Partner Using Credit for Private Purpose

8/17/2019 Partner Using Credit for Private Purpose

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Liability



General Liability for Torts and

Crimes

• Partners may be liable for wrongs committedby their fellow partners quiet independentlyof any contract.

• Thus they may be liable for torts or crimes orthe misapplication of property entrusted toone partner and for breaches of trust.

• These liabilities as follows:-

(i Liability for misapplication of property andbreaches of trust or !duciary duty and

(iiLiability for crimes and other torts.



"rongs

• #ection $% of the &ct e'plains the generalrule for liability for torts and crimes:-

"here by any wrongful act or omission of

any partner acting in the ordinary course ofthe business of the !rm or with theauthority of his co-partners loss or in)ury iscaused to any person not being a partner in

the !rm or any penalty is incurred the !rmis liable therefor to the same e'tent as thepartner so acting or omitting to act.



• Thus each partner is liable for thewrongful acts or omission of his

fellows partners pro*ided:-(i +ither that they are acting in the

ordinary course of the !rm,s

business or(ii"ith the authority of their co-

partners.

(•)#. $% co*ers not only the ci*il liabilityof the partners in tort and for breach

of equitable duty but also their



• owe*er as the partners are not anentitiy separate from the partners who

constitute it when s.$% of thePartnership &ct $/$ imposes the sameliability or penalty on the !rm asincurred by the partner whose act oromission caused the wrong they aremerely imposing personal liability on thewrongdoer,s co-partner.

• 0f a person sought to ma1e thewrongdoer,s co-partners liable unders.$% it must pro*e that the act oromission complained of either:-



(i 2ccurred in the ordinary course of the!rm,s business or

(ii0f it did not that act was authorised bythem.

(•)& partner,s authority to act arises bymandate either e'press or implied fromthe !rm but the ordinary course ofbusiness of the !rm is a matter of fact.

(•)&s to what is meant by 3ordinary course ofthe business of a !rm4 the e'plainationgi*en by 5ahoney 6.& in the 7ew #outh"ales Court of &peeal case of:-



"al1er * +uropean +lectronics Pty

Ltd (in liq

0n considering whether the act of aperson is done un the ordinarycourse of the business of a !rm of

which he is a member it is ofcourse necessary to determine whatthe business of the !rm is.

#ometimes the business of the !rm isde!ned or described in thepartnership agreement.



0n such a case the court must decide asa question of fact whether the act inquestion can be and was done in thecourse of carrying it on.

this may be decided by reference tospeci!c e*idence that an act of the 1ind in

question is apt to be or was done incarrying on such a business.

2r in some cases the court may be in aposition to ta1e notice of the fact that abusiness of the 1ind in question is apt tobe carried on by doing acts of the rele*ant1ind.



0n other cases where the business is notde!ned or described in the partnership

agreement it is necessary to decide on thefacts of the case what the business is andwhat acts are apt to be done in carrying it.

The present case is of this latter 1ind.

The parties practiced together asaccountants.

The inference is that their business includedthe acceptance of appointment as recei*er or

recei*er and manager and the doing of actsdone for carry out such an appointment.



This is the 1ind of thing which accountants of their1ind are apt to do and it is what in the present

case the habitually did.4

• 0n this case the issue to determine is whetherrecei*ership wor1 was within the ordinary courseof business of the !rm of accountants.

• The recei*er and manager of the companymisappropriated company funds.

• e had been appointed personally and hadmaintained separate recei*ership accounts butwas a partner in a !rm of accountants whoseother principals engaged in insol*ency andta'ation practices and had no signi!cantin*ol*ement with recei*ership.



• The court held that the partiespracticed together as accountants.

• The inference is that their businessincluded the acceptances ofappointment as recei*er or recei*er

and manager and the doing of actdone to carry out such anappointment.

• This is the 1ind of thing whichaccountants of their 1ind are apt todo and it is what they habitually did.



Poli1inghorne * olland

• &ustralian case

The !rm was held liable for aroldolland,s negligent omission to gi*ecompetent ad*ice to 5issPoli1inghorne on the means ofobtaining accurate information about

the desirability of in*esting in aparticular company.



&s a solicitor the gi*ing of !nancial

ad*ice was not within the ordinarycourse of business and he had noauthority to engage in such conduct.

8ut liability arose because a solicitorif requested should either ad*ise aclient how such information can beobtained or underta1en to acquirethe information from competent!nancial analysis.



