Relations Between Partners and Third Parties

8/11/2019 Relations Between Partners and Third Parties

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Liability of Partners to Third Parties

GENERAL RULE: BASED ON AGENCY PRINCIPLE IN CONTRACT

FOR WRONGS:

TORTS

CRIMESMISAPPLICATION OF THIRD PARTYS PROPERTY

IMPROPER EMPLOYMENT OF TRUST PROPERTY

HOLDING OUT

INCOMING AND RETIRING PARTNERS

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POWER OF PARTNER TO BIND THE FIRM

The law of agency as found in Part X of the Contract Act1950, the Common Law and equity rules are applicable todetermine the various situations.

The power of a partner to bind the firm depends on whetherhe has actual authority to do so.

Usual or apparent authority is the authority that thethird parties assume that every partner has in carrying

out acts for the purpose of the partnership business,authority which he would normally have in businessesof a similar nature. Thus, where a partner does an act thatnormally other partners like him would have the authority todo, the firm would be bound.

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GEN RULE OF LIABILITY OF PARTNERS TO THIRD PARTIES S.7 Partnership Act 1961 states:

Every partner is an agent for the firm and hisother partners for the purposes of the businessofthe partnership; and the acts of every partner whodoes any act for carrying on in the usual waybusiness of the kind carried on by the firm of

which he is a member bind the firm and his partners,unless the partner so acting has in fact no authorityto act for the firm in the particular matter, and theperson with whom he is dealing either knows that

he has no authority or does not know or believehim to be partner.

This provision recognizes the fact that agencyrelationship exist between the partners.

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WHY PARTNERS ARE LIABLE TO THIRD PARTIES

Third parties could make the firm or the other

partners liable if the following conditions arefulfilled:

1.The act done must be of the type of businessthat is carried out by the firm;

2.It is carried on in the usual way;3.The third party must know or believe the

person with whom he enters into the transaction isa partner; and

4.The third party must not know the person with

whom he has entered into the transaction has noauthority or the permission of the otherpartners to act on behalf of the firm.

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WHY PARTNERS ARE LIABLE TO THIRD PARTIES1. The act done must be of the type of business that is carried out

by the firm.The act that is done must be one which is related to the type ofbusinessthat is carried out by the firm

Mercantile Credit Co. Ltd. v Garrod [1962] 3 All. ER 1103Parkin and Garrod ran business of renting out garages and repair ofcars. They expressly agreed not to be involved in the business of

buying and selling cars. P sold a customers car to the plaintiff, afinance co. without Gs (who was a sleeping partner) knowledge.Proceeds of sale were paid into firmsaccount. When plaintiff co. foundout that P had no title to the car, it sued G for the return of the price ithad paid. G said he was not liable as Psact was not lawful because thetype of action was expressly prohibited in their business.The court rejected the denialand held G liable for Psacts, as what Phad done was within the type of activity that is normally related

with a garage business. Outsiders would assume he has apparentauthority.

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Higgins v Beauchamp [1914-1915] All.E.R Rep 937

B (sleeping partner) & Milles were cinema proprietors. It was agreed nopartner should enter into any debt on behalf of the partnership withoutthe consent of the other, except in the usual and regular course ofbusiness. M borrowed money from the plaintiff saying it was for the use

of the firm, but he used the money for his own needs as he never hadthe intention to use it for the business. H then sued B to recover the sumlent to M.

The action failed as the partnership was not a trading business, wherepartners had implied authority to borrow money (within ordinary courseof business if trading partnership) thus M had no implied authority tobind the firm in respect of the debt.

Chettinad Bank Ltd. v Chop Haw Lee & Anor. [1931-1932] FMSLR 31

Plaintiff was a firm of bankers and money lenders who had lent money toChin Yook, partner of two pawn broking firms. Chin Yook had signed twopromissory notes bearing the seal of both firms. The plaintiff sued the

defendants to recover the loans they had given to Chin Yook, who haddied. The plaintiffs believed that they were making the loans to thedefendants, but Chin Yook used the money for his own purpose. Theplaintiff was entitled to succeed in their action because a partner in apawn broking firm had implied authority to bind the firm in respect of thedebt. (refer to Higginscase on argument it was not atradingbusiness.)

