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BT20403 COMMERCIAL LAW

TOPIC 2 (1)
OUTLINE
Business Entities:

Sole Proprietorship

Partnership
Definition
Main characteristics
Relations of partners to one another
Liabilities of partners
Partnership property
Dissolution of partnership

BT20403/Topic2 (1) 2
BUSINESS ENTITIES
There are various types of business that are
widely being carried out in Malaysia.

The most common types of business are:


Sole Proprietorship (Perniagaan Tunggal)
Partnership (Perkongsian)
Companies (Syarikat)
Limited Liability Partnership (Perkongsian
Tanggungan Terhad)

Sole proprietorships and partnerships


unincorporated associations, unlike
companies.

BT20403/Topic2 (1) 3
SOLE
PROPRIETORSHIP
Sole proprietorship is the earliest form of
doing business and is still the most common
form of business model.

The business is carried out by a person


individually.

The sole proprietorship is the owner of the


business, hence he has total control of the
management and finances of the business.

BT20403/Topic2 (1) 4
Characteristic of Sole
Proprietorship
The sole proprietorship business has no separate
legal personality from the sole proprietor.

The sole proprietor has the right to the profits of


the business since he is solely responsible for the
business.

The liability of the sole proprietor is


unlimited (no separation between personal and
business asset).

If the sole proprietorship dies or becomes


bankrupt, the business comes to an end.

BT20403/Topic2 (1) 5
Formation of Sole
Proprietorship
There is no formalities to be complied with.

However, there is a requirement for registration


of the business under:
the Registration of Business Act 1956
(except exempted - see Schedule RBA) (for
Peninsular Malaysia);
the Trade Licensing Ordinance No 16
1948 (for Sabah); and
the Business Names Ordinance (Cap. 64)
and Business, Professions and Trade
Licensing Ordinance (Cap. 33) (for
Sarawak).

BT20403/Topic2 (1) 6
Formation of Sole
Proprietorship
The person responsible for a business shall,
not later than 30 from the date of the
commencement of the business, apply to the
Registrar for the registration of the business
(s.5(1) RBA).

Under RBA, it is an offence to carry on


business if the business is not registered:
s.12(1) RBA where upon conviction, shall be
liable to a fine not exceeding RM50 thousand
or to imprisonment for a term not exceeding 2
years or to both.

BT20403/Topic2 (1) 7
Advantages and
Disadvantages of a Sole
Proprietorship
Advantages Disadvantages
Easiest and least Raising fund may be
expensive form of more difficult compared
ownership to organize. to other forms of
business.

Sole proprietors have Unlimited liability. Since


complete control, sole proprietors are
making decisions as legally responsible for
they see fit. all debts against the
business, their business
and personal assets are
at risk.
BT20403/Topic2 (1) 8
Cont.
Advantages Disadvantages
Sole proprietors receive May have difficulty
all income generated attracting high calibre
by the business to keep employees, or those
or reinvest. who are motivated by
the opportunity to own
a part of the business.
Profits from the
business flow through
directly to the owners
personal tax return.
The business is easy to
dissolve or sell, if
desired.
BT20403/Topic2 (1) 9
PARTNERSHIP
In Malaysia, the law that governs partnership is
the Partnership Act 1961.

The Act is similar to the English Partnership


Act, 1890 and under s.47(1) of the Partnership
Act 1961, it provides for the application of the
rules of equity and common law in
partnership so long as they are not
inconsistent with the express provisions of the
Act.

A partnership is a type of business carried on


by 2 or more persons who are known as
partners.
BT20403/Topic2 (1) 10
CONT.
The partners of a firm must have agreed to
carry on a common business, with the aim of
making profit.

S.6 PA 1961 persons who have entered


into partnership with one another are
collectively called a firm.

Although any kind of business may be


conducted through a partnership, not all
business relations create a partnership.

