ASSIGNMENT ON: THE PROPERTY OF THE FIRM

LAW OF SPECIAL CONTRACT: LL-152

SUBMITTED BY: PRAGYA TEWARI

ENROLLMENT NO.: 19FLICDDN01089

COURSE: BBA LLB ( HONS.) Ist YEAR

SUBMITTED TO: MS. ANUSHMI JAIN

(Faculty Associate)

SCHOOL OF LAW

FACULTY OF LAW

ICFAI UNIVERSITY, DEHRADUN

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 DECLARATION

I PragyaTewari student of BBA LLB (HONS.), hereby declare that the project work entitled
THE PROPERTY OF THE FIRM submitted to the ICFAI Law School, ICFAI University,
Dehradun is a record of an original work done by me under the guidance of Ms. Anushmi
Jain, teacher in subject, ICFAI Law School, ICFAI University, Dehradun.

Name: PragyaTewari

Roll no.: 19FLICDDN01089

Batch: 2019-2024

Date: 08.03.2020

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 CERTIFICATE

This is to certify that the project report entitled …………………………………… submitted

by ………………………. in partial fulfilment of the requirement for the award of degree of
………………………………to ICFAI Law School, ICFAI University, Dehradun is a record
of the candidate’s own work carried out by her under my supervision. The matter embodied
in this project is original and has not been submitted for the award of any other degree.

Date: ( Ms. Anushmi Jain)

Teacher in subject

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 ACKNOWLEDGEMENT

I would specially like to thank my guide, mentor, MsAnushmi Jain without whose constant
support and guidance this project would have been a distant reality.

This work is an outcome of an unparalleled infrastructural support that I have received from
ICFAI Law School, ICFAI University, Dehradun.

I owe my deepest gratitude to the library staff of the college.

It would never have been possible to complete this study without an untiring support from my
family, specially my parents.

This study bears testimony to the active encouragement and guidance of a host of friends and
well-wishers.

Name: PragyaTewari

Roll No.: 19FLICDDN01089

Batch: 2019-2024

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 LIST OF ABBREVIATIONS

AIR ALL INDIA REPORTER

Cri. LJ CRIMINAL LAW JOURNAL
HINDU L.R. HINDU LAW REPORTER
SCC SUPREME COURT CASES

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 TABLE OF CASES

S.NO. NAME OF THE CASE CITATION

1. MILES VS CLARKE (1953) 1 WLR 537: 1 ALL ER 779

2. ROBINSON VS ASHTON (1875) LR 20 Eq 25
3. BURY VS BEDFORD (1864) 4 De G and J : 46 ER 954
4. KENNY’S PATENT VS (1878)38 LT 878: 26 WR 786
SOMERVELL

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 CONTENTS

TOPIC PAGE NO.

 DECLARATION 1.

 CERTIFICATE 2.

 ACKNOWLEDGEMENT 3.

 LIST OF ABBREVIATIONS 4.

 TABLE OF CASES 5.

CHAPTER-1 PARTNERSHIP PROPERTY

CHAPTER-2 SECTION 14

I. GOODWILL

II. PROPERTY ORIGINALLY

BROUGHT IN

III. PROPERTY SUBSEQUENTLY

ACQUIRED

IV. PARTNER’S PROPERTY IN FIRM’S

USE

CONCLUSION

BIBLIOGRAPHY

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 1.PARTNERSHIP PROPERTY

In general, partnership property consists of all the property contributed by the partners or
acquired for the partnership with its funds.  A partnership may own real property as well as
personal property. Partners hold title to partnership property by tenancy in
partnership or tenants in common.  This means that each partner has an equal right to use the
partnership property for partnership purposes unless there is an agreement to the contrary. 
Also, a partner possesses no interest in any specific item of partnership property.  (For
example, a partner does not own 10% of the personal computer which his secretary uses.)  A
creditor of the partner cannot proceed against any specific items of partnership property.  A
creditor can only proceed against the partner’s interest in the partnership.

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 2.PARTNERSHIP PROPERTY SECTION 14

The property of a firm is also known as partnership property, partnership assets, joint stock,

common stock, or joint estate. A partnership property includes all property and rights, and
interest in property that the partnership firm purchases.

These purchases can also be made for the purpose and in course of the business of the firm,
including the goodwill of the firm. All partners collectively own such properties.

