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The document discusses the liability of partners to third parties under partnership law. It makes three key points:
1) Partners are generally liable for contracts entered into and wrongs committed by other partners in the usual course of business. This liability is based on principles of agency law.
2) For a partner to bind the firm, the act must be of the type of business carried out by the firm and done in the usual way. The third party must also believe the person is a partner.
3) Actual authority of a partner can be express or implied. Express authority is directly granted while implied authority allows a partner to carry out express duties. Acts done with actual authority bind the firm.
The document discusses the liability of partners to third parties under partnership law. It makes three key points:
1) Partners are generally liable for contracts entered into and wrongs committed by other partners in the usual course of business. This liability is based on principles of agency law.
2) For a partner to bind the firm, the act must be of the type of business carried out by the firm and done in the usual way. The third party must also believe the person is a partner.
3) Actual authority of a partner can be express or implied. Express authority is directly granted while implied authority allows a partner to carry out express duties. Acts done with actual authority bind the firm.
The document discusses the liability of partners to third parties under partnership law. It makes three key points:
1) Partners are generally liable for contracts entered into and wrongs committed by other partners in the usual course of business. This liability is based on principles of agency law.
2) For a partner to bind the firm, the act must be of the type of business carried out by the firm and done in the usual way. The third party must also believe the person is a partner.
3) Actual authority of a partner can be express or implied. Express authority is directly granted while implied authority allows a partner to carry out express duties. Acts done with actual authority bind the firm.
GENERAL RULE: BASED ON AGENCY PRINCIPLE IN CONTRACT FOR WRONGS: TORTS CRIMES MISAPPLICATION OF THIRD PARTYS PROPERTY IMPROPER EMPLOYMENT OF TRUST PROPERTY HOLDING OUT INCOMING AND RETIRING PARTNERS
2 POWER OF PARTNER TO BIND THE FIRM The law of agency as found in Part X of the Contract Act 1950, the Common Law and equity rules are applicable to determine the various situations.
The power of a partner to bind the firm depends on whether he has actual authority to do so.
Usual or apparent authority is the authority that the third parties assume that every partner has in carrying out acts for the purpose of the partnership business, authority which he would normally have in businesses of a similar nature. Thus, where a partner does an act that normally other partners like him would have the authority to do, the firm would be bound.
3 GEN RULE OF LIABILITY OF PARTNERS TO THIRD PARTIES S.7 Partnership Act 1961 states: Every partner is an agent for the firm and his other partners for the purposes of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom he is dealing either knows that he has no authority or does not know or believe him to be partner. This provision recognizes the fact that agency relationship exist between the partners.
4 WHY PARTNERS ARE LIABLE TO THIRD PARTIES Third parties could make the firm or the other partners liable if the following conditions are fulfilled:
1.The act done must be of the type of business that is carried out by the firm; 2.It is carried on in the usual way; 3.The third party must know or believe the person with whom he enters into the transaction is a partner; and 4.The third party must not know the person with whom he has entered into the transaction has no authority or the permission of the other partners to act on behalf of the firm.
5 WHY PARTNERS ARE LIABLE TO THIRD PARTIES 1. The act done must be of the type of business that is carried out by the firm. The act that is done must be one which is related to the type of business that is carried out by the firm
Mercantile Credit Co. Ltd. v Garrod [1962] 3 All. ER 1103 Parkin and Garrod ran business of renting out garages and repair of cars. They expressly agreed not to be involved in the business of buying and selling cars. P sold a customers car to the plaintiff, a finance co. without Gs (who was a sleeping partner) knowledge. Proceeds of sale were paid into firms account. When plaintiff co. found out that P had no title to the car, it sued G for the return of the price it had paid. G said he was not liable as Ps act was not lawful because the type of action was expressly prohibited in their business. The court rejected the denial and held G liable for Ps acts, as what P had done was within the type of activity that is normally related with a garage business. Outsiders would assume he has apparent authority.