BT20403/Topic2 (1) 11
Definition of
Partnership
Definition - S.3(1) of the
Partnership Act 1967

Partnership is the relation


which subsists between
persons carrying on
business in common with a
view of profit.

BT20403/Topic2 (1) 12
...cont
From the definition in s.3, we can derive 3
salient features of partnership:

1. involves a relationship between 2 or more


people;

2. relationship involved is for business


purposes, Soh Hood Beng v Khoo Chye
Neo (1897) 4 SSLR 115;

3. profit driven, Aw Yong Wai Choo v Arief


Trading Sdn Bhd (1992) 1 MLJ 166.

BT20403/Topic2 (1) 13
...cont
Where a partnership agreement does not
exist, s.4 provides a number of tests in
determining the existence of a partnership:
S.4(a) Joint tenancy, tenancy in
common, joint property, or part
ownership does not itself form a
partnership
Davis v Davis (1894)

Fromount v Coupland

BT20403/Topic2 (1) 14
...cont
S.4(b) The sharing of gross returns does
not itself establish a partnership,
whether the parties who share the
returns have or do not have a joint
right or interest in the property
from which or from the use of
which the returns are derived.
Cox v Coulson (1916)

BT20403/Topic2 (1) 15
...cont
S.4(c) Sharing of business profit by a
person is a prima facie evidence of
partnership. However, the
presumption may be rebutted if the
sharing is for some other reasons:
1)Payment of a debt out of profits of
the business to a creditor by
instalments does not make the
creditor a partner in the business.

Cox v Hickman (1860)

Buckingham v Port Jackson &


Manly Steamship Co [1957]

BT20403/Topic2 (1) 16
...cont
S.4(c) 2) Remuneration to a servant or an
agent of the business from the
profit of their employers business.

Walker v Hirsch (1884)

3) Payment of an annuity or a
portion of the profits to a widow or
child of a deceased partner in the
business.

I.R.C. v Lebuss Trustees [1946]

Wong Peng Yuen v Senanayake


[1962]BT20403/Topic2 (1) 17
...cont
S.4(c) 4) Payment of interest which varies
with the profits on a loan
advanced for use in the business
under a written contract.

Re Young [1896]

5) Payment to a seller of the good


will of a business in the form of a
share of the profits of the
business.

Pratt v Strick (1932)

BT20403/Topic2 (1) 18
Main Characteristics
Formation:
A partnership is known as firm (s.6(1));

A partnership has no legal personality apart


from the personalities of its members -
Alagappa Chettiar v Coliseum Cafe (1962).

When a firm is being sued, it is the partners


who are being sued and being made
responsible for the firms debts. When a firm is
sued, the 3rd party may sue the partner by
making a claim against the partnership using
the firms name or using all the individual
partners names as defendants.
BT20403/Topic2 (1) 19
...cont
In forming a partnership, elements of a
contract have to be fulfilled e.g.
agreement, capacity, intention,
consideration, certainty etc. -William
Jacks & Co (Malaya) Ltd. v Chan &
Yong Trading Co. (1964) MLJ 105.
The term persons refers to a body of
persons corporate or un-incorporate.
Hence, a partnership can exist between an
individual and a company, individuals with
individuals or between 2 or more
companies.

BT20403/Topic2 (1) 20
BT20403/Topic2 (1) 21
...cont
Capacity:
Persons of legal capacity are capable
of entering into a partnership
agreement;
Even a minor (under 18 years old) are
capable of entering into a partnership
agreement - William Jacks & Co
(Malaya) Ltd v Chan & Yong Trading
Co (1964)

BT20403/Topic2 (1) 22
...cont
Goode v Harrison [1821]- it was held that a
minor could be in a partnership for any
duration of time until he wanted to disaffirm
it;

However, a minor cannot incur or be


responsible for any contractual liability for the
firms debts. Upon reaching the age of 18, the
minor can, if he wishes, discharge himself
from all future debts by terminating the p/ship
agreement. Failure to repudiate the
agreement makes him liable for the p/ship
debts.

