Partnerships

Determining Partnership
PA s7(1): Partnership is the relationship which subsists between
persons:
1. CARRYIN ON A BUSINESS
Systematic and regular commercial or trading behaviour
or the intent to carry on such behaviour in the future
Short term allowed if it involves and active business
Turnbull v Ah Mouy
The selling agent gets 25% of profits & commission
one time deal & lack of continuity , Court hels
was merely an agent for commission
Ballantyne v Raphael
An investment syndicate purchases large block of land,
sub-divides, sells and splits the profits
held as Joint investment
Note nowadays with the additional
administration activity required for a prop. Dev. It
is likely that carrying on of a business is likely to
be satisfied, S43(b) also recognises a single
venture as amounting to a partnership
2. BUSINESS IN COMMON
Parties are acting together in a mutual business not just
unning individual venures that happen to run in
conjunction,Requires:
o agency able to enter contracts & othe r legal obligations on
behalf of others
o mutuality Similar rights and duties between partners
o interdependence must consider best interest of others not
just their own
Checker Taxicab Ltd v Stone
A car owner leases car to taxi driver and shares profits made
by taxi driver -> No common management with, or agency on
behalf of other party, no business in common and thus no
partnership
3. WITH VIEW OF PROFIT
Determine wether their prime motive is commercial or if there
is nymore dominant motive
o Prime motive of participation is commercial gain
Statutory rules for determining a partnership PA8
1) Co-ownership of property- indicative of partnership
2) Sharing of gross-returns from property- indicative of partnership
3) Sharing of profits from a business
o Establishes a prima facie case in favour of partnership that puts
burden of proof on defendant to prove they are not a partner,
shifting onus on to defendant to fall within s8(4-8), which then
switches onus to plaintif

4) Receipt of debt or other liquidated amounts from profits does not

make person a partner
5) Remuneration through share of profit - not a partners
6) Reciept of partnership portfolio through annuity by way of a
death- not a partner
7) Lending of money for share of profit not a partner
8) Share of profits for sale of goodwill not a partner
Statutory rules for determining a partnership PA8
Walker v Hirsch
Employee lends money to firm in exchange for 1/8 profit, no
additional job functions or control in business Court held he is not
partner as there was clear evidence as to why employee received a
share of profits
Re Megevand
Lender, lends entire capital of business in exchange receives
profits, right to examine books & records at wil & right to recall
loan Court held lenders rights were inconsistent with arms length
lender & was hence deemed a lender
SUMMARY OF HOW TO DETERMINE IF A PARTNERSHIP/PARTNER
The court will view the facts objectively to determine the true
relationship:PA7(2).
Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales
(Finance) Pty Ltd
Concert held involving 3 parties, financer, organiser and advertiser,
organised as a joint venture. Court deemed it a partnership
despite the subjective intent for a joint venture and despite
apparent lack of an on-going business or further concert tours
through s7(2) objective intent. And Financer was able to maintain
proceeds

Contractually binding acts of partners on the

firm & Co-Partners
If a partner has express, implied or ostensible authority, there will
be a binding contract with the third party.
2 routes & 1 seal
PA13- Relates to Express Authority: any act or instrument of the
business by the firm intending to bind the firm by any person
authorised will bind the firm and all partners
PA26 Special powers of Partners, Relating to implied and/or
Ostensible authority: any act necessary for or usually done in
carrying on business of the kind carried on by the firm shall bind
partners as though duly appointed for that act. Unless they have no
authority and the 3rd party they are dealing with
a) Knows he has no authority; or
b) Does not know or believe him to be a partner
When there is a "holding out" such as a "public appointment" of the
person in question as a partner in the firm, the firm is "estopped"
from denying the usual authority of any partner

