Partnership

1. Partnership Def: s. 3(1) PA: a relation wh. subsits between persons carrying on abusiness in commonwith a view of profit s.3(2) excludes: registered company, co-operative society, company or association formed under the law that has effect in Malaysia, or by Acts of the UK parliament, Royal charter

2. Important elements of a partnership 1- members s. 3(1),s. 14 and s. 47(2) maximum members = 20; professional partnership = 30. (s.14(3)(a)(b)) Tan Teck Hee v Cheng Tian Peng Carrying business with 25 members was not a valid partnership. Cannot take legal action. Shim Fatt v Leila Road Bus & Co, P paid deposit to D, a firm with more than 20 partners. P cannot sue D because a legal action cannot be taken again an illegal firm.

3. 2- Agreement bet the partners to carry business in common s. 2 - Business includes trades, occupation or profession. Soh Hood Beng v Khoo Chye Neo, several people established a body which advanced money to its members. The money were obtained from the members and every member can take the loan one after the other. Held: not a business that constitute a partnership. Smith v Anderson Business refers to repetitive activities.

4. In common – together or some partners carry the business for the other partners 3- profit s. 3(1) – did not define profit Re Spanish Prospecting Co. Ltd. "The word 'profits' has...a well-defined legal meaning, and this meaning coincides with the fundamental conception of profits in general parlance, although in mercantile phraseology the word may at times bear meanings indicated by the special context which deviate in some respects from this fundamental signification. 'Profits' implies a comparison between the state of a business at two specific dates usually separated by an interval of a year. The fundamental meaning is the amount of gain made by the business during the year. This can only be ascertained by a comparison of the assets of the business at the two dates.

5. In Soh Hood Beng (See above) No intention to gain profits. One of the reason why the court held that the firm was not a partnership. 4-other statutory elements that affects the existence of a partnership a) s. 4(a) Co-ownership of a property Joint tenancy , joint property, part-ownership etc, not necessarily proof of a partnership Example: French v Strying Joint owners of a horse was not partners in a partnership

6. b) s. 4(b)-Sharing gross profits Whether parties have common interest or joint right in any property – not necessarily partners Burnard v Aaron and Sharpley One of joint owners of a ship took over exclusive management of the ship bearing all expenses and pays 1/3 of the gross earning to the other joint- owner, they were not partners

7. c) Sharing of profits s. 4(c)- sharing of profit – evidence of partnership. But not in all c/stances: i-A loaned RM20,000 to a firm, B. B paid by installment from its profits. A not necessarily a partner to the firm. ii-Remuneration to a servant or agent of business Walker v Hirsch P, ex employee of a a firm agreed to advanced money to the firm with a repayment in form of salary and 1/8 of the firm’s net profit. He was not a partner.

8. iii—annuity, or a portion of the profits to widow or a child of a deceased partner iv-payment of interest wh. varies with the firm’s profits on a loan for use in the firm’s business. v-payment to the seller of a goodwill - share in the firm’s profits

9. Formation of partnership Through partnership agreement. S. 21 rights and duties of partners can be varied with their consent, express or implied. P/ship can exist for as long as the partners wish. It can be terminated anytime. Partner/partners wanted to terminate – give notice to other partners. (s. 28(1))

10. Types of partners i-General partner- a partner in full sense ii-active partner- actively involve in the management of the firm iii-sleeping partner-not active in the management of the firm iv-quasi partner- not a partner but liable for the partnership’s debt as a result of holding himself out as a partner.

11. Partners’ authority to bind the firm Every partner is an agent of the firm and other partners. S. (7)-If he carries out in the usual way business the kind of which carried out by the firm – binds the firm and other partners. But if he has no authority to act, & the 3rd party knew or ought to know that the partner has not authority – other partners are not bound by his action.

