ASSIGNMENT I

UK3053
SEMESTER 1, 2014/2015
Date: 7 October 2014
Deadline: 29 October 2014 before 3 pm.
(Detail of submission will be explained by the course organizer)
Marks for each question: 20

Beware of plagiarism!

Please answer only 1 (one) of the following questions

Question No. 2
For many years, Leon and Kate have been partners in a law firm of Leon, Kate & Co. On
July 31, 2013 Leon retired from the firm and a new partner, Helen was admitted to the
firm. The retirement of Leon has been published in the Government Gazette on 1 August,
2013, Leon agreed to allow the firm to retain its name as Leon, Kate & Co. but has
requested that his name is no longer listed as a partner in all stationeries used by the firm
starting from the date of 1 August, 2013, and new stationeries shall be ordered as soon as
possible.

Advice the following people who dealt with the firm after the date of 1August, 2013 whether
Leon, Helen and Kate will be liable in the following situations: -

(i) A stationery company Kusinero Tulis Sdn Bhd. was frequently supplying stationeries
to the firm before. A new stationery order of a sizeable amount was made by Kate over
the phone on 10 August 2013, she did not tell the company about the changes in the
constitution of the firm.

(ii) On August 16, 2013 Mr. Aaron, who has for over many years dealt with Leon as the
customer of the firm, would like to ask for advice of his intention to participate in Nasi
Kandar business run by his cousin. Kate offered to advise Mr Aaron. MrAaron agreed
and showed Kate Nasi Kandar business accounts. Kate advises MrAaron that it is a
profitable business and she advised that RM100,000.00 is a wise investment. Mr. Aaron,
after investing that much of money, found that the business is insolvent and is in a severe
financial position. Kates negligence is the failure on her part to ask Mr. Aaronn make
inquiries about the financial position of the business, the fact that has been acknowledged
by Kate.
(iii) Arctic Machine Company Sdn Bhd., a company that has been dealing with the firm before,
has supplied a Photostat machine to the firm. The machine was ordered on August 11, 2013 with
the old firms letterhead that stated Leon as one of its partners, and did not state Helen as a
partner.

ANSWERS FOR QUESTION 2

In this case, Leon has been retired from Leon, Kate & Co on 31st July 2013 where he was
a partner with Kate. According to Section 281, any partner can retire from the partnership
business at any time if there is no written agreement upon the duration of partnership and the
partner who intended to do so must give a notice on his retirement.
Therefore, Leon action was valid under the law. Furthermore, his retirement has been
published in the Government Gazette on 1 August 2013. The retirement is official once it has
been publish or advertised in the Government Gazette and shall be notice to persons who had no
dealings with the firm before the retirement of a partner as stated in section 38(2)2. The general
rule is when a member of partnership has been retired, he is not bound or liable anymore to any
debts or acts by the firm. However, section 38(1)3 extends the liability of a former member of the
firm to debts contracted after his retirement as when a person or a company deals with the firm,
he is entitled to treat all apparent members of the old firm as still being members of the firm until
he has notice of change.
In the case of Elders Pastoral Ltd v Rutherfurd4, Somers J. stated that
Two points must concur for liability to arise under section 38(1). The first is that which emerges
from subsection (1) and (3) namely, that the person sought to be made liable was known to the
creditor before actual retirement to have been a partner. Knowledge in that sense would we think
include belief arising from general notoriety or the use of names on letterheads, advertisements
and the like.
The second is that the former partner must still be apparent member. The ordinary meaning of
apparent is visible, evident, manifest to the understanding. In section 165 relating to holding out,
the words apparent partner are referable to one who represent himself, or knowingly suffers
himself to be represented, as a partner. We should think that a retired partner who gives no notice
1

Section 28, Partnership Act 1961 (Act 135)

Section 38(2), Partnership Act 1961 (Act 135)
3
Section 38(1), Partnership Act 1961 (Act 135)
4
Elders Pastoral Ltd v Rutherfurd [1990] 3 NZBLC 101.
5
Section 16, Partnership Act 1961 (Act 135)
2

may be an apparent partner if his name continues to be used. That is something he can prevent or
can counter by notice of retirement.
In this case, Leon only agreed to allow the firm to retain its name as Leon, Kate & Co but
has requested that his name is no longer listed as a partner in all stationaries used by the firm
starting from the date of 1 August 2013. It means that, Leon indirectly want to notify all the
dealers and clients about his retirement and is no longer a member of the firm.

