Topic 2 Partnership PDF

By: Miss Hazwani binti Salleh  PARTNERSHIP  The relevant statue applicable- Partnership Act 1961  Definition  Section 3(1) Partnership Act 1961 Partnership is the relation which subsist between persons carrying on business in common with a view of p...

By: Miss Hazwani binti Salleh  PARTNERSHIP  The relevant statue applicable- Partnership Act 1961  Definition  Section 3(1) Partnership Act 1961 Partnership is the relation which subsist between persons carrying on business in common with a view of profit. Partnership must be registered under the Registration Business Act 1956. However, Failure to register does not mean the partners cannot enforce their rights for each other.  Gulazam v Noorzaman and Sobath 23 MLJ 45 Facts: An agreement between the Plaintiff and Defendants where the Plaintiff would provide capital for the purchase of cattle and the defendants would look after the cattle and then sell them in order to gain profits to be distribute equally amongst them. When the defendants failed to pay the plaintiff an action was brought against them. Continue…. The Defendant argued that the business had never been registered under any Acts, hence making it not a partnership at all. Held: The plaintiff could claim because the relationship between the individuals had the business character of a partnership within the scope.  ELEMENTS OF PARTNERSHIP Present More than one Agreement transaction of person between partners business activities Each partner is Purpose to profit an agent  1. More than one person  Must have more than one person. Partnership means…….two or more can become a partner in a partnership…..if one person it will be sole proprietorship…..  Section 47(2) of PA 1961 (Revised 1974), the maximum number of partners allowed in a partnership is twenty (20). But, Section 14(3)(a) Companies Act 1965, a professional partnership can have unlimited numbers of partners. i.e: lawyers- legal firms- LPA Continue…..  Tan Teck Hee v Chong Tian Peng Held: The action against Defendant fail because the numbers of partners in the firm concerned was 25. Since the firm was void, any legal action taken could not be allowed.  Shim Fatt v Leyland Road Bus Co. The Plaintiff gave advance on money to the defendant, a firm consisted of more than 20 partners. The Court held: Plaintiff could not recover the money because a legal action could not be brought against a void firm, 2. Agreement between the partners  “relationship” : an agreement or a contract between the parties or a contract between the parties to the partnership either expressly or impliedly.  Although the word partnership does not appear in a agreement, a partnership may still exist if the relationship between the individuals has the business character of a partnership.  Ratnal Ammal@anor v Tan Chow Soo 30 MLJ 399 Facts: The parties enter the 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. Held: The relation of the parties had the business character of a partnership and although the word partnership was missing in the agreement, it was still a partnership.  3. Present transaction of business activities  The parties must be carrying a partnership business at the “present”.  Business refers to any trade, occupation or profession. (s. 2)  Hence, there will be no partnership if the parties are preparing a business for the future.  4. Each partner is an agent to one another  Partners in a partnership is an agent to one another.  It means that the act of one partner are also reflects of the act of the other partners, provided the act is in the course of the business of the partnership. Continue….  Section 7 Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership…. Acts of the other partners binds the other partner and the firms….  UNLESS; The partner acting without authority…. and the person with whom he is dealing either knows that he has no authority or does not know or believe him to be a partner….  5. For the Purpose to Profit  It is essential for the business to be carried on in a common with a view of profits.  Profits mean net profit.  Charitable or religious organization, clubs, societies & co-operative are NOT PARTNERSHIP.  Impliedly that the profit to be shared equally Mollwo, March & Co. v The Court of Wards  Held: To constitute a partnership, the parties must have agreed to carry on business or to share profits in some way in common.   CARRIED ON COMMON ?  Must carried on or by or on behalf of all partner.  Must be one person or more carry on the business for himself and on behalf of the others.  However, it NOT NECESSARY- all partners must play an active part in business (sleeping partner). Circumstances – NOT partnership  S. 4 (a), (b) & (c) of PA 1961  Examples: Joint tenancy, tenancy in common, joint property Sharing of gross return The receipt by a person of a share of the profits of business s. 4(a) Joint tenancy, tenancy in common, joint property Joint tenancy, tenancy in common, joint property  does not create a partnership whether the tenants or owners do or do not have share any profit made by the use thereof.  