weekly sum, but no accounts were kept. The rent of the third house was divided between them. Court held that there was a partnership as to the business, but not as to the houses.

Section 4(b) The sharing of gross returns does not itself create a partnership

Gross return means the income earn from a particular business activity without deducting the cost incurred in conducting the business. Cox v Coulson Mr. Coulson was a theatre manager who agreed with Mr. Mill to provide his theatre for one of Mills productions. Mr. Coulson was to pay for the lighting and the posters. Mr. Mill to provide the company and the scenery. Under the agreement Mr. Coulson was to receive 60% of the gross takings and Mr. Mill the other 40%. The plaintiff was injured by a shot fired by an actor during the performance of a play at the theatre. She sought to make the defendant liable on the ground that he was a partner of Mr. Mill. Court held that the defendant is not liable because he was not a partner as sharing gross profit returns didnt itself create a partnership. Section 4(c) The receipt by a person of a share of the profits of the business is prima facie evidence that he is a partner in the business, but the receipt of such a share or payment of

contigent on or varying with the profits of the business, does not itself create a partnership. Prima facie evidence means evidence which if not balanced or outweighed by other evidence, will suffice to establish a particular contention, i.e that the person is a partner in the business. Chooi Siew Cheong v Lucky Height Development The court held that there was no partnership resulting from a joint venture agreement between a landowner and a housing developer because each party to the agreement intended the wholly separate business, there was no business in common with a view of profit.

Section 4(c)(i)- Payments by instalments Cox v Hickman A, a trader was unable to pay his creditor. A reached an agreement with the trustees of his creditors, whereby he assigned his property to them as well as allowing them to influence over the conduct of the business. The primary

purpose was enabling the trustees to be paid out of profits. Court held that this arrangement did not create a partnership even though the creditors receive a share in the profit of the business.

Section 4(c)(ii)- Remuneration of servant/agent Chua Ka Seng v Boonchai Sompolpong The court held that the respondent was not a partner because on the totality of the evidence and the proper inferences to be drawn, he was only a salaries partner. Thus, no partnership was formed. Section 4(c)(iii)- Annuity to widow or children of a deceased partner The widow or child of a deceased partner who receive annuity/a portion of profit made in the business is not considered as a partner of the business.

Commissioners of Inland Revenue v Lebus Trustees

The widow of a partner who inherited one-quarter of the share of the profits was held by the court as not to be a partner in the business and none of the assets of the partnership belonged to her. Secton 4(c)(iv)- Loan given to a firm with a rate of interest varying with the profit This rule is about where a person has advanced money as a loan towards a business. He then enters into a contract either agreeing that the rate of the interest he shall receive will vary as according to the profit the business receives, or that he will receive a share of the firms profits. The profit he receives doesnt make himself as a partner of the business. Re Young Ex Parte Jones Jones and Young entered into an agreement by which it was provided that Jones should lend 500 to Young in consideration for the payment to Jones of 3 per week out of profits of the business. Jones was also to assist in the office, to have control of the money advanced and to be empowered to draw bills of exchange. He also had the right to enter into a partnership within a period of seven months.

A question arose as to whether Jones was a partner. It was held that he was not a partner. Secton 4(c)(iv)-Sales of Goodwill A person who receives annuity or a portion of the businesss profits in consideration of the sale of the goodwill of the business doesnt make the recipient as a partner in the business. Pratt v Strick A doctor sold his practice to a buyer on the agreements that he will continue on living at the place of business (a house) for another three months and introduce all his former patients to the buyer. All the income received and expenses paid for those three months will be shared out equally between them. It was held that the vendor of the practice was not a partner of the purchaser.

SECTION 7 OF PARTNERSHIP ACT 1961


partner is an agent for the firm and his other partners for the purpose of the business of the partnership; and the acts of any 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
Every

unless the partner so acting has no authority to act for the firm in the particular matter and the person with whom he is dealing either knows, does not know or believe him to be a partner.

The third party could bind the firm or the other partners if the following conditions are fulfilled:(i) The act done must be of the type of business that is carried out by the firm. (ii) It is carried out in the usual way (iii) The third party must know or believe the person with whom he enters into the transaction is a partner; AND The third party must not know the person with whom he has entered into the transaction has no authority or the permission of the other partners to act on behalf of the firm.