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Chan King Yue v Lee & Wong [1962] 28 M.L.J. 379

Plaintiff lent RM35000 to her husband, partner of Lee & Wong. and themoney was used to pay off some of the firms debts. When plaintiffsued for recovery of the debt, Wong refused to pay on the grounds firm

was not liable for the debts, as plaintiffshusband had no authority toreceive any loan on behalf of the firm. Receipt of the loan by theplaintiffs husband was an act necessary for the firms business,and thus held that the act that a person does in the usual course ofthe partnership business is binding on the firm and the otherpartners.

Osman bin Haji Mohamad Usop v Chan Kang Swi[1924] 4 FMSLR 292

3 active partners of a firm borrowed RM10,000 from a money lenderthat was guaranteed by defendant. Defendant was sued for recovery ofthe loan, when the firm was not able to pay. Defendant later sued all

the partners to be indemnified for the money he had paid. All the otherpartners admitted liability except appellant. The debt was partnershipsdebt since it was obtained and used for the partnership purposes,and that the partners who signed the promissory noted had acted onbehalf of the firm and therefore all the partners were bound tocompensate the defendant.

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2.It is carried on in the usual way.

The act will only bind the firm, if, other thanthe fact that it is one that is usually done by thefirm, the act must also be done inusual andordinary manner.

If the manner the act is carried out is in anextraordinary way, the third party would be puton inquiry of the authority of the so-calledpartner.

In Chan King Yue v Lee & Wong , the judgesaid that since the loan taken was necessaryfor the firm to carry on business, the borrowingwas in the usual and ordinary manner.

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3. Third party must know or believe person withwhom he enters into transaction isa partner.

As liability of firm is based on apparent or usualauthority of a partner, third party must know orbelievethat a partner has such authority. Third partymay assume that a partner would have the authority tobind his firm.

Third party could gain knowledge or believe thatpartner has authority:

(i) from having previous experiences with the firm,or

(ii)where a partner is held out by the otherpartners of the firm as a partner, and he couldbelieve that a person has the authority to act fromhis conduct.

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Third party must know or believe person withwhom he enters into transaction isa partner.

Sithambaram Chetty v Hong Hing & Ors. [1928] SSLR 52Two partners in Singapore opened a shop in Penang called Hop Hing,managed by two managers, & the business was left completely tothem. One of them borrowed a sum of money from the plaintiff, andthen disappeared. Plaintiff then sought to recover payment from the

firm in Singapore as well as the remaining manager in Penang. Thefirm denied liability on the grounds that the borrower was merely amanager and did not have the authority to sign the promissory noteto receive the loan on behalf of the firm.The court held the firm to be liable & rejected the argument as, dueto defendants failure to inform those who had business with thefirm, they had been misled into thinking that the manager who had

borrowed the money was a partner.

William Jack & Co. (Malaya) Ltd. v Chan & Yong Trading Co.(supra)Acts of a person who had been introduced as a partner (even thoughit was an infant) was binding on the other partners.

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ACTUAL AUTHORITYTerm ACTUAL AUTHORITY covers express actualauthority as well as implied actual authority.

Express actual authority is the authority given to apartner to do an act or execute a function in the firmsname and as such would bind the firm.

Implied actual authority is the authority exercisedby a person who has been given express authority.

This implied actual authority is to enable him to carryout the expressed authority.

S.8states:An act or instrument relating to the business of

the firm or done or executed in the firm-name, orin any other manner showing an intention to bindthe firm, by any person there to authorized,whether a partner or not, is binding on the firm andall the partners:

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ACTUAL AUTHORITY

Re Briggs & Co. [1906] 95 LT 61A firm of father and son was asked to make payments by acreditor, but there was no money to meet the claim. The sonwithout getting the fathers consent, agreed that the bookdebts should be assigned to the creditor so that thecreditors would give the firm time to pay. The deed of

assignment purported to be made was between RBBriggsand HR Briggs, trading under the style of firm of Briggs &Co.. The fathersname in fact was forged by the son. Laterthe firm became bankrupt, and the trustee in bankruptcysought to set aside the deed on the ground that it had beenexecuted by one partner only.