THE SEAL PA16 Liability of partners, partner in a firm is liable,

jointly with the other partners, for all debts and obligations of the
firm
Goldberg v Jenkins
Partner withheld rom borrowing money, borrows at 60% interest
thus no express or implied authority
Objective test under s26(A), no ostensible authority & firm and
innocent co-partners are not bound
IF NO AUTHORITY: 1) Firm can deciede to ratify contract, or:
2) 3rd party can sue the partner for breach of warranty of authority
Collen v Wright or in the tort of deceit or negligent
misrepresentation

Liability of firm & co-partners for wrongful

acts & omissions
PA17- Liability of firm for wrongs
Requires 3 Elements:
1) Wrongful act or omission of any partner
2) In the ordinary course of the business of the firm, or with the
authority of his co-partners
3) Loss or injury is caused to any person not being a partner in
the firm, or any penalty is incurred
Making the firm liable just as much as the part who did the act
Hamlyn v Houston
Principal may be liable for the fraud or other illegal activity
committed by his agent within the general scope of the authority
given to him,
Criminality of the act does not take it outside of his authority
Proceedings Commissioner v Ali Hatem
Sexual harassment of an employee by one partner, whom was
acting in general are of authority over employees & so conduct in
ordinary course of business so firm and innocent co-partners liable
Polkinghorne v Holland & Whittington
Junior partner given whom he gives investment advice to invest in
Co. & guarantee debt of another Co. client loses all their money
Partners held liable for investment in Co, but not guarantee as it
was not reasonable for client to believe that advice was in ordinary
course of the business.
PA18- Misapplication of money and Property
(1)money or property of a third person is received by one
partner, , acting with real or apparent authority, or in custody
of the firm, is misapplied by any partner, the firm shall be
liable to make good the loss.
(2)Section will also be satisfied if misapplication occurs through
the ordinary course of business
Mann v Hulme
Partner steals a deposit received from a client, firm is liable as
partner was acting within scope of authority
PA19- Liability for wrongs, joint and several
Every partner is jointly & severally liable under s17 & 18

Liabilities for firm obligations of ex&to-bepartners

PA16 = Partners are always liable for debts incurred while they are
a partner
PA24- Liability of incoming & outgoing partners
(1)Incoming partners are not immediately liable to creditors for
contracts before becoming a partner. Though 24(3) allows for
the constitution of an agreement for the inheriting of the
debts
(2)Retiring partners does not cease to be liable for partnership
debts or obligations before their retirement. 24(3) will allow
the discharging of the debts

PA21- Persons liable by holding out

Incursion liability through: the representation of themselves or
knowingly allowing themselves to be held out as a partner by the
firm and: The reliance of the creditor on the holding out on the faith
of any such representation
Nationwide Building Society v Lewis
Solicitor hired by firm, not a partner but name on letterhead
Solicitor had no liability for wrongful advice because under s21
Nationwide had the onus of proving it actually relied on the
letterheand & believed Williams to be a partner when becoming a
client
s21 may arise were an ex-partner holds themselves out or
knowingly sufers a representation to be made on his behalf by the
firm, leading them to be liable after retirement
Tower Cabinet v Ingram
Ingram retires, ongoing partner contractual agrees to make
necessary changes.
Partner makes contract using old letterhead. Ingram not liable
under s21 as he had not knowingly sufered a representation to be
made
PA47- Rights of creditors against apparent members of firms
S47(1)- After a change in a firms constitution, up until notice is
given to people dealing with the firm, all apparent members will be
treated as still being members
Hamerhaven Pty Ltd v Ogge
Court requires that notice be ambiguous and must bring home the
fact of retirement, Lack of notice leads to liability
S47(2)- Ex-partner is vindicated from creditors who never dealt
with the firm while ex-partner was a partner, if notice of retirement
is advertised in government gazette and on one other local
newspaper
S47(3)- Defends from liability

Dead or bankrupt Partner: New debts after the date of

occurrence will not make the ex-partner or their estate
liable
Silent Partner: Once retired firms cannot claim actual or
constructive knowledge of the partners association with the
partnership
Elder Pastoral Ltd v Rutherford
Silent partner not liable for post retirement debts