In Mercantile Credit Co. Ltd. V Garrod Two partners Parkin and Garrod ran a business of renting out garages and the repair of cars. They expressly agreed not to be involved in the business of buying and selling cars.

Without the knowledge of G(who was a sleeping partner), P had sold a car to plaintiff finance company. The proceeds of the sale were paid into firms account. When the plaintiff found out that P has no title, it sued G for the return of the price it paid for the car. Gs denied liability due to the fact that the act was not legitimate as it was the type that was expressly prohibited. This denial was rejected by the court. Court held that G was liable for Ps acts as what P had done was within the type of activity that is normally associated with a garage business, which is what is apparent to the outside world. Sithambaram Chetty v Hong Hing & Ors. Two partners living in Singapore opened a shop in Penang called Hop Hing, which sells medicated wines. The business was managed by two managers, one of whom was the second defendant and another named C.F.S. The partners never revealed their connection with the business and the business was left completely to the managers. As far as the public could see the managers were running the business as partners. One of the managers later borrowed a sum of money from plaintiff, and then he disappeared. The plaintiff

then sought to recover payment from the firm in Singapore as well as the manager in Penang. The firm denied liability on the grounds that the borrower was merely a manager and did not have the authority to sign the promissory note to receive the loan on behalf of the firm. Court rejected the argument as it was due to the defendants failure to inform of the true situation that the public, especially those who had business with the firm, had been misled into thinking that the manager who had borrowed the money was a partner. The court held the firm to be liable. Chan King Yue v Lee & Wong The plaintiff had lent RM 35000 to her husband who was a partner of Lee and Wong. She was issued with a receipt on the firms name and the money was deposited into the firms accounts and was used to pay off some of the firms debts. When the plaintiff sued for the recovery of the debt, the other partner, Wong, refused to pay on the grounds that the firm was not liable for the debts, as the plaintiffs husband had no authority to receive any loan on behalf of the firm. Court held that the act that a person does in the usual course of the partnership business is binding on the firm and

other partners. The receipt of the loan by the plaintiffs husband is an act necessary for the businesss firm.

SECTION 8 OF PARTNERSHIP ACT 1961 An act relating to business of the firm and done in the
firm, name, or in any other manner showing an intention to bind the firm by any person who has authorized, whether a partner or not, is binding the firm and all the partners.
Sithambaram Chetty v Hong Hing & Ors. Two partners living in Singapore opened a shop in Penang called Hop Hing, which sells medicated wines. The business was managed by two managers, one of whom was the second defendant and another named C.F.S. The partners never revealed their connection with the business and the business was left completely to the managers. As far as the public could see the managers were running the business as partners. One of the managers later borrowed a sum of money from plaintiff, and then he disappeared. The plaintiff

then sought to recover payment from the firm in Singapore as well as the manager in Penang. The firm denied liability on the grounds that the borrower was merely a manager and did not have the authority to sign the promissory note to receive the loan on behalf of the firm. Court rejected the argument as it was due to the defendant failure to inform of the true situation that the public, especially those who had business with the firm, had been misled into thinking that the manager who had borrowed the money was a partner. The court held the firm to be liable.

Re Briggs & Co. A firm had two partners, a father and a son. The firm was in debt and the creditor was demanding payment and there was no money to claim. The son agreed the book debts should be assigned to the creditors as the consideration of the creditors of giving time to pay. The son did not inform his father regarding this agreement. The agreement was made under Briggs & co. The son in fact forged the fathers

name. Later, the firm became bankrupt and the trustee in bankruptcy sought to set aside the deed on the ground that it had been executed by one partner only. Court Held that the deed was binding because it was business-related and executed by the person who was authorized to do so, namely a partner.

SECTION 9 OF PARTNERSHIP ACT 1961


Section 9 states that if a partner made a debt under the name of the business for a reason that is not related to the business, the firm was not bound unless he is specially authorized by the other partners. London Chartered Bank of Australia v Kerr The court held that a third party could not rely on the prima facie authority of a partner to draw bills for partnership purposes, when possessed of knowledge that the bill was for private purpose, unless the other partners by words or conduct represented that the partner was entitled the partnership bills for those purposes. Court held that the

other partners failed to object to the partner drawing partnership cheques for personal purposes.

