Topic > Law of 10 Partnership (Part I) LEARNING OUTCOMES > INTRODUCTION There are various types of business that are widely being carried out in Malaysia. The most common types of business are: * Sole Proprietorship, * Partnership; and * Company. In Malaysia, the law that governs partnership is the Partnership Act 1961. The Act is similar to the English Partnership Act 1890 and under Section 47(1) of the Partnership Act 1961, it provides for the application of the rules of equity and common law in partnership so long as they are not inconsistent with the express provisions of the Act.TOPIC LAW OF AGENCY (PART II) 4 157 * Solloway and Anor. v. McLaughlin [1938] MLJ 23. © Turpin v. Bilton (1843) 5 Man & G 455TOPIC 10 LAW OF PARTNERSHIP (PART!) 4159 10.1 DEFINITION OF PARTNERSHIP AND ITS CHARACTERISTICS It is important to establish a partnership between parties since the formation of it entails certain obligations and liabilities for the partners. Section 3(1) of the Partnership Act 1961 defines partnership as "the relation which subsists between persons carrying on a business in common with a view of profit." Partnership however does not include clubs, societies, mutual benefit organisations and building societies (Refers to Figure 10.1). (a) (b) © The relation between parties In order to form a partnership, there must be a minimum of two persons. Therefore, there is usually an agreement to be made by the parties which lay down certain terms and conditions relating to the partnership business, and duties and responsibilities of the partners involved. This agreement will be binding upon every partner and enforceable in law. The agreement is for business purpose Section 2 of the Partnership Act 1961 defines ‘business’ as includes every trade, occupation or profession. Thus, the persons must have an agreement to have a business in common. The business is for purpose of gaining profit This means the partners agree to carry on business for profit. Thus, if a person is excluded from sharing any profit in a partnership, then he is not a partner. Similarly, the relationship between persons to do voluntary or welfare works is not a partnership.160 P TOPIC10 LAW OF PARTNERSHIP (PART |) RELATIONSHIP BETWEEN AGREEMENT FOR BUSINESS FOR Figure 10.1: Characteristic of Partnership Section 3(2) of the Partnership Act 1961 therefore excludes the following list from the definition of partnership: * The relation between members of a company or association which is registered as a company under the Companies Act 1965 or a co-operative society under any written law relating to co-operative societies; or © The relation between members of a company or association which is formed or incorporated by or in pursuance of any other law having effect in Malaysia or letters patent, Royal Charter or Act of Parliament of the UK. Existence of partnership: Some considerationsTOPIC 10 LAW OF PARTNERSHIP (PART!) 161 Where a partnership agreement does not exist, Section 4 of the Partnership Act 1961 provides a number of tests in determining the existence of a partnership, as follows: Section 4(a) Joint tenancy, tenancy in common, joint property, or part ownership does not of itself form a partnership. Section 4(b) The sharing of gross returns does not of itself establish a partnership, whether the parties who share the returns have or do not have a joint right or interest in the property from which or from the use of which the returns are derived Section 4(c) Sharing of business profit by a person is prima facie evidence of partnership. However, the presumption may be rebutted if the sharing is for some other reasons: Payment of a debt out of profits of the business to a creditor by instalments does not make the creditor a partner in the business. Remuneration to a servant or an agent of the business from the profit of their employer's business. Payment of an annuity or a portion of the profits to a widow or child of a deceased partner in the business. Payment of interest which varies with the profits on a loan advanced for use in the business under a written contract. Payment to a seller of the goodwill of a business in the form of a share of the profits of the business. Section 4{a) Partnership does not exist between tenants regardless whether they share or not the profit gained through the use of the land. In the case of jointly owned property, it does not of itself form a partnership between the owners.162 > TOPIC 10 LAW OF PARTNERSHIP (PART 1) In Davis v. Davis (1894) 70 LT 265, a father gave his business and three houses to be shared together by his two sons. Two of the houses were rented out. The sons used part of the money earned from