Relation of Partners/Firm with The Third Parties

LAW 3211/ COMPANY LAW II

Liability of firm towards a partner’s action

Based on the law of agency. Principal will be liable for any

action of the agent which are committed within the authority given under the agency agreement/relationship.

Authority of a partner Authority can be divided:# 1 – Actual# 2 – Implied / Usual# 3 – Apparent / Ostensible

Actual Authority

What is expressly stated : -By the principal -By the partnership

agreement

Implied / Usual Authority

Arises from the nature of partnership business

Apparent / Ostensible Authority

There has been a representation by words or conduct by the partners.

Arises from the representation

Section 7An act of a partner will bind the firm: The act must be done for the

purpose of the businessCase: Osman v Chan Kang Siew The act must be an act for carrying

on business in the usual way

The act must be an act for carrying on business in the usual way

Cases:Mercantile Credit Co Ltd v Garrod Polkinghorne v HollandSithambaran Chetty & Ors v Hop Hing &

OrsChan King Yue v Lee & Wong

Mercantile Credit Co Ltd v Garrod Mocatta J: I must have regard in deciding this

matter to what was apparent to the outside world in general…to the facts relevant to business of a like kind to that of the business of this partnership so far as it appeared to the outside world.

Polkinghorne v Holland

Mr.H was a partner in a solicitor firm. He was also a director in a company. One of the firm’s client, Mrs.P seek Mr.H’s advise on certain information relating to investment in a particular company

Court Held: Although investment analysis was

not part of the firm’s (solicitor) business, when a solicitor is approached for enquiries and competent advice.His failure to provide this was related to the business of the firm.

Chan King Yue v Lee & Wong

Held: Borrowing was an act necessary

for the carrying on of the partnership business. Thus the other partners were bound.

What is usual depends on whether it is trading business or non-trading business

TradingHiggins v Beauchamp “ Is one which depends

on buying and selling goods"

Usual authority in trading:

Contract debts, borrow money and employ staff etc.

Case: Chettinand Bank v Chop Haw Lee

Non-trading nature of work is

advisory, e.g. firm of professionals.

Usual authority in non-trading : consultation, employment of staff

Cases: Higgins v Beauchamp Marsh v Joseph

An act of a partner will not bind the firm :

The partner has no authority The third party knows that he has

no authority The third party does not know that

he is a partner The third party does not believe

that he is a partner

Section 8An act of a partner will bind the

firm/partners: Relates to the partnership business, Entered in the firm’s name or showing an

intention to bind the firm Done by partner or non-

partner(authorized)

Case: Re Briggs

Section 9Firm will not be liable:When a partner used the firm’s credit for

a purpose not connected with the firm’s ordinary course of business(private purpose).- personally liable

UNLESS specially authorize to do so.

Case: Chan King Yue v Lee & Wong Osman v Chan Kang Siew

Section 10When there is a restriction on the power of

partners to bind the firm and the third party has notice about that restriction, the act done will not bind the firm.

Case: Galway v Matthew Mercantile Credit Co Ltd v Garrod 

Liability in Contract- Sec 11First limb: JOINT LIABILITY Every partner is liable jointly with the other

partners for all debts and obligations of the firm incurred while he is a partner.

Kendall v Hamilton

Note:The third party only have one action against the firm.Action to one partner is a bar to other

partners – Guinness Anchor Marketing

Guinness Anchor Marketing S/B The essence of joint liability under Sec 11 is

that if a judgment is obtained against a partner in the partnership for debt owed by the partnership and the judgment remains unsatisfied because of the partner’s bankruptcy or otherwise, any other partner who has not been sued in the first instance cannot then be sued in a subsequent proceeding. A joint liability essentially means that there is only one cause of action for the recovery of debt.

 

Second limb: SEVERAL LIABILITY Refers to action taken against the

estate of a person who was a partner when the debt was incurred.

Cases: Re Doetsch Bagel v Miller

Re Doetsch‘A creditor may proceed with the estate of

the dead p’ner without showing that the surviving p’ner is insolvent and p/ship prop. was insufficient to pay p/ship debt.’

Bagel v Miller‘Action succeeded in respect of the goods

delivered before Miller’s death…’

Liability For other wrongs – Sec 12

Any wrongful act/omission which is within ACTUAL /USUAL authority- Firm Would liable

Cases: Lyold v Grace Smith

Hamlyn v Houston

Misapplication of money & property Sec 13

Sec 13(a) – Money or property received by a partner within his apparent authority and he misapplies it.

THE FIRM IS LIABLE FOR THE

LOSSES

Cases Harman v Johnson British Home Assurance

Corporation Ltd v Patterson

Sec 13 (b) – Money or property received by the firm in the ordinary course of business and the partners misapply it while it is in the custody .

