PARTNERSHIP LAW

SECTION 3(1) PARTNERSHIP ACT 1961

• Partnership is the relation which subsists between persons carrying on

business in common with a view of profit.

It means:
• *Relationship between person
• *Carried on business in common(intention)
• *With a view of profit
• *In common

• Business – defined in section 2 as ‘including every trade, occupation

or profession”
 N ATURE OF PARTNERSHIP

 A partnership business must be registered under the

Registration of Business Act 1956.

 However the mere failure to register the partnership

under these statute would not mean that the partners
cannot enforce their rights againts each other if on
the facts a partnership exists

 A partnership need not have to be created by a formal

deed or written agreement. May be created orally or
in writing.
 S ECTION 4: LAYS DOWN THE
CIRCUMSTANCES IN WHICH THERE ARE NO
PRIMA FACIE PARTNERSHIPS

Situation which are not partnership:

Sec.4(a) :
Joint tenancy, tenancy in common, joint
property
 Davis v Davis
 French v Strying
 S ECTION 4: LAYS DOWN THE
CIRCUMSTANCES IN WHICH THERE ARE NO
PRIMA FACIE PARTNERSHIPS

Sec. 4(b)
Sharing of gross return
 Cox v Coulson
 Lyons v Knowles
 TO BE A PARTNER

Sec 4(c)
As a general rule, a person who receives a
share of a profits is deemed to be a
partner.
However there are special cases
whereby the receipt of the share of
the profits does not quality the person
to be a partner
 E XCEPTION

Sec. 4(c)(i):

Payments by instalments
 Cox v Hickman
 Badeley v Consolidated Bank

Sec. 4(c)(ii):
Payment of servant or agent
 Walker v Hircsh
 Abdul Gaffoor v Mohamed Kassim
 E XCEPTION

Sec. 4(c)(iii):
Annuity to the widow or children of a deceased partner

 I.R.C. v Lebus’s Trustees

 Sec. 4(c)(iv):
Loan given with a rate of interest varying
with profits
 Re Young

Sec. 4(c)(v):
Sale of goodwill
 Pratt v Strick
 T YPES OF PARTNER

 General Partner
 Active Partner
 Dormant(sleeping/passive) Partner
 Quasi-partner
 Salaried partner
P OWER OF PARTNER TO B IND T HE F IRM

• The general rule is that as partners are

agents of the partnership firm, any act or
omission committed by one partner binds the
rest of the partners if it is carried out within
the ordinary scope of the firm’s business.

• The authority of each partner may be either

actual(express or implied) or
apparent(ostensible)

• Sec. 7 of Partnership Act

 A UTHORITY OF EACH PARTNER

 Actual Autority
 Express authority
May be given in writing or orally
 Implied autority
is inferred from the conduct of the parties
 Apparent Autority
arises when the partner holds out to others that he
had such authority(section 8, Partnership Act)
S.7: 4 RELEVANT FACTORS THAT HAVE TO PROVEN IN
ORDER TO DETERMINED THE EXTEND OF LIABILITY OF
PARTNERS :

1. The particular partner who did the act and done it

under the name of the firm.
S.8: Partners bound by act of firm
An act@instrument relating to the business in the
firm’s name showing the intention to bind the firm
by any person authorized.(a partner or not) is
binding on the firm and all partners.
S.10:
If the party knows that the person has no
authority but ignores the fact.. .The firm exclude
liability.
2. The particular partner who did the act
done it within the ordinary course of
business.
This factor is supported by S 9
’within the ordinary scope of business’
appears

3. The particular partner commit the act in

usual way of making business
4.The third party has no knowledge
If the third party knows that the particular partner
whom he is dealing with has no implied nor express
authority to do the act then the rest of the other
partners or the firm can be excluded from being
bound by the act of that one particular partner
 C ASES :

 Mercantile Credit Co v Garrod

 Osman b. Haji Mohamed Usop v Chan kang Swi

 Chettinad Bank v Chop Haw Lee & Chop Lee Chan

 Chan King Yue v Lee & Wong

 Sithambaran Chetty v Hong Hing and others

 Chan Yin Tee v William Jacks & Co

 L IABILITY OF PARTNERS
 Contractual Liability

Sec. 11 of Partnership Act :

 that all partners in a firm are jointly liable for all contractual and
others debts and liabilities including tax and judgement debts
which are incurred while each is a partner
 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.
 Osman b. Mohamed Usop v Chan Kang Sim
 Kendall v Hamilton
 Bagel v Miller
 L IABILITY OF PARTNERS

Ordinary Torts
Sec.12 of Partnership Act
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-partner

 Hamlyn v Houstan & Co

 L IABILITY OF PARTNERS
Misappropriation

S.15 of Partnership Act

• It means that if a partner acting in his individual capacity,
improperly makes use of trust property in the business of the
firm, as a general rule, his other partners are not liable to the
beneficiaries.
• However, if the trust money is still in the firm’s possession or
under its control, the beneficiaries can recover the same
from the firm.
• Ex parte Heaton
 L IABILITY OF PARTNERS

Liability of Persons for Holding Out

S.16 of Partnership Act
Provides that persons may be liable by ‘holding out’

Tower Cabinet v Ingram

Re Buchanan & Co
Bevan v the National Bank Limited
 L IABILITY OF PARTNERS

Duration of Liability

S.19 (1) of Partnership Act :

A new partner who has been admitted into a firm is not liable for the
debt

S.19 (2) of Partnership Act :

