Liabiliy of A Partner Notes

Law (Universiti Teknologi MARA)

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Liability of a Partner

1. In Contract 1) Where a contract executed between a partner and a third party has been proven to be
binding on the 8rm, the partners of the 8rm may be held contractually liable.

2) Sec 11: All partners are generally jointly liable for a contract that had been executed while
they were partners, but aAer a partner’s death, though his liability sCll remains, his estate will
be severally liable.
-This provision enables a third party to take acCon against the 8rm for any debts and
obligaCons of a contractual nature.

3) A third party may bring an acCon against all the partners of the 8rm jointly, but omiHng to
name any partner as the defendant will cause its right of acCon against the unnamed partner to
be waived even if he is jointly liable.
-Kendall v Hamilton: The plainCI sought acCon against the 8rm, but failed to name an
undisclosed partner. Held: Where the court had already made the 8rm liable by an
order towards the named partners, even if the debt had not been paid, another acCon
could not be taken.
-However, this will not prevent the partner that had been found liable from seeking an
order from the court to have the unnamed partners contribute towards the payment
of debt.

4) Upon the death of a partner, his liability for the debts and obligaCons that existed while he
was a partner sCll remains. Only aAer the executors have seOled his personal debts, what
remains from his estate, regardless of whether it is suPcient or not, will then be used to saCsfy
the unpaid debt.
-Bagel v Miller: The plainCI supplied goods to a partnership of which the defendant
was a member. Some were ordered and delivered before the defendant died, but
others were delivered aAer his death. The plainCI bought an acCon to recover the
price from the defendant’s executors. Held: The acCon succeeded in respect of the
goods delivered before his death but failed against those delivered aAerwards because
the obligaCon to pay did not arise while he was sCll a partner.

5) Minor partner: William Jack v Chan Yong: A minor can be a partner and he shall enjoy the
bene8t of the partnership, such as pro8t sharing, while being exempted from liability. This
means, he cannot be sued personally by the third party, but the third party can sCll sue the
partnership.
-Sec>on 7 provides that every partner is an agent of the 8rm and this applies to minor
although not explicitly menConed. If on aOaining the age of majority he does not
repudiate the partnership within a reasonable Cme, he becomes liable for all
obligaCons incurred by the partnership from Cme to Cme he was admiOed to the
bene8ts of the partnership.
-Since PA does not speci8cally menCon the right and liability of a minor in the Act, the
proposiCon regarding a minor’s capacity to become a partner is sCll doubVul. The CA
makes it clear that a minor cannot contract, but it may be concluded from the William
Jack’s case that if a minor acts as an agent he may be able to contract as a minor
partner on behalf of the 8rm, under Sec>on 7 without any accountability to it.

2. In Tort 1) Sec 12: The 8rm is liable for any wrongful act or omission of any partner acCng in the
ordinary course of business of the 8rm or with the authority of his co-partners which has
caused loss or injury to a third party.

2) TorCous liability under this provision can be seen in two instances:

i) Where a wrongful act of omission is done by a partner in the ordinary course of

business of the Grm.
-Hamlyn v Houston & Co: A partner in Houston & Co bribed a clerk in a rival 8rm to

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 disclose con8denCal informaCon relaCng to it. As a result, the rival 8rm suIered a loss,
and sued Houston & Co. for damages. Held: The COA found Houston & Co. to be liable
for the partner’s wrongful act as he had been acCng in the ordinary course of the
business to obtain informaCon about a trade rival. It was found that the means, by
which the act was done, whether legiCmate or illegiCmate, was immaterial.
-Chi9ck v Maxwell: Where an outsider intends to deal with the partner exclusively
and not with him as a member of the 8rm, such personal dealings are not considered
“in the ordinary course of the 8rm’s business”.

i) Where a wrongful act or omission of a partner is done with the consent of the
partners.
-Polkinghorne v Holland: The 8rm was held liable for the defendant’s negligent
omission to give competent advice to the plainCI on the means of obtaining accurate
informaCon about the desirability of invesCng in a parCcular company. Liability arose
because as a solicitor (the defendant) if requested, should either advises a client how
such informaCon can be obtained or undertake to acquire the informaCon from
competent 8nancial analysts.
-Mara v Browne: If the tort is commiOed without the actual authority of the partners
and outside the scope of the partner’s usual authority, the 8rm and the other partners
would not be liable.