6 Higgins v Beauchamp [1914-1915] All.E.R Rep 937 B (sleeping partner) & Milles were cinema proprietors. It was agreed no partner should enter into any debt on behalf of the partnership without the consent of the other, except in the usual and regular course of business. M borrowed money from the plaintiff saying it was for the use of the firm, but he used the money for his own needs as he never had the intention to use it for the business. H then sued B to recover the sum lent to M. The action failed as the partnership was not a trading business, where partners had implied authority to borrow money (within ordinary course of business if trading partnership) thus M had no implied authority to bind the firm in respect of the debt. Chettinad Bank Ltd. v Chop Haw Lee & Anor. [1931-1932] FMSLR 31 Plaintiff was a firm of bankers and money lenders who had lent money to Chin Yook, partner of two pawn broking firms. Chin Yook had signed two promissory notes bearing the seal of both firms. The plaintiff sued the defendants to recover the loans they had given to Chin Yook, who had died. The plaintiffs believed that they were making the loans to the defendants, but Chin Yook used the money for his own purpose. The plaintiff was entitled to succeed in their action because a partner in a pawn broking firm had implied authority to bind the firm in respect of the debt. (refer to Higgins case on argument it was not a trading business.) 7 Chan King Yue v Lee & Wong [1962] 28 M.L.J. 379 Plaintiff lent RM35000 to her husband, partner of Lee & Wong. and the money was used to pay off some of the firms debts. When plaintiff sued for recovery of the debt, Wong refused to pay on the grounds firm was not liable for the debts, as plaintiffs husband had no authority to receive any loan on behalf of the firm. Receipt of the loan by the plaintiffs husband was an act necessary for the firms business, and thus held that the act that a person does in the usual course of the partnership business is binding on the firm and the other partners.
Osman bin Haji Mohamad Usop v Chan Kang Swi [1924] 4 FMSLR 292 3 active partners of a firm borrowed RM10,000 from a money lender that was guaranteed by defendant. Defendant was sued for recovery of the loan, when the firm was not able to pay. Defendant later sued all the partners to be indemnified for the money he had paid. All the other partners admitted liability except appellant. The debt was partnerships debt since it was obtained and used for the partnership purposes, and that the partners who signed the promissory noted had acted on behalf of the firm and therefore all the partners were bound to compensate the defendant.
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2. It is carried on in the usual way.
The act will only bind the firm, if, other than the fact that it is one that is usually done by the firm, the act must also be done in usual and ordinary manner.
If the manner the act is carried out is in an extraordinary way, the third party would be put on inquiry of the authority of the so-called partner. In Chan King Yue v Lee & Wong , the judge said that since the loan taken was necessary for the firm to carry on business, the borrowing was in the usual and ordinary manner. 9 3. Third party must know or believe person with whom he enters into transaction is a partner. As liability of firm is based on apparent or usual authority of a partner, third party must know or believe that a partner has such authority. Third party may assume that a partner would have the authority to bind his firm.
Third party could gain knowledge or believe that partner has authority: (i)from having previous experiences with the firm, or (ii)where a partner is held out by the other partners of the firm as a partner, and he could believe that a person has the authority to act from his conduct.
10 Third party must know or believe person with whom he enters into transaction is a partner. Sithambaram Chetty v Hong Hing & Ors. [1928] SSLR 52 Two partners in Singapore opened a shop in Penang called Hop Hing, managed by two managers, & the business was left completely to them. One of them borrowed a sum of money from the plaintiff, and then disappeared. Plaintiff then sought to recover payment from the firm in Singapore as well as the remaining manager in Penang. The firm denied liability on the grounds that the borrower was merely a manager and did not have the authority to sign the promissory note to receive the loan on behalf of the firm. The court held the firm to be liable & rejected the argument as, due to defendants failure to inform those who had business with the firm, they had been misled into thinking that the manager who had borrowed the money was a partner.
