RELATION OF PARTNERS WITH ONE ANOTHER

Rights & Duties of PartnersDuty of Good FaithPartnership Property

Rights & Duties of Partners Sec 26 -‘subject to any agreement’ - secondary in natureTan Eng Choon v Foo Kai Yuen Mutual duties & rights maybe set up in

the partnership agreement. If there is nothing in the partnership agreement,then only it will be referred to the provisions of the Act

Sec 21- varied or changed with consent

Sec 26 (a) Partners share equally in

CAPITAL,PROFIT & LOSSES Un equal if stated in the agreementBinney v MutrieHeld:In the absence of the agreement to

the contrary the partner must divide the profit and shared the losses equally.

If there is insolvent partner, other partners have no duty to bear his losses

Garney v MurrayHeld: Each partner shall only be liable to

contribute 1/3 of the deficiency to the business because this was the proportion which the profits were divided

Sec 26(b) Firm will indemnify any

payment/liabilities incurred: - In the ordinary conduct of the

firm’s biz or - Is necessary to preserve the

business or property of the firm

Cases Matthew v Ruggles Kok Hong Leong v Seow Kah

Cheng Ong Keng Huat v Hong Kong United

Co Ltd

Ong Keng HuatRigby J:“ in order to make one partner liable

for any loss arising out of the partnership it was necessary to prove that he had committed fraud or culpable negligence”

Sec 26(c) Partners can contribute to the firm

by way of advancement and are entitled for an interest (8%).

Lord Lindley: Such an advance is not treated as an increase of capital but rather as a loan on which interest ought to be paid.

Sec 26 (d)

Interest on capital can only be given after the ascertainment of

profit

Sec 26(e)

Every partner may take part in

the management

Sec 26(f) Partners are not entitle to a

remunaration unless otherwise provided If a partner is appointed as a

receiver (dissolution) –entitled for a remuneration

Case: Re Aldrige

If a partner has to do all the work due to death,sickness,retirement etc – entitle to a remuneration

Case: Airey v Bonham Upon death of another partner, he

becomes an executor – NOT entitle for a remuneration

Case: Burden v Burden

Sec 26(g) Introducing new partner- consent of

ALL partners. Consent must not be unreasonably

withheld

Case: Byrne v Reid

Sec 26(h)Decision making: Differences as to ordinary matters; -by majority Changing the nature of the business; -consent by allCases: Highley v Walker Tham Kok Cheong v Low Pui Heng

Sec 26(i)Partnership books;- kept at the place of the business- every partner has access/copyCase: Krishinchand Bahjawi & Anor“partnership books should not be

constrained to accounting records but other records kept by the partnership for example minutes of partners meeting.”

- agent of a partner can also have access/copy

- Cases: Bevan v Webb Gan Khuan v Tan Jin Luan

Expulsion of a partnerSec 27

By majority , partners cannot expel any other partner unless authorised expressly, either in writing or by oral.

Case: Re A Solicitors Arbitration

Expulsion of a partner must be exercised

in good faith and for good reason.Blisset v Daniel‘power of expulsion should be exercised in

good faith’H:Notice of expulsion was invalid – not in

good faith.

The duty of Good Faith

Important element in a relationship between partners

Being honest in all partnership dealings

Cover by Secs 30,31 & 32

R v Lee Kiong KiatTerrel J:One has to remember what a

partnership is. It is an association requiring the utmost good faith between the partners – each partner owes a duty to his co-partner and each partner is entitled to have confidence in his co-partner and good faith towards him.

Vasu Devan & OrsMohamed Azmi J:..the utmost good faith is due from every

member of a partnership towards every other member…Good faith requires that a partner shall not obtain a private advantage at the expense of the firm…He is bound in all transactions to do his best…to share with his co-partners any benefit…

Sec 30 Every partner should render true account

and give full information Example: Sale of shares from a partner to

another. A partner must reveal all material facts relating to it, otherwise the sale will be voidable and maybe set aside.

Cases: Maddeford v Austwick Law v Law

Maddeford v AustwickHeld: Purchase of a share in the firm

without disclosure of material facts with reference to the partnership assets would render the transaction voidable.

Law v LawF: A partner sold his share to another

partner. Later he found out that the shares worth more that it should. He would have known about it if the existence of certain securities of the partnership had been revealed to him.

H: In principle, the transaction could be set aside.

Sec 31 Accountability for private profits

obtained from : - partnership transaction or

- use of partnership property, - use of partnership name, - business connection.without the consent of other partners

CasesBentley v CravenHeld: The partner was accountable to the

firm for the profits made.

Clegg v FishwickHeld: Though the other p’ners cannot

restrain the landlord frm granting the lease to only one p’ner, as btwn p’ners that p’ner was a trustee for the firm.

Pathirana v PathiranaHeld: The other partners are entitled

for the profits made by a partner.

ExceptionA partner may keep the profits:1)When there is full disclosure of

interest2)Consent from other partners3)Profit is derived from the use of

information which is wholly outside the scope of partnership business

CasesRe Coffey’s Registered DesignH:The firm involved in buying & selling

products manufactured by ors and not in manufacturing the products itself. Therefore the partners are not accountable

Sec 32 A partner must not compete with the

firm in the business of the same nature.

If he did so, must account any profits made to the firm.

Aas V Benham

Case:Trimble v GoldbergHeld: Action for the share of profit

failed. The purchase of the property was not within the scope of partnership nor was it in rivalry with the partnership.