THE FIRM IS LIABLE FOR THE LOSSES 

CASES

Rhodes v MoulesTendering Hundred Waterworks Co

v JonesNote: Sec 14

 Sec 15 – Improper employment of trust property for partnership purposes.

When a partner is also a trustee (in his personal capacity) & had used the trust money for p/ship purposes, Other partners will not be liable.

  However, other partners will be liable : -- When they have notice of the breach of trust  -  The trust money is still in the firm’s

possession or traceable. Case: Ex parte Heaton

Criminal Liability Personal liability Firm not liable, unless all partners had

been a party to the crime “…a principal will not be liable for

offences requiring mens rea merely by the fact that his agent had the necessary mens rea”

Case: Chung Shin Kian v PP

Section 16- Holding out A person who is not a partner but has

been represented as a partner, he will become a partner. (partnership by estoppel)

Waugh v Carver “If he lent his name as a partner, he

becomes against the rest of the world a partner…upon the principle of general policy”

Elements of Holding Out 1) Representation 2) Knowingly suffers 3) Third party has given credit

based on such representation.

Representation

Words spoken, Written or Conduct

Made by – that person himself or by a partner

Knowingly suffers Means knows about the representation.

Bunny Pty Ltd v AtkinsSochall J: …he was apparently named as one of the member of the firm, he did nothing to ensure the communication to the plaintiff of any denial by him of his ostensible, such conduct amounted either to knowingly held himself out and to knowingly allowing himself to be held out as a partner.

Wong Peng Yuen v SenanayakeThe def was a partner in a firm of stock and share broker. The plf some money to def in consideration that he is to be made as one of the partners. The plf then acted and though himself as a partner. However, he did not take part in the management of the firm and only attended two meetings before the firm was dissolved.

Held: There was representation by the plf that he is partner although he did not take part in the management of the firm.

Tower Cabinet Co.Ltd v IngramMr.Christmas and Mr.Ingram set up a partnership of selling household furniture under the name of Merry’s. The partnership was dissolved by mutual agreement in 1947. Later,Mr.Christmas carried on the business on his own under the same business name (Merry’s). He ordered some furniture from the plf and by mistake the order was confirmed on an old note paper (belong to the firm) which has Mr.Ingram name on it.When Mr.Christmas failed to make the payment, the plf sought to claim from Mr.Ingram on the ground that he is a partner to Mr.Christmas.

Held:Mr.Ingram was not liable because he had not ‘knowingly suffered’ himself to be represented as a partner. The fact that he might be careless or negligent for not destroying all the old note paper, was not sufficient to hold him to be ‘knowingly suffered’.

The third party has given credit based on such representation

Lynch v StiffMr.L (the app) was employed as a solicitor in solicitor firm. Although, his name appeared as a partner in the firm’s note paper, he had never received the firm’s profit or took part in the management of the firm. The resp was a client of the firm. He gave some money for investment to the firm on the basis that he believed that Mr.L is a partner as he had known Mr.L for a long time and trusted him as his solicitor.One of the partners misapplied the resp’s money. The aop seek to be exempted from liability on the ground that he was not a “partner”

Held: Mr.L is a partner because he allow the representation to be made. L had held and suffered himself to be represented as a partner. The heading of the note paper is conclusive upon this point. Secondly, the client gave credit in that he entrusted the firm and thirdly, there is evidence that the client gave the credit because he believe that Mr.L whom he entrusted is a partner.

It is sufficient if the representation is communicated to the creditor by a third party. – Martyn v Gray(1863)

Not necessary for the third party to make an inquiry to ascertain whether a person is a partner or not, unless in suspicious situation

- Bunny Pty Ltd v Atkins

Proviso:When there is holding out by the continued use of a partner’s name (who had died), his executors will not be liable for any contract after his death.

Note: Under Sec 16 a person will be liable as a partner in that particular transaction only.

Sec 19(1) – Incoming Partner

Liable for transactions entered by the firm AFTER becomes a partner

Not liable for those transactions before he becomes a partner

Case: Court v Berlin

Sec 19(2) – Outgoing partner

A retired partner will still be liable for debts incurred before his retirement,

But not liable for those incurred after his retirement.

Sec 19(3) - Novation An agreement between a retired

partner, other partners and creditors to discharge the liability of the retired partner.

Such agreement can be express or inferred by conduct.

Notice –Sec 38(1) Actual notice of retirement should be

given to all customer – Sec 38(1) Non customer, notice in the gazette would

be sufficient – Sec 38(2)Cases: Tan Sin Moh v Lebel Ltd

Tan Boon Cheo v Ho Hong Bank Ltd Philip Singapore Pty Ltd Jemco Sdn Bhd v Andrew

Tan Boon Cheo v Ho Hong Bank Ltd

Prichard J: Dormant partners who retire, no need

notice Previous customer- entitle for a more

specific notice. When a known partner retires or a

partnership dissolve – notice to the world by advertisement and to old customers by special communication