Hence, a partnership property comprises of the following items if there is no agreement between
the partners showing any contrary intention:

 All property and rights and interest in property that the partners purchase in the
common stock as their contribution to the common business.
 All property and rights and interest in property that the firm purchases either for the
firm or for the purpose and in course of the business of the firm.
 Goodwill of the business.
Determining whether a particular property is partnership property depends on the true intention
or agreement between the partners.

Hence, if a firm uses the property of a partner for its purposes, it does not make it a partnership
property unless that was the real intention. At any time, the partners may agree to convert the
property of a partner or partners into partnership property.

If such a conversion is made in good faith, then it would be effectual between the partners and
against the creditors of the firm. The partners may also agree to convert the separate property of
any partners into the property of the firm.

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 I.GOODWILL

Section 14 specifies that the goodwill of a business is the property of the firm and is subject to
a contract between the partners. However, it does not define the term goodwill.

Goodwill is the value of the reputation of a business in respect of the expected

future profits OVER AND ABOVE the profits that a firm earns in the same class of business. It
is a part of partnership property. The firm can sell the goodwill separately or along with other
properties.

When a partnership firm dissolves, all partners have a right to have the goodwill sold for the
benefit of all the partners unless there is an agreement contrary to the same. After the firm sells
the goodwill, any partner may make an agreement with the buyer to not carry on any business
similar to that of the firm within a certain time-period or local limits. Such an agreement is
notwithstanding anything contained in Section 27 of the Indian Contract Act, 1872 and is valid
if the restrictions are reasonable.

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 II.PROPERTY ORIGINALLY BROUGHT IN

The first rule is that unless a different intention appears, the property of the firm includes all
property and rights and interests in property originally brought into the stock of the firm. In
other words, whatever property is thrown into the common stock at the commencement of
business becomes the property of the firm. Thus, where a grocer, provision dealer and wine
merchant took two partners into the business who contributed no capital and the merchant
continued to purchase stock-in-trade for the firm with his own money, it was held, on the
bankruptsy of the firm, that the stock-in-trade had become the property of the firm.

MILES VS CLARKE: This is a partnership action in which the issues on the writ, at the
hearing of a motion, and on the pleadings when the matter came to be dealt with in this court
were two: First, was there a partnership at all? Secondly, if there was a partnership, what
were the assets of the partnership? The defendant was advised, and I think obviously rightly
advised, that to contest the issue whether in law there was a partnership was to contest the
incontestable, and that, therefore, at the outset he would be wise to concede that a partnership
had existed, and that a partnership at will had begun on April 1, 1950, and had expired at the
issue of the writ in the action. This advice he rightly took. The expiry of the partnership may
conveniently be taken to have occurred on May 29, 1952. That left to be decided the
question: What were the partnership assets? Though it was pleaded in the defence that none
of the assets used in the business belonged to anyone but the defendant, yet the statement of
claim, as it stood, did not conveniently raise that matter. It seemed to me and to counsel who
represented the parties that the right course to take was to treat the hearing as deciding that a
partnership existed and make an order on that footing, and then order the ordinary partnership
accounts with an addition in a special form in order to raise the matters which remained in
controversy between the parties. Consequently, on Feb. 19, 1953, I made an order declaring
that there was a partnership between the plaintiff and the defendant, and that it began on
April 1, 1950, and was dissolved on May 29, 1952. I ordered, first, the following inquiry:
Any inquiry whether any and if so which of the following items as at April 1, 1950, formed
part of the partnership property or whether any and if so which of them remained the
separate property of the plaintiff or the defendant as the case may be….
and then follows the list: (i) the lease of the property at Shepherd’s Market where the
business was carried on; (ii) the furniture and fittings in the studio; (iii) and, perhaps, most
important, the equipment of the studio; (iv) the plaintiff’s and the defendant’s photographic
negatives and prints which were brought in by each of them at the outset; (v) the defendant’s
goodwill or reputation; and (vi) the plaintiff’s goodwill or reputation. That order was
followed by an order (in para. 2 and para. 3) for the taking of the usual account and inquiry in