In the same time, Helen was admitted as a new partner in the firm. According to section
266, no person shall be introduced as a partner without the consent of all existing partners. As in
this case, Kate is the only member of the firm after Leons retirement. Therefore, admission of
Helen is valid and Helen is bound to the partnership agreement of the firm and liable to all debts,
obligations, torts, misapplication etc. by the firm as mentioned in section 77, all partners are
agent of the firm and therefore obliged to follow rules of the firm and liable for any wrongful
acts done by the firm.

Based on situation (i) in this case, the issue is whether Leon, Kate and Helen will be
liable from the Kates act towards Kusinero Tulis Sdn Bhd.
Kate has ordered new stationaries through phone call on 10 August 2013 from Kusinero
Tulis Sdn Bhd. However, she did not tell the company about the changes in constitution of the
firm. Kusinero Tulis is a frequent dealers that supply stationaries to Leon, Kate & Co firm.
According to section 38(1) of Partnership Act 1961, where a person deals with a firm
after a change in its constitution he is entitled to treat all apparent members of the old firm as still
being members of the firm until he has notice of change.
In the case of Tan Boon Cheo v Ho Hong Bank8, the court held that an advertisement in
three local Chinese newspapers of the dissolution of partnership was not per se sufficient notice
to those having had dealings with the firm who have not actually seen it although they may be
6

Section 26(g), Partnership Act 1961 (Act 135)

Section 7, Partnership Act 1961(Act 135)
8
Tan Boon Cheo v Ho Hong Bank [1934] MLJ 180
7

regular subscribers to the newspaper. In order to fix them with the knowledge of the fact that a
partner has retired so as prevent from holding a retiring partners liable for debts incurred after
retirement, express notice must be given.
Therefore, as stated by Prichard J. in this case, in the case of an old customer, he is
entitled to a more specific notice than a person who never dealt with the firm at all. In another
words, the old customer must be notified about the changes in constitution of the firm by a
special communication9.
In the case of Leon, Kate & Co, Kusinero Tulis Sdn Bhd is an old customer or frequent
dealer of the firm. Advertisement on Government Gazette alone is not enough to inform and
notify old customers about Leons retirement. During the phone call made by Kate to Kusinero
Tulis, she did not mention about Leons retirement.
Therefore, as follow the provision stated in section 38 (1) of Partnership Act 1961,
Kusinero Tulis is not at fault when it assume that Leon is still one of the member of the firm as
the company was not notified about the changes of constitution in the firm.
Hence, Leon, Kate and Helen are liable in this situation. Even though Leon has retired,
but he has to take the liability as he did not take further step to advertise his retirement besides in
the Government Gazette.

Based on situation (ii), the issue is whether Leon, Kate, Helen will be liable on Kates
negligence for not asking Mr Aaron to make inquiries about the financial position of the business
before making the investment.
Mr. Aaron has come to the firm on 16th August 2013 to ask for advice of his intention to
participate in Nasi Kandar business run by his cousin. He is a regular client of the firm and
always dealt with Leon. However, this time, Kate offered to advise Mr Aaron and he agreed.
Kate advised him on amount to be invested in the business however, she failed to ask Mr Aaron
to make inquiries about the financial position of the business before making the investment.

Dr Samsar Kamar bin Hj Latif, Partnership Law in Malaysia, Laser Press Sdn Bhd, Selangor, 1998, p 80-81.

Thus, after investing RM100, 000 of money, he found out that the business is insolvent and is in
severe financial position.
As provided in Section 1210, partners of a firm will be liable to all wrongful acts or
omission done in the ordinary course of the business of the firm or with the authority of his their
co-partners. It means that when a partner do a wrongful act or omission that is not ordinary
course of business because of failure to do something that is compulsory, thus the wrongful act
or omission will make the firm liable to it. is the partners act by the nature of the business.11
In the case of Walker v European Electronic Pty Ltd 12, the issue to determine is whether
receivership work was within the ordinary course of business of a firm of accountants. The
receiver and the manager of the company misappropriated company funds. He had been
appointed personally and had maintained separate receivership accounts but was a partner in a
firm of accountants, whose other principals engaged in insolvency and taxation practices and had
no significant involvement with receivership.
The court held that the parties practiced together as accountants. The inference is that
their business included the acceptances of appointment as receiver or receiver and manager and
the doing of acts done to carry out such appointment. This is a kind of thing which accountants
of their kind have to do and it is what they habitually did.
Back to the situation given, first and foremost we have to identify whether advice to
make inquiries on financial position before making an investment is an ordinary course of the
law firm in consulting clients. Looking into the results that Mr. Aaron suffered a lost because of
lack of information about the financial position of the business, it can be said that an advice for
client to make a further research before making an investment is very important during
consultation and it is the ordinary courses that lawyers will consult their clients.

