Partnership

Def: s. 3(1) PA: a relation wh. subsits between persons carrying on a business in common with a view of profit

s.3(2) excludes: registered company, co-operative society, company or association formed under the law that has effect in Malaysia, or by Acts of the UK parliament, Royal charter

Important elements of a partnership

1- members

s. 3(1), s. 14 and s. 47(2) maximum members

= 20; professional partnership = 30. (s.14(3)(a)(b))

Tan Teck Hee v Cheng Tian Peng

Carrying business with 25 members was not a valid

partnership. Cannot take legal action.

Shim Fatt v Leila Road Bus & Co, P paid deposit

to D, a firm with more than 20 partners. P cannot

sue D because a legal action cannot be taken again

an illegal firm.

2- Agreement bet the partners to carry business in common

s. 2 - Business includes trades, occupation or

profession.

Soh Hood Beng v Khoo Chye Neo,

several people established a body which advanced

money to its members. The money were obtained

from the members and every member can take the

loan one after the other. Held: not a business that

constitute a partnership.

Smith v Anderson

Business refers to repetitive activities.

In common together or some partners carry the business for the

other partners

3- profit

s. 3(1) did not define profit

Re Spanish Prospecting Co. Ltd.

"The word 'profits' has...a well-defined legal meaning, and this

meaning coincides with the fundamental conception of profits

in general parlance, although in mercantile phraseology the

word may at times bear meanings indicated by the special

context which deviate in some respects from this fundamental

signification. 'Profits' implies a comparison between the state

of a business at two specific dates usually separated by an

interval of a year. The fundamental meaning is the amount of

gain made by the business during the year. This can only be

ascertained by a comparison of the assets of the business at

the two dates.

In Soh Hood Beng (See above)

No intention to gain profits. One of the reason why the court

held that the firm was not a partnership.

4-other statutory elements that affects the existence of a partnership

a) s. 4(a) Co-ownership of a property

Joint tenancy , joint property, part-ownership etc,

not necessarily proof of a partnership

Example: French v Strying

Joint owners of a horse was not partners in a

partnership

b) s. 4(b)-Sharing gross profits

Whether parties have common interest or joint right in

any property not necessarily partners

Burnard v Aaron and Sharpley

One of joint owners of a ship took over exclusive

management of the ship bearing all expenses and

pays 1/3 of the gross earning to the other joint- owner,

they were not partners

c) Sharing of profits

s. 4(c)- sharing of profit evidence of partnership.

But not in all c/stances:

i-A loaned RM20,000 to a firm, B. B paid by installment from its profits. A not necessarily a partner to the firm.

ii-Remuneration to a servant or agent of business

Walker v Hirsch

P, ex employee of a a firm agreed to advanced

money to the firm with a repayment in form of salary

and 1/8 of the firms net profit. He was not a

partner.

iiiannuity, or a portion of the profits to widow or a child of a deceased partner

iv-payment of interest wh. varies with the firms profits on a loan for use in the firms business.

v-payment to the seller of a goodwill - share in the firms profits

Formation of partnership

Through partnership agreement. S. 21 rights

and duties of partners can be varied with their

consent, express or implied.

P/ship can exist for as long as the partners

wish. It can be terminated anytime.

Partner/partners wanted to terminate give

notice to other partners. (s. 28(1))

Types of partners

i-General partner- a partner in full sense

ii-active partner- actively involve in the management of the firm

iii-sleeping partner-not active in the management of the firm

iv-quasi partner- not a partner but liable for the partnerships debt as a result of holding himself out as a partner.

Partners authority to bind the firm

Every partner is an agent of the firm and other

partners.

S. (7)-If he carries out in the usual way business the

kind of which carried out by the firm binds the firm

and other partners.

But if he has no authority to act, & the 3rd party

knew or ought to know that the partner has not

authority other partners are not bound by his

action.

a) Implied authority

Partner's implied authority- consistent with the firms

business. Depend on the c/stances of the case.