3. For 1) Sec 13: The 8rm is liable for the misapplicaCon of money or property of a third party
Misapplica>o
n of money or 2) Sec 13(a): Where the money or property is received by a partner ac>ng within the scope of
property of a his apparent authority
third person -Blair v Bromley: A sum of money was paid into the joint account of a 8rm of solicitors
to be used for investment in certain securiCes. One of the partners then told the
plainCI that the money had been invested as required, but instead he has
misappropriated the money. Held: Receiving money for invesCng in certain or speci8c
securiCes comes within the ordinary course of a solicitor’s business, and with that all
the other partners were liable for the misapplicaCon of the money.

3) Sec 13(b): Where the money or property, while in the custody of the Grm in the course of
its business, is misapplied by one or more of the partners
-There is no quesCon of a partner’s authority to receive the money or property, as long
as the receipt of the money or property is in the ordinary course of the 8rm’s business,
the 8rm can be held liable. To render the 8rm liable, the misapplicaCon must be made
while the money or property was in the 8rm’s custody. Where the money or property
is placed in the possession of one of the partners through fraudulent means, the
money is not considered as in the custody of the 8rm.
-Rhodes v Moules: Rhodes wished to obtain a loan, so he mortgaged his property. He
was told by Rew, a partner in the solicitor’s 8rm, that the mortgagees wanted
addiConal security, and he handed him some share warrants. Rew misappropriated
them, thus, Rhodes sued the 8rm in respect of the loss under the English equivalent of
Sec 13(b). Held: The acCon succeeded as the warrants had been received by the 8rm in
the ordinary course of the business.

4. In Crime 1) Criminal liability is a personal liability of the partner who commits the crime, especially a
crime that requires mens rea.

2) Garrent v Hooper: A principal cannot be made liable for an oIence that requires mens rea
simple because his servant or agent has the necessary mens rea.

3) Chun Shin Kian & Ors v PP: The second accused was not present, but was charged with the
criminal oIence of applying a false trade descripCon to the jeans and jackets aAer a raid by
oPcers from the Trade DescripCon Department. Both partners were convicted of the oIence
by the magistrate. They appealed against their convicCon. Held: The Hg Ct allowed the appeal

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 of the second accused and quashed his convicCon as he was not present during the raid on the
premises. Sec 14 provides for joint liability for recovery of damages and 8nes, not criminal
liability.

5. In Improper 1) Sec 15: If a partner improperly uses trust property that has been entrusted to him, the other
Employment partners cannot be made liable, unless they knew of the breach.
of Trust
Property for 2) Ex Parte Heaton: A son, the partner of his father, as trustee of a will had used the trust
Partnership money for the purpose of the 8rm’s business. When the 8rm became insolvent, the court
Purposes decided that the trust money improperly used cannot be paid out of the partnership property
as liability of the other partners will only lie if they knew of the breach.

3) Jacobs v Morris: The knowledge required is either actual or implied knowledge, which a
person can reasonably obtain. The liability, thus, exist when a partner actually knew of the
breach, or where he is deemed to have implied knowledge of the breach if he takes reasonable
eIort to inquire.

6. Of Holding 1) Sec 16: Where an act is not related to the 8rm’s business, the act will be binding on the 8rm
Out only where a partner has expressly been given authority to act.

2) Fox v Clinton: Holding out to the public as a partner requires a person to voluntarily hold
himself out. This means lending his name to the partnership. Under ordinary circumstances,
this act takes place when a person allows his name to conCnue to be used by the 8rm, so that
the knowledge or consent of the person whose name is used becomes the basis to stop him
from denying liability as a partner.