Case: Davis v Davis- father left his two sons his business and three freehold houses in equal shares as tenant in common. the court held that the business is consider as partnership but not the freehold house because they just a tenancy in common or joint tenancy S. 4(b) sharing of Gross return  Sharing of gross return is not create partnership whether persons sharing such returns or any interest in any property of which the return are devided  Case: Cox v Coulson: Mr Coulson, Defendant is a manager of a theatre who deal with Mr Mill to provide the theatre scenery and lighting for the show from theatrical company. He will receive 60% of the gross takings whilst Mr Mill who in charged with the theatre lightening receive remaining 40%. Mr Cox, plaintiff, an actor of theatre was injured during the show and want to make Mr Coulson liable as a partner together with Mr Mill. Court held since Mr Coulson received gross return, it did not constitute as partnership. s. 4(c) The receipt by person of a share of the profits of business  The receipt of a payment from the business received by a person is not consider the person as a partners in the business in particulars:  i) The receipt by a person of a debt, by instalments out of business profit does not make himself a partner in business / liable  ii) a contract for remuneration of a servant/agent of person engaged in business not make him a partner  iii) person being the widow/child of deceased partner receiving annuity portion of the profits made in the business in which the deceased person was a partner also not make her a partner  iv) the advance of money, by way of loan to a person engaged or about to engaged in the business on a contract with that person that the lender shall receive a rate of interest varying with the profits not make him a partner.  Types of Partners  General partners He is a partner in the fullest sense Active partners A partner who is actively participates in the management of the business and is known to the world as the partner  Dormant/sleeping partner No active part in the management but still liable as partner.   Quasi- Partner  Not a partner but liable for debts of the partnership as a consequences of holding out (causing other people to believe that he is a partner).  S. 16- person who has retired from a partnership must ENSURE that no other representation made by words or conduct of himself or any other partner to the effect that he is still a partner of the firm.   Salaried partner  A partner who receives a fixed remuneration irrespective of profits or who received a fixed salary every months plus a small percentage of the profits.  Formation of Partnership  Formality Can be formed with or without written agreement Capacity Any one of sound mind can be a partner. A minor partner cannot be held liable and responsible for any contracts made CASE: WILLIAM JACKS & CO(MALAYA) LTD V. CHAN & YONG TRADING CO. Continue….  Documents Partnership Agreement Or Articles of partnership which provides for all rights and duties of a partner Duration Depends on the intention of the partners whether to fix the duration of the partnership or otherwise   S. 28 (1) :  no condition as partnership duration: may dissolve by giving notice.  Section 29(1):  if the duration of partnership has expired but all partners wishes to proceed with the partnership without having to make a new agreement, the rights and duties of the partners are still the same.  Relationship between partners & Outsiders/third party 1. Liability of partners for debts and obligations 2. Liability of partners under contractual liability 3. Liability of partners based on ordinary torts 4. Liability of partners in a criminal Liability 5. Liability of partners in Misapplication 6. Liability of person for holding out 7. Duration of liability 8. Liability of incoming/new partners and outgoing/retires partners 30 14/11/2024  Liability of partners for debts and obligations Firm must fulfill four conditions and the other partner are liable if: 1) The act of partner must be within his actual or apparent authority S. 7: provides “Every partner is an agent of the firm and his other partners…” Based on the agency principle, if the agent acted within his authority, the principal is bound by agent’s act.  Exception: S. 10 : The firm will not be bound if the partner had no authority to act for the firm in the particular matter and the third party either knows that he has no authority or does not know or believe him to be a partner.  Case: Rosembaun v Belson- held that instruction from an owner of a house to an agent to sell his property was an authority to the agent to make a binding contract which included an implied authority to sign an agreement of sale 31 31  2) The act must be done for the purpose of the partnership business S. 7: provides “Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership…” S. 9- If a partner pledges the credit of the firm for a purpose apparently unconnected with the firm’s ordinary course of business ( e.g. for personal purposes) the firm is not bound. He would be personally liable. Case: Chan King Yue v Lee & Wong- plf’s husband borrow money from her wife as a loan to the firm in which he was a partner. The money is for the purpose to settle the firm debts. Plf take action against the firm to recover the loan. The other partner denied the liability by contending that her husband was not authorized by the firm to borrow money. Court held that the borrowing was an act necessary for the carrying on the business as such bound the co- partner. 32 14/11/2024  3) The act must be done in the firm’s ordinary course of business or in the usual way of business s. 7 provides “…and the act of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners…” Case: Beckham v Drake, the court of justice was held- firm may employ the necessary staff to run the firm’s business so it will consider as the firm ordinary course of business. Therefore other partners also liable under the contract. 33 14/11/2024  4) the act of partner must be done by the partner as a partner of the firm and not in his own capacity s. 7 -states that as a partners are agents of the partnership, any act committed by one partners bind the rest of the partners if it is carried on within the scope of business s.8- An act or instrument relating to the business of the firm and done or executed in the firm-name, or in any other manner showing an intention to bind the firm, by any person thereto authorised, whether a partner or not, is binding on the firm and all partners. Case: Asamaju Enterpsrise v Malayan Banking- court held that in partnership it is not necessary that all partners must endorse any cheque payable to the partnership. Endorsement by one partner bind the rest of the partners 34 14/11/2024  LIABILITY OF PARTNERS UNDER CONTRACTUAL LIABILITY S. 11-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 Where liability of the partners is joint, the plaintiff has only one cause of action against all partners in respect of each debt. CASE: GUINNESS ANCHOR MARKETING SDN BHD V CHELLAM JOE Where liability is joint and several each partner can be sued in turn or all together until the full amount is recovered. 