2n the other hand the losses

su9ered by 5iss Poli1inghorne whenrequired to honour a guarantee werenot attributable to the !rm.

olland had ad*ised her to in*est inthe trust company but later

approached her as a companydirector and not as her solicitor toguarantee the o*erdraft of thecompany in which she was ashareholder.



amly * ouston

The court established the principlethat e*en where an authorisedtransaction is not in itself wrongful

the partners will be liable if it iscarried out in an unlawful or tortiousmanner.



8lyth * ladgate

• & partner was as1ed to ad*ise whether aparticular mortgagte satis!ed the criteriafor in*estment detailed in a trust deed.

• The partner initially recommended againstagainst in*estment but later accepted thatthe mortgage would be satisfactory.

• 0n the course of in*estigation he disco*ered

that all trustees were deceased but at theurging of the settlor arranged for thecon*ersion of trust property into cash.



• The funds were held in the !rm,s accountsuntil disbursement after the appointment

of trustees.• The mortgage pro*ed to be an inadequatesecurity.

• &s ad*ising trustees was within the scope

od the partner,s apparent authority the1nowledge of the trust deed which he hadacquired was imputed to the otherpartners and all were liable as constructi*etrustees for permitting trust funds to bepaid out in breach of trust requirements.



• owe*er if the partner has noauthority at all to achie*e the endsought then his partners will not be

liable for any tort he may commit insee1ing to achie*e that end.



7ational Commercial 8an1ingCorporations of &ustralia Ltd * 8atty

• 2ne of the two partners misappropriatedcheques payble to a company of which he wasa director deposited them in the !rm,saccount withdrew the proceeds and usedthem for his own purpose.

• The !rm,s ban1 was sued for con*ersion ofthe cheques.

• &nd now sought to reco*er its loss from theinnocent partner under s.$% as liability for thefraudulent con*ersion of his fellow partner.



• The court decided that in depositing thecheques in the !rm,s account the

fraudulent partner was not acting in theordinary course of business of the !rm.

• &lthough the fraudulent partner hadauthority to deposit cheques into the

account these were cheques payable tothe !rm and only in e'ceptional casescheques payable to third parties.

• Thus the fraudulent partner had noapparent authority to pay in the chequessince the ban1 should ha*e been put onnotice that he had no authority.



+state ;ealities Ltd *."ignall

• 7ew <ealand igh Court

& partner who does not 1nowinglyassist in a wrongful act and did notrecei*e or deal with it did not *y*irtue od being a partner in the !rmbecome a constructi*e trustee of a

property and is not liable to accountfor his share of any pro!t thepartnership obtained from it.



0n this case the court held thatalthough the breach of !duciary

occurred during the course of theordinary business of partnership aparty who though absence did not

1nowingly assist in that breach anddid not recei*e or deal with theproperty concerned with 1nowledge

of that breach did not by *irtue ofhis membership of the partnershipbecome himself a constructi*etrustee of the property was notliable to account for his share of any



Cric1lewood oldings Ltd * C=>uigley ? #ons 7ominees Ltd

0t was held that although > a partner in asolicitor !rm acted dishonestly he was acting inthe ordinary course of the business of the !rmin raising moneys by mortgage through thesolicitor,s nominee company.

&ccordingly all of his partners were liable to the!rst plainti9 for that loss.

0n this case the fraud which the !rst plainti9complained was the action of > in obtaining anauthorised mortgage for the purpose of raisingmoney for himself which he ultimately stole.



• > was a director of Croc1lewood aswell as being a shareholder.

• e was howe*er also solicitor forCric1lewood.

• 0t was in the course of business of

solicitors to raise moneys bymortgage through the solicitor,snominee company and to pay thesefund o*er to the mortgagor.



7ature of the Liability

• The Partnership &ct $/$ ma1es aclear distinction between the natureof the liability of partners for debts

and obligations on the one hand andfor torts crimes and other wrings onthe other.



@ebts and 2bligations

• #. $$ of the Partnership &ct $/$ pro*idesthat:-

+*ery partner in a !rm is liable )ointly with

the other partners for all debts andobligations of the !rm incurred while he is apartnerA and after his death his estate is alsose*erally liable in a due course of

administration for such debts and obligationsso far as they remain unsatis!ed but sub)ectto the prior payment of his separate debts.



• #. $$ pro*ides that e*ery partner isliable )ointly with the other partners

for all debts and obligations of the!rm incurred while he is a partner.