Some judicial decisions show that a partner has an

implied authority when he:

i)Sells the firms goods and chattels

ii)Puchases on the firms behalf goods of the kind usually used in the firms business

iii)Receives payment of the firms debt and gave receipt thereof

iv) Engages and dismisses staff

v) If the firms sell goods partner may issue negotiable instruments in the firms name;

borrow money on the firms credit; instruct solicitor in an action against the firm to recover debt.

h/ever partner has no implied authority to

execute a deed or to refer dispute to

arbitration.

b) Express authority

In case the action is not in the ordinary course of the

firms business the agent must be authorised by

the other partners. S. 9

Liability of Partners and Firm

Contractual liability

S.11 every partner jointly liable with other partners

for all debts and obligations of the firm incurred

while he was a partner

If he dies - estate severally liable for the unsatisfied

debts and obligations.

If B sue the firm; firm has insufficient asset to satisfy

the claim, B can go against the personal property of

the partners.

If B sue only one partner, he cannot later on sue other

partners if the first partner cannot pay all Bs claim.

b) Tortious liability

s. 12 Joint and several if the wrongs were

committed in the ordinary course of the partnerships

business / with the authority of other partners

Hamlyn v Houston & co.

A partner obtained confidential information of a

competitor's business by means of a bribe. Held:

As he had done an act which was part of his business

to do legitimately, all the partners were liable for his

action.

c) Criminal liability

If the action requires mens rea intention to

commit crime it is the personal liability of the

partner.

d) Specific liabilities

i- s. 13 when a partner, acted within his

authority, received money or property

belonging to a 3rd person and misused the

money or property; or

ii-the firm in the ordinary course of its business

accepted money or property belonging to 3rd

person, and one or more partners of the firm

misused that money or property, while the money or

property is under the care of the firm;

= firm liable to make good the loss to the 3rd party

Blair v Bromley

Money was paid into the firms account to be

invested. One of the partners misused the money.

All partners were liable for the loss because it was

w/in the firms business to accept money for

investment.

e) Misused of trust funds

s. 15 breach of trust by one partner other

partner not liable unless they knew about the

breach.

Ex parte Heaton.

Firm belonging to a father and children. Misused of

trust funds by the children. Father not liable for the

loss because he had no knowledge of the breach.

f) Holding out

s. 16. If a person holds out himself as a partner

Based on estoppel when a person holds

himself out as a partner though not a partner.

(this holding out may be caused by other

persons or by the person himself)

3rd party believed he is a partner and acted on

that belief that person cannot later on claim

that he is not a partner. Liable for the firms

debt.

Conditions=

i-Applies to a person who allowed himself to be held

out as a partner or when he holds himself out as a

partner;

ii- the holdings out can be known by the 3rd person

from the so called partner himself or from other

sources (even w/out the so called Partners

knowledge);

iii- 3rd person must have been influenced by the

manifestation in making a decision to advance money

to the firm

g) Incoming and retiring partners

s. 19 (1) immediately liable as a partner upon

becoming a partner but not for liability incurred

before he becomes a partner unless there is a special

agreement. Partners may sue on the agreement but

not the creditor of the old firm.

h) Retiring partner

s. 19(2) - Liable for the debts incurred before he

retired. If other partners and the creditors agree, a

partner who lost hope of getting any profit

from the firm, abandoned the firm but not retire, may

be free of the firms liability. (s.19(3))

For new debt incurred after retirement liable unless

has given notice about his retirement to the public or

the relevant people that he has retired. S.38(1).

Otherwise may be treated as apparent member.

Re Siew Inn Steamship

A retired partner inserted a notice of retirement in

several newspapers to which old customers were

regular subscribers. Later old customers lent money

to the firm. When the lender claimed the debt from

the retired partner, it was held that for old customer

actual notice must be given to the customer.

Ineffective notification liable as partner

P/ship property s. 22 -26 & 41

Property must be exclusively used for the benefit of

the firm & in accordance with the p/ship agreement.

What is p/ship property?

Ponnukan v Jebaratnam

the question whether a property is that of a p/ship

or a separate property of the [partner] depends

upon whether there is an agreement among the

partners, express or implied, touching such property.