the rental of the house to improve the business and shared the other remaining portion equally. The Court held that. The business was a partnership between the sons but the joint ownership of the houses and equal share on the earnings did not make them partners. Section4(b) In Cox v. Coulson (1916) 114 LT 599, the defendant, a manager of a theatre entered into an agreement with Mill whereby Mill would prepare and pay for the theatre show while the defendant would prepare and pay for the rent of the stage and lighting services for the show. It was agreed that the defendant would receive 60% from the gross returns and Mill would receive the remaining 40%. The plaintiff suffered injury during the show and he sued the defendant for liability as a partner of Mill. The Court decided that. Even though the defendant and Mill shared the gross returns from the business, it did not make the defendant and Mill as partners. Both had separate responsibility and liability. The defendant was liable to pay for the rent of the stage and lighting services from the 60% returns he received. Mill, on the other hand, would settle the journey expenses, salaries of the actors.and the cost incurred during the show from the 40% returns he received. This showed that no partnership being formed between the defendant and Mill. Thus, the defendant was not liable to the plaintiff. Section Hc}(i) Payment of a debt out of profits of the business to a creditor by instalments does not make the creditor a partner in the business. For instance, A lends B a sum of RM15,000 and A receives a sum RM1,000 per month from the business as repayment of the loan. Though the payment of RM1,000 per month to A comes from the profit of the business, A is not a partner to B in the business.TOPIC 10 LAW OF PARTNERSHIP (PART!) 4163, In Badeley v. Consolidated Bank (1888) 38 ChD 238, X intended to build a railway transportation and borrowed money from Y to finance the project. As a security for the loan, X charged his machineries and agreed to pay an interest of 10% of the loan amount and 10% from the profit of the project to Y. The Court held that: The advance given by Y to X creates a lender-borrower relationship. Y is not a partner to X though he received the payment from the profit of the business. Section HoM(ii) Remuneration to a servant or an agent of the business from the profit of their employer's business. Any form of payment to a servant or an agent which comes from the employer's business profit constitute salary or wages. Therefore, a servant or an agent is not a partner in the employer's business and has no partnership liability. In Abdul Gaffoor v. Mohamed Kassim & Ors [1931-32] FMSLR 19, the plaintiff || was a despatch clerk in the defendant's firm. He was then appointed as a manager in one of the firm’s branch office. One of the firm’s documents stated that the profit from the firm would be divided into 79.4 parts and would be shared between the plaintiff, the defendant and others partners. The plaintiff contended that he was a partner but the defendant argued that the relationship was a mere employer-employee relationship. The Court held that The receipt of salary from the profit did not make the plaintiff a partner of the firm Section 4(cMiii) Payment of an annuity or a portion of the profits to a widow or child of a deceased partner in the business. Some partnership agreements provide a term ‘on payment of annuity to the dependants of a deceased partner. The annuity comes from the profit of the partnership. In this-situation, although the widow or the child receive payment from the profit of the partnership, it did not make them partners in the business.164 DP TOPIC 10 LAW OF PARTNERSHIP (PART 1) In Commissioners of Inland Revenue v. Lebus’s Trustees [1964] 1 All ER 475, A, a partner in a firm bequeathed that his right to profit would be given to his wife upon his death. However, the partner did not perform the bequest and thereafter, the Inland Revenue imposed certain tax for the amount which the widow was supposed to receive. The Court held that. A’s widow is not a partner of the firm. Therefore, her portion of money must not be taxable. Section 4(c}(iv) Payment of interest which varies with the profits on a loan advanced for use in the business under a written contract. A person who gives advance payment by way of a loan and receives a payment of interest which varies according to the profit of the business is not a partner in the business. In the case of Re Young Ex p Jones (189%) 75 LT 278, Y and J entered into an agreement whereby J advanced £500 to Y and in consideration, J would receive £1 a week out of the profit gained from Y's