It washeld by the court that the deed was binding underthe English equivalent of S.8 of the P.A 1961. It was aninstrument relating to the business of the firm done orexecuted in a manner showing an intention to bind the firm,and executed by a person who was authorized to do so,namely, a partner.

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ACTUAL AUTHORITY

Where an act is not related to the firmsbusiness, the act will be binding on the firmonly where a person have been expresslybeen given authority to act.

S.9 states:Where one partner pledges thecredit of the firm for a purpose apparentlynot connected with the firms ordinarycourse of business, the firm is not bound,unless he is in fact specially authorized

by the other partners; but this sectiondoes not affect any personsliability incurredby an individual partner,

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LIABILITY IN CONTRACT

S.11, states :Every partner in the firm is liable jointly with theother partners for all debts and obligations of thefirm incurred whilehe is a partner; and after hisdeath his estate is also severally liable in duecourse of administration for such debts and

obligations, so far as they remain unsatisfied butsubject to the prior payment of his separate debts.

(i) All partners are generally jointly liablefor a firms contract that had been madewhile they were partners, but ,(ii) after his death, a partnersliability still

remains, but liable severally.

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Joint liability - Every partner is liable jointly with

the other partner for all debts and obligations of thefirm incurred while he is a partner.

A partner is liable for the whole debt of thepartnership. Legal action can be taken against one or

all the partners so as to recover the debts. Butplaintiff can bring only one action and not severalactions against the members of the firm. The plaintiffis not bound to join all the partners in one action. If

he chooses to sue only one of the partners, he loseshis right against those whose names he did not bringinto the action.

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LIABILITY IN CONTRACT However, even if action is taken against one of the

partners only, it does not necessarily mean that therest of the other partners are not liable. They arestill jointly liable, because if the partner named inthe action is directed by the court to pay the debt,he may request the same court for an order to theother partners not named in the action to jointly

contribute towards the payment of the debt.

Third parties can also take action in the firmsname. All partners and the firm are assumed tohave been mentioned in the action as if the action istaken against each individual partner. If the orderby the court is made towards a partner who isunable to pay or becomes bankrupt, the plaintiff willlose the right to claim towards the other partners.

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LIABILITY IN CONTRACT Kendall v Hamilton (1897) 4 App. Cas. 504

K had given a loan to X and Y, two partners in a trading firm. K

took legal action to recover payment from X and Y, and the courtordered X and Y to pay the debt. X and Y subsequently wentbankrupt and could not afford to pay. Later K realized that thedefendant, H, who was solvent, was an undisclosed partner of Xand Y. He then began fresh proceedings against the defendant.Held as the partners are jointly liable, the earlier action would bar

another action from being taken. As the court had already made

the firm liable by an order towards X and Y, even if the debt hadnot been paid, another action cannot be taken.

Bagel v Miller [1903] 2 KB 212B supplied goods to a partnership of which M was a member. Somewere ordered and delivered before M died, but others weredelivered after his death. B brought an action to recover the price

from Msexecutors.Held by the court that the action succeeded in respect of the

goods delivered before Msdeath. But in respect of those deliveredafterwards, the action failed since the obligations to pay did notarise whilst M was partner.

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Several liability and after his death his estate isalso severally liable in due course of administrationfor such debts and obligations, so far as they remainunsatisfied but subject to the prior payment of hisseparate debts.

When a partner dies, his liability for the debts and

obligations that arose while he was partner doesnot end. His estate is severally liable for thedebts.

Liability is imposed on his estate (whatever assetshe has left behind.)

After the executors of his estate have settled hisseparate personal debts, what remains from hisestate, whether sufficient or not, will be used tosatisfy whatever is still unpaid.