A partner who retires from a firm does not thereby cease to be liable for
partnership debts or obligations incurred before his retirement.
 L IABILITY OF PARTNERS
Duration of Liability

S.19 (3) of Partnership Act :

 A retiring partner may be dicharge from any existing liabilities by

an agreement to the effect between himself and the members of
the firm as newly constituted and the creditors, and this
agreement may either express or inferred as afact from the course
of dealing between the creditors and the firm as newly constituted
 L IABILITY OF R ETIRED PARTNERS

 S.38(1) of Partnership Act :

After retirement, a partner is still liable to person

who deal with the firm after a change in its
constitution unless he had given notice to such
persons that he is no longer a partner.
 R ELATIONS B ETWEEN PARTNERS

 The relations between partners to one

another are determined by their partnership
agreement

 The partnership agreement normally

provides for the rights and duties of the
partners, the conduct and management of
the firm, the capital and their profit sharing
arrangement.
 R IGHTS OF PARTNER

 The Partnership Act 1961 applies in the absence

of provisions being made under the agreement.

 The interests and duties of partners in the

absence of agreements to the contrary are
provided for in section 26 of the Partnership Act
1961
 S.26 OF PARTNERSHIP A CT :

 S26(a): Capital & Profits

All the partners are entitled to share equally in

the capital and profits of business and must
contribute equally towards the losses, whether
of capital or otherwise.

 26(b): Indemnification of partner

 S.26 OF PARTNERSHIP A CT :

26(c): Advanced/actual payment beyond the

amount agreed to be subscribed.

26(d): Partner not entitled to interest on capital

subscribed by him, before ascertainment of
profit.

26(e): Every partner may take part in

management of partnership business

26(f): No partner shall be entitled to

remuneration for acting in the partnership
business.
 S.26 OF PARTNERSHIP A CT :

26(g): no person may be introduced as a partner without the

consent of all existing partners
26(h): Majority of partners may be decide if there is any
difference arising to ordinary matters connecting to
the partnership business, it must be made with
consent of all existing partner.
26(i): Access and inspect to partnership book.
D UTY OF PARTNERS / DUTY OF GOOD
FAITH

• Duty of Partners of Render Accounts

• S. 30 of Partnership Act :
“ Partners are bound to render true
accounts and full information of all
things affecting the partnership to any
partner or his legal representatives”
• Law v Law
D UTY OF PARTNERS / DUTY OF GOOD
FAITH

 Accountability of Partners for Private

Profits
 S.31 of Partnership Act : He must reveal the benefit to
the partnership:

 If a partner received any benefit without consent of

other partner and

 The benefit derived by using the partnership property,

name, business connection or anything relevant to
the partnership
 S.31 OF PARTNERSHIP A CT

 Even though the transaction happen after a

partnership has been dissolved by death of a
partner. But it must be before process of
wound up is complete.
• Aas v Benham
• Bentley v Craven
• Pathirana v Ariya Pathirana
D UTY OF PARTNERS / DUTY OF GOOD
FAITH

 S.32 of Partnership Act :

Duty of Partner not to complete with
firm/partnership

 No partner can carries on any business of the

same nature as and therefore complete with his
partnership without consent of the other person

 If he does so he must account for and pay over to

the firm all profits made by him in that business.

 Trimble v Goldberg

 Ass v Benham
 D ISSOLUTION OF PARTNERSHIP

 By Agreement: S.34(1) of Partnership Act

 If the duration of the partnership has been
specified in the particular agreement, the
partnership is terminated on the expiry of
that period
 If the partners mutually agree to dissolve the
partnership
 D ISSOLUTION OF PARTNERSHIP

 By operation of Law : S.34(1) of Partnership Act

 S.34(1)(a): If the partnership was entered into a

fixed term and the term expires

 S.34(1)(b): If the partnership is working on a

project or work, the termination of such
partnership is assumed as soon as the
project/work is completed

 S.34(1)(c): any partner may give notice to other

 D ISSOLUTION OF PARTNERSHIP

 By notice: S.34(1)(c) of Partnership Act

any partner may give notice to other partners to
terminate the partnership on the date
mentioned in the notice. If there is no date
mentioned, then according to the date when the
notice is delivered.
 D ISSOLUTION OF PARTNERSHIP

 By Death or Bankruptcy :
 S.35(1) of Partnership Act
Every partnership is dissolved as regards all
the partners by death or bankruptcy of any
partner
 D ISSOLUTION OF PARTNERSHIP

 By charging on shares:
 S.35(2) of Partnership Act
A partnership may , at the option of the
other partners, be dissolved if any partners
suffers his shares of the partnership property
to be charged under this Act for his separate
debt
 D ISSOLUTION OF PARTNERSHIP

 By supervening illegality
 S.36 of Partnership Act
 Every partnership is dissolved by the
happening of any event which makes it
unlawful for the business of the firm to be
carried on or
 For the members of the firm to carry it on in
partnership
 D ISSOLUTION OF PARTNERSHIP

 By Court Order : S.37 of Partnership Act

 The court on application of any partner, may
declare a partnership to be dissolved under
the following reasons:
 i) when any partner is confirm to have
become insane
 ii) any member loose the capability of
working totally or permanently
 D ISSOLUTION OF PARTNERSHIP

 By Court Order : S.37 of Partnership Act

 iii) any partner threaten the partnership with
any of his act without any reasonable cause
 iv) There is breach of promises continuously
 v) The continuance of partnership will only
renders a lost
 vi) Exist any situation where the court thinks
fit and fair to terminate the partnership