PARTNERS AND OUTSIDERS
Sec 7 to Sec 20 of PA concerns relations of partners to persons dealing with them.
The liabilities are in two areas:
- Contracts
and
- Other civil
wrongs.
Deals with the liability of one
partner for the acts of his fellow partners - how does the liability arise and
to what extend?
Also important - how long a partner
may be liable after he quits / retires from the partnership.
LIABILITY OF PARTNERS FOR CONTRACT.
Each partner
is an agent of his fellow partners and also a principal to the
others at the same time. (S.7 PA). Thus the basic concept of the law of agency
applies - an exception to the doctrine of privity of contract. However - the
liability depends on the partners having the authority to do certain acts.
Three ways in which a partner can have
the authority:
a - Actual
- an agent may bind his
principal to any act which is expressly
authorized by his principal to do - either by oral agreement or by terms of the
partnership agreement.
b - Implied
- authority which arises from the status of the particular type of agent
involved - something which a third party would regard as normal for an agent to
do.
c - Apparent - arises when a
principal has held out the agent as having authority to do a particular thing
and the third party relies on the representation – estoppel.
As the implied and apparent authority
is wider in scope - partners usually seek to limit it - but such limitation
will have no effect on third party having no notice of it - Sec 10
In absence of
authority - the other partners may still ratify the act expressly or impliedly.
Implied Authority of a partner depends
on:
a. The act relates to the kind of
business carried by the firm.
- assigned book debts to creditor
RE BRIGGS & CO
[1906] 2 KB 209
A two-partner firm of
father and son were being pressed by a creditor, the son agreed to assign the
book debts (money owed to the firm) to
the creditor in order to play for time. The father knew nothing of this. The
deed of assignment stated that it was to be made between “R.B Briggs and H.R.
Briggs”, trading under the style or firm of Briggs & Co.” but the father’s
name was forged by the son. The question arose as to whether the father was
liable on this deed.
Held – The court
applied an equivalent to s.8 of PA 1961 since it related to the business of the
firm and was done in a manner showing intention to bind the firm and executed
by a partner.
b. If so, was it the usual way of
carrying on that business.
l partner in a
garage business sold car to a credit company held to have implied authority
MERCANTILE
CREDIT CO LTD v GARRORD [1962] 3 All ER 1103
Parkin
was the active and Garrord the dormant partner in a business mainly concerned
with letting of lock-up garages and repairing cars. The partnership agreement
prohibited the buying and selling of cars but Parkin, without any express
authority, sold a car to the credit company so that it could be let on a
hire-purchase contract to a customer. It
then appeared that Parkin did not own the car and the company claimed the £700
paid for it from Garrod.
Held
- Applying the equivalent of s.7 of PA
1961 court held that Parkin did have implied authority to sell the car.
In matters of borrowing money on
behalf of the firm must differentiate between trading and non trading
partnership.
l business of
cinema proprietors is not a trading business.
HIGGINS v BEAUCHAMP [1914] All ER 937
Beauchamp
was a sleeping partner in a business of cinema proprietors carried on by
another partner named Milles. The partnership agreement provided that no
partner should contract any debt on account of the partnership without the
consent of the other partners except in the usual and regular course of
business. Milles borrowed money from Higgins, stating that it was for the
purposes of the firm. In fact he never had the intention of using the money in
the business and misappropriated it. Higgins then sued Beauchamp to recover the
sum lent.
Held
– the action failed. The business was not a trading business and therefore
Milles had no implied authority to bind the firm in respect of the debt.
c. Knowledge / notice of third party
Partners have no implied authority to
bind fellow partners into another partnership nor introduce new partners into
the firm.
l Partners
representation on affairs of the firm to third parties is evidence against the
firm.
l Notice to any
partner who habitually acts for the firm operates as notice to the firm -
except in case of fraud.
LIABILITY FOR OTHER CIVIL WRONGS.
l Partners may be
liable for wrongs committed by their fellow partners in case of torts, crimes
and misapplication of property and breaches of trust or fiduciary duty.
l Sec 12 - ‘….by
any wrongful act/omission of any partner in the ordinary course of
business or authority of the co partners….loss or injury is
caused…or any penalty is incurred , the firm is liable to the same
extent as that partner’
l partner induce
breach of contract by bribes.
HAMLYN
v HOUSTON & CO [1903] 1 KB 81
The
plaintiff and the defendants carried on business as grain merchants in
competition with each other. The active partner in the defendant firm bribed
one of the plaintiff’s clerk in order to obtain information concerning the
terms of the tenders made by the plaintiff to certain brewers.
