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LAW OF

PARTNERSHIP

LECTURE NOTE 1
CONTENTS
NATURE AND CHARACTERISTIC OF A PARTNERSHIP
Definition of a partnership and its differences with other type of business
organization.
Rules for determining of partnership - Sec. 4 of Partnership Act, 1961.
RELATIONS OF PARTNERS TO PERSONS DEALING WITH THEM
Concept of Joint & Several Liability
Liabilities of partners- in contract, torts and crime
Misapplication of money and property
Improper employment of trust property for partnership purposes
Duration of liability
RELATIONS OF PARTNERS TO ONE ANOTHER
Rights and duties of partners
Duty of good faith
Partnership property
Retirement & continuation of partnership after expiration of agreed term
DISSOLUTION OF PARTNERSHIP
Dissolution without courts intervention
Dissolution by court
Consequences upon dissolution
NATURE AND CHARACTERISTIC
OF A PARTNERSHIP
Definition of a partnership and its differences
with other type of business organization.
Rules for determining of partnership - Sec. 4 of
Partnership Act, 1961.
INTRODUCTION
Partnerships are one of the most common modes
of business operation in Malaysia.
The law of partnership is governed by the
Partnership Act 1961; there are number of
principles of law arising from the English Act
which are applicable in Malaysia.
section 47 of the Partnership Act provides that
the rules of equity and common law applicable
in the partnership will continues in force, except
in so far as they are inconsistent with the express
provision of the Act.
Chan King Yue v Lee & Won (1962) 28 MLJ 379;
the lender was entitled in equity to stand in the
same position as if the money had originally been
borrowed by the partnership, therefore the
partnership is bound by the debt.
In peninsular Malaysia, a partnership business
must be registered under the Registration of
Business Act 1956;
Sarawak under the Registration and licensing of
Business Ordinance 1953; and
Sabah under the Trade Licensing Ordinance.
However, a mere failure to register the partnership
under these statutes would not mean that the
partners cannot enforce their rights against each
other.
Gulazam V Noor Zaman & Sobath (1957) 23
MLJ 45;
the court held that Section 8 of the Registration
and Licensing of Business Ordinance 1953 does
not affect the right of one partner in firm which
had failed to comply with the Ordinance to bring
an action against his co partner.
Definition of Partnership
Section 3 of the Partnership Act 1961 defines
partnership as the relation which subsists
between persons carrying on a business in
common with a view of profit.
Thus a partnership was formed to engage in
business in order to earn profits which
eventually accrue to their individual partners.
RatnaAmmal & Anor v Tan Chow Soo (1964) 30
MLJ 399;
where the parties entered into a formal agreement
to form a syndicate to sell condensed milk. The court
decided that there was a subsisting partnership
notwithstanding the omission of the word partnership
in the agreement because the relationship between
the individuals had the business character of
partnership between the scopes of the Act.
Smith v Anderson (1880) 15 Ch. 247,
James L.J.; defines an ordinary partnership as:
a partnership composed a definite individuals,
bound together by a contract between themselves
to continue combined for some joint object either
during pleasure or during a limited time, and
essentially composed of the persons originally
entering into contract with one another.
From the definition, persons carrying on business
mean that is a business activities, thus there is no
partnership where it merely shows that persons were
preparing to carry on business as a company as
soon as they could.
Whatever strep that have been taken such as
instruction to solicitors to prepare a deed and
leasing of a business place for a business to be
undertaken in the future will not come within the
definition of a partnership.
The term business under Partnership Act must
be business activity, which covers every trade,
occupation or profession.
Business here is confined to the services
provided by professional people as well as
services and goods offered by individuals in
exchange for commercial gains, usually
measured in monetary terms.
Whether there is a partnership, parties must able
to show:
carrying on business;
in common; and
with a view of profit.
Carrying on business
Business means an active occupation and the
word carrying on a business impliedly mean
there must be a degree of continuity in the
conduct of that active occupation either fact
or intention.
Normally an isolated act or transaction will not
constitute carrying on business in the sense that
it will not create a partnership unless there is
some intention that the act, transaction or
venture will be repeated.
Smith v Anderson [1880] 15 Ch. 247,
Brett L.J said;
the expression carrying on implies a reputation of
cats, and excludes the case of an association
formed for doing one particular act which is never
to be repeated. That series of acts is to be a series
of acts which constitute a business.
In common
The requirement that the business must be
carried on in common does not mean that all of
the alleged partners must take an active part in
the business.
It simply means that the business must be carried
on by or on behalf of the partners. Sometime only
one out of several partners is actually the active
one running the business, or the entire business
may also be left in the hands of appointed
manager.