In absence of the agreement, [the question is]

whether there is an intention of the partners to treat

the property as a p/ship property.

If no intentionthe property is the separate property

of the partner although it may be used for, or even

essential to, the p/ship business and the p/ship may

even be debited with the outgoings and expenses of

the property.

In this case P obtained an option to sell land for

RM60,000. formed p/ship with J to develop the land.

Failed to get financial to purchase the land. J bought

the land with his money and money obtained from his

relatives and bank. P seek a declaration that the land

was held on trust for the p/ship.

Held on appeal: the land was not the p/ship property.

No agreement to that effect. It was also not paid by

the firms funds.

R/ship between partners

The relationship is created by an agreement between

them.

The agreement contains rights and duties; the

conduct and management of the firms business;

capital to be provided by each partner; proportion of

the profits to be shared by the partners.

In case no specific provision in the agreement,

rights and duties under the PA apply.

h/ever, s. 21 - duties and rights of partners

whether provided in their agreement or under the

Act can be varied by mutual consent of the partners,

express, implied or inferred from their course of

dealing.

If there is no p/ship agreement partners rights and

duties are:

i-equal share in the capital, profits and in the loss.

s.26(a)

ii-firm must indemnify partners in respect of payment

made and personal liability incurred in the ordinary

and proper conduct of business; or in anything done

for the preservation of the firms property. S.26(b) not

applicable if the partner acted negligently or

fraudulently

iii-entitled to interest rate of 8% per annum if he made

payment or advance to the firm for the purpose of the

p/ship. S. 26(c)

iv-no partner is entitled to interest on capital before the

profits has been ascertained. S.26(d)

v- every partner may involve in the management of the business. S. 26(e)

vi- partners cannot get remuneration for acting in the p/ship business. S. 26(f)

vii-no one can be admitted as a partner w/out the consent of other partners. S. 26(g)

Viii-differences concerning the partnership business if involve ordinary matter should be settled based on majority rule, in case of changing the firms business consent of all partners

iX- p/ship book kept at the place of business or at the principal place if more than one place of business. Every partner may inspect the book when he thinks fit.

Further duties of partner:

i-render true accounts and full information on all

things affecting the partner or his legal representative

ii-account any secret profit or benefit derived w/out the

consent of other partners any transaction concerning

the p/ship, or any use of the p/ship property, name or

business connection by him

iii- not to compete with p/ship in business of the same

nature w/out consent of all partners. If he did w/out

consent he must give the firms all profits made by him

Dissolution of a p/ship

s.34

1- by agreement

a) Partners may mutually agree to end the p/ship at any time

2- by operation of law

If the p/ship is for fixed term, or for a single adventure dissolve when the fixed term expire or when the adventure is completed or terminated

When a partner sent a notice of his intention to end the partnership to other partners

3-death or bankruptcy

If any partner died, or declared bankrupt - automatic

dissolution unless the agreement provided otherwise.

s. 35(1)

4-by charging on share

If a partner subjected his p/ship share to be charged

for the debt wh. is not related to the p/ship business

other partners may dissolve the p/ship. s. 35(2)

5-by reason of illegality

If any event occurs that made it unlawful for the

p/ship business to be carried on or the p/ship to

continue automatic dissolution . s36

6-by court order

s. 37 on application by the partner. Court may order dissolution in the case:

i-insanity of a partner

s. 37(a) when a partner found to be a lunatic or

shown to be of permanently unsound mind

ii- s. 37(b)-permanent incapacity to perform his duties under the p/ship contract. (not the applicant)

iii- s. 37(c) conduct that prejudicially affected the carrying on of the p/ship business. Example dishonesty (not the applicant)

iv- s.37(d)- willful or persistent breach of the p/ship agreement (not the applicant)

v-s. 37(e) when the p/ship business can only be

carried on at loss

vi- s. 37(f) when in the courts opinion it is just and

equitable to dissolve the p/ship. Example only two

partners and they have reached a deadlock

To avoid liability partners have to give notice to public

and old customers about the dissolution. After

dissolution no one can bind another by his action

except what is necessary to wind up the business and

complete unfinished matters.