William Jack & Co. (Malaya) Ltd. v Chan & Yong Trading Co. (supra) Acts of a person who had been introduced as a partner (even though it was an infant) was binding on the other partners. 11 ACTUAL AUTHORITY Term ACTUAL AUTHORITY covers express actual authority as well as implied actual authority. Express actual authority is the authority given to a partner to do an act or execute a function in the firms name and as such would bind the firm. Implied actual authority is the authority exercised by a person who has been given express authority. This implied actual authority is to enable him to carry out the expressed authority.
S.8 states: An act or instrument relating to the business of the firm or done or executed in the firm-name, or in any other manner showing an intention to bind the firm, by any person there to authorized, whether a partner or not, is binding on the firm and all the partners:
12 ACTUAL AUTHORITY
Re Briggs & Co. [1906] 95 LT 61 A firm of father and son was asked to make payments by a creditor, but there was no money to meet the claim. The son without getting the fathers consent, agreed that the book debts should be assigned to the creditor so that the creditors would give the firm time to pay. The deed of assignment purported to be made was between RB Briggs and HR Briggs, trading under the style of firm of Briggs & Co.. The fathers name in fact was forged by the son. Later the firm became bankrupt, and the trustee in bankruptcy sought to set aside the deed on the ground that it had been executed by one partner only. It was held by the court that the deed was binding under the English equivalent of S.8 of the P.A 1961. It was an instrument relating to the business of the firm done or executed in a manner showing an intention to bind the firm, and executed by a person who was authorized to do so, namely, a partner.
13 ACTUAL AUTHORITY Where an act is not related to the firms business, the act will be binding on the firm only where a person have been expressly been given authority to act. S.9 states: Where one partner pledges the credit of the firm for a purpose apparently not connected with the firms ordinary course of business, the firm is not bound, unless he is in fact specially authorized by the other partners; but this section does not affect any persons liability incurred by an individual partner,
14 LIABILITY IN CONTRACT S.11, states : Every partner in the firm is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner; and after his death his estate is also severally liable in due course of administration for such debts and obligations, so far as they remain unsatisfied but subject to the prior payment of his separate debts.
(i) All partners are generally jointly liable for a firms contract that had been made while they were partners, but , (ii) after his death, a partners liability still remains, but liable severally.
15 LIABILITY IN CONTRACT Joint liability - Every partner is liable jointly with the other partner for all debts and obligations of the firm incurred while he is a partner. A partner is liable for the whole debt of the partnership. Legal action can be taken against one or all the partners so as to recover the debts. But plaintiff can bring only one action and not several actions against the members of the firm. The plaintiff is not bound to join all the partners in one action. If he chooses to sue only one of the partners, he loses his right against those whose names he did not bring into the action.
16 LIABILITY IN CONTRACT However, even if action is taken against one of the partners only, it does not necessarily mean that the rest of the other partners are not liable. They are still jointly liable, because if the partner named in the action is directed by the court to pay the debt, he may request the same court for an order to the other partners not named in the action to jointly contribute towards the payment of the debt.
Third parties can also take action in the firms name. All partners and the firm are assumed to have been mentioned in the action as if the action is taken against each individual partner. If the order by the court is made towards a partner who is unable to pay or becomes bankrupt, the plaintiff will lose the right to claim towards the other partners. 17 LIABILITY IN CONTRACT Kendall v Hamilton (1897) 4 App. Cas. 504 K had given a loan to X and Y, two partners in a trading firm. K took legal action to recover payment from X and Y, and the court ordered X and Y to pay the debt. X and Y subsequently went bankrupt and could not afford to pay. Later K realized that the defendant, H, who was solvent, was an undisclosed partner of X and Y. He then began fresh proceedings against the defendant. Held as the partners are jointly liable, the earlier action would bar another action from being taken. As the court had already made the firm liable by an order towards X and Y, even if the debt had not been paid, another action cannot be taken.