business. J also helped in the management of the business and was given certain power to manage. The Court held that. The receipt of the payment from the profit in Y’s business does not make J a partner although J was authorised to deal with the business. Section cv) Payment to a seller of the goodwill of a business in the form of a share of the profits of the business. For example, A, a solicitor agreed to sell his firm to B and agreed to introduce his clients to B. In consideration, B agreed to give A 10% out of the profit of the business for the period of three years. In this case, although A receives payment out of the profit of the business, it does not make him a partner to B in the business.TOPIC 10 LAW OF PARTNERSHIP (PART!) 4165 In Rawlinson v. Clarke (1860) 15 M&M 292, a doctor sold his business and introduced his clients to the buyer. In consideration, he received certain payment and shares from the profit made in the first year of the business. The Court held that. He was not a partner to the buyer. 10.2 FORMATION OF PARTNERSHIP In formation of a partnership, the elements of a valid contract including consideration, competency, free consent, lawful purpose, must be present. Also the relations between partners concerning rights and duties will usually be contained in an agreement or defined by the Partnership Act 1961. 10.2.1 Partnership under the Law Distinct from a company, a partnership firm has no separate legal entity from its founder under the law. A partnership is the relationship between individuals who intend to do a business in common together. It is not a legal persona but a label used by a number of individuals trading under that particular name. Section 6 of the Partnership Act 1961 allows persons to form a partnership to be called a firm under the name in which the business is carried on. The name under which a firm carries on business is the name applicable to the persons who are partners of the firm. Thus, when an action is brought against the firm’s name, it is in fact an action against all the partners. For example, Husain, Akbar and Chua are partners, carrying on business under the name of HAS Enterprise. Hence, if any person brings an action against HAS Enterprise, it is an action against Husain, Akbar and Chua. 10.2.2 Lawful Purpose A partnership must be formed for a lawful purpose. A partnership is said to be illegal when it is formed with the intention to carry out business activities against the law. Under Section 47(2) of the Partnership Act 1961, a partnership is also considered as illegal if the number of partners exceeds twenty persons.166 P TOPIC10 LAW OF PARTNERSHIP (PART !) 10.2.3 Capacity The partners must have the capacity to enter into contract. A partner is competent to contract if he is an adult, of sound mind and has not lost capacity to enter into contracts under any laws. In partnership, a minor can become a partner. However, a minor partner is not liable for all the firm’s debt and contractual liabilities. When a minor partner reaches his age of majority, he can exonerate himself from liability by withdrawing himself from the firm. But if he remains in the firm, he will be liable other partners. In William Jacks & Co. (Malaya) Ltd v. Chan & Yong Trading Co (1964) MLJ 105, Jacks claimed a sum of RM12,734.91 being the payment of the goods sold to the defendant who were partners in a firm. Yong who was a minor partner at the time of the purchase of the goods did not defend his case but Chan denied that the goods were for Yong’s personal use. Therefore, other partners were not liable for the claim. The Court held that. Even though the goods were bought for Yong’s personal use, it did not mean that the firm and other partners were not liable and since Yong did not take any action to terminate his partnership upon attaining majority age, he was also liable as a partner. 10.2.4 Partnership Agreement Partners agreement may be in the form of oral or written agreement. The partners may have partnership agreements in writing, usually known as Articles of Partnership which provides for particulars of the firm and the terms of the partnership. In absence of a partnership agreement, the provisions of the Partnership Act 1961 will be applicable to the partners. For mutual rights and duties of partners, they may be varied by the partner's consent as provided under Section 21 of the Partnership Act 1961. 