Relations of Partners one to another

S34(1) Provides the assumption that all partners split equally any
profits & losses
Popat v Shonchatra
Establishes that quantity of capital provided will not override the
s34(1) presumption. Overriding requires express though not
necessarily written, agreement that partner will have unequal rights
to profits
S34(2)- Provides partners the right to indemnification for any
personalcost incurred in the ordinary course of business or for the
benefit of the firm
S34(5)- Presumes all partners are able to participate in joint
management
S34(6)- The admission of a new partner requires unanimous
consent
S42- There are restrictions on transfer of the partnership interest to
an outsider, only allows the assignee of the interest rights to the
partners share of profits but no partnerly right
S35- Expulsion of Partners
(1)- Expulsion of a partner requires a pre-existing written agreement
pronouncing the availability of the act
(2) Such power must be done in good faith in view of benefit of the
business & partner expelled must have opportunity to be heard
Johnson v Snaddon
Corresponds to statute requirement of in good faith benefitting
firm

Fiduciary Duties Inter se & to Common

Enterprise
S40- Partner must account for all benefits derived
Partner must account to the firm for profits from unauthorised use of
property. Property is defined broadly as tangible and intangible
assets of the partnership.
(2)- Applies to transactions after dissolution through death of
partner, before the complete winding up
Chan v Zacharia
Intangible right to lease usurped following dissolution
S41- Partner must not compete with firm

If a partner, (a) without the consent of the other partners, (b) carries
on any business of the same nature as, and (c) competing with that
of the firm, he must account for and pay over to the firm all profits
made by him in that business.
Jenkins and Joaquim v Bennett
The criteria outlined in s41 must be satisfied so to enforce conflict of
interest
*. Breach this of duty requires more than just a passive involvement
with the competing business (just as the term "carrying on" in PA
7(1) implies an active rather than passive involvement for purposes
of determining whether a partnership exists)
S46- Dissolution by Court
(a)
Unsound Mind
(b)
Physical Incapacity
(c)Partner guilty of conduct that is calculated to prejudicially
afect the carrying on of the business
(d)
Partner wilfully or persistently commits a breach of
partnership agreement or otherwise conducts themselves
such that it is not reasonably practicable for the other
partners to carry on the business with them
(e)
Encumberance by a partner of firm property or profit
(f) Firms unable to make a profit
(g)
Other just and equitable grounds
Jenkins and Joaquim v Bennett
Application under s46c,d&g denied Exemplifying courts hesitancy
to dissolve under s46
Ruut v Head
Court prefers of a buy out provision in partnership to resolve
deadlock
S55Right of outgoing partner to share profits made after
dissolution
Ex-Partner, or deceased partners estate, who have not had their
interest returned has rights to : 1) Theyre entitled share of profits,
from retirement to payment date 2) right to interest on the value of
the unpaid partnership interest at 6% pa
S55Right of outgoing partner to share profits made after
dissolution
Cameron v Murdoch
Beneficiaries of estate of deceased partner received share of profits
of farm made during the 43 years since the dissolution, but not as
large as other partners as they could show that their skill and labour
generated the bulk of the profits.
Fry v Oddy
Partner retires and consents to continuation, though doesnt receive
an immediate pay out of share of assets. Court recognises the
importance of good will to modern large firms, shifting the burden of
proof to continuing partners to prove the extent to which profits are
generated from their skill and labour.

Cruttwell v Lye
Goodwill has been defined as the probability that the old customers
will resort to the old place

Post dissolution right to goodwill and

Partnership name
S51- Sale of goodwill on dissolution
Every partner is entitled to have the goodwill of the business sold
for the common benefit of all the partners
Alcock v Robb
Rights to good will and business name of firm after dissolution is to
be shared by all partners.
S52- Use of firm-name may be restricted
All partners are able t restict another partner from carrying on the
same business with the same firm-name until the afairs of the firm
have been wound up, and the partnership property disposed of.
Chan v Zacharia
Rights to good will in lease (location of business premises) to be
shared even after dissolution.