12. a) Implied authority Partner's implied authority- consistent with the firm’s business. Depend on the c/stances of the case. Some judicial decisions show that a partner has an implied authority when he: i)Sells the firms’ goods and chattels ii)Puchases on the firm’s behalf goods of the kind usually used in the firm’s business iii)Receives payment of the firm’s debt and gave receipt thereof iv) Engages and dismisses staff

13. v) If the firms sell goods – partner may issue negotiable instruments in the firm’s name; borrow money on the firm’s credit; instruct solicitor in an action against the firm to recover debt. h/ever partner has no implied authority to execute a deed or to refer dispute to arbitration.

14. b) Express authority In case the action is not in the ordinary course of the firm’s business – the agent must be authorised by the other partners. S. 9 Liability of Partners and Firm • Contractual liability S.11 – every partner jointly liable with other partners for all debts and obligations of the firm incurred while he was a partner

15. If he dies - estate severally liable for the unsatisfied debts and obligations. If B sue the firm; firm has insufficient asset to satisfy the claim, B can go against the personal property of the partners. If B sue only one partner, he cannot later on sue other partners if the first partner cannot pay all B’s claim.

16. b) Tortious liability s. 12 Joint and several – if the wrongs were committed in the ordinary course of the partnership’s business / with the authority of other partners Hamlyn v Houston & co. A partner obtained confidential information of a competitor's business by means of a bribe. Held: As he had done an act which was part of his business to do legitimately, all the partners were liable for his action.

17. c) Criminal liability If the action requires mens rea – intention to commit crime – it is the personal liability of the partner. d) Specific liabilities i- s. 13 – when a partner,acted within his authority, received money or property belonging to a 3rd person and misused the money or property; or

18. ii-the firm in the ordinary course of its business accepted money or property belonging to 3rd person, and one or more partners of the firm misused that money or property, while the money or property is under the care of the firm; = firm liable to make good the loss to the 3rd party Blair v Bromley Money was paid into the firm’s account to be invested. One of the partners misused the money.

19. All partners were liable for the loss because it was w/in the firm’s business to accept money for investment. e) Misused of trust funds s. 15– breach of trust by one partner – other partner not liable unless they knew about the breach. Ex parte Heaton. Firm belonging to a father and children. Misused of trust funds by the children. Father not liable for the loss because he had no knowledge of the breach.

20. f) Holding out s. 16. If a person holds out himself as a partner Based on estoppel – when a person holds himself out as a partner though not a partner. (this holding out may be caused by other persons or by the person himself) 3rd party believed he is a partner and acted on that belief – that person cannot later on claim that he is not a partner. Liable for the firm’s debt.

21. Conditions= i-Applies to a person who allowed himself to be held out as a partner or when he holds himself out as a partner; ii- the holdings out can be known by the 3rd person from the so called partner himself or from other sources (even w/out the so called Partner’s knowledge); iii- 3rd person must have been influenced by the manifestation in making a decision to advance money to the firm

22. g) Incoming and retiring partners s. 19 (1)– immediately liable as a partner upon becoming a partner – but not for liability incurred before he becomes a partner unless there is a special agreement. Partners may sue on the agreement but not the creditor of the old firm. h) Retiring partner s. 19(2) - Liable for the debts incurred before he retired. If other partners and the creditors agree, a partner who lost hope of getting any profit from the firm, abandoned the firm but not retire, may be free of the firm’s liability. (s.19(3))

23. For new debt incurred after retirement liable unless has given notice about his retirement to the public or the relevant people that he has retired. S.38(1). Otherwise may be treated as apparent member. Re Siew Inn Steamship A retired partner inserted a notice of retirement in several newspapers to which old customers were regular subscribers. Later old customers lent money to the firm. When the lender claimed the debt from the retired partner, it was held that for old customer actual notice must be given to the customer. Ineffective notification – liable as partner

24. P/ship property s. 22 -26 & 41 Property must be exclusively used for the benefit of the firm & in accordance with the p/ship agreement. What is p/ship property? Ponnukan v Jebaratnam “…the question whether a property is that of a p/ship or a separate property of the [partner] …depends upon whether there is an agreement among the partners, express or implied, touching such property. In absence of the agreement, …[the question is] whether there is an intention of the partners to treat the property as a p/ship property.