BT20403/Topic2 (1) 23
...cont
Registration of partnership business:
A partnership business in Peninsular Malaysia
must be registered under the Registration
of Business Act 1956,
in Sabah, under the Trade Licensing
Ordinance No 16 1948; and
in Sarawak under the Business Names
Ordinance (Cap. 64) and Business,
Professions and Trade Licensing
Ordinance (Cap. 33).

Registration is required to enable the firm to


sue or to enforce 3rd party obligations owed to
the firm.

BT20403/Topic2 (1) 24
...cont
Registration (cont.):

Although businesses must be registered under


RBA 1956, the fact that a partnership has not
been registered is irrelevant for the purpose of
establishing whether there is a partnership :

Cases to be referred:
Gulazam v Noorzaman and Sobath [1957]
Ratna Amal & Anor v Tan Chow Soo
[1964].

Required to inform changes.


BT20403/Topic2 (1) 25
...cont
Partnership still exist though it is not registered
under the Partnership Act 1961.

Gulazam v Noorzaman and Sobath [1957]:


Plaintiffwas to provide capital for the
purchase of cattle and the defendants were
to look after and sell the cattle. Plaintiff
claimed money due to him but defence
brought by defendants was that p/ship never
existed thus plaintiff had no recourse for the
outstanding amount.
Held:
Partnership exist although it was not
registered
Plaintiff claim was allowed.
BT20403/Topic2 (1) 26
...cont
Ratna Ammal v Tan Chow Soo [1964]:
The parties entered into an agreement to
form a syndicate for the purpose of selling
condensed milk. The word p/ship was not
used in the agreement.
Held:
From the facts, the relation of the parties
had the business character of a
partnership, and thus, although the word
syndicate was used throughout instead
of partnership, the arrangement arrived
at was in fact a partnership as they had
agreed to carry on business in
common with a view of profit.

BT20403/Topic2 (1) 27
...cont
Contents of the partnership
agreement:

Relationship between partners may be created


orally, in writing or by conduct.
In the absence of any oral or written
agreement, the terms prescribed in the
Partnership Act 1961 (s.26) will be
applicable.
Contents of the partnership agreement include
name of the firm, place of business, list of
partners and their contribution, duration (if
any), asset (if any), p/ship account, profit and
loss distribution, methods of dissolution.
BT20403/Topic2 (1) 28
...cont
Management: In absence of contrary
agreement, all partners are entitled to share in
managing the firm (s.26(e)).

Contractual authority: A partner is presumed


in law to have authority to enter into contracts
on behalf of the firm in the ordinary course of its
business.
S.7 - a partner is an agent of the firm and
other partners (express or apparent authority)

Numbers: Minimum of 2 partners but not more


than 20 partners except for professional firms
which have no maximum limit on the number of
partners (s.3(1) and s.47(2)).
BT20403/Topic2 (1) 29
...cont
Liability: A partner is liable for the debts of
the partnership to the full extent of his
private estate;

Dissolution:
by the expiration of the agreed period of
its duration
upon the completion of the particular
undertaking for which the firm was formed
death or bankruptcy of any partner
mutual agreement
by order of a court

BT20403/Topic2 (1) 30
Sect.2
Agreement (binding)
Business in common
Number of partners

Net profit
Voluntarily not partnership

BT20403/Topic2 (1) 31
TYPES OF PARTNER

DORMANT/
ACTIVE
SLEEPING
PARTNER
PARTNER

BT20403/Topic2 (1) 32
Advantages &
Disadvantages of A
Partnership
Advantages Disadvantages
A partnership is relatively Unlimited liability.
easy to form and the start-up
cost is low.
Allows several people to The partners are
combine resource and personally and jointly
expertise, i.e. additional responsible or liable
investment capital as well as for all debts of the
a wider pool of knowledge, firm.
skills and contracts as
compared with a sole
proprietorship.