Thetest to determine whether a business is
being carried on by or on behalf of the
partners is:
does the person who, in fact carries on the
business do as an agent for the persons alleged
to be the partners, if he is, then that person is
partners.
Lang v James Morrison & Co Ltd;
the Court held that on the evidence Lang had not taken
an active part in the operation of Thomas Mac Farland &
Co. he had not operated its bank account, had not been
included in the discussions of it operations, his own
partnership had kept entirely separate books and
although he had signed letter for the company, he had
only singed them at Mc Farland request and in his
absence.
That being so he could only be liable as a partner if
Morrison could show that Lang had carried on business of
the company on the behalf of others in the sense that he
was their agent.
On the facts, this had not been the case. Lang could not
be regarded as a partner in the firm where the business in
run by an employee manager and the owners take no
active part.
Yeow Cheng V Teo Guan Chiang [1948]
MLJ 154;
Oral evidence stating that the business was
carrying in common has been accepted by
the court to render the partnership to be
existed.
With a view of profit
Profit here means net profit, the left over deducting
expenditure from income.
Even if the firm in fact operates at a loss, their initial
intentions invariable have been to have run it at
profit.
This characteristic excludes social and recreational
bodies because they are not formed for the
purpose of profit-making.
Soh Hood Beng v Khoo Chye Neo [1897] 4 S.L.R. 115;
A Chinese loan association is also not considered as a
partnership under Partnership Act for the carrying on
business for gain.
An individual or a group of individual own and manage
a chattel like a ship or an estate, they may derive profit
in the form of rents collected but this alone does not
constitute a partnership unless they carry on business
with respect to the land or ship owned by them making
used of the ship as a carrier for goods and passengers.
Members of a group who buy shares and divided
whatever dividends they may receive cannot call their
group as a partnership
Section 3(2)
Characteristics of Partnership
There must be more than one person to
constitute a partnership.
There must be an agreement between
the person, express or implied to have
business in common.
Mollowo, March & Co v Court of Wards
Sir Montague Smith: to constitute a
partnership the parties must have agreed
to carry on business, or to share profits in
some way common.
Aw Yong Wai Choo v Arief Trading Sdn. Bhd &
Anor
Peh Swee Chin J.:
The stated rules in s 4 of the Partnership Act 1961
regarding the determination of whether a
partnership does or does not exist cannot be
exhaustive at all. The relevant factors to be taken
together for consideration are those happenings
of the relation between the parties, i.e. all the
relevant incidents of the incident, including any
written or verbal agreement, the conduct of the
parties at all times, and all surrounding
circumstances.
Thereis agreement between the persons
to carry on the business for profit.
Firm and Firm Name
Persons entering into partnership with one another are,
for the purpose of Partnership Act, called collectively
a firm, and the name under which their business is
carried on is called the firm name.
The firm name is merely a convenient method of
encapsulate (sum up/summarise) the individual
partners who constitute the partnership.
Registration:
Peninsular Malaysia Registration of Business Act 1956.
Sarawak Sarawak Cap. 46 (Business Names), and
Cap. 33 (Business, Professional and Trade Licensing)
Sabah Trade Licensing Ordinance, No. 16 1948.
Particulars as to the commencement, carrying
on and termination of the business, the name of
the business, the name and race the association
of the business and any change in the general
nature, name or associates of the business have
to be submitted to the Registrar of Business for
registration.
Although the registration of the name as a
partner is a strong prima facie evidence of a
partnership, it does not estop the co-partners
from proving that the person whose name has
been registered is a fictitious (untrue / invented)
partners.
Sivagami v PRM Ramanathan Chettiar &
Anor
Inboth English and Malaysian law, a firm
has no legal existence distinct from its
members.
Re Awarers, Ex Parte Balin [1879] 12 Ch. D
552
Alagappa Chettiar v Coliseum Caf [1962] MLJ 111,
The appellant is the owner of premises known as No 102
Batu Road and the respondent is a firm of partners
carrying on business of a cafe and hotel in Nos. 98, 100
and 102 Batu Road. The present appellant brought an
action in the Sessions Court for recovery of possession of
his premises No 102 and for mesne profits.
The point raised was that it was suggested that since a
partnership firm is not a legal entity in law, the firm
cannot hold a tenancy. Although the partnership was
registered as a business, its had no power to become
tenants as so constituted, his Lordship went on to say
that a single individual can be a tenant, and equally
can eight partners be joint tenant. Coliseum Caf or
Hotel, as such is not a legal persona, but a label used by
a number of individuals trading in partnership under one
name.