PARTNERS AND EACH OTHER






l  Partners owe each other a duty of good faith - to act honestly and for the benefit of the partnership as a whole.
l  Partners are in fiduciary position towards each other - as if they are all trustees and beneficiaries under a trust.
l  Besides owing a duty to act in good faith - they are also bound by the terms of the partnership agreement in the contractual sense.

FIDUCIARY DUTIES
The PA provides for several fiduciary duties which reflect the main aspects of such liability:
            1. Duty to act honestly and full disclosure
            2. Unauthorized personal profit.
            3. Conflict of duty and interest.

1. Honesty and full disclosure.
l  A partnership agreement is one of uberrimae fidei - each partner must deal with his fellow partners honestly and disclose any relevant facts in dealing with them - Sec 30.
l  Failure to do so - breach of duty.
l  partner bought share at lower value.
LAW v LAW [1905] 1 Ch 140
W and J were partners in a woolen manufacturer’s business in Halifax, Yorkshire. W live in London and took little part in the running of the business. J bought W’s share for £21,000. Later W discovered hat the business was worth considerably more and that various assets unknown to him had not been disclosed.
The Court of Appeal held that in principle this would allow W to set the contract aside.

l  Floyd v. Cheny - partner steal papers and documents.

2. Unauthorized personal profit.
l  Any private gain, no matter how innocent, that a partner makes as a result of being a partner, must be accounted for to the others - Sec 31.
l  Clearest example - a secret profit
BENTLEY v  CRAVEN [1853] 18 Beav. 75
B, C and two others were partners in a sugar refinery at Southampton. C was the firm’s buyer and as such he was able to buy sugar at the discounted price. He then sold it to the firm at market price. The other partners only later discovered that he had been buying and selling sugar to them on his behalf. The firm now successfully claimed his profits from these dealings.
l  Bentley v. Craven - selling sugar to own firm at a high price.

l  use of partnership assets to make a deal.
PATHIRANA v PATHIRANA [1967] 1 AC 233
R and A were partners in a service station. The station belonged to Caltex which had appointed them as agents. R gave three months notice determining the partnership and during that period he obtained a new agreement with Caltex transferring the agency into his name alone. R then continued to trade in the same way at the same premises under his name. A, successfully applied to the Privy Council for a share of profits from that business under the equivalent of s.31 PA 1961. The agency agreement was a partnership asset and R’s unauthorized use of it was a clear breach of fiduciary duty.

3. Conflict of duty and interest.
l  A partner must not put himself in a position where his duty to the firm and his own personal interest will conflict with one another.
l  Sec 32 - 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.

RIGHTS AND DUTIES OF PARTNERS UNDER PA
- Sec 26 provides the rights and duties of partners, in absence of an agreement to the contrary:
1. Entitled to share equally in the capital and profits of the business and contributes equally towards the losses.
2. Firm must indemnify every partner in respect of payments made and liabilities incurred by him.
3. Partner making any actual payment or advance to the firm is entitled to interest at the rate of 8%p.a
4. No partner is entitled to interest on capital before the ascertainment of profits.
5. Every partner may take part in the management of the business.
6. No partner is entitled to remuneration for acting in the partnership business.
7. No person may be introduced as a partner without the consent of all existing partners.
8. Any difference arising out of ordinary matters connected with the partnership may be decided by the majority - but fundamental matters must have consent of all.
9. All partners must have access to the partnership accounts

Sec 27 - no majority of the partners can expel any partner unless power to do so has been conferred by express agreement between the partners.
However the expelled partner must be given a chance to defend himself ( rule of natural justice) and the expulsion must be done in good faith.
l   partner expelled after being convicted of defrauding the railway company.
CARMICHAEL v EVANS [1904] 1 Ch 486
A junior partner in a draper’s firm was convicted of traveling on a train without paying his favour and so defrauding the railway company ( on more than one occasion) , he was held to have been validly expelled under a clause which allowed expulsion for any “flagrant breach of the duties of the partner”.
The conduct of the expelled partner was quite unconnected with the firm’s drapery business but the publicity attendant upon his criminal conviction was, nevertheless, held to be calculated to injure the firm’s reputation in the eyes of its customers.

l  expel partner in order to get hold of his share.
BLISSET v DANIEL [1853] 10 Hare 493
The expulsion clause was being exercised by the majority in order to obtain the other partner’s share at a discount.
Held – that the power had been improperly exercised
PARTNERS AND EACH OTHER PARTNERS AND EACH OTHER Reviewed by Kamaruddin Mahmood on 9:05:00 PTG Rating: 5

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