Limited regulation by It may be difficult to


authorities. find suitable
BT20403/Topic2 (1)
partners. 33
Cont.
Advantages Disadvantages
Each partner is taxed Lack of succession. The
individually, meaning duration of partnership is
that each partner uncertain: if any partner
includes business dies, withdraws, sells his
income on his personal interest or a new partner is
income tax returns. admitted into the business
the partnership comes to
an end.
Partners can legally bind
each other without prior
approval.
Divided authority and the
lines of authority may not
be clear.

BT20403/Topic2 (1) 34
Self Quiz
Vince, Felix, Mawi and Marsha are good
friends. They have finally agreed that each of
them will contribute RM1,000 per month so
that each of them can start their business.

Avril and Lavigne have agreed in writing that


both of them will set up a shop that sells
donated goods and the income will be
channelled towards victims of tsunami in
Aceh, Thailand, Malaysia and Sri Lanka and
earthquake in Pakistan and India.

Consider whether partnership exists in these


situations?
BT20403/Topic2 (1) 35
Relations of: (a) partners to 1 another;
(b) firm and partners; and
(c) partners and 3rd
parties
The partners are governed by their partnership
agreement.

In the absence of such agreement, the


Partnership Act 1961 will be applicable- S.26

The principle of utmost good faith between


partners is envisaged in these provisions:
S.30 duty of partners to render accounts etc;
S.31 accountability for private profits;
S.32 - duty of a partner not to compete with
him

BT20403/Topic2 (1) 36
Relations of Partners to 1
Another
S.7- A partner is an agent of the firm and
other partners:

Every partner is an agent of the firm and his


other partners for the purpose of the
business of the partnership , and the acts of
every partner who does any act for carrying on
in the usual way of business of the kind
carried on by the firm of which he is a
member bind the firm and his partners ,
unless the partners 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 a partner .

BT20403/Topic2 (1) 37
...cont
The authority of each partner may either be an
actual authority or apparent authority.

Actual authority (express or implied).


Express authority may be given in writing (as
in the partnership agreement) or orally
- Chan King Yue v Lee & Wong (1962) (*)
- Osman bin Haji Mohamed Usop v Chan
Kang Swi (1924) (*)
- Sithambaram Chetty v Hong Hing
(1924)
- William Jacks & Co (Malaya) Ltd. v
Chan & Yong Trading Co. (1964) (*)

BT20403/Topic2 (1) 38
...cont
Chan King Yue v Lee & Wong [1962] MJ 379
Plaintiffs husband borrowed from her RM35,000
as a loan from her to the firm in which he is a
partner. He gave her a receipt in the name of
the partnership. The money was paid into the
partnerships account and immediately utilized
by the firm to pay off some debts. Plaintiff sued
for the recovery of the loan.

Held: The borrowing was an act necessary for


the carrying on of the business of the
partnership and as such bound the co-partner.

BT20403/Topic2 (1) 39
...cont
Osman b Haji Mohamed Usop v Chang Kang
Swi (1924) 4 FMSLR 292
A partnership has been formed by 6 partners
including the appellant. 3 of the partners borrowed
RM10,000 from a 3rd party by effecting a promissory
note. The loan was guaranteed by the respondent
(Chan Kang Swi). Later, the firm failed to pay the
debt and Chan was called to pay for the debt on his
own account. He then initiated action against the 6
partners for recovery of his money and 5 partners
accepted their liability, except the appellant.

Held: The debt was a firms debt and was obtained


for the purpose of partnership. The partners who
signed the promissory note had acted for the firm
and they were authorized to do so. Therefore, the
firm or the 6 partners were liable.
BT20403/Topic2 (1) 40
...cont
William Jacks & Co (Malaya) Ltd v Chan &
Yong Trading Co (1964)
The plaintiff claimed against the defendants the
sum, of RM12,734.91 for goods sold and
delivered by the plaintiff to the defendants. Chan
and Yong were sued as partners of the firm. Yong
(a minor) did not take any steps to defend but
Chan raised the following defences:
1. that no firm by the name of Chan & Yong
Trading Co. ever existed, and that , if such a
firm did exist, he was not a partner thereof;
2. that he did not in any way represented or held
himself out as a partner of the said firm;
3. the goods bought from the plaintiff were for
the personal use of Yong and that the partners
were therefore not liable.