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LIABILITY FOR WRONGS

WRONGS UNDER THE PARTNERSHIP ACT:

TORTS AND CRIMES MISAPPLICATION OF THIRD PARTYS PROPERTY

IMPROPER EMPLOYMENT OF TRUST PROPERTY

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LIABILITY IN TORT

Torts (negligence, nuisance, trespass anddefamation) give rise to civil actions allowing theinjured party a right to claim unliquidated damagesagainst the wrongdoer. A partner can commit any ofthese wrongful acts or omissions.

S.12states :Where, by any wrongful act or omission of anypartner acting in the ordinary course of thebusinessof the firm or with the authority of hisco-partners, loss or injury is caused to anotherperson not being a partner in the firm, or anypenalty is incurred, the firm is liable there for to thesame extent as the partner so acting or omitting toact.

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LIABILITY IN TORTLiability is seen in twoinstances:1.There is liability where the result of a wrongful act or

omission is done in the ordinary course of the businessof the firm. The firm is liable for the wrongful act oromission of a partner. This can be seen in the followingcase.

Hamlyn v Houston & Co. (1903) 1 KB 81

A partner in H & Co. bribed a clerk in a rival firm to discloseto him confidential information relating to it. The rival firmsuffered a loss in consequences, and sued H & Co. fordamages.Court of Appeal held, H & Co. were liable for the partnerswrongful act as he had been acting in the ordinary course

of the business to obtain information about a traderival. Whether the partner did so by legitimate orillegitimate means, was immaterial.

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LIABILITY IN TORT2. Liability which is the result of a wrongful act or omission of a partner

acting in the ordinary course of the business of the firm, where theact or omission is done with the consent of the otherpartners.

Although a firm cannot be assumed to have given one of its membersauthority to commit a wrong, yet where it has given him authorityto do a class of acts on its behalf, it is liable for his tort either inthe manner of doing such acts or in doing them in circumstances inwhich they ought not to be done at all.

e.g. a firm of solicitors would be liable for the negligence of one of thepartners, while a medical partnership would be liable for the negligenttreatment of a patient by one of its members.

If the tort is committed without the actual authority of the partnersand outside the scope of the partners usual authority, the firm andthe other partners would not be liable. Mara v Browne [1896] 1 Ch.

199

In contrast to legal action for debts and contractual obligations, foran action in tort,the plaintiff may issue separate writs againsteach partner either contemporaneously or successively. If the firstone sued becomes bankrupt, the fact of having sued him alone wouldnot be a bar to a second action against another partner.

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LIABILITY FOR CRIMES

The terms wrongfulact,omissionand penaltyused in S.12,does notnecessarily mean that it refers to criminal liability towards the firm or thepartners.

Criminal liability is personal liability of the partner who commits thecrime, especially a crime that requires mens rea (a mental intent tocommit the crime). In Garret v Hooper [1973] Crim. L. R. 61, LordWidgery stated; The general principle in criminal law is that a principalcannot be made liable for an offence that requires mens rea simply

because his servant or agent has the necessary mens rea.

Chun Shin Kian & Ors v D.P.P (1980)2 MLJ 246 The second accused was away but was charged with the criminal offence

of applying a false trade description to the jeans and jackets after a raidby officers from the Trade Description Department. Both partners wereconvicted of the offence by the magistrate. They appealed against their

conviction.High Court allowed the appeal of the second accused and quashed hisconviction as he was not present during the raid on the premises. S.14ofthe Partnership Act 1961 provides for joint liability for contracts andrecovery of damages and fines, not criminal liability.

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LIABILITY FOR MISAPPLICATION OF MONEY OR


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LIABILITY FOR MISAPPLICATION OF MONEY ORPROPERTY OF A THIRD PERSON

S .13 provides that:

In the following cases namely:

(a) where one partner, acting within the scope of hisapparent authority, receives the money or property

of a third person andmisapplies it; and(b) where a firm in the course of its business receives

the money or property of a third person, and the moneyand property so received is misapplied by one or more

of the partnerswhile it is in the custody of the firm,the firm is liable to make good the loss.