10.2.5 Registration of Partnership A partnership must be registered under the Registration of Businesses Act 1956 (in Peninsular Malaysia); Sarawak Cap.64 (Business Names) and Cap.33 (Business, Professions and Trade Licensing)(in Sarawak); Trades Licensing Ordinance, No. 16, 1948 (in Sabah). Particulars as to the date of operation of business, name of business, name of partners, registered address of business, type and nature of the business, shall be submitted to the Registrar of BusinessTOPIC 10 LAW OF PARTNERSHIP (PART!) 167 for registration. Any changes to the above particulars is to be reported to the Registry Department. In the event of a dissolution of partnership or death or retirement of a partner, a report on the same shall be made to avoid liability to third party after the occurrence of any of the above. (a) Whats the meaning of partnership? (b) How to determine the existence of partnership in absence of a partnership agreement? (©) Does joint tenancy and tenancy in common create a partnership between the tenants? (d) Does sharing of gross returns in a business between two persons establish a partnership? ()_ Sharing of business profit by a person is prima facie evidence of partnership. Is the presumption rebuttable? (® Is partnership a legal persona? (g) What is the effect of a partnership formed for unlawful purposes? (h) Cana minor become partner in a partnership business? (i) Whatis the importance of a partnership agreement? () Must a partnership be registered? Why?168 > TOPIC 10 LAW OF PARTNERSHIP (PART 1) Discuss the following questions: (a) If the partnership business plans to engage Niza to manage the business and one of the terms is that Niza will receive remuneration from the profit of the business. Is Niza a partner? Discuss. S lends a sum of RM5,000 to firm Y and receives repayment by 12 monthly instalments of RM500 per repayment from the profits of the firm. Does that make S a partner of firm Y? Discuss. T and H has entered into an agreement whereby H would lend a sum of RM1,000 to T and as a consideration, H would receive RM650 a week from the profit of T's business. H would also assist in the administration of the firm and was given certain authority to manage the business of the firm. Is H a partner of T? Discuss. R and F are partners of a restaurant business. They intend to expand their business and make a loan from G. G will receive 20% from the net profit of the business. Is G a partner of R and F? Discuss.TOPIC 10 LAW OF PARTNERSHIP (PART!) 4169 10.3, RELATIONSHIP OF PARTNERS AND OUTSIDERS (THIRD PARTIES) The agency principle is significant in the relationship of partners to outsiders because a partner is an agent for the firm. When a partner carries out activities within the ordinary course of the partnership’s business, his act will bind the other partners, so long as he has the authority to act and does not act beyond the authority given. 10.3.1 Partner's Authority to Bind the Firm A partner has an authority to bind the firm if he carries out the partnership business within his scope of authority. Section 7 of the Partnership Act 1961 provides that every partner is an agent for the firm and other partners for the purpose of the business of partnership. This means any act done by a partner in the course of the partneship business binds the firm and other partners; unless the partner has no authority or unauthorised to act for the firm; and the third party knows that the partner has no authority or does not know or believe him to bea partner. Therefore, for a partner to bind the firm and other partners, his act must have been carried out within his scope of authority and in the usual way of the partnership business. Consequently, outsiders or third parties dealing with the partner may assume that the partner has the authority to do such acts usually done by partners in that particular kind of business. This is an implied authority of a partner as an agent for the firm, as illustrated in the following cases: In Mercantile, Credit Ltd. v. Garrod [1962] 3 All ER 1103, P and G were partners in a garage business. One of the terms of their partnership agreement prohibited the partners from buying and selling cars. Without the knowledge of G, P sold a car to Mercantile Credit for a sum of £700 and the money was deposited into the firm’s account. When Mercantile Credit initiated a suit to claim the money back, the Court held that G was liable to the plaintiff. Even though P was prohibited by the partnership agreement to engage in buying and selling cars, the act of P was usually done by those who engaged in a garage business.170 > TOPIC 10 LAW OF PARTNERSHIP (PART I) In another case, Chan King Yue v. Lee & Wong [1962] 28 ML] 379, the plaintiff lent RM35,000 to her husband who was a partner in a firm. The husband issued a receipt under the firm’s name and used the money to pay the firm’s debt. The plaintiff took an action to recover her money but