BT20403/Topic2 (1) 41
...cont
The court held:
Chan was a partner of Chan & Yong Trading;
Chan represented himself to be partner in
the firm by approaching a salesman of the
plaintiff to ask for credit facilities with the
plaintiff company by registering the
partnership with the ROB, and by opening a
banking account with his own money in the
name of the partnership.
The fact that Yong made use of the goods
bought from the plaintiff for his own purpose
did not mean that the partnership and
partners were not liable.

BT20403/Topic2 (1) 42
...cont
Apparent authority (or ostensible
authority):
When a partner (who does not have the
authority) holds out that he has such
authority, or a person holds out that he is
a partner and the other partners knew
about it yet do nothing to stop it, hence
the partners are liable.

Garland v Jacomb
Kendal v Wood

BT20403/Topic2 (1) 43
...cont
Partners are bound by acts done on behalf
of firm:

S.8: An act or instrument relating to the


business of the firm and done or executed
in the firms name, or in any other manner
showing an intention to bind the firm, by
any person thereto authorized, whether a
partner or not, is binding on the firm and
all other partners.

BT20403/Topic2 (1) 44
...cont
Partner using credit of firm for private purposes:

S.9: Where one partner pledges the credit of


the firm for a purpose apparently not
connected with firms ordinary courses of
business, the firm is not bound, unless he is in
fact specially authorised by other partners;
but this section does not affect any personal
liability incurred by an individual partner.

Bank of Australasia v Breillat


Mercantile Credit Co v Garrod

BT20403/Topic2 (1) 45
...cont
Effect of notice that firm will not be bound by
acts of partner - If the 3rd party has notice of the
agreement between the partners (restricting the
power of any one or more of them of them to
bind the firm) then the firm will not be bound in
respect of any act done in contravention of the
agreement.

S.10: If it has been agreed between the


partners that any restriction shall be placed on
the power of any one or more of them to bind
the firm, no act done in contravention of the
agreement is binding on the firm with respect
to persons having notice of the agreement.

BT20403/Topic2 (1) 46
Liability of Partners
The concept of Joint and Severally Liable
Partners liabilities:
Contractual liability;
Tortious liability;
Misapplication of money and/or property;
Criminal liability.

The above liabilities will be discussed in


turn

BT20403/Topic2 (1) 47
Cont.

BT20403/Topic2 (1) 48
Contractual Liability
S.11:

Every partner in a 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.

BT20403/Topic2 (1) 49
...cont
S.11 deals with partners contractual
liability to 3rd parties:

While he is a partner, every partner is


liable jointly with the other partners for
all debts and obligations of the firm; and
After his death, his estate is also
severally liable.

Osman Hj Mohamed Usop v Chang


Kang Swi (1924)

BT20403/Topic2 (1) 50
Liability between firm and
partners:

JOINT LIABILITY S.11


Plaintiff can opt either to

Sue all the partners May sue one or


jointly more of the partners
concerned
Every partner is liable jointly for every conduct
of the firm while he is a member of the firm.

BT20403/Topic2 (1) 51
...cont
For example: if Mr. X, Mr. Y and Mr. Z are
partners in the firm named XYZ Enterprise
the legal entity may be described as Mr. X,
Mr. Y and Mr. Z trading as XYZ Enterprise.

Kendall v Hamilton (1897) (*)

BT20403/Topic2 (1) 52
...cont
Kendall v Hamilton (1897)

A creditor sued all the obvious members of a


partnership and was awarded judgement
against them. He failed to recover the debt in
full. He subsequently discovered a wealthy
dormant partner whom he sought to sue for the
balance of the debt.