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LIABILITY FOR MISAPPLICATION OF MONEY


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LIABILITY FOR MISAPPLICATION OF MONEYOR PROPERTY OF A THIRD PERSON

In the course of a partnership business, many

transactions may take place on behalf of the thirdparty by the firm. Certain documents of title, moneyor other property may be deposited with the firm, &sometimes unscrupulous partners may use the

property or money for their own personal purpose.The firm is liable for the misapplication of themoney or the property of a third party in two cases:

i. Where the money or property is received by a

partner who acts with apparent authority; andii. Where the money or property is received by the

firm in the course of its business.

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i. Received by partner who acts with apparent authority.

Where one partner acting within the scope of his apparent authorityreceives the money or property of a third person and misapplies it, the firm isliable to make good the loss e.g. solicitors receiving money and misapplies it.

What are acceptances that are regarded as within the ordinary scope of asolicitorsapparent authority?

Blair v Bromley (1847) 2 Ph. 354A sum of money was paid into the joint account of a firm of solicitors to be used

for investment in certain securities. One of the partners then told the plaintiffthat the money had been invested as required, but instead he hadmisappropriated the money.It was held by the Court, receiving money for investing in certain orspecific securities comes within the ordinary course of a solicitors business,and with that decided that all the other partners were liable for the misapplicationof the money.

Earl of Dundonald v Masterman (1896) LR 7 Eq 504Where money is received by a partner in a firm of solicitors in the course of themanagement and the settlement of the affairs of a client of the firm washeld to be money paid to the firm in the course of its professional business. Theother partners were liable to make good any loss caused by the negligence or thedishonesty of the partner receiving the money, because it was received by himin the performance of the duties for which the firm was employed.

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ii. Received by the firm in the course of its business. Where a firm in the course of its business receives money or

property of a third person, and the money or property soreceived is misapplied by one or more of the partners while it isin the custody of the firm, the firm is liable to make good theloss.No question of the partnershipsauthority to receive the moneyor property arises. , as long as the receipt is in the ordinary

course of the firmsbusiness.Rhodes v Moules (1895) 1 Ch. 236Rhodes wished to obtain a loan, so he mortgaged his property.He was told by Rew, a partner in the solicitors firm of MessersHughes and Masterman, that the mortgagees wanted additionalsecurity, so he handed him some share warrants payable to

bearer. Rew misappropriated them, so Rhodes sued the firm inrespect of the loss under the English equivalent of S.13 of the P.A1961.Held by the C.A., that the action succeeded, for the warrants hadbeen received by the firm in the ordinary course of the business.

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LIABILITY FOR MISAPPLICATION OF MONEY


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LIABILITY FOR MISAPPLICATION OF MONEYOR PROPERTY OF A THIRD PERSON

To render firm liable, the misapplication must be made while the moneyor property was in the firmscustody. Where the money or property isplaced in the possession of the one of the partners by fraudulent means of

such partners, the money is not considered as in the custody of the firm.Tendering Hundred Waterworks Co. v Jones [1903] 2 Ch. 615

Plaintiff co. wanted to buy property and they employed Jones and Garrad,who were solicitors in a partnership to negotiate the deal for them. G wasalso secretary to the plaintiff co. The plaintiff instructed that the property to

be conveyed to G, who was to be their nominee. The vendors handed overonly the conveyance without the title deeds to him. Later G borrowed 500by depositing the conveyance as security for the loan. The partnershipbetween J & G later was dissolved. The plaintiff co. brought action against Jclaiming he was liable under the English equivalent of S.13 (b) for the fraudof his partner.

Chancery Division held action failed because by of the plaintiffs expressinstructions. By giving G the legal title to the deeds, plaintiff had allowedhim to use the deeds as the legal owner. G did not receive the conveyanceas a partner of the firm but as owner under plaintiffs instructions.Consequently, they were not in the custody of the firm within s.13(b)when he used them.