Held
– the obtaining of such information was a legitimate activity, in the ordinary
course of the defendant’s business, so that the firm must be liable for the
partner’s action in obtaining such information in a wrongful manner. Even where
an authorized transaction is not, in itself, wrongful, the partners will be
liable if it is carried out in an unlawful or tortious manner.
l lawyer failed to
make full disclosure to clients and take advantage for his personal benefit.
KORZ
v ST. PIERRE [1988] 43 DLR 481
One
partner a lawyer firm, had failed to make full disclosure to his clients and
had taken advantage for his own purpose of special knowledge relating to the
client’s affairs. Since these breaches of duty were committed in the ordinary
course of the firm’s business, his partner who took no part in the affair and
had no knowledge of it was held liable under the provision equivalent to s.12.
The judge remarked that the innocent
partner had taken a share of profits generated by the particular client in
previous year.
l Sec 13 - firm
liable to make good any loss in case of misappropriation of money or
property received in the ordinary course of business by partners
having apparent/ implied authority.
l solicitor
misappropriate share warrants of a clients given as security for mortgage.
RHODES
v MOULES [1895] 1Ch 236
The
plaintiff sought to raise money by way of a mortgage on his property. He used a
solicitor in a firm who had told him that the lenders wanted additional
security and so he handed the solicitor some share warrants to bearer. The
solicitor misappropriated them and the plaintiff now sued the firm under the
equivalent of s.13 of PA 1961.
The
COA held that the firm was liable. On the evidence the certificates were
received in the ordinary course of firm’s business and also within the apparent
authority of the partner.
l firm not liable as deeds given on personal
capacity not as partners to the firm.
TENDERING
HUNDRED WATERWORKS v JONES [1903] 2 Ch 615
G,
the secretary to the Plaintiff company, was a partner of the defendant , who
carried on practice as a solicitor. The company, having contracted to purchased
a piece of land, employed t6he defendant’s firm to prepare the conveyance and
directed that land should be conveyed to G as nominee for the company. No documents
of title, other than the conveyance to G, were handed over by the vendors on
completion. G subsequently deposited the conveyance as security for a loan,
obtained for his personal use.
Held
– The defendant was under no obligation to obtain instructions from the
plaintiff as to the disposal of the conveyance, because it had been made out in
G’s name, on express instructions from the company. It was also held that the
defendant was not liable under s.13(b) because G was entitled to receive the
conveyance as legal owner of the land and did in fact receive it in that
capacity, and not as a partner of the firm.
NATURE OF THE LIABILITY
l
Sec 11 – for contractual debts and obligations - every
partner liable JOINTLY with the other partners for all of the firm - creates
unlimited liability.
o
Third party may sue all the partners individually or the
firm
o
Kendall v. Hamilton – a creditor who failed to sue a
dormant partner cannot recover
l
Sec 14 - liability under Sec 12 and 13 is JOINTLY with his co partners and also SEVERALLY
for everything the firm becomes liable whilst he is a partner.
l
Joint liability – if an action is brought against one or
some only of the persons liable and judgment entered, no further action can be
brought against other persons who were jointly liable, even if the judgment
remains unsatisfied
l
Several liability – it recognizes an independent right of
action against each participant for the full amount of the obligation. If the
judgment entered against one or some only of the participants and the judgment
is not fully satisfied, another action may be maintained against each of the
other persons liable until the judgment is paid in full
DURATION OF THE LIABILITY
Sec 19 (1) A partner admitted into an
existing firm will not be liable to the creditors of the firm for anything
before he became a partner
Sec 19 (2) - A partner
who retires from a firm will not cease to be liable for all the partnership
debts or obligations incurred before his retirement.
Sec 19 (3) – A retiring
partner may be discharged from any existing liabilities by an agreement to that
effect that between himself and the members of the firm as newly constituted
and the creditors
COURT v BERLIN [1867] 2 QB 396
Sec 38 - A retired partner will escape liability for
future debts after retirement if:
1. Gives actual notice of his retirement to existing
creditors ( prospective creditors /
customers must read the small print) – RE SIEW INN STEAMSHIP CO.
2. Puts a notice in the relevant Gazette for prospective
creditors
3. The creditors did not know that he was a partner at
the time when he retired.
Sec 38(3) – Estate of a
dead / bankrupt partner or a partner who is not known to the third party as a
partner and retires from the firm is not liable for debts contracted after the
death/bankruptcy/retirement.
PARTNERS AND OUTSIDERS
Reviewed by Kamaruddin Mahmood
on
4:02:00 PTG
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