The House of Lords held that since the debt


was a joint one only, by suing the apparent
partners the creditor elected to sue only them
and could not commence fresh proceedings
against the other partner.
BT20403/Topic2 (1) 53
Tortious Liability
Tort refers to the breach of a duty imposed by
the law. The law of torts seeks to compensate
the victims of certain forms of harmful
conduct by an award or an injunction which
prevents the same from reoccurring.
E.g. A negligently collides with Bs stationary
car on the road and causes damage to it.
E.g.: trespass

For tortious liability to arise, there must be:


a duty of care;
breach of the duty of care;
damage occurs.

BT20403/Topic2 (1) 54
...cont
S.12:
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 any person not being a
partner in the firm, or any penalty is
incurred, the firm is liable to the same extent
as the partner so acting or omitting to act.

BT20403/Topic2 (1) 55
Section 12

Conditions

BT20403/Topic2 (1) 56
...cont
In order to make a firm liable, the tortious
act must be committed by a partner either
in the ordinary course of the business
of the firm or with the authority of his
co-partners.

Blyth v Fladyate [1891]

Hamlyn v Houston & Co [1905]

BT20403/Topic2 (1) 57
Liability for
Misapplication of Money
or Property S.13
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 or property so
received is misapplied by one or more of
the partners while it is the custody of the
firm,

the firm is liable to make good the loss.

BT20403/Topic2 (1) 58
...cont
Liability for wrongs joint and several:

S.14: Every partner is liable jointly with his


co-partners and also severally for everything
for which the firm while he is a partner therein
becomes liable under s.12 or s.13.

This means that if the partnership firm is liable


for wrongs under s.12 or to liable to make good
the loss due to misapplication of money or
property under s.13, the plaintiff can sue all
the partners jointly or may even sue 1 or
more of the partners concerned.

BT20403/Topic2 (1) 59
Criminal Liability
Partners are only jointly liable in civil cases,
they are not jointly liable in criminal cases .

Criminal liability is a personal liability of


partners who have committed it, its requires
mens rea.

The above rule is clearly envisaged in the


case of Chung Shin Kian & Anor v Public
Prosecutor [1980] 2 MLJ 246

Garrett v Hooper [1973]

BT20403/Topic2 (1) 60
Liability for improper
employment of trust
property for partnership
purpose
S.15: If a partner being a trustee, and
employs trust property in the business, no
other partner is liable for the trust property
to the beneficiaries for the breach of trust.
The other partner can be sued if they have
notice of the breach of trust. If the property
still in the firms possession, the
beneficiaries can recover it.

Ex Parte Heaton

BT20403/Topic2 (1) 61
Liability of Persons for
Holding Out
S.16: either by: - words spoken or written; or
- conduct; or
- who knowingly suffers himself,
liable as a partner to anyone who has on the
faith of any such representation
Proviso: 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 as part thereof
shall not of itself make his executors or
administrators estate or effects liable for any
partnerships debt contracted after his death.
William Jacks & Co (Malaya) Ltd v Chan &
Yong Trading Co. [1964]

BT20403/Topic2 (1) 62
...cont
The liability is based on the principle of
estoppel.

When a person makes a representation that


induces 3rd party to believe and rely on such
representation that he is a partner, the person is
estopped from denying or contradicting the
statement.

In Re Buchanan & Co. (1876), it was held that


if the holding out or representation is made
without the knowledge or consent from the real
partner, only the person holding out as a partner
shall be liable to the third party acting in reliance
of the representation.
BT20403/Topic2 (1) 63
Liability of Outgoing
Partners (Retiring)
Retiring partner may still liable unless he
gave notice that he is no longer a partner.

S.38(1) - 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.

BT20403/Topic2 (1) 64
...cont
Re Siew Inn Steamship Co [1934] MLJ 180

The court held that the retired partner was


liable on the promissory notes for money lent
to the firm.