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4. The third party must not know the personwith whom he has entered into the transactionhas no authority or the permission of the other

partners to act on behalf of the firm.

Where a third party enters into a transaction with aperson knowing that a person does not have the

authority to act, then the firm will not be liable.

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S. 15 states that: Ifa IMPROPER EMPLOYMENT OF TRUSTPROPERTY FOR PARTNERSHIP PURPOSES partner, being a trustee, improperly employs trust property

in the business or on the account of the partnership, noother partner is liable for the trust property to the personsbeneficially interested therein: Provided as follows:This section shall not affect any liability incurred by any partnerby reason of his having notice of a breach of trust: andNothing in this section shall prevent trust money from beingfollowed and recovered from the firm, if still in its possession orunder its control.

If trust property that has been entrusted to a partner who is a trustee,and if it is improperly used by the partner, the other partners cannotbe made liable, unless the other partners knew of the breach.

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LIABILITY OF HOLDING OUT

Holding out- where a person who is not a partner, makes itknown either by his words or conduct to a third party, that he isa partner. Because of this representationhe would be liable as ifhe was partner.

Meaning of holding out was explained by Tindal C.J in Fox vClinton (1803),.:

Holding out to the public as a partner requires a person tovoluntary hold himself out. This means lending his name tothe partnership, Under ordinary circumstances, this act takesplaces when a person allow his name to continue to be usedby the firm, whether publicly positioned at the shop entrance, orused in the invoicesor advertised, so that the knowledge or the

consent of the person whose name is thus used, becomes thebasis to stop him from denying liability as a partner.

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S.16 states:

Everyone who by words spoken or written or by conduct presentshimself, or knowingly suffers himself, to be represented as apartner in a particular firm is liable as a partner to anyone who hason the faith of any such representation given credit to the firm,whether the representation has or has not been made orcommunicated to the person so giving credit by or with the

knowledge of the apparent partner making the representation orsuffering it to be made:

Provided that where, after a partners death, the partnershipbusiness is continued in the old-firm name, the continued use ofthat name or of the deceased partners name shall not of itselfmake his executors or administrators estate liable for any

partnership debts contracted after his death.

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Based on the estoppel doctrine.

i. Where a person makes a representation to a third party,

ii. who on believing the representation, reliedon it,

iii. as a cosequence of which he suffers loss.

The person making the representation will be estopped from denyingthat he had made the statement.

i. Representation :person consents or knows that this his nameis used as a partner, or wher.e he holds himself out to be a partner.

To determine whether a person had been held out as a partner, itis necessary to find the existence of an apparent (as opposed toreal) partnership. It can be expressed or implied or made orallybefore credit is given.

Tower Cabinet Co. Ltd. v Ingram [1949] 2 KB 393Failure to destroy, or was negligent in not destroying the formerpartnerships letterheads does not mean that he consented to be held outas a partner .

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ii. There is reliance on the representation by the third party: The statement or the conduct of holding out is communicated to

the third party who acts onthe statement. The third party mustshow that he was aware of the holding out. He must show that hehad given credit to the firm because he had relied on therepresentation.

iii. As a consequence credit is given to the firm by third party.

The doctrine of holding out can be applied by those persons whohave dealt with the firm in the belief that the person whom theyseek to make liable is a member of the firm.

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LIABILITY OF INCOMING AND RETIRINGPARTNERS

S.19states:

(1) A person who is admitted as partner into an existing firmdoes not thereby become liable to creditors of the firm foranything done beforehe became a partner.

(2) A partner who retires from a firm does not thereby ceaseto be liable for partnership debts or obligations incurred beforehis retirement.

(3) A retiring partner may be discharged from any existingby an agreement to that effect between himself and the

members of the firm as newly constituted and the creditorsand this agreement may be either express or inferred as a factfrom the course of dealing between the creditors and the firm asnewly constituted.