other partners refused to pay on the grounds that the plaintiffs husband had no authority to borrow money. The Court held that. The act of borrowing money by the plaintiff's husband was important for the firm’s continuous business. Therefore, the firm was liable. Section 7 also provides that the partner who has no authority or unauthorised to act for the firm will not bind the firm if the third party knows that the partner has no authority or does not know or believe him to be a partner. For example, A has been informed about B's limited authority and B was unauthorised to order goods exceeding RM15,000. A made a contract with B for the supply of electrical goods worth of RM17,000 to the firm. The firm was not bound by the contract. According to Section 8 of the Partnership Act 1961, 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 authorised, whether a partner or not, is binding on the firm and all the partners. In the case of Hock Hin Chan v. Ng Kee Woo [1966] 1 MLJ 223, H gave a loan to one of the partners in a firm. As a security, a bill of sale has been issued bearing the signature and seal “by Ng Teng Tuan, a partner to Wan Lee Chan, for and on behalf of Wan Lee Chan...”. The issue arose was whether the bill of sale issued by the firm was valid and binding on the firm The Court held that. A partner in a firm had an implied authority to issue a bill of sale on behalf of other partners. Therefore, the bill of sale was valid and binding on the firm. According to Section 9 of the Partnership Act 1961, 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 authorised by the other partners. However, this section does not affect any personal liability incurred by an individual partner.TOPIC 10 LAW OF PARTNERSHIP (PART!) 4 171 This means, a partner cannot misuse the trust given to him by the firm to make debt which is not connected with the firm's business. The partner who misuse the trust shall be personally liable unless he has been given the express authority to do as such. For instance, A and B are partners carrying on business of printing and selling ‘batik’. A, without the knowledge of B bought a dishwasher under the firm’s name. The supplier has requested payment from the firm. In this case, B may deny liability under Section 9 and A would be personally liable. In other words, A cannot bind the firm because his act was not carried out within the usual course of the partnership business. Another example where a firm will not be liable is where a partner issues the firm's cheque for the purpose of settling personal debt. 10.3.2 Liability of Partners As far as liability of partners is concerned, under the Partnership Act 1961, there are several types of liabilities (Refer to Figure 10.2) namely contractual liability, tortious liability, liability for improper use of trust property and for holding out, criminal liability and liability of incoming and retiring partners. contractual tortious PARTNERSHIP LIABILITIES . for improper use of trust property and for holding out incoming and retiring partners Figure 10.2: Types of partnership liabilities (a) Contractual Liability According to Section 11 of the Partnership Act 1961, “every partner in a firm is liable jointly with the other partners for all debts and obligations of172 TOPIC10 LAW OF PARTNERSHIP (PART |) (b) the firm incurred while he is a partner; and after his death his estate is also severally liable in a due course of administration for such debts and obligations, so far as they remain unsatisfied but subject to the prior payment of his separate debts.” Section 11 provides joint liability of partners in matters concerning contracts entered into by the firm with third parties. The joint liability under this section means that every partner is liable for all debts and obligations of the firm. If A, B and C who are partners in a printing business bought a printing machine worth of RM15,000 by credit, A, Band C shall be jointly liable for the payment of the sum In the case of Osman b. Haji Mohamed Usop v. Chang Kang Swi (1924) 4 FMSLR 292, a partnership has been formed by six partners including the appellant. Three of the partners borrowed RM10,000 from a third party by effecting a promissory note. The loan was guaranteed by the respondent (Chan Kang Swi). Later, the firm failed to pay the debt and Chan was called to pay for the debt on his own account. He then initiated action against the six partners for recovery of his money and five partners accepted their liability, except the appellant. The Court decided that: The debt was a firm’s debt and was obtained for the purpose of partnership. The partners who signed the promissory note had acted