• This in e9ect creates the unlimited

liability of a partner.• #.$$ deals only with debts and

obligations of a contractual nature

the liability of partners for torts andother wrongs is )oint and se*eral aspro*ided by s.$B of the Partnership&ct $/$.



• "hat is )oint liability

• 0n a )oint liability if an action is

brought against one or some only ofthe persons liable and )udgment isentered no further action can be

brought against other persons whowere )ointly liable e*en if the

)udgment remains unsatis!ed.

• 2n the death of a person )ointly liableno liability passes to the estate: thewhole liability to meet the )udgmentis in*ested in the sur*i*ing )udgment



• "hat is se*eral liability

• 0n se*eral liability it recognises an

independent right of action againsteach participant for the full amountof the obligation.

• 0f the )udgment in an action isentered against one or some only ofthe participants and the )udgment isnot fully satis!ed another actionmay be maintained against each ofthe other persons liable until the

)udgment is paid in full.



• owe*er the statutory pro*isions does notestablish strict liability rule but a rule which

falls between 3)oint4 and 3)oint and se*eral4.• irstly if all the partners are ali*e when theaction is brought a )udgment enteredagainst one or some only of the partners will

preclude an action against the others inrespect of the same action.

• owe*er if one of the partners who was apartner at the time when the debt or

obligation was incurred dies before the writis issued se*eral liability for debt is imposedon the estate.



• Therefore if )udgment against thesur*i*ing partners is not fully

satis!ed another action on the debto obligation may be commencedagainst the personal representati*e

of the deceased but a )udgmentcannot be enforced against separateestate until the claims of thedeceased,s personal creditor ha*ebeen fully discharged.

• 0n ascertaining the liability of theestate full credit must be allowed foran thin reco*ered from the



• #.$$ pro*ides that the debt orobligation must ha*e been incurred

while the deceased was a partner.• 0f the liability of the !rm does not

arise until after a partner,s death

the partner,s estate will be free orany liability.

• 2nly the sur*i*ing partners can be

held liable.



8agel * 5iller

• & deceased partner,s estate was heldto be not liable under a contract forgoods sold and deli*ered entered

into before his death because thegoods were not deli*ered to the !rmuntil after his death and the price

was not due to be paid until deli*ery.• &l*erstone C.6 e'plained that:



& claim for goods sold and deli*eredis not a debt incurred while the

deceased was a partner for therewas no debt until the deli*ery of thegoods nor was the duty to pay an

obligation while the deceased was apartner and the e'istence of someother obligation in the lifetime of thedeceased is not suDcient to ma1e hisestate liable in respect of anobligation which was not incurred inhis lifetime.



;ouse * 8randford 8an1ingCo.

• 0f on the death of a partner the sur*i*ingpartners agree to ta1e o*er the !rm,sliabilities and indemnify the deceased,sestate they become principal debtors and thedeceased partner,s estate is relegated to theposition of guarantor.

• Then if a creditor 1nowing of this agreement

gi*es further time to the sur*i*ing partners forpayment of the debt so as to pre)udice thelate partner,s estate is discharged fromliability.



Liability for wrongs )oint and se*eral

• #ection $B of the Partnership &ct $/$pro*ides:-

+*ery partner is liable )ointly with his co-

partners and also se*erally e*erythingfor which the !rm while he is a partnertherein becomes liable under section $%Eliability of !rm for wrongsF or $Emisapplication of money or propertyrecei*ed for or in custody of !rmF.



• #. $B pro*ides that for liability unders.$% and $ of the &ct e*ery partner

is liable )ointly with his co-partnersand also se*erally for e*erything forwhich the !rm becomes liable whilsthe is a partner.

• The distinction in the &ct is between )oint liability for contracts and )ointand se*eral liability for torts.

• "hat is the distinction between )ointand )oint and se*eral liability



• The di9erence is that if liability isonly )oint the plainti9 has only one

cause of action against all thepartners in respect of each debt ofcontract.

Hendall * amilton

& creditor sued all the ob*ious

members of a partnership and wasawarded )udgment against them.

e failed to reco*er the debt in full.



e subsequently disco*ered a wealthydormant partner whom he sought to sue forthe balance of the debt.

The ouse of Lords decided that since thedebt was )oint one only by suing theapparent partners the creditor elected to

sue only them and could not commencefresh proceedings against the other partner.

• owe*er no such restriction applies to

liability under s.$B for there the liability isse*eral as well as )oint so that each partnercan be sued in turn or all together until thefull amount 0 reco*ered.

Documents

Partner Using Credit for Private Purpose