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a partnership, in common form. In para. 4 I ordered an inquiry whether either the plaintiff or
the defendant was entitled to be credited in the partnership accounts with any sum on account
of any of the items referred to. I then treated the summons to proceed as having been issued
and having come before the master and the inquiries ordered in para. 1 and para. 4 of the
order as having been adjourned into court. This judgment will be a judgment to assist the
master in answering the inquiry ordered in paras. 1 and 4 when the matter is sent back to him.
        The defendant, who was a gentleman of some means, was minded to start a business in
commercial and fashion photography. After looking about for some time, he found the
premises which subsequently became the place of business of the partnership and in June
1948, he entered into a lease whereby the property, which consisted of two squash racquets
courts, dressing-rooms, and so forth, was demised to him for a period of seven years from
midsummer, 1948, at a rent of £400 a year, which was, I am told, an advantageous lease,
bearing in mind the neighbourhood and the fact that squash racquets courts are easily
adaptable as photographic studios, having a good overhead light. One court was left open as a
large studio, the other was divided by partitions and a floor put in, part of it being used as
dark rooms, part as offices, and part as a smaller studio. There the defendant started to carry
on a photographic art or craft, but he employed persons to carry out the photographic work
for him. At the beginning he made a very considerable loss. In January, 1950, after some
earlier approaches which were ineffective, he applied to the plaintiff to see whether he would
come into business as a partner. The plaintiff has been taking photographs all his life, and he
is, apparently, well-known and has a good connection in this particular work. He was at that
time working for others, using their studio partly for his own purposes and partly on their
behalf, and he was making a very considerable income as what he called a free-lance
photographer. He, it seems, was not very anxious to come in, and during the first month or so
of 1950 he came down occasionally to the defendant’s studio and took photographs, but from
about the beginning of April he attended there as a full-time occupation and brought with him
his own considerable connection. He took photographs of such subjects and such models as
the defendant on his side should provide. The upshot of it was a very successful business. The
plaintiff’s faithful clients followed him, and brought their work to him. The business is now
in the hands of a receiver, after the partnership quarrel, in a flourishing condition.

         These two people, having, as it were, thrown in their lot together in this way, were too
busy to think about the terms on which they should carry on business. They agreed that the
profits, if there should be any, should be shared equally, and I take it the losses also, though,
of course, they did not contemplate losses, and they did not have to face any. There also
appears to have been an agreement reached that the plaintiff should draw £125 a month on
account of his share of the profits, but that arrangement did not always continue, because the
plaintiff appears to be a rather improvident person who is almost incapable of managing his
own life. The only two matters that were agreed were that there should be an equal sharing of
the profits and that the plaintiff should have these monthly drawings on account. They both
contemplated a regular legal connection, and the plaintiff employed as his solicitors Messrs.
Blacket Gill & Topham, who, as early as January 1950, can be found writing to the defendant
setting out what the plaintiff understood. At that time the plaintiff, by the advice, no doubt, of
his solicitors, contemplated that there would be a limited company and not a partnership to
carry on the business. Whether the matter was carried on in one guise or the other really made
no difference in substance to the parties. Miss Blacket Gill, the senior partner in that firm of
solicitors, who conducted all the negotiations on the part of the plaintiff, wrote on January 31,
1950, in these terms:

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We understand from (the plaintiff) that you and he are desirous of forming a limited company
to carry on business as photographers. The business will be carried on at 5, Shepherd Street
and the assets of the company will consist of Mr. Miles’ s goodwill, your goodwill and a
lease and you will each hold shares in accordance with the value of the assets you put into
the company. We understand that very little detail has been arranged between you except
that you both agree that you wish to proceed on these lines.
     The defendant employed an accountant who treated as an item on the debit side of the
business a bank overdraft of £1,000 or so, which was, in fact, the defendant ’s private bank
overdraft which neither party had contemplated for one moment as being a liability of the
business. As the so-called accounts start from that monstrous unreality, it seems to me
impossible to place any reliance on what should be put on the other side. On the other side, in
fact, certain assets, including the lease and the stock-in-trade, are set down as assets of the
business, but when one knows that the chief liability shown is not a business liability I do not
think one is entitled to assume that that which appears as an asset is in truth an asset of the
business. It is obvious that these parties and their advisers, so far as they thought about it at
all, always contemplated that the lease, the equipment and the studio furniture, and the stock-
in-trade and so forth should all be brought into the common pool, but the fact is that nothing
was ever finally agreed about it, and they just drifted on.

