Partnership - Introduction

Chap 1 - DEFINITION AND NATURE OF PARTNERSHIP


LAW APPLICABLE
The main legislation governing partnership law is the Partnership Act 1961(revised 1974) which is based and similar to the English Partnership Act 1890.  
Sec 47(1) provides that “the rules of equity and of common law applicable in partnership shall continue in force except so far as they are inconsistent with the express provisions of the Act”.

Partnership too is governed by Contract Law as it is essentially a contractual relationship
TAN ENG CHOONG V. FOO KAI YUEN  [1988] 1 MLJ  531
“The mutual rights and duties of the partners may be set out in a partnership agreement or deed and if not are as provided in part IV of the Partnership Act 1961 ……. The scheme of the partnership Act in general and the terms of part IV thereof in particular make it clear that the provisions of the Contracts Act 1950 have application in a partnership agreement …”

DEFINITION:
Sec 3 (1) of the PA - “the relation which subsists between persons carrying on a business in common with a view of profit”.
Partnership therefore is a relationship - not an organization with its own separate legal personality. Partnership can arise by association of events as well as contractual agreement between the parties To determine its existence - look at the rules and the intention of the parties .

ESSENTIALS OF PARTNERSHIP:

1. Business
-partnership are business media - cannot be formed for benevolent  or artistic purpose.
l  Excludes societies, clubs, associations not an organization in its own right with a separate legal personality. A partnership is only a ‘relation’.
WONG PEN YUEN v SENANYAKE (1962) MLJ 28
The defendant and G were partners of a firm of stock and share brokers. On March 26, 1959 they executed a partnership deed by which G transferred $14,000 worth of shares from the capital of the firm to each of his two infants children. On April 3, 1959 the partners executed a partnership agreement where T became a partner of the firm. On April 30, 1959 the plaintiff paid to the defendant the sum of $20,000 in consideration that he be made one of the partners of the firm. The firm incurred losses and a notice was given for dissolution of the firm. The plaintiff in order to avoid
Held – T’s consent was given subsequent to April 30,1959 and further consent of the two infant children were not necessary

l  Co - ownership of property does not of itself create a partnership.
 DAVIS V. DAVIS  [1894] 1 Ch 393
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 account were kept. The rent of the third house was divided between them.
Held – that there was a partnership as to business but not as to the freehold houses.

l  In considering the question of partnership the court must have regard to the intention of the parties

      CHOOI SIEW CHEONG v LUCKY HEIGHT DEVPT [1995] 1 MLJ 513
FC Held – no partnership resulted from a joint venture agreement between a landowner and a housing developer because each party to the agreement intended a wholly separate business, there was no business in common with a view of profit.

2. Carried on common
- partnership requires the involvement of two or more persons in the business.
l  Agreement to purchase, keep and sell cattle is a partnership.

GULAZAM v NOORZAMAN AND SOBATH [1957] 23 MLJ 45
The plaintiff , who was an ex-police constable and a watchman on a rubber estate, claimed that both defendants who were cattle dealers met  him and made arrangements to form a partnership among the three of them to purchase , keep and sell cattle. The conditions were that the plaintiff was to provide RM 200 as capital to purchase, and defendants to look after it and sell it and the profits to be divided among them in equal shares. The plaintiff  provided the capital. He received some shares of the profit. There was no account rendered. The plaintiff brought the action for an account to be taken and payment of any sum of money due on him. The defence of both defendants was a denial of the existence of partnership.
Held – There was a partnership.

l  Agreement to form a ‘syndicate’ to sell condensed milk is a partnership in essence.

RATNA AMAL v TAN CHOW SOO [1964] MLJ 399
The parties entered into a formal agreement to form a so-called “syndicate” to sell condensed milk. In an action to determine whether the property rights in a trade mark vested in the syndicate or one of its individual members, the issue arose as to whether or not the relationship created by the agreement was a partnership or some other form of business association.
The Federal Court held – that since the parties had not expressly negatived the creation of a partnership, the relationship between the parties was a partnership within the meaning of s. 3(1) of what is now the Partnership Act.

3.  With a view of profit
- there must be a profit motive though sharing of gross returns on itself it not enough to constitute a partnership –
l  rent of theater for play
COX v COULSON [1916] 2 KB 177
Mr. Coulson was a theatre manager who agreed with Mr. Mill to provide his theatre for one Mill’s productions. Mr Coulson was to pay for the lighting and the posters etc., Mr Mill to provide the company and scenery. Under the agreement Mr. Coulson was to receive 60% of the gross takings and Mr. Mill the other 40%. The play must have been heady stuff since the plaintiff in this case was shot by one of the actors during a performance. She sought to make Mr. Coulson liable on the basis that he and Mr. Mill were partners and so responsible for the outrage.
Held – S. 2(2) of The English Partnership Act 1890 ( in pari materia with s. 4(b) of PA 1961) made it quite clear the sharing of gross returns did not create such a partnership.

Joint venture not constitute partnership
UNITED DOMINION CORPORATION LTD v BRIAN PTY LTD [1985] 60 ALR 741
Where the court distinguished a partnership from a joint venture which did not amount to partnership.

Royalty received is not a partnership
Lyon v. Knowles – royalty received by author of a publication according to a specific percentage of the value of the gross sale of his book

NEEDS TO ESTABLISH THE EXISTENCE OF A PARTNERSHIP:
1. On the question of liability as partners.
2. In enforcing certain duties and obligations.

3. Tax consideration.
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