Bagel v Miller [1903] 2 KB 212 B supplied goods to a partnership of which M was a member. Some were ordered and delivered before M died, but others were delivered after his death. B brought an action to recover the price from Ms executors. Held by the court that the action succeeded in respect of the goods delivered before Ms death. But in respect of those delivered afterwards, the action failed since the obligations to pay did not arise whilst M was partner.
18 LIABILITY IN CONTRACT Several liability and after his death his estate is also severally liable in due course of administration for such debts and obligations, so far as they remain unsatisfied but subject to the prior payment of his separate debts.
When a partner dies, his liability for the debts and obligations that arose while he was partner does not end. His estate is severally liable for the debts. Liability is imposed on his estate (whatever assets he has left behind.) After the executors of his estate have settled his separate personal debts, what remains from his estate, whether sufficient or not, will be used to satisfy whatever is still unpaid.
19 LIABILITY FOR WRONGS WRONGS UNDER THE PARTNERSHIP ACT: TORTS AND CRIMES MISAPPLICATION OF THIRD PARTYS PROPERTY IMPROPER EMPLOYMENT OF TRUST PROPERTY 20 LIABILITY IN TORT Torts (negligence, nuisance, trespass and defamation) give rise to civil actions allowing the injured party a right to claim unliquidated damages against the wrongdoer. A partner can commit any of these wrongful acts or omissions.
S.12 states : Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm or with the authority of his co-partners, loss or injury is caused to another person not being a partner in the firm, or any penalty is incurred, the firm is liable there for to the same extent as the partner so acting or omitting to act.
21 LIABILITY IN TORT Liability is seen in two instances: 1. There is liability where the result of a wrongful act or omission is done in the ordinary course of the business of the firm. The firm is liable for the wrongful act or omission of a partner. This can be seen in the following case.
Hamlyn v Houston & Co. (1903) 1 KB 81 A partner in H & Co. bribed a clerk in a rival firm to disclose to him confidential information relating to it. The rival firm suffered a loss in consequences, and sued H & Co. for damages. Court of Appeal held, H & Co. were liable for the partners wrongful act as he had been acting in the ordinary course of the business to obtain information about a trade rival. Whether the partner did so by legitimate or illegitimate means, was immaterial.
22 LIABILITY IN TORT 2. Liability which is the result of a wrongful act or omission of a partner acting in the ordinary course of the business of the firm, where the act or omission is done with the consent of the other partners.
Although a firm cannot be assumed to have given one of its members authority to commit a wrong, yet where it has given him authority to do a class of acts on its behalf, it is liable for his tort either in the manner of doing such acts or in doing them in circumstances in which they ought not to be done at all. e.g. a firm of solicitors would be liable for the negligence of one of the partners, while a medical partnership would be liable for the negligent treatment of a patient by one of its members.
If the tort is committed without the actual authority of the partners and outside the scope of the partners usual authority, the firm and the other partners would not be liable. Mara v Browne [1896] 1 Ch. 199
In contrast to legal action for debts and contractual obligations, for an action in tort, the plaintiff may issue separate writs against each partner either contemporaneously or successively. If the first one sued becomes bankrupt, the fact of having sued him alone would not be a bar to a second action against another partner. 23 LIABILITY FOR CRIMES The terms wrongful act, omission and penalty used in S.12, does not necessarily mean that it refers to criminal liability towards the firm or the partners.
Criminal liability is personal liability of the partner who commits the crime, especially a crime that requires mens rea (a mental intent to commit the crime). In Garret v Hooper [1973] Crim. L. R. 61, Lord Widgery stated; The general principle in criminal law is that a principal cannot be made liable for an offence that requires mens rea simply because his servant or agent has the necessary mens rea.