SECTION 11 OF PARTNERSHIP ACTS 1961

Section 11 states that all partners in the firm are jointly liable for all the contracts, debts and liabilities made by each partner. The form of liability of partners for debt and contract of the firm is joint, not joint and several. Joint liability means that the creditors may sue either all the partners individually or the firm. If he sues one partner and obtain judgement against him, he can no longer sue the other partners as he can only made a single action and not several action against members of the firm.

SECTION 12 + 14 OF PARTNERSHIP ACTS 1961

WRONG ACT
Section 12 states that in order to make a firm liable to a third party who has suffered losses, the wrongful act must be done by partner either : (i) (ii) In the ordinary course of the business of the firm OR the wrongful act must be committed while carrying on the job with the authority of his copartner. Section 12 covers not only the civil liability of the partners but also their criminal liability. It imposed the same liability on the firm as incurred by the partner, who caused the wrong and are merely imposing personal liability on the wrongdoers co-partner.

WALKER V EUROPEAN ELECTRONICS LTD A partner in an accountants firm had been personally appointed as a receiver and manager of a company whereas the firm has no involvement in the receivership. The issue is whether receivership work was within the course of the business of an accountants firm. Court held that the partners practised together as accountants in an accountants firm. It can be inferred that their business included the acceptance of appointment as receiver or receiver and manager. This is the kind of the activity which accountants of their kind are usually do and what they habitually did.

SECTION 14 OF PARTNERSHIP ACTS 1961


Section 14 states that every partner is liable-jointly with his co- partners and also severally for everything for which the firm becomes liable whilst he is partner. KENDALL V HAMILTON

K had given a loan to X and Y, two partners in a trading firm. K took action to recover payment from X and Y and the court ordered X and Y to pay the debt. However both partners went bankrupt and could not afford to pay. Later K realized that the defendant was an undisclosed partner of X and Y and he was solvent. K then began taking legal action against the defendant to recover payment. Court held that Kendall failed in his action because his first action against the partners had diminished his right to bring another action against Hamilton since the partners were jointly liable.

SECTION 13 OF PARTNERSHIP ACTS 1961


MISAPPLICATION OF MONEY
Section 13 states that a breach of trust occurs when : (i) One partner, acting within the scope of his apparent authority, receives the money or property from the third person and misapplies it; and

(ii)

A firm in the course of its business receives the money or property of a third person, and the money or property was misapplied by one or more partners while it is in the custody of the firm; the firm is liable to make good to the loss.

BRITISH HOME ASSURANCE CORPORATION LTD V PATERSON The plaintiff company appointed Atkinson, a solicitor in the firm of Atkinson & Atkinson to act for it in the mortgage of transactions. On 5 feb 1901, A gave notice to the company that he has taken Paterson into partnership, and the partnerships name was changed to Atkinson & Paterson. On 28 feb the company sent A a cheque payable to A & A for a purpose of completing the mortgage. The cheque was misappropriated. The company sued P for the loss and the court held that P was not liable because the company had credit with A in his personal capacity and not that of a partner in a firm. RHODES V MOULES

Rhodes wished to obtain loan, so he mortgaged his property. He was told by Rew, a partner in a solicitor firm, that the mortgagees wanted additional security, so he handed him some share warrans payable to bearer. Rew misappropriated them. Rhodes then sued the firm in respect of the loss. Court held that the action succeeded, for the warrants had been received by the firm in the ordinary course of the business. Blyth v Fladgate In this company, a solicitor in the ordinary course of business may become a legal adviser to trustees and in that capacity receive trust money. If those money was misapplied the partners of the solicitor will be liable. If it is not in the ordinary course of the business, then the partner is not liable.

SECTION 15 OF PARTNERSHIP ACT 1961

This section states that the firm is not liable if the trustee partner misapplied property, but if the other partners are actually notice of the breach of trust, then they are liable. SHANNON V WHITING Grey the active trustee of the estate of J.W., paid trust moneys into the firms accountant instead of the separate estate trust account. Madden C.J. found liability in all the partners because Grey had received the money in the course of estate management, an activity within the scope of his authority.

SECTION 16 OF PARTNERSHIP ACT 1961


Liability for holding out Section 16 states that the person who has retired from a partnership must ensure that there is no other representation made by words or conduct of himself or other partners to the effect that he is still a partner of the firm.

FOX VS. CLIFTON The court was held that to be liable the person who has been represented as a partner must have, either expressly or by conduct, authorized the representation Doctrine based on estoppels a) Representation where a person consents or knows that his name is used as a partner, or where he holds himself out to be a partner. It can be expressed or implied or make orally before credit is given.