35 35  If the partnership property is insufficient to satisfy the debts, the creditor can levy execution against the private property of the partners. This creates the unlimited liability of a partner. 36  Liability of partners based on Ordinary Torts / wrongs S. 12 provides: Where, by any wrongly act or omission of any partner acting in the 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 firm, or penalty is incurred, the firm is liable therefore to the same extent as the partner so acting or omitting to act. S.12 The firm is liable for the tortious or wrongful acts of any partner acting in the ordinary course of the firm’s business or with the authority of his co-partners – acts causing loss or injury to outsiders 37 37  Although all partners are jointly liable in civil cases, they are not jointly liable in criminal cases. Example: all an accounting firm’s partners would be liable if any of them were negligent in handlings their client’s account Case: Hamlyn v Houston & Co: a partner in Houston&Co bribed clerk in rival firm to disclose confidential info relating to it which causing the rival firm suffered loss. The firm sued Houston&Co for damages. Court held- Houston&Co liable for partner’s wrongful act. 38  Liability of partners in Misapplication  S 13- states the meaning of partners in misapplication : a) when a partner received a money or property from third person then misapplied; b) when a firm received a money/ property from third person but misapplied by one or more of the partners  In order to make the firm liable for misapplication, two conditions need to satisfied under s. 13(a): a) partner who received the money must acted within his authority. b) third party must deal with the partner not under his personal authority. 39 14/11/2024   2 conditions must be fulfill to make the firm liable for the misapplication of money by partners under s 13(b):  A) receipt by the firm must be in the ordinary course of business  B) misapplication must be made while the money was in the firm’s custody Case: British Homes Assurance Corporation Ltd v. Paterson, court held that as a partner, Paterson was not liable because the third party (company) not deal with the partners but dealt under his personal authority. This case did not fulfilled the condition under s 13(a) 40 14/11/2024  Liability of Persons for “holding out” S. 16- Where a person who is not a partner, either expressly or by conduct, represents himself or knowingly allows himself to be represented as a partner in a particular firm, he would be liable as a partner for the debts of the firm. Also known as the doctrine of ‘holding out’. He is liable to those persons who have on the faith of such representation given credit to the firm. They must have believed that the representation was true and had acted upon it.  Case: Tower Cabinet Company Ltd v Ingram- partnership bizz setup by both Christmas and Ingram but later on dissolved/ close but Christmas still carry on business w/o Ingram. One day Christmas fail to made payment to the plf. Plf sued Ingram as partners but failed because Ingram did not know his old partner 41 still run the business. Liability for holding out did not apply to 41  Liability of incoming/new partners and outgoing/retires partners- Duration of Liability S 19(1)- A new partner that had just been admitted/new to a firm cannot be held liable for debts incurred prior to admission but if he agrees to be liable for the partnership’s existing debts, he would be liable.  Case: Rolfe and Bank of Australasia v Flower Salting &Co. the new partners were held liable to the debts of the firm because he did not object on the partnership’s existing debt while entering the partnership 42 14/11/2024   S. 19(2) A partner who retires from a firm remains liable for the partnership debts and obligations incurred before retirement  Case: SubramaniamChettiar v.Kaden Mastan & Co The partners who is not active in the partnership business anymore and given up of all hope of recovering his share is not consider as retires partner and he still liable towards the debt of the partnership 43 14/11/2024  S 38 (1) A retiring partner will remain liable to persons who continue to deal with the firm after his retirement unless he has given notice to them of his retirement. Case: Re Siew Inn Steamship Co- one of the creditors of the fir, who was an old customer, sued a retired partner for the repayment of his money lent to the firm after the retirement. Court held that the retired partner was liable even though he had inserted a notice of his retirement. Held: retired partner was liable even he had inserted notice of his retirement in newspaper to which the old creditor was proved to be a regular subscriber 44 14/11/2024  It is also usual for the partners to state a provision for disputes between partners to be referred to arbitration for solution. The partnership agreement is an internal document which has effect between the partners. It does not necessarily affect the rights of third parties who deal with the partners without knowledge of the articles.  The provisions of the Partnership Act will apply in the absence of specific provisions in the agreement. 