Chun Shin Kian & Ors v D.P.P (1980)2 MLJ 246 The second accused was away but was charged with the criminal offence of applying a false trade description to the jeans and jackets after a raid by officers from the Trade Description Department. Both partners were convicted of the offence by the magistrate. They appealed against their conviction. High Court allowed the appeal of the second accused and quashed his conviction as he was not present during the raid on the premises. S.14 of the Partnership Act 1961 provides for joint liability for contracts and recovery of damages and fines, not criminal liability.
24 LIABILITY FOR MISAPPLICATION OF MONEY OR PROPERTY OF A THIRD PERSON
S .13 provides that: In the following cases namely: (a) where one partner, acting within the scope of his apparent authority, receives the money or property of a third person and misapplies it; and (b) where a firm in the course of its business receives the money or property of a third person, and the money and property so received is misapplied by one or more of the partners while it is in the custody of the firm, the firm is liable to make good the loss.
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LIABILITY FOR MISAPPLICATION OF MONEY OR PROPERTY OF A THIRD PERSON
In the course of a partnership business, many transactions may take place on behalf of the third party by the firm. Certain documents of title, money or other property may be deposited with the firm, & sometimes unscrupulous partners may use the property or money for their own personal purpose. The firm is liable for the misapplication of the money or the property of a third party in two cases: i. Where the money or property is received by a partner who acts with apparent authority; and ii. Where the money or property is received by the firm in the course of its business.
26 LIABILITY FOR MISAPPLICATION OF MONEY OR PROPERTY OF A THIRD PERSON i. Received by partner who acts with apparent authority. Where one partner acting within the scope of his apparent authority receives the money or property of a third person and misapplies it, the firm is liable to make good the loss e.g. solicitors receiving money and misapplies it. What are acceptances that are regarded as within the ordinary scope of a solicitors apparent authority? Blair v Bromley (1847) 2 Ph. 354 A sum of money was paid into the joint account of a firm of solicitors to be used for investment in certain securities. One of the partners then told the plaintiff that the money had been invested as required, but instead he had misappropriated the money. It was held by the Court, receiving money for investing in certain or specific securities comes within the ordinary course of a solicitors business, and with that decided that all the other partners were liable for the misapplication of the money.
Earl of Dundonald v Masterman (1896) LR 7 Eq 504 Where money is received by a partner in a firm of solicitors in the course of the management and the settlement of the affairs of a client of the firm was held to be money paid to the firm in the course of its professional business. The other partners were liable to make good any loss caused by the negligence or the dishonesty of the partner receiving the money, because it was received by him in the performance of the duties for which the firm was employed.
27 LIABILITY FOR MISAPPLICATION OF MONEY OR PROPERTY OF A THIRD PERSON Harman v Johnson (1853) 2 E & B 61 Receipt of money by a partner in a firm of solicitors from a client for the purpose of investing it as soon as he could find a good security has been held not to be an act within the scope of his apparent authority. Thus his partners were not liable to account for the money so deposited; as such a transaction was not business of the solicitor.
In order to make the firm liable, the third party must show that he dealt with the partner as a partner and not in his capacity as an individual.
British Homes Assurance Corpn. Ltd. v Patterson [1902]2 Ch.404 In 1899 the BHA appointed Atkinson, a solicitor in the firm of Atkinson & Atkinson, to act for it in mortgage transactions. On 5 Feb. 1901, A gave notice to the company that he had taken Patterson into partnership, and that the name of the partnership was thenceforth Atkinson & Patterson. On 28 th Feb. the company sent A a cheque payable to A & A for the purpose of completing a mortgage. The cheque was misappropriated. The company sued P for the loss under the English equivalent of S.13. The court held P was not liable because the company had dealt with A in his personal capacity, and not that of a partner in a firm.