      On what terms were these people partners? The only answer one can give is that they
were partners on the terms that they shared the profits between them. What more? It is said,
and I think rightly, that, even though there was no further agreement, one must assume that
the stock-in-trade, such as stocks of film, was put into the pool and cannot be taken out again,
but must become part of the partnership assets. That is not denied. There remain, however,
more important items. The first is the lease and the second is the plaint which may be worth
£2,000. It is said with force by counsel for the plaintiff that those two classes of assets were
put forward throughout as being brought in as part of the assets of the intended association,
and, the plaintiff having come into the business on that footing, it would be inequitable now
to deny him a right to share in those assets. It is said on the other side that it is not necessary
to assume any further agreement between the parties, but one need only say that everything
that belonged to one of them at the beginning of the partnership still belonged to that one at
the end, and that the law will not make any imaginary agreement between the parties, it being
ascertained as a fact that there was no agreement. In my judgment, no more agreement
between the parties should be supposed than is absolutely necessary to give business efficacy
to that which has happened, and that, I think, is the only safe way to proceed.

     It is absolutely necessary to assume that things quae ipso usu consumuntur, the stock-in-
trade, must be treated as having been brought into the partnership and their value must be
ascertained by inquiry. They were all brought in by the defendant. I do not see the necessity
of assuming that anything else went into the partnership. It seems to me that, as the parties
failed to agree, it is not for me to say that the defendant must be assumed to have thrown the
lease and the plant into the pool. The partnership could get on quite well if he gave his
partner a licence to go on the leasehold property for the purposes of the business and to use
the cameras to make the joint profile. Therefore, in my judgment, nothing changed hands
except those things which were actually used and used up in the course of the carrying on of
the business. The stock of negatives which each of these partners brought in was for the use
of the business so long as it was going on. As I understand there is no great difficulty in
separating them again now, and, indeed, being ex necessitate negatives or photographs taken
before 1950, so far as they are fashion negative I cannot think that, except historically, they
have any great value. However, if desired, the parties can each take away their negatives. Of

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course, the stock of negatives of photographs taken during the course of the partnership must
be a partnership asset. Everything that changed its existence during the currency of the
partnership must be.
       It was said that, apart from those matters, each party brought in a connection, and that the
plaintiff brought in something of value in the shape of his good will or connection which
must in some way be quantified or valued and treated as an asset of his. Some such scheme
was, undoubtedly, envisaged, but it was never agreed on, and it seems to me it would be idle
to suggest that, as the parties had not agreed anything of that sort, it ought to be treated as
having happened. The plaintiff came there because, having the connection he did, if he had
the studio and the equipment to his hand, he could make a good profit and presumably it
would be worth his while to take half that profit in return for the benefit of the use of the
studio and the equipment. I see no reason to suppose that, though his connection and skill
were very useful to make profits, one ought to treat them in some way as capital assets.
Therefore, neither his connection, nor the defendant’s connection, if it was of any value
(which I doubt), should be treated in any way as being a partnership asset.

       The only partnership assets remaining are, I think, the studio name, or the goodwill, such
a it is, which has been attaching to it (and should have thought that was probably little), and
the photographs in so far as they accumulated during the two years when the partnership was
subsisting. Now that the parties have separated, the plaintiff will take away his own
connection, no doubt, and his own clients, just as he brought them, and the defendant will
presumably keep his own. It may be that it will be to his advantage that he will be able to
keep the leasehold premises, but, as they were his before and he did not agree to assign them
or to sub-let them, that is the inevitable result of the failure of the parties to make a more
reasonable bargain.

      Therefore, I propose to answer the inquiries by declaring that the lease, furniture and
fittings, and the equipment of the studio did not form part of the partnership property, but
remained the separate property of the defendant; that the plaintiff’s and defendant’s
photographic negatives and prints brought into the business on April 1, 1950, remain the
property of the person bringing them in; and, further, that neither the defendant’s nor the
plaintiff’s goodwill or reputation form part of or should be treated as assets of the partnership.
I will make a general declaration on the contrary that the stock-in-trade and consumable
chattels ought to be treated as partnership property brought in by the defendant, and, in
default of an agreement, I will direct a further inquiry, namely, as to what value ought to be
attributed to those things in taking the partnership account. Lastly, it is suggested that, if the
property remains that of the defendant, it is not right, in taking the accounts, to treat any
depreciation as a charge against the profits, which would mean that the plaintiff would pay
half of it. In my judgment, that is right. It would not be right to assume that the defendant
leased or licensed either the leasehold property or the plant in the partnership at any price at
all, because he did not, and, therefore, in my judgment, the result of no agreement works in
the plaintiff’s favour, and is that he does not have to contribute to wear and tear on those
assets. That being so, in taking the accounts no sum ought to be charged against profit by way
of depreciation. It is also said that certain partnership profits have been devoted to making
improvements. For all I know that may be true or there may be nothing in it. The accounts are
not sufficient to show. If it turns out that there is nothing in it the parties need not proceed
with that inquiry.