for the firm and they were authorised to do so. Therefore, the firm or the six partners were liable. Section 11-also provides the liability of a deceased partner. Under the provision, the deceased partner is jointly liable for the firm’s debt incurred during his term as a partner of the firm. This means if a creditor sues the firm for the firm’s debt but fails to recover full satisfaction of his claim, he can recover from the administrator of the estates of the deceased partner. However, payment to the creditor is subject to the settlement of the deceased partner’s personal debt, if any. Tortious Liability Section 12 of the Partnership Act 1961 provides for liability of firm for wrongs or tortious liability of partners: "Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm or with the authority of his co- partners, loss or injury is caused to any person not being a partner in the© TOPIC 10 LAW OF PARTNERSHIP (PART!) 173 firm, or any penalty is incurred, the firm is liable therefore to the same extent as the partner so acting or omitting to act.” Tort is a civil wrong. The examples of tortious acts are nuisance, defamation, trespass and negligence. In partnership, tort may occur in the following situation. For instance A, B and C are partners carrying out business of repairing electrical equipment. C repaired a washing machine for a customer but due to his negligence, the customer was electrocuted when using the washing machine. In this case, C was negligent in performing his work and therefore, the firm and other partners were liable to the customer. In Hamlyn v. Houston & Co [1903] 2 KB 82, H and S were partners in a firm. H bribed a clerk of another firm to get secret information on contracts and tenders of the said firm. The Court held that. H, as the partner, had done illegitimately that which was part of his business to do legitimately. Hence, the firm was liable for his act. In the above case, the firm was liable because the bribe was part of the firm’s money and such information was for the purpose of the partnership business and would have been legitimate if obtained by proper means. Liability for improper use of trust property Liability for improper employment of trust property for partnership purposes is provided under Section 15 of the Partnership Act 1961. It provides that: “If a partner, being a trustee, improperly employs trust property in the business or on the account of the partnership, no other partner is liable for the trust property to the persons beneficially interested therein: Provided as follows: (this section shall not affect any liability incurred by any partner by reason of his having notice of a breach of trust; and (ii) nothing in this section shall prevent trust money from being followed and recovered from the firm, if still in its possession or under its control.” For example, A, B and C are partners of a firm. A who has been appointed as a trustee, improperly uses the trust property in the business. Other partners, B and C are not liable for the trust property. However, if B and C174 Db TOPIC 10 LAW OF PARTNERSHIP (PART |) (d) have notice of a breach of trust, they cannot avoid liability and the trust money may be recovered from the firm if it is still in possession and under the control of the firm. In Ex parte Heaton (1819) Buck 386, a father and sons were partners in a firm. The sons used the trust property for the purpose of the firm’s business. When the firm became bankrupt, the Court held that the money which had been misappropriated could not be recovered from the partnership property because the father had no knowledge of the breach of trust committed by his sons. Liability for holding out A person who is not a partner of a firm may become liable for the firms debt if he represents himself or allow himself to be represented as a partner in the firm. He will therefore be liable like a partner to the persons who give credit to the firm. Section 16 of the Partnership Act 1961 provides: “Every one who by words spoken or written or by conduct represents himself, or who knowingly suffers himself, to be represented, as a partner in a particular firm is liable as a partner to any one who has on the faith of any such representation given credit to the firm, whether the representation has or has not been made or communicated to the person so giving credit by or with the knowledge of the apparent partner making the representation or suffering it to be made: Provided. that where, after a partner's death, the partnership business is continued in the old firm-name, the continued use of that name or of the deceased partner's name as part thereof shall not of itself make his