28 LIABILITY FOR MISAPPLICATION OF MONEY OR PROPERTY OF A THIRD PERSON ii. Received by the firm in the course of its business. Where a firm in the course of its business receives money or property of a third person, and the money or property so received is misapplied by one or more of the partners while it is in the custody of the firm, the firm is liable to make good the loss. No question of the partnerships authority to receive the money or property arises. , as long as the receipt is in the ordinary course of the firms business. Rhodes v Moules (1895) 1 Ch. 236 Rhodes wished to obtain a loan, so he mortgaged his property. He was told by Rew, a partner in the solicitors firm of Messers Hughes and Masterman, that the mortgagees wanted additional security, so he handed him some share warrants payable to bearer. Rew misappropriated them, so Rhodes sued the firm in respect of the loss under the English equivalent of S.13 of the P.A 1961. Held by the C.A., that the action succeeded, for the warrants had been received by the firm in the ordinary course of the business.
29 LIABILITY FOR MISAPPLICATION OF MONEY OR PROPERTY OF A THIRD PERSON To render firm liable, the misapplication must be made while the money or property was in the firms custody. Where the money or property is placed in the possession of the one of the partners by fraudulent means of such partners, the money is not considered as in the custody of the firm. Tendering Hundred Waterworks Co. v Jones [1903] 2 Ch. 615 Plaintiff co. wanted to buy property and they employed Jones and Garrad, who were solicitors in a partnership to negotiate the deal for them. G was also secretary to the plaintiff co. The plaintiff instructed that the property to be conveyed to G, who was to be their nominee. The vendors handed over only the conveyance without the title deeds to him. Later G borrowed 500 by depositing the conveyance as security for the loan. The partnership between J & G later was dissolved. The plaintiff co. brought action against J claiming he was liable under the English equivalent of S.13 (b) for the fraud of his partner. Chancery Division held action failed because by of the plaintiffs express instructions. By giving G the legal title to the deeds, plaintiff had allowed him to use the deeds as the legal owner. G did not receive the conveyance as a partner of the firm but as owner under plaintiffs instructions. Consequently, they were not in the custody of the firm within s.13(b) when he used them.
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4. The third party must not know the person with whom he has entered into the transaction has no authority or the permission of the other partners to act on behalf of the firm.
Where a third party enters into a transaction with a person knowing that a person does not have the authority to act, then the firm will not be liable. 31 S. 15 states that: If a IMPROPER EMPLOYMENT OF TRUST PROPERTY FOR PARTNERSHIP PURPOSES partner, being a trustee, improperly employs trust property in the business or on the account of the partnership, no other partner is liable for the trust property to the persons beneficially interested therein: Provided as follows: This section shall not affect any liability incurred by any partner by reason of his having notice of a breach of trust: and Nothing in this section shall prevent trust money from being followed and recovered from the firm, if still in its possession or under its control. If trust property that has been entrusted to a partner who is a trustee, and if it is improperly used by the partner, the other partners cannot be made liable, unless the other partners knew of the breach.
32 IMPROPER EMPLOYMENT OF TRUST PROPERTY FOR PARTNERSHIP PURPOSES Ex parte Heaton (1819) Buck. 386 A son, partner of his father, as trustee of a will had used the trust money of the purpose of the firms business. When the firm became insolvent, the court decided that the trust money improperly used cannot be paid out of the partnership property. Liability of the other partners will only lie if the other partner knew of the breach.
Jacobs v Morris [1902] 1 Ch. 816 The court was of the opinion the knowledge is either actual or implied knowledge, which is knowledge which a person can reasonably obtain. The liability will 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 effort to inquire.