Actual notice was necessary as far as old or


existing customers were concerned. Notices on
the retirement of the plaintiff in 3 Chinese
newspapers were insufficient and ineffective
notice to those who had dealings with the firm
that he was no longer a partner. The
effectiveness of such notice depends on to
whom the notice is made.
BT20403/Topic2 (1) 65
...cont
2 parties considered to have dealings with
firm are:
For unknown person who has no previous
dealing with the firm before the change in
the firms constitution, a notice in a national
gazette is sufficient and effective that the
partner is no longer a partner in that firm.
For those who have previous dealings with
the firm, a more specific and clear notice is
required (as held in Hup Aik Tin Mining
Co v Kam Hoy Trading (1969) MLJ).

Tan Sin Moh v Lebel Ltd [1988] 2 MLJ 51


BT20403/Topic2 (1) 66
...cont
S.19(2) : A partner who retires from a firm
does not thereby cease to be liable for
partnership debts or obligations incurred
before his retirement.

S.19(3) : A retiring partner may be


discharged from any existing liabilities by an
agreement to the effect between himself and
the members of the firms 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 firms as newly
constituted.
BT20403/Topic2 (1) 67
...cont
Malayan Banking Bhd v Lim Chee Leng &
Anor (1985) 1 MLJ 214: The respondents
were held to be liable for the debts incurred
before they retire or resign. In this case the
respondents had incurred the debt on the
trust receipt before their resignations or
retirement and they could not escape liability
by merely pleading resignation or retirement.

BT20403/Topic2 (1) 68
Liability of incoming
partners (new)
General rule: a new partner is not liable for
the debts incurred prior to his admission,
refer s.19(1):

A person who is admitted as a partner into


an existing firm does not thereby become
liable to the creditors of the firm for
anything done before he became partner.

BT20403/Topic2 (1) 69
RIGHTS & DUTIES OF
PARTNERS
Right and duties of partners to one another are
governed by the terms under partnership
agreement.
In the absence of the provisions in the partnership
agreement, the Partnership Act (PA) will apply.

S. 21 PA:
The mutual rights and duties of partners, whether
ascertained by agreement or defined by this Act,
may be varied by the consent of all the partners,
and such consent may be either express or
inferred from a course of dealing.

BT20403/Topic2 (1) 70
1.Capital, profit & loss
- S.26(a) 2.Indemnity - S.26(b)

3. Interest on extra 4.Interst on capital


capital subscribed subscribed - S.26(d)
- S.26(c)

RIGHTS
5. Management of BETWEEN 6. Remuneration -
business - S.26(e) PARTNERS S.26(f)

7. Introduction of new 8. Differences as to


partner - S.26(g) ordinary matters -
S.26(h)

9. Partnership book 10. Expulsion of partner


S.26(i) - S.27

BT20403/Topic2 (1) 71
Fiduciary Duties of
Partners
The principle of utmost good faith
between partners are implicit in every
partnership agreement and is a prime
requisite in relations between partners.

This is because the relationship between


partners is based on mutual trust and
confidence.

The relevant provisions in the Partnership


Act pertaining to this are s.30, s.31 and
s.32.

BT20403/Topic2 (1) 72
Cont.
S.30: Duty of partners to render true
accounts.
Partners are bound to render true accounts
and full information of all things affecting the
partnership to his co-partner(s).

Maddeford v Austwick [1826] It was


held that the sale and purchase transaction
of a share in the firm without disclosure of
material facts on the partnership assets was
voidable.

Law v Law [1905]

BT20403/Topic2 (1) 73
Cont.
S.31: Accountability of partners for private
profit.
Every partner must account to the firm for any
benefit derived by him, without the consent of
the other partners, from any transaction
concerning the partnership.