executor's or administrator's estate or effects liable for any partnership debts contracted after his death.” The liability is based on the principle of estoppel. When a person makes a representation that induces third party to believe and rely on such representation that he is a partner, the person is estopped from denying or contradicting the statement. For instance, A and B are partners of a saloon business. A is entrusted to look after the account of the firm while B is in charge of the administration of the firm. During the course of the business, they employ C as the customer relations officer. One day, D, a salesman, came to the saloon, and introduced a slimming product. C, who was at the saloon introduced(e) TOPIC 10 LAW OF PARTNERSHIP (PART!) 4175 himself as a partner and expressed his interest in the product. Relying on C’s representation, D agreed to sell the product on credit to C. In such situation, C was a partner by holding out and is liable for the payment of the product supplied to the firm. Whether A and B are jointly liable with C depends on their knowledge of the transaction. If the firm or the partners knew about C’s contract on behalf of the firm and did not deny it in due course, then the firm or partners would be jointly liable for the payment of the product to D. But if they have no knowledge about the contract, then C would be personally liable as a partner for holding out. In the case of Re Buchanan & Co. (1876) 4 QSCR 202, if the holding out or representation is made without the knowledge or consent from the real partner, only the person holding out as a partner shall be liable to the third party acting in reliance of the representation. Section 16 of the Partnership Act 1961 further states that, “where, after a partner's death, the partnership business is continued in the old firm-name, the continued use of that name or of the deceased partner's name as part thereof shall not of itself make his executor's or administrator's estate or effects liable for any partnership debts contracted after his death.” This means the use of the deceased name for the partnership business does not constitute holding out. Liability for criminal offences Any partner who commits criminal offences shall be personally liable. Other partners shall not be liable unless there is evidence to prove their participation in the commission of the crime. In the case of Chung Shin Kian & Anor v. Pendakwaraya [1980] 2 MLJ 246, two partners in a firm had used a trade name (“Texwood”) belonged to another company on their products. There was no evidence to prove that the second appellant was involved in the crime, except as to become a partner in the business. Thus, the appeal of the second appellant was allowed.176 D> TOPIC 10 LAW OF PARTNERSHIP (PART 1) (f) Liability of incoming and outgoing (retiring) partners A person who is admitted as a partner into a firm is not liable for liabilities incurred before he became a partner. According to Section 19(1) of the Partnership Act 1961, “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.” For a person retiring from the firm, he is not free from liabilities before his retirement. He remains liable for the partnership debts incurred before his retirement, as provided under Section 19(2) of the Act, “a partner who retires from a firm does not thereby cease to be liable for partnership debts or obligations incurred before retirement.” A retiring partner may only be discharged from liabilities by a novation agreement between himself, the new firm and the creditors. In the case of Duke v. Brewer (1848) 2 Car. & Ker. 828, it was held that for a new incoming partner, if the liability was for a continuous contract (which wa: ade before he became a partner and continue to exist after he became a partner), then he shall be liable for the same. (a) How cana partner bind the firm for his act? (b) | Whatis the liability of a partner in contracts? (©) Are partners jointly liable in tortious liability? (a) Whats the liability of a partner in the case of improper use of trust property in a firm? (e) What is the effect of holding out by a person who is not a partner? (f) What are the liabilities of incoming and outgoing partners? (g) Willa partner be liable for the criminal offence committed by other partners?TOPIC 10 LAW OF PARTNERSHIP (PART!) 177 k= Discuss the following problems: (a) Chandra and Dewi are partners in a garage business. Chandra provided the capital and only visits the garage twice a month whereas Dewi works full time for the firm. The terms of the partnership agreement provide that no partner shall incur any debt exceeding RM10,000 without the consent of the other