10

Section 12, Partnership Act 1961 (Act 135)

Shaikh Mohd Nor Alam bin S.M. Hussain, Undang-Undang Perkongsian, Percetakan Dewan Bahasa dan Pustaka,
Selangor, 1987, p 39.
11

Therefore, Kates failure on advising Mr Aaron to make inquiries about the financial
position of the Nasi Kandar business is a negligence as she breached the duty of care in
consulting him which result a damage to Mr. Aaron as he lost his investment.
Hence, as provided in section 12 of the Partnership Act 1961, Kate and Helen are liable
for Mr. Aaron loss as they are partners in the business. However, as for Leon, he can be said to
be liable as it is mentioned before that Mr. Aaron is a regular client. Thus, he needs to be notify
specifically that Leon has retired from the firm. Because of no notification given to Mr. Aaron
about the retirement by the firm or Leon himself, then he is liable for the damage suffered by Mr.
Aaron.
Based on situation (iii), the issue is whether Leon, Kate and Helen will be liable for the
debt incurred on a Photostat machine ordered on 11th August 2013 with the old firms letterhead.
A Photostat machine has been ordered on 11th August 2013 from Arctic Machine
Company Sdn Bhd using the old firms letterhead that stated Leon as one of its partners, and did
not state Helen as a partner. Arctic Machine Company is a frequent dealer of the firm.
The same principle apply as situation (i) which is based on section 38(1) of Partnership
Act 1961, where a person deals with a firm after a change in its constitution he is entitled to treat
all apparent members of the old firm as still being members of the firm until he has notice of
change.
In the case of Tower Cabinet Co. v Ingram 13, the fact that an order for goods, received by
the plaintiffs company, was written on the firms letterhead paper, on which the defendants
name appeared as partner, did not render the defendant liable for the price of the goods. The
order has been sent after his retirement. The appearance of his name in the letterhead was a false
representation that he was a partner but, in the absence of evidence that the defendant knew of
the representation or that such representations were made concerning him, he was not liable
under the holding out provisions. Furthermore, because the plaintiff had not had previous
dealings with the firm and does not know that he had been a partner prior to the reconstituition.
Compared to the case, Arctic Machine Company Sdn Bhd is a frequent dealer which need
to be notified specifically. Even though Leon has requested that his name is no longer listed as a
13

Tower Cabinet Co. v Ingram [1949] 2 KB 397

partner in all stationaries used, he failed to notify the company about his retirement from the
partnership business.
However, it is arguable that Leon is not liable to the matter as he has requested for his
name is no longer listed as a partner in all stationaries used by the firm starting from the date of 1
August 2013. Thus, when the firm still use the letterhead that contained Leons name as one of
the partners, it can be said to do fraud and misrepresentation of fact that Leons is still a partner
in the firm. The transaction itself is void as the letterhead contained Leons name cannot be used
anymore starting from the date of 1st August 2013.
As for Helen, even though her name was not stated in the letterhead as one of the
partners, she is a valid member of the firm as she had been admitted with the consent of Kate
which at that time the only member of the firm. She is already bound to the firms action and
liable to all wrongful acts or omission done by the firm starting from the date of her admission.
Kate is liable as she is a partner of the firm.
In conclusion, partners will be liable to the wrongful acts and omissions done by the firm.
As provided in section 1914, while the business may continue, any change in the composition of
the partnership marks the end of relationship and the creation of a new partnership. The rights
and liabilities of members of the separate firms are separate and distinct. Members of the original
firm are responsible for contractual obligations incurred before the termination date and newly
admitted partners are not liable for those obligations unless they expressly or by conduct accept
the obligation.15 However, former partner can be liable for the acts in certain circumstances as
for example in this case of Leons retirement. Helen is liable as all the transactions made are
after the date of her admission in the firm.

14
15

Section 19(1) , 19(2), 19(3) Partnership Act 1961 (Act 135)

Dr Samsar Kamar bin Hj Latif, Partnership Law in Malaysia, Laser Press Sdn Bhd, Selangor, 1998, p 69-70.