Bailment
Gould:
A bailment comes into being whenever one person is knowingly in
possession (custody) of goods belonging to another.
Hobbs v Petersham Transport Co Pty Ltd
A bailment comes into existence upon delivery of goods of one
person, the bailor, into the possession of another person, the bailee,
upon a promise, express or implied, that they will be re-delivered to
the bailor or dealt with in a stipulated way.

Important: No requirement of the goods to be received directly

from the owner. Not all bailments arise through agreement
Where agreement is present terms of agreement prevail!
Law of bailment only applies in absence of an agreement
Only relates to movable tangible personal property, or
chose in possession
Higher degree of care for bailment in contrast to License
Tinsley v Dudley
Patron of pub leaves motor bike in pub car park,, no transfer of
property
Pub-owner never had actual or constructive possession of the bike
thus was simply a license use of parking lot
Ashby v Tolhurst
Leaves car in vacant car lot minimal security aside from attendant
License as attendant never received possession of car
Sydney Council v West
Modern multi-story car park, showing of ticket at exit
Safe keeping intended & bailment held

Duties of Bailee
1) Take care of the goods, must make reasonable eforts to
ensure that the goods are not damaged or lost, reasonability
arising from circumstances
2) Retain possession of the goods, No right of sub-bailment
without the express or implied authority of the bailor
3) Dont use or misuse the goods , presumption bailee will not
use goods for their own purposes May be overcome by
circumstances
4) Return the goods at an appropriate time, must ensure no
misdelivery of the goods. Regarded as a PRIME DUTY OF
BAILEE
Standard of care to be exercised by bailee
Modern Approach/old standards no longer sufficient!
Criteria for standard of care:
1) Classic categories Escalation of S.o.C with the degree of
benefit to bailee
2) Professionalism or expertise of the bailee S.o.C highest
when bailees prime business is bailment
3) Type or condition of the goods S.o.C highest when goods
are dangerous, valuable or of a perishable nature, but lowest
where they are safe or of little value
4) Nature of the loss/conduct of the bailee
Jackson v Cochrane
Bailor misdelivers caravan, no serious attempt by bailee to contact
bailor before releasing caravan to rogues
Court rules when bailee actively misdelivers the goods notions of
standard of care are almost irrelevant *Active contravention of
instructions

Voluntariness of Possessions
Lessened responsibilities will relate to how voluntary the bailees
possession of the goods
INVOLUNTARY BAILEE
Newman v Bourne &Hollingsworth
Diamond broach found in store, kept in draw, then stolen.
Though involuntary bailee, store failed to exercise the appropriate
S.o.C held liable to breach of bailment
UNKNOWING BAILEE
Requires a standard of care for goods that are foreseeably or
reasonably to be in the possession of the bailee
Aux Ltd v EGM Solders Ltd
Manufacturer receives what they thought was boxes of defective
parts, bailee manufacturer destroys boxes & all contents without
looking inside
Extreme of active conduct by bailee raises duty of care &
manufacturer held liable for value of parts

Breach of Valid instructions

Breach of bailors instructions as to the redelivery of goods, will

result in absolute liability for loss that would have occurred but for
the breach
Lilley v Doubleday
Incorrect storage of goods, Goods destroyed in fire
Bailee held liable if a bailee elects to deal with property
entrusted to him in a way not authorised by the bailor, he takes
upon himself the risk of doing so
Mitchell v London Borough of Ealing
Squatter evicted, though city became bailor storing squatters
goods, organise return but failed official not showing up
Goods stolen & City held liable. If loss is caused but for breach
of agreemen, then liability is almost absolute