partner; partners must purchase oil only from RushOil Company; and partners must not involve in trading of second- hand goods. In the course of running the firm, Dewi has bought oil amounting to RM15,000 from RiverinOil Company and has also bought a second-hand car on his own account but in the name of the firm. Advise Chandra on his liability as a partner. (b) Malik and Noor were partners in a firm, operating a Cyber Café business. Malik made a friendly loan amounting to RM8,000 from Aiman as a capital for the business. The said loan was guaranteed by Azmin. The firm failed to pay the loan and Azmin had to pay instead. Then, Azmin took a civil action against both partners, Malik and Noor to recover his money back. However, Noor did not admit the said liability and decided to walk away from the partnership. After Noor withdrew from the partnership, Malik invited Jefri as a new partner to replace Noor. In helping to settle the debt, Jefri intended to get a bank loan for the firm. In dealing with the bank, he brought along his brother, Mr Zuki, a well-known businessman and introduced his brother as one of the partners in the firm. Believing the representation made by Jefri, the bank agreed to approve the loan amounting to RMS50,000. However, the firm failed to pay the loan. Discuss the liabilities of all parties involved by referring to the Partnership Act 1961 and the relevant case-laws. * Formation of partnership entails certain obligations and liabilities for the partners. * A partnership is the relation which subsists between persons carrying on a business in common with a view of profit.178 _D TOPIC 10 LAW OF PARTNERSHIP (PART I) * Joint tenancy, tenancy in common, joint property, or part ownership does not of itself form a partnership. + The sharing of gross returns from a business does not of itself establish a partnership. * Payment of a debt out of profits of the business to a creditor by instalments does not make the creditor a partner in the business. * Remuneration to a servant or an agent of the business from the profit of their employer's business does not make the servant or the agent a partner. * Payment of an annuity to a widow or child of a deceased partner does not make the widow or the child a partner in the business. * Payment to a seller of the goodwill of a business in the form of a share of the profits of the business does not make the seller a partner. * A partnership is not a legal persona but a label used by a number of individuals trading under that particular name. * A partnership must be formed for a lawful purpose. * A partner is competent to contract if he is an adult, of sound mind and has not lost capacity to enter into contracts under any laws. * Partnership agreement may be in the form of oral or written agreement * A partner has an authority to bind the firm if he carries out the partnership business within his scope of authority. * Every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner. * A person who is not a partner of a firm may become liable for the firms debt if he represents himself or allow himself to be represented as a partner in the firm. * Any partner who commits criminal offences shall be personally liable. * A person who is admitted as a partner into a firm is not liable for liabilities incurred before he became a partner.TOPIC 10 LAW OF PARTNERSHIP (PARTI) 4179 Mas serine Partnership Contractual liability Business in common Tortious liability Profit Misappropriation Articles of partnership Criminal liability Registration Incoming and outgoing partner MAB REFERENCES | Text Books: Harlina Mohamed On & Rozanah Ab. Rahman. (2007). Undang-Undang Temiagaan Malaysia. Selangor: Kumpulan Usahawan Muslim Sdn. Bhd. Wu M.A. & Vohrah, B. (2000). The Commercial Law of Malaysia (2nd ed.) Selangor: Pearson and Longman. Cases: Abdul Gaffoor v. Mohamed Kassim & Ors [1931-32] FMSLR 19 Badeley v. Consolidated Bank (1888) 38 ChD 238. Chan King Yue v. Lee & Wong [1962] 28 ML] 379. Chung Shin Kian & Anor v. Pendakwaraya [1980] 2 ML 246 Commissioners of Inland Revenue v. Lebus’s Trustees [1964] 1 All ER 475. Cox v. Coulson (1916) 114 LT 599. Davis v. Davis (1894) 70 LT 265. Duke v. Brewer (1848) 2 Car. & Ker. 828. Ex parte Heaton (1819) Buck 386. Hamlyn v. Houston & Co [1903] 2 KB 82. Hock Hin Chan v. Ng Kee Woo [1966] 1 ML] 223 Mercantile Credit Ltd. v. Garrod [1962] 3 All ER 1103. Osman b. Haji Mohamed Usop v. Chang Kang Swi (1924) 4 FMSLR 292 Rawlinson v. Clarke (1860) 15 M&M 292180 _P TOPIC 10 LAW OF PARTNERSHIP (PART 1) Re Buchanan & Co. (1876) 4 QSCR 202, Re Young Ex p Jones (1896) 75 LT 278. © William Jacks & Co. (Malaya) Ltd v. Chan & Yong Trading Co (1964) MLJ 105.