PARTNERS AND OUTSIDERS

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:

1. Contracts and
2. 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.