3) There are 3 elements:

i) A representa>on was made by a person to a 3rd party
-Lynch v SIJ: The plainCI sued Lynch, a solicitor in a legal 8rm, for money
misappropriated by the partner on the 8rm, on the ground that Lynch was named in
the leOerhead of the 8rm. Held: Lynch was found liable as he had represented, and
knowingly suIered himself to be represented, as a partner in the 8rm, which the
plainCI gave credit to because he trusted that Lynch was a partner.
-Tower Cabinet Co. Ltd v Ingram: Failure to destroy, or negligence in not destroying
the former partnership leOerheads does not mean that he consented to be held as a
partner. In this case, Christmas and Ingram were former partners. However, Christmas
conCnued with the business under the same name. He ordered some furniture with
the plainCI but failed to pay. The plainCIs sued Ingram on the basis that his name
appeared in the old leOerhead used by Christmas for his business dealings. Held:
PlainCI’s claim was rejected because Ingram did not “knowingly” suIer himself to be
represented as a partner.

ii) The third party relied on such representa>on

-D & H Bunny Pty Ltd v Atkins: Atkins and Naughton represented to the plainCI’s
agent that they were partners. In fact, no such partnership exists. Based on the
representaCon, the plainCI supplied goods on credit to Naughton. Held: Atkins was
found liable as a partner because of the representaCon.

iii) The third party, as a consequence, suWered loss

-The third party must show that he was aware of the holding out and that he had given
credit to the 8rm because he had relied on the representaCon

7. Of Incoming 1) Sec 19(1): A new partner would not be liable to the creditors of the 8rm for anything done
Partners before his admission to the partnership.

2) His liability would only be towards contracts that had been entered into before he became a

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 partner, but are conCnued even aAer his admission.

3) However, the principle of novaCon can make a new partner liable for debts or obligaCons
that had transpired before he became a member. NovaCon is where the new partner agrees,
expressly or impliedly, to take over the liabiliCes of the 8rm that had incurred before he
became a partner.

8. Of Re>ring 1) Sec 19(2): A partner who has reCred would sCll be liable for any debts or obligaCons incurred
Partners while he was a partner.

2) Court v Berlin: A 8rm consisted of Berlin, as the managing partner, and two dormant
partners. While an acCon brought by the plainCI to recover debt due by the 8rm, the two
dormant partners reCred. The dormant refused to pay the cost incurred due to their
reCrement. Held: They were liable for the enCre cost incurred.
3) A reCred partner remains liable to third parCes for debts that are incurred by the 8rm aAer
he has reCred, unless he has given express noCce of his reCrement. IF noCce of reCrement is
not given, a partner may be held liable for holding out. The eIecCveness of the noCce is
dependent upon whoever it is meant for.

4) No>ce for those who have been dealing with Grm before the change:
i) Sec 38(1): Where a third party deals with a 8rm aAer a change in its consCtuCon, he
is enCtled to treat all apparent members of the old 8rm as sCll being partners of the
8rm unCl he has noCce of the change.

ii) The noCce provided to old customers must be a personal noCce which is speci8ed
and make clear that the partner with whom they have been dealing with has reCred.

iii) Tan Sin Moh v Lebel LTd: The appellant had failed to inform the respondents, who
have had dealings with the 8rm, of his withdrawal from it. Held: A person who had
habitual dealings with the partnership was enCtled to be speci8cally noC8ed of a
partner’s resignaCon from the 8rm.

5) No>ce for those involved in any future dealings:

i) Sec 38(2): An adverCsement in the GazeOe or newspapers of wide circulaCon is
suPcient noCce to persons who had no dealings with the 8rm before the partner
reCred.

ii) Once an adverCsement has been made, those who have never dealt with the 8rm
cannot then make a reCred partner liable for any debts or obligaCons of the 8rm. If
noCce has been given, a reCred partner’s name on the leOerhead would not cause him
to be liable.

iii) Tower Cabinet Co. Ltd. v Ingram: Ingram could not be held liable because the
plainCIs had no knowledge of his connecCon with the business “Merry’s” except for
the name on the leOerhead.

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