Bentley v Craven [1853] The court held


that a partner cannot make a profit from a
resale of any property owned by him to the
firm without full disclosure to the other
partners

Aas v Benham [1891]

BT20403/Topic2 (1) 74
Cont.
S.32: Duty of partner not to compete with
firm.
If a partner, without the consent of the other
partners, carries on business of the same
nature as and competing with that of the
firm, he must account for and pay over to
the firm all profits made by him in that
business.

Green v Howell [1910]

BT20403/Topic2 (1) 75
Cont.
Ass v Benham [1891] - A partner in a ship-
brokerage firm assisted in the incorporation
of a ship building company using
information he obtained from the firm's
business. He was then appointed as a
director in the said company and received a
salary in consideration for the services he
rendered. Other partners claimed for the
benefit to be given to the firm.

The Court held that: Other partners had no


right to claim for the benefit since the ship
building business was of different nature
from the ship-brokerage business.

BT20403/Topic2 (1) 76
Cont.
If there is a breach of duty committed by a
partner, he is only liable to make good the
loss suffered by the partnership if he is
guilty of fraud or culpable negligence
or willful default.

Ong Keng Huat v Hong Kong United Co


Ltd [1961] 27 MLJ 36.

BT20403/Topic2 (1) 77
Partnership Property
S.22(1): Partnership property is defined as:

All property and rights and interests in


property originally brought into the
partnership stock or acquired, whether by
purchase or otherwise on account of the firm
or for the purposes and in the course of the
partnership business, and must be held
and applied by the partners exclusively for
the purposes of the partnership and in
accordance with the partnership
agreement.

BT20403/Topic2 (1) 78
...cont
Any property which is purchased out of
partnership asset is regarded as partnership
property though it is not used for carrying
out the partnership business - s.23

Wray v Wray [1905]


Ponnukon v Jebaratnam [1980] 1 MLJ 282

S.24: In the absence of an agreement to the


contrary, the property of the partnership has
to be sold on dissolution of partnership.

BT20403/Topic2 (1) 79
Dissolution
Several ways in which a partnership is dissolved:

1. By agreement:
a. Upon the expiry of specific duration (if
any)
b. Mutually agreed by the partners

2. By operation of law (s.34);


a. by the expiration of the term fixed, or
b. by the termination of an adventure or
undertaking, or
c. by any partner giving notice to the other
of his intention to dissolve the partnership

BT20403/Topic2 (1) 80
cont
3. By death or bankruptcy (s.35);
s.35(1): death or bankruptcy of any
partner;
(see Lee Choo Yam Holdings Sdn.
Bhd. v Khoo Yoke Wah & Ors )

s.35(2): by charging his shares,


dissolution at the option of other
partners

4. By supervening illegality (s.36);

BT20403/Topic2 (1) 81
...cont
5. By Court order (s.37): The court may order
the dissolution of the partnership, on
application by a partner:-

a. Insanity of a partner;

b. Permanent incapability of performing his


contractual obligations;

c. The partner will affect prejudicially the


carrying on of the business
Charmichael v Evans [1904];
Clifford v Timms [1908] AC 12

BT20403/Topic2 (1) 82
...cont
d. Where a partner, wilfully or persistently
commits a breach of partnership or
otherwise so conducts himself in matters
relating to partnership business- not
reasonably practicable for others to carry
on the business with him;

e. When the business of the partnership can


only be carried on at a loss; or

f. It is just and equitable in the courts


opinion to dissolve the partnership.
Re Yenidje Tobacco Co. Ltd. (1916)

BT20403/Topic2 (1) 83
Consequences of
Dissolution
Right to notify outsiders, s.38
Right of a partner to give public notice of
retirement or dissolution, s.39

Refer cases:
Re Chop Yew Seong
Tan Siin Moh v Lebel Ltd [1988] 2 MLJ
51
Jemco Sdn Bhd v Andrew Liau Ka
Lieng & Ors [1985] 2 MLJ 119

BT20403/Topic2 (1) 84