TOWER CABINET CO. LTD. VS. INGRAM Ingram was once a partner of Merrys, but had retired from the firm. His former partner had continued business under the same name. His former partner had on one occasion used the firm old notes where his name appeared as partner. The notes were unintentionally used in the course of the business a transactions with the plaintiff. The plaintiff tried to enforce judgment against Ingram due to fact that his name

had appeared on one of the note papers used by his former partner. The court held that the fact he failed to destroy, or was negligent in not destroying the notes does not mean that he consented to be held out as a partner to the third party. He had not knowingly suffered himself to be represented as a partner. b) Reliance in the representation by the third party the conduct of holding out is communicated to the third party who then acts on statement. The third party must show that the he was aware of the holding out. He must show that he had given credit to the firm because he had relied on the representation. c) As a consequence credit is given to the firm the doctrine of holding out applies and favors of persons who have dealt with the firm on the faith that the persons whom they seek to make liable is a member of it. It is not applicable in cases of tort or crime to enable the person to escape liability out of his true position Public Prosecutor vs. Wong

Wong was charged with CBT by a servant under section 408 of Penal Code. The question in the case was whether the accused was an employee or a partner during the relevant period. It was contended, inter alia, that the firm had on various occasions held the accused out as partner because his status with the firm was that of a salaried partner although he was in fact a mere employee. The High Court held that the doctrine of holding out applies only in favor of third parties who deal with the firm. It does not apply to criminal case so as to prove that the person held out is in fact a partner to enable him to escape criminal liability arising out of his true position as a servant.

SECTION 19 OF PARTNERSHIP ACT 1961


LIABILITY OF INCOMING AND OUTGOING PARTNER Section 19 states that a person who is admitted as a partner into an existing firm does not thereby become liable to the creditors of the firm for anything done before he became a

partner. However, a partner would be liable if agrees to be liable for the existing debts of the partnership at the time of his admission. ROLFE AND BANK OF AUSTRALIA V FLOWER SALTING & CO W, H, F were partners in a firm. They took T and S, their clerks, into the firm. The newly constituted firm continued to carry on business under the old name and no change was made to the business. The old firm was indebted to the respondent company to the amount 80,000. This debt was regularly recorded in the firms books of accounts, to which the new partners had full access to. The respondent company continued to deal with the firm as newly constituted. The question is whether the new partners were liable for the debts incurred before their admission. Court held that T and S were liable because: (i) The creditors had agreed to accept the new firm as debtors in the place of old firm by dealing with it in full knowledge of the change in its membership, AND

(ii)

The incoming partners, T and S, had impliedly agreed to accept joint liability with the old partners of the old firm for all the debts shown in those accounts.

COURT V BERLIN Court was a solicitor retained by a partnership to recover debt due to it. The firm consisted of a sole partner, and two dormant partners. During the solicitor work for the firm the two dormant partners retired. After the process of recovering the debt was completed the solicitor sued Berlin and the partners for his costs. The dormant partners claimed that they are only liable up to the date of their retirement. Court held that they were fully liable as one entire contract to conduct the action to the end.

SECTION 26(g) OF PARTNERSHIP ACT 1961


INTRODUCTION OF A NEW PARTNER

This section states that new partner can only be admitted with the consent of all the partners. If one partner refused to consent, then a person cannot be considered as a partner. However, the partners may have the right to introduce a new partner. BYRNE V REID The clause gave each partner the right to nominate and introduce any other person into the firm. B introduced his son who was employed in the firm but the other partners refused to give consent. Court held that as the other partners failed to provide reasons why they are not agree or give their consent. Therefore, Bs son can be the partner.

SECTION 27 OF PARTNERSHIP ACT 1961


EXPULSION OF PARTNERS
This section states that the majority cannot expel any partner, unless a power to do so. All partners must agree to the decision of expelling the member. The partner who is

about to be expelled must also agrees to his own expulsion. If the partner has obviously breached the partnership deed, they can directly expel him.

SECTION 30- Duty of partners to render accounts and full


information

SECTION 31- A partner, without the consent of other


members cannot make secret profit. (Pathirana v Ariya Pathirana case)

SECTION 32- If the partner carries on the same business


nature and competing with the firm without the consent of the other partners, he then liable to pay all the profit he earns to the firm. If it is not competing than he is not liable.