LAW OF

PARTNERSHIP

LECTURE NOTE 3
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
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
Power of partners to bind the firm
Every partner is an agent of the firm and his
other partners for the purpose of the business of
the partnership.
Section 7:
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 business of the kind
carried on by the firm of which he is a member bind
the firm and his partners
 Section7
An act of a partner will bind the firm:
The act must be done for the purpose of
the business
Case: Osman v Chan Kang Siew
The act must be an act for carrying on
business in the usual way
 Partnership business
The act must be an act for carrying on
business in the usual way
Cases:
Mercantile Credit Co Ltd v Garrod
Polkinghorne v Holland
Sithambaran Chetty & Ors v Hop Hing &Ors
Chan King Yue v Lee & Wong
Chop Cheong tuck v Chop Tack Loong
Vasu Devan v VA NAir
 Mercantile Credit Co Ltd v Garrod
Mocatta J: I must have regard in deciding
this matter to what was apparent to the
outside world in generalto the facts
relevant to business of a like kind to that of
the business of this partnership so far as it
appeared to the outside world.
 Polkinghorne v Holland
Mrs. P was a client of a firm of solicitors. She received
advice from one of the partners about an investment in
which the partner was financially interested. The
investment was a failure and Mrs. P incurred heavy
losses. She brought an action claiming damages
Question: Whether the remaining innocent partners
were liable for her loss?
Held: They were liable
Why? Court acknowledged it was difficult to determine
what was within the course of a solicitors business. The
giving of financial or investment advice was within the usual
course of business of that firm of solicitors. When enquired
about investment. Should furnish information and assistance
or point out what inquiries may be made and if required
undertake them or seek for assistance of those who will give
such advice.
 Court Held:
Although investment analysis was not part of
the firms (solicitor) business, when a solicitor is
approached for enquiries and competent
advice. His failure to provide this was related to
the business of the firm.
Borrowing was an act necessary for the
carrying on of the partnership business. Thus the
other partners were bound.
 Chop Cheong tuck v Chop Tack Loong
A managing partner represents to the
borrower that he is borrowing for the purposes
of the firm.
held: the lender is under no duty to enquire
whether the loan is necessary for the
purposes of the firm. As the lender has no
knowledge to the contrary, and there is no
suggestion of fraud, the firm us bound to
repay the loan.
In the usual way
Mercantile Credit Co Ltd v Garrod
To bind the firm, the act of a partner must
be done in the usual way, this is a question
of fact depending upon the nature of the
business.
 Goldberg v Jenkins & Law
Borrowing of money by a partner was held
not to amount to the usual way due to the
exorbitant rate of interest charged by the
lender on the loan.
What is usual? depends on whether it is trading
business or non-trading business
Trading Non-trading
Higgins v Beauchamp nature of work is
Is one which advisory, e.g. firm of
depends on buying professionals.
and selling goods Usual authority in non-
Usual authority in trading: consultation,
trading: Contract, employment of staff
debts, borrow money Cases: Higgins v
and employ staff etc. Beauchamp, Marsh v
Case: Chettinad Bank Joseph
v Chop Haw Lee
Knowledge and belief
Mercantile Credit Co Ltd v Garrod
If Mercantile Credit was aware of the terms of
the partnership which excluded the buying
and selling of cars, Garrod will not be bound
by the of Parkin, and therefore Mercantile
Credit will not be able to recover from Garrod
as Mercantile Credit knows that Parkin has no
authority from the partnership.
 Section7:
An act of a partner will not bind the firm
The partner has no authority
The third party knows that he has no
authority
The third party does not know that he is a
partner
The third party does not believe that he is a
partner
Partners bound by acts on behalf
of firm
Section 8:
An act or instrument relating to the business of
the firm and done or executed in the firm-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 the partners.
The act must relate to the business of the
firm or showing intention to bind the firm.
Section 8 applies to the act of partners or
other person authorised by the firm;
whereas Section 7 applies only to the acts
of partners.
 Sithambaran Chetty v Hop Hing
A and B sells medicated wine, but their partnership
was not make public. For the purpose of the business,
they entrusted two persons to manage the business
which is the second defendant (2D) and C. At the
same time, members of the public did not know that
2D was not the partners in the business. 2D then
borrowed money from the plaintiff (P) using the
partnership name. He later absconded. P then sued
the partnership.
Held: The firm is liable because there is no notice that
the 2D is not a partner in the partnership. Not only
that, they failed to mention that 2D only have
apparent authority
 Hoch Hin Chan v Ng Kee Woo
Held: a bill of sale executed by one partner
on behalf of the firm is valid as a partner in
a firm can alone grant a bill for himself and
on behalf of all the partners.
Partner using credit of firm for
private purposes
Section 9:
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.
 This section does not affect any personal
liability incurred by an individual partner.
Therefore, a person who deals with a
partnership can only make the firm liable
for the debt if a partner with whom he
dealt with had authority to contract it.
 The authority is derived from two ways:
(i) The partner is acting within the ordinary
course of business / the partners has
ostensible authority to act.
(ii) The partner is specially authorised by the
other partner / he has express authority.
 Under Section 9, ostensible authority exists
because the act is connected with the firms
ordinary course of business.
Example: not in the ordinary course of business
of a partnership in a farming business to buy
another farm, but if it is an adjoining farm be
used with the existing farm, such purchase
may be for the purpose of the business.
Effect of notice that firm will not be
bound by acts of partner
Section 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.
 Thus, if a partner does an act which is within
his apparent authority, his act will bind the firm
as stated in Section 7 (PA), unless the partner
has, in fact, no authority to do the act in
question, and the third party knows of the lack
of authority.
In this respect, Section 10 appears to be a
restatement of a part of Section 7.
end of lecture 3

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