Re Bells indenture; Bell & Anor v Hickley & Ors [1980] 3 AllER 425 Money from a trust was paid into the firms client account in the names of certain members of a solicitors firm who were trustees . They misappropriated the money. Heaver, a partner, had no actual knowledge of the misappropriation and acted throughout honestly and reasonably in regard to the firms affairs. However, as a partner he had access to documents, the inspection of which would have revealed a breach of trust. Heaver died before proceedings were commenced. One of the issues was whether Hs executors were liable on the basis that he had been a constructive trustee or was liable under implied terms of the partnership agreement. It was held by the Chancery Division the executors were not liable for any misapplication of the trust property because H had taken no part in and was ignorant of the transaction in question. 33 LIABILITY OF HOLDING OUT Holding out - where a person who is not a partner, makes it known either by his words or conduct to a third party, that he is a partner. Because of this representation he would be liable as if he was partner. Meaning of holding out was explained by Tindal C.J in Fox v Clinton (1803),.: Holding out to the public as a partner requires a person to voluntary hold himself out. This means lending his name to the partnership, Under ordinary circumstances, this act takes places when a person allow his name to continue to be used by the firm, whether publicly positioned at the shop entrance, or used in the invoices or advertised, so that the knowledge or the consent of the person whose name is thus used, becomes the basis to stop him from denying liability as a partner.
34 LIABILITY OF HOLDING OUT S.16 states: Everyone who by words spoken or written or by conduct presents himself, or knowingly suffers himself, to be represented as a partner in a particular firm is liable as a partner to anyone who has on the faith of any such representation given credit to the firm, whether the representation has or has not been made or communicated to the person so giving credit by or with the knowledge of the apparent partner making the representation or suffering it to be made: Provided that where, after a partners death, the partnership business is continued in the old-firm name, the continued use of that name or of the deceased partners name shall not of itself make his executors or administrators estate liable for any partnership debts contracted after his death.
35 LIABILITY OF HOLDING OUT Based on the estoppel doctrine. i. Where a person makes a representation to a third party, ii. who on believing the representation, relied on it, iii. as a cosequence of which he suffers loss. The person making the representation will be estopped from denying that he had made the statement. i. Representation :person consents or knows that this his name is used as a partner, or wher.e he holds himself out to be a partner. To determine whether a person had been held out as a partner, it is necessary to find the existence of an apparent (as opposed to real) partnership. It can be expressed or implied or made orally before credit is given. Tower Cabinet Co. Ltd. v Ingram [1949] 2 KB 393 Failure to destroy, or was negligent in not destroying the former partnerships letterheads does not mean that he consented to be held out as a partner . 36 LIABILITY OF HOLDING OUT ii. There is reliance on the representation by the third party: The statement or the conduct of holding out is communicated to the third party who acts on the statement. The third party must show that he was aware of the holding out. He must show that he had given credit to the firm because he had relied on the representation.
iii. As a consequence credit is given to the firm by third party. The doctrine of holding out can be applied by those persons who have dealt with the firm in the belief that the person whom they seek to make liable is a member of the firm.
37 LIABILITY OF INCOMING AND RETIRING PARTNERS S.19 states: (1) A person who is admitted as partner into an existing firm does not thereby become liable to creditors of the firm for anything done before he became a partner. (2) A partner who retires from a firm does not thereby cease to be liable for partnership debts or obligations incurred before his retirement. (3) A retiring partner may be discharged from any existing by an agreement to that effect between himself and the members of the firm as newly constituted and the creditors and this agreement may be either express or inferred as a fact from the course of dealing between the creditors and the firm as newly constituted.
38 LIABILITY OF NEW PARTNERS A new member would not be liable for contracts made before his admission to the partnership. His liability would be only to continuing contracts that had been entered into before he became a partner, but continued on after his admission.
However, the principle of novation can make a new partner liable for debts or obligations that had transpired before he became a member. Novation is where the new partner agrees to take over the liabilities of the firm that it had incurred before he became a partner and becomes liable to the creditors. The agreement may be expressed or implied from the conduct of the partner.