45  Section 30 of the PA Section 27 1961 Section 31 of the PA of the PA 1961 1961 Section 26 Relation of Section 32 partners to one of the PA another (without of the PA 1961 agreement) 1961 47 14/11/2024  RIGHTS AND DUTIES OF PARTNERS IN THE ABSENCE OF AN AGREEMENT –  s. 26 PA:  Utmost good faith (uberrimae fidei) is due from every partner towards each other. Their relationship is based on mutual trust and confidence. They owe fiduciary duties to each other. All partners to share equally in the capital and profits of the business and must contribute equally to losses. The firm must indemnify every partner for personal liabilities incurred by him in the ordinary conduct of the business of the firm. Case: Re Albion Assurance Society, Jessel M.R stated; the legal principle is that the share of profit should be divided fairly among partners and it also concluded that the losses also in the same proportion. 48 14/11/2024   No partner is entitled to interest on capital before the ascertainment of profits. Every partner may take part in the management of the business. No partner is entitled to remuneration for acting in the partnership business.  No person may be introduced as a partner without the consent of all existing partners. Differences arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners. 49 14/11/2024   No change may be made in the nature of the partnership business without the consent of all the existing partners. The partnership books must be kept at the place of the partnership business or the principal place, if more than one. Every partner may have access to and inspect and copy any of them. s. 27 : No majority of the partners can expel any partner, unless such a power to do so is conferred by express agreement between the partners – Green v Howell- partners must exercise the power in good faith, serve a notice and cannot simply expel other partners without any justification and good reason. Court held: the notice given by other partner to terminate their partner was a valid notice. 50 14/11/2024   S. 30:  Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representative  Tham Kim Fai v. Ng Kon Seong (2006) 4 CLJ 634, Abdul Malik Ishak J at p. 643 “It triggers the principle of uberrimae fidei where each partner must deal with his fellow partners honestly and disclose any relevant fact when dealing with them. It is sufficient to show that there is a failure to disclose and the breach of the duty as set out in s. 30 of the said Act would be out into motion. There is even no necessity to prove fraud or negligence in order to invoke s. 30 of the said Act". 51 14/11/2024   s. 31(1)  Every partner must account to the firm for any benefit derived from him, without the consent of the other partners, from any transaction concerning the partnership or from any use by him of the partnership property, name, or business connection – 52 14/11/2024   S. 32  Duty of a partner not to compete with the firm. If a partner, without the consent of the other partners, carries on any business of the same nature as and competing with that of the firm, he must account for and pay over to the firm all profits made by him in that business – case: Aas v Benham- Mr Benham is a partner at firm H. Clarkson & Co and want to use the same name for his new business. Court held that he cannot use the name of his partnership business for the new separate business. 53 14/11/2024  PARTNERSHIP PROPERTY  S. 22(1) of PA 1961  It must be used EXCLUSIVELY for the purpose of the firm.  Purchased with partnership money.  It must be stated in the agreement OTHERWISE It is separate property of partner although it may be used for or even important to the partnership business. (see case Ponnukon v Jebaratnam 1 MLJ 283)  PARTNERSHIP PROPERTY Ponnukon v Jebaratnam 1 MLJ 283 Court held : The land was not paid with the funds of the partnership but the fund that raised by the J himself which is independently of P and the partnership as well.  PARTNERSHIP PROPERTY  S. 25 (1) A creditor who obtained judgment against the firm may SEIZE the partnership property in execution of the judgment.  HOWEVER,  S. 25(2) A creditor who obtained judgment against AN INDIVIDUAL PARTNER, CANNOT seize all the partnership property but only on the partner’s interest in the partnership property including profits etc. DISSOLUTIONS OF PARTNERSHIP Without Order of the Court’s Court intervention  1. DISSOLUTION WITHOUT COURT’S INTERVENTION  By agreement Partnerships articles may fix the duration of partnership, and the partnership is terminated on the expiry of the period. The partners may mutually agree to dissolve the partnership at any time. Continue…. By operation of law By expiration If a partnership is entered into a fixed term (section 34(1)(a)) or for a single adventure or undertaking section 34(1)(b), the partnership is dissolved on the expiration of the fixed term or termination of the adventure or undertaking Continue….  Notice Section 34(1)(c) If the partnership is entered into for an undefined time, any partner may determine the partnership at any time by notice to the other partners. Continue…. By death or bankruptcy Section 35(1) Subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the death or bankruptcy of any partner Continue….. By charging on shares Section 35(2) when a partner suffers his share of a partnership property to be charged with payment of his personal debt, the other partner has an option of dissolving the partnership. Continue….. By supervening illegality Section 36 it is unlawful for the business of the partnership to be carried out  DISSOLUTION BY AN ORDER OF THE COURT  By the application of the partner: Insanity of partner Section 37(a) Permanent incapacity of a partner to perform his duties Section 37(b) A conduct calculated to prejudicially affect the carrying on of the business Section 37(c) Willful and persistent breach of the partnership agreement Section 37(d) Carrying on business at a loss Section 37(e) It is just and equitable to do so Section 37(f)