25. If no intention…the property is the separate property of the partner although it may be used for, or even essential to, the p/ship business and the p/ship may even be debited with the outgoings and expenses of the property. In this case P obtained an option to sell land for RM60,000. formed p/ship with J to develop the land. Failed to get financial to purchase the land. J bought the land with his money and money obtained from his relatives and bank. P seek a declaration that the land was held on trust for the p/ship.

26. Held on appeal: the land was not the p/ship property. No agreement to that effect. It was also not paid by the firm’s funds. R/ship between partners The relationship is created by an agreement between them. The agreement contains – rights and duties; the conduct and management of the firm’s business; capital to be provided by each partner; proportion of the profits to be shared by the partners.

27. In case no specific provision in the agreement, rights and duties under the PA apply. h/ever, s. 21 - duties and rights of partners whether provided in their agreement or under the Act can be varied by mutual consent of the partners, express, implied or inferred from their course of dealing. If there is no p/ship agreement partners rights and duties are: i-equal share in the capital, profits and in the loss. s.26(a)

28. ii-firm must indemnify partners in respect of payment made and personal liability incurred in the ordinary and proper conduct of business; or in anything done for the preservation of the firm’s property. S.26(b) not applicable if the partner acted negligently or fraudulently iii-entitled to interest rate of 8% per annum if he made payment or advance to the firm for the purpose of the p/ship. S. 26(c) iv-no partner is entitled to interest on capital before the profits has been ascertained. S.26(d)

29. v- every partner may involve in the management of the business. S. 26(e) vi- partners cannot get remuneration for acting in the p/ship business. S. 26(f) vii-no one can be admitted as a partner w/out the consent of other partners. S. 26(g) Viii-differences concerning the partnership business if involve ordinary matter should be settled based on majority rule, in case of changing the firm’s business consent of all partners iX- p/ship book – kept at the place of business or at the principal place if more than one place of business. Every partner may inspect the book when he thinks fit.

30. Further duties of partner: i-render true accounts and full information on all things affecting the partner or his legal representative ii-account any secret profit or benefit derived w/out the consent of other partners – any transaction concerning the p/ship, or any use of the p/ship property, name or business connection by him iii- not to compete with p/ship in business of the same nature w/out consent of all partners. If he did w/out consent he must give the firms all profits made by him

31. Dissolution of a p/ship s.34 1- by agreement a) Partners may mutually agree to end the p/ship at any time 2- by operation of law • If the p/ship is for fixed term, or for a single adventure – dissolve when the fixed term expire or when the adventure is completed or terminated • When a partner sent a notice of his intention to end the partnership to other partners

32. 3-death or bankruptcy If any partner died, or declared bankrupt - automatic dissolution unless the agreement provided otherwise. s. 35(1) 4-by charging on share If a partner subjected his p/ship share to be charged for the debt wh. is not related to the p/ship business – other partners may dissolve the p/ship. s. 35(2) 5-by reason of illegality If any event occurs that made it unlawful for the p/ship business to be carried on or the p/ship to continue – automatic dissolution . s36

33. 6-by court order s. 37 – on application by the partner. Court may order dissolution in the case: i-insanity of a partner s. 37(a) when a partner found to be a lunatic or shown to be of permanently unsound mind ii- s. 37(b)-permanent incapacity to perform his duties under the p/ship contract. (not the applicant) iii-s. 37(c)conduct that prejudicially affected the carrying on of the p/ship business. Example dishonesty (not the applicant) iv-s.37(d)- willful or persistent breach of the p/shipagreement (not the applicant)

34. v-s. 37(e) when the p/ship business can only be carried on at loss vi- s. 37(f) when in the court’s opinion it is just and equitable to dissolve the p/ship. Example only two partners and they have reached a deadlock To avoid liability partners have to give notice to public and old customers about the dissolution. After dissolution no one can bind another by his action except what is necessary to wind up the business and complete unfinished matters.