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 III.PROPERTY SUBSEQUENTLY ACQUIRED
The second rule is that the property acquired by purchase or otherwise, by or for the purposes
and in the course of the business of the firm, belongs to the firm. Where a property is
acquired with the money belonging to the firm and also in the name of the firm, no doubt
arises as to being the property of the firm. Where a property is purchased with the money of
the firm, but in the name of a partner, the presumption is that it belongs to the firm. Thus
where one partner bought shares in his own name, but with the money of the firm, the shares
were held to be partnership property. Similarly, where the partners effected assurance of their
lives for which premiums were paid out of the firm, the policies were held to be the property
of the firm. Again, where a partner renews a lease of the firm in his own name, the renewed
lease is a property of the firm.

Where an item of property was purchased in the name of a partner but payment was made by
a cheque drawn on the bank account of the firm, the court was of the view that the property
was not necessarily to be taken as that of the firm.

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 IV.PARTNER’S PROPERTY IN FIRM’S USE

Where the personal property of a partner is being used in the business of the firm, it is a
question of fact to be determined by reference to the parties’ intention whether it has become
the property of the firm. The Supreme Courts has observed, “When property belonging to a
person, on entering into partnership with others, can become the property of the firm,
depends upon the terms of the partnership agreement.”

ROBINSON VS ASHTON: Robinson and Ashton formed a partnership. Robinson

contributed the cotton mill and some fixed plant and machinery. When the partnership was
dissolved twelve years later, Robinson claimed for himself the full proceeds of the sale of the
mill land the fixed plant, which had increased in value. The court decided that from the
circumstances it was clear that the mill and the fixed plan had been intended to be, and had
therefore become, partnership property. The increase in value was therefore a partnership
profit to be shared by the partners.

 TRADE MARKS: In reference to trade marks, it has laid down:

BURY VS BEDFORD:

Upon the formation of a partnership with a person entitled to a trade mark, such mark will, in
the absence of express intention in relation to it, become an asset of the partnership, for the
whole trade carried on by the partnership, and the trade mark is but one element in it. Such a
trade mark is, therefore, capable to being assigned by the partnership and the court will, after
an assignment to a purchaser, restrain the firm, or any partner in it, from himself using the
mark and from assigning it to any other person.

In reference to a patent, it has been laid down:

KENNY’S PATENT BUTTON-HOLEING CO. LTD. VS SOMERVELL:

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When a partnership at will is formed, for the purpose of working an invention for which a
patent has previously been taken out by registered in the name of one of the partners alone,
the patent becomes an asset of the partnership, and each acquires a right to practice the
invention; and this right is not taken away by the registered owners, assigning the patent to
third parties who have notice of the existence of the partnership.

SECTION 15: APPLICATION OF THE PROPERTY OF THE FIRM

Subject to contract between the partners, the property of the firm shall be held and used by
the partners exclusively for the purposes of the business.

DUTY TO USE PROPERTY FOR FIRM PURPOSES:

The section makes it a duty of the partners that the property of the firm shall be held and used
by them exclusively for the purposes of the business of the firm. Even if the section had not
so provided, a joint property, being the nature of a trust, is always to be used for the purposes
of the trust, is always to be used for the purposes of the trust. No partner should, therefore,
use the assets of the firm for any of his personal purposes. Any such exploitation will render
the partner accountable to the firm for any private advantage obtained by him. He shall also
be responsible to indemnify the firm for damage, if any, thereby caused to its assets.

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 CONCLUSION

As section 14 of Indian Partnership Act, 1932 reads about the Partnership Property. It
basically mentions that partnership property consists of all the property contributed by the
partners or acquired for the partnership with its funds.  A partnership may own real property
as well as personal property. Partners hold title to partnership property by tenancy in
partnership or tenants in common.  This means that each partner has an equal right to use the
partnership property for partnership purposes unless there is an agreement to the contrary. 
Also, a partner possesses no interest in any specific item of partnership property. 

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 BIBLIOGRAPHY

 https://www.toppr.com/guides/business-laws/the-indian-partnership-act/partnership-
property/
 https://indiankanoon.org/doc/1997142/
 BOOK : AVTAR SINGH
 https://www.lawjournals.co.uk/cases_referred/robinson-v-ashton-1875-lr-20-eq-25/
 https://dullbonline.wordpress.com/2017/06/29/miles-v-clarke-1953-1-all-er-779/

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