Burden of Proof for Breach of Bailment

Hobbs v Petersham Transport Co Trucks breaks down, damages
goods
Tottenham Investment v Carburettor Services Car stolen from
mechanic
Roman Catholic Archbishop of Perth v Bishop Printer loses damages
artworks lends to resulting losses
3 cases upholding the important principle:
Bailee has burden of proving lack of carelessness on its part, or
that carelessness did not cause the loss sufered
Singaporean Case:
Chua Chye Leong Alan v Grand Palace Deluxe Nite Club Pty Ltd
Valet parking Car & keys missing, attendants & restaurant has
burden of proof to prove not carelessness
* Once a bailor proves a bailment agreement & that goods were lost
or damaged, relatively easy to establish a prima facie case

Proving a bailee was not careless requires proving:

They did not fail to meet standards of care required under the
circumstances under the law of bailment
*Where bailee has failed to follow the bailors instructions, the
advantage of suing for breach of bailment is that only required to
satisfy the but for test
*Exception of shift of burden: When bailee is receiving absolute no
reward for bailment onus may remain with the bailor to prove
bailees failure to meet the standard of care required in the
circumstances

Duties of a Bailor
1) Bailor has a duty not to interfere with the bailees possessions,
particularly in a lease situation (rental of a car)
2) Duty to inform bailee if goods are of a dangerous or perishable
nature. If this duty is breached, the bailee may have a defence
to an action for loss or damage to goods. Bailor may be liable
to bailee for any damage to property of bailee

Termination of Bailment
Terminated by:
o Mutual Agreement
o Unilaterally by either one party (for gratuitous bailment)
o Expiration of time or end of purpose for fixed bailment
o Destruction of the goods
o Wrongful act of bailee

Guarantees
Turner defines a guarantee as a contract made by one person
(guarantor) with another (creditor) to answer for the debt or
obligation of a third party (debtor) should the latter default.
Gives creditor right of action against guarantor
Generally limited to a single transaction, a continuing guarantee
may be constructed to secure a series of transactions
2 contracts:
1) Debtor & the creditor
2) Guarantor & the creditor
Indemnity vs. Guarantee
Yeoman Credit Ltd v Latter
Indemnity: a contract by one party to keep the other harmless
against loss as a result of entering into a transaction with a third
party
Distinctions:
o For Guarantee the debtor is primary liable then the guarantor
o For indemnity the indemnifier is primary liable regardless of if
the principal contract is enforceable
o In common law countries: a guarantee is not enfocable unless
it is in writing; Requirement s4 Statute of Frauds

o In certain states indemnities do not need to be inwriting

though when securing a consumer credit contract it is
required by legislation (National Credit Code) to be in
written form
* Guarantee is like any contract in that it is governed by the general
principles of contract law

Rights & Obligations of Guarantors

Liability of Guarantor
Default of debtor under the principal contract is a condition
precedent for liability of the guarantor under the contract of
guarantee
Creditor is not required to proceed against debtor first,
once default ocurrs creditor can call on Gurantor
immediately (Sunbird Plaza v Maloney)
Guarantor is not entitled to debtors cross-claims or counter claims
due to the separation of the contracts
Bankruptcy of debtor does not release guarantor
Death of guarantor will not vindicate guarantors estate
from past liability
Guarantor whom pays debt has right of contribution from
the co-guarantor. In absence of any agreement to the
contrary all guarantors are equally liable to contribute
equally

Guarantors Defences

1) If principal contract is unenforceable, guarantee is

dishcharged
Only potential defence as Contracts of Guarantee will
contain clauses contravening the discharge, Notably
an indemnity remains no matter unenforcability
2) If Principal contract is discharged guarantee is also discharged
3) Guarantee is discharged if it is in some way tainted by
vitiating factors
Same as any contract, if procured through use of
misrepresentation, duress, unconscionable conduct
or undue influence guarantee is deemed void.
Though, 2 OBSTACLE EXIST TO THIS
1. The principle of caveat emptor applies in guarantee
transactions, not a contract uberrimae fidei
(contract of utmost good faith); no or little obligation
on the part of the creditor to protect or fully inform
the prospective guarantor
2. It is commonly the debtor rather than the creditor to
engage in improper behaviour. Unless Creditor is
somehow tainted by debtors improper conduct, the
guarantee can not be vitiated on that ground. Also if
improper conduct is done by agent of creditor,
creditor will be tainted.