39 LIABILITY OF RETIRING PARTNERS A partner who has retired would still be liable for partnership debts or obligations incurred while he was a partner. Court v Berlin [1897]2 B 397 The plaintiff was a solicitor who was employed by firm, which carried on business under the name of I. Berlin to recover a debt due to the firm. The firm consisted of Berlin, who was the managing partner, and two dormant partners. While the action brought by the plaintiff to recover the debt was proceeding, the two dormant partners retired from the firm. The plaintiff continued the proceedings, and then sued Berlin and the dormant partners for his cost. The dormant partners refused to pay the cost incurred after their retirement It was held by the Court of Appeal, that the dormant partners were liable for the entire costs incurred. The solicitors retainer was one entire contract to conduct the proceedings to the end. Liability for costs did not arise from day to day as they were incurred. The plaintiff did not have to obtain fresh instructions at each step in the proceedings.
40 LIABILITY OF RETIRING PARTNERS Malayan Banking Bhd. v Lim Chee Leng & Anor [1985] 1 MLJ 124 The respondents were partners of a firm called Berjasa Corp. The appellant sued the respondent under a trust receipt which matured and become payable on 14 June 1975. Two of the respondents had resigned from the firm on 26 August 1970. It was held by the Federal Court, the respondents incurred the debt on the trust receipt before their resignation or retirement and they could not escape their liability by merely pleading resignation or retirement. Although a partner has retired, s.19 clearly express that he is still liable for the debts of the partnership during his tenure as a partner. He also remains liable to the third parties for debts that are incurred by the firm after he has left, unless he has given express notice of his retirement as according to S.38 (1) which says: Where a person deals with a firm after a change in its constitution, he is entitled to treat all apparent members of the old firm as still being members of the firm until he has notice of the charge.
41 According to S.38 (LIABILITY OF RETIRING PARTNERS 2) any advertisement in the Federal Gazette, Sabah Gazette or Sarawak Gazette as to a firm whose principal place of business in the respective territories, shall be notice to persons who had no dealings with the firm before the date of dissolution or change so advertised. If notice of the retirement is not given, a partner may held be liable on the grounds of holding out as a partner or knowingly suffers himself to be represented as a partner. Re Siew Inn Steamship Co. ; ex parte Ho Hong Bank Ltd.[1934] MLJ 180 A retired partner gave notice of his retirement by advertising it in three Chinese newspapers. After his retirement several of the firms old customers lent money to the firm on the security of promissory notes executed by the remaining members. The plaintiff was later sued by one of these lenders, who denied having notice of the retirement from the newspapers. Held by the court, that the retired partner was liable as actual notice was required for old customers.
42 LIABILITY OF RETIRING PARTNERS For an advertisement of a retirement to be effective as notice depends on whom the advertisement is meant for.
1.Those who have been dealing with firm before the change. Where a person deals with a firm after a change in its constitution, he is entitled to treat all apparent members of the old firm as still being members of the firm, until he has notice of the change. For this group who has been dealing with the firm before the partners retirement, they have to be given notice that is more specific and clear. Tan Sin Moh v Lebel Ltd. [1988] 2 MLJ 52 The appellant had failed to inform the respondents, who have had dealings with the firm, of his withdrawal from the firm. The Supreme Court held that a person who had habitual dealings with the partnership was entitled to be specifically notified of a partners resignation from the firm.
43 LIABILITY OF RETIRING PARTNERS 2. Future dealings. Those who have never dealt with the firm before the change in the constitution of the firm cannot make a retired partner liable for the obligations of the firm after the retirement. For this group, an advertisement in certain gazettes or papers of wide circulations is sufficient as notice of the retirement. Tower Cabinet Co. Ltd. v Ingram It was held by the court that Ingram was not liable because the company had no knowledge of his connection with Merrys except for the name on the letterhead. Where a partner dies, his personal representatives continue to be liable for executory engagements made in his lifetime by the firm (note- severally liable under S.11), unless they were made dependent on the personal conduct or capacity of the deceased and have therefore become incapable of performance by reason of his death. -Philips v Hull Alhambra Palace Co. [1901] 1 KB 59)