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LIABILITY OF NEW PARTNERS A new member would not be liable for contracts made

before his admission to the partnership. His liability would

be only to continuing contracts that had been entered intobefore he became a partner, but continued on after hisadmission.

However, the principle of novation can make a new partner

liable for debts or obligations that had transpired before hebecame a member. Novation is where the new partneragrees to take over the liabilities of the firm that it hadincurred before he became a partner and becomes liable tothe creditors. The agreement may be expressed or implied

from the conduct of the partner.

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LIABILITY OF RETIRING PARTNERS

A partner who has retired would still be liable for partnership debts orobligations incurred while he was a partner.Court v Berlin[1897]2 B 397

The plaintiff was a solicitor who was employed by firm, which carried onbusiness under the name of I. Berlin to recover a debt due to the firm.

The firm consisted of Berlin, who was the managing partner, and twodormant partners. While the action brought by the plaintiff to recover thedebt was proceeding, the two dormant partners retired from the firm. Theplaintiff continued the proceedings, and then sued Berlin and the dormantpartners for his cost. The dormant partners refused to pay the costincurred after their retirement

It was held by the Court of Appeal, that the dormant partners were liablefor the entire costs incurred. The solicitors retainer was one entire

contract to conduct the proceedings to the end. Liability for costs did notarise from day to day as they were incurred. The plaintiff did not have toobtain fresh instructions at each step in the proceedings.

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LIABILITY OF RETIRING PARTNERS

Malayan Banking Bhd. v Lim Chee Leng & Anor [1985] 1 MLJ 124

The respondents were partners of a firm called Berjasa Corp. The

appellant sued the respondent under a trust receipt which maturedand become payable on 14 June 1975. Two of the respondents hadresigned from the firm on 26 August 1970.

It was held by the Federal Court, the respondents incurred the debton the trust receipt before their resignation or retirement and theycould not escape their liability by merely pleading resignation orretirement.

Although a partner has retired, s.19clearly express that he is stillliable for the debts of the partnership during his tenure as apartner. He also remains liable to the third parties for debtsthat are incurred by the firm after he has left, unless he has

given express notice of his retirement as according to S.38 (1)which says:

Wherea person deals with a firm after a change in its constitution,he is entitled to treat all apparent members of the old firm as stillbeing members of the firm until he has notice of the charge.

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According to S.38 (LIABILITY OF RETIRING PARTNERS

2) any advertisement in the Federal Gazette, Sabah Gazette orSarawak Gazette as to a firm whose principal place of business in the

respective territories, shall be notice to persons who had no dealingswith the firm before the date of dissolution or change so advertised.

If notice of the retirement is not given, a partner may held be liable onthe grounds of holdingout as a partner or knowingly suffers himselfto be represented as a partner.

Re Siew Inn Steamship Co. ; ex parte Ho Hong Bank Ltd.[1934]MLJ 180

A retired partner gave notice of his retirement by advertising it inthree Chinese newspapers. After his retirement several of the firmsold customers lent money to the firm on the security of promissorynotes executed by the remaining members. The plaintiff was later

sued by one of these lenders, who denied having notice of theretirement from the newspapers.

Held by the court, that the retired partner was liable as actual noticewas required for old customers.

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LIABILITY OF RETIRING PARTNERS 2. Future dealings.Those who have never dealt with the

firm before the change in the constitution of the firm cannot

make a retired partner liable for the obligations of the firmafter the retirement. For this group, an advertisement incertain gazettes or papers of wide circulations is sufficientas notice of the retirement.

Tower Cabinet Co. Ltd. v Ingram

It was held by the court that Ingram was not liable because

the company had no knowledge of his connection withMerrysexcept for the name on the letterhead.

Where a partner dies, his personal representatives continueto be liable for executory engagements made in his lifetimeby the firm (note- severally liable under S.11), unless they

were made dependent on the personal conduct or capacityof the deceased and have therefore become incapable ofperformance by reason of his death. -Philips v HullAlhambra Palace Co. [1901] 1 KB 59)

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Documents

Relations Between Partners and Third Parties