Commercial Bank of Australia v Amadio

Creditor had direct involvement in & knowledge of
improper conduct of the debtor, & had subjective
knowledge that guarantor was mistaken about facts

4) A creditor must exercise great care when securing a

guarantee from a person in close relationship with the debtor
Yerkey v Jones
Wife guarantees for husband without understanding essential
efect of terms, Creditor accepts without informing of
obligations Guarantee set aside
Garcia v National Australia Bank
Where creditor is aware of an existing relationship of
confidence between D & G, and no apparent direct benefit for
G to enter guarantee, courts will impose a higher duty of
inquiry & provision of information upon the creditor.
Guarantee is discharged if higher duty not met & court is
convinced that guarantor did not adequately understand the
transaction or did not act with free will. SPECIAL EQUITY
RULE
Exception to Graucob case & will reverse burden of
proof on to creditor
If special equity arises creditor must take following steps:
Mee separately & explain documents & transactions to
prospective guarantor or strongly recommend that
prospective guarantor obtain independent & competent
legal and/or financial advice before execution.
If there are reasonable grounds for suspecting undue
influence, creditor must insist on independent & competent
legal and/or financial advice. Advice must be sufficient to
relieve ascendancy of the will of the debtor
If despite all these precautions creditor knows or should know that
the guarantor is still unable to understand the transaction or is
acting without free will. Creditor must not take the guarantee. There
will always be some category of people whos guarantee should not
be acceped
5) Contracts are interpreted contra preferentem (against the
creditor) if documents are ambiguous
Ankar v National Westminister Finance
Much stricter contractual obligations are imposed upon
creditors wishing to rely upon contracts of guarantee than
would be the case under the normally applicable general
principles of the law of contract.

Guarantees rights against debtor

Though there is no privity of conract between guarantor & debtor.

Equity overcomes this injustice & provides the guarantor with a right
to be reimbursed by the debtor for any amounts for which it is held

liable to the creditor under the guarantee. Kown as the right of

exoneration or the guarantors equity of indemnity.
Once the guarantor has made good on the debtors obligation,
Guarantor can sue the debtor. Guarantor is entitled to be
subrogated any direct rights that the creditor may have in the
property of the debtor.

Guarantors rights against Creditor

A creditor must comply with any obligations in the contract of

guarantee Failure will lead to the discharge of guarantee
Creditor is not allowed to make any material alterations to
principal contract without consent of guarantor (Egbert v
National Crown Bank) Any material alteration becomes a
breach of contract of guarantee & the guarantee is discharged
no matter the benefitting party of the alteration
Creditor should not recklessly or wilfully jeopardise the
interest of the guarantor Must maintain any security
interest for the benefit of the Guarantors possible rights of
subrogation
o Courts hold that creditor must not abuse or damage the
debtors property recklessly forfeit, release or diminish
security rights it holds in Debtors property
re Kwan; Ex Parte Hastings Deering
Creditor failed to register security interest in a public register
Guarantor was discharged as potential security Interest would
have discharged
If Creditor is to realise security interest 2 important duties
arise:
1) The duty of Provident Sale: -Must use proper procedures
when selling property
2) Duty to account for Proceeds of Sale
Failure to fo so will relieve the guarantor from any obligation
to pay the shortfall caused by the breach of duties
Another possible defence, failure by creditor to bring
guarantors attention to terms in principal contract that are
onerous or unusual
Creditor is obliged to co-operate with the guarantor (after
payment of debt) if it wishes to exercise its right of
subrogation