CONSIDERATIONS AFFECTING EXISTENCE OF PARTNERSHIP – S4

Section 4(a) – joint tenancy, tenancy in common, joint property or part ownership

 Does not create a partnership as to anything held or owned

 It must be created with a view of profit
 Case: Chooi Siew Cheong v Lucky Height Development Sdn Bhd
o Where land owner entered into a joint venture agreement with a property
developer to develop a piece of property. The landowner provided the land
whereas developer provided capital, labour and services to develop and build on
the land.
o Held: the agreement had merely provided for combined resources and there was
no ‘business in common’. Thus, no partnership!
Section 4(b) – sharing of gross return

 Sharing of gross returns does not itself create a partnership

 Case: Dry v Boswell
o A owned a ship but managed by B, who receives part of the gross return.
o Held: whatever being paid to A was rent and B was salary, did not create a
partnership
 Case: Cox v Coulson
o Mr. Coulson was a theater manager who agreed with Mr. Mill to provide his
theater for one of Mill’s production. Under the agreement, Mr. Coulson was to
receive 60% of gross takings whilst Mr. Mill was to receive the balance of 40%.
The plaintiff (one of the audience) was shot during performances of one of the
scenes. She sought to make Mr. Coulson liable and therefore liable for the
incident
o Held: The claim was rejected because sharing of gross returns did not create a
partnership within the meaning of the PA
Section 4(c) – sharing of profits

 It is a prima facie evidence of partnership but this presumption may be rebutted by

showing that the sharing was for some other reasons
 Case: Chooi Siew Cheong v Lucky Height Development Sdn Bhd
 Case: Cox v Hickman
o The partnership business was in financial difficulties. The creditors appointed
two trustees to manage their interests in the partnerships. The agreement was
that upon full payment of the creditors’ debt, the trustees will be out of the firm
and return the full management to the original partners. Mr. Hickman sought to
make the two trustees liable as partners of firm.
 o Held: Sharing of the gross return of the business did not make them partners.
There was neither representation nor financial involvement which indicate a
partnership.
 Case: Murray v David
o P entered into 3 transactions to defendant. Court found that there were no
agreement of profit sharing in transaction no. 1 and no. 2 except for no. 3
transaction.
o Held: Plaintiff and defendant were partners only in regard of transaction no.3!

 5 specific situations where sharing of profits does not make the person receiving it a
partner in a business
o Section 4(c)(i) – payment of debts by instalment out of profit
o Case: Badeley v Consolidated Bank
 Plaintiff advanced money to defendant to construct a railway project.
Defendant delivered the instrument and created a charge to plaintiff and
agreed to pay 10% interest on the money advanced with 10% net profit
derived from the project.
 Held: the money advanced by plaintiff to defendant was in fact meant as
a loan secured by charge. So, eventhough plaintiff received share of the
profit of the business, that does not create a partnership.
o Case: Pooley v Driver
 C advanced 2500 pound to A and B. As per agreement between them, C
was entitled to inspect and take copies of the partnership book and a
part of annual profit. The agreement further provided for a final account
and repayment at the end of the partnership unless it should appear that
C has received more than the money C has given. D also advanced to A
and B on similar terms
 Held: Partnership existed between then and the money was not given as
loan but towards capital contribution in firm

o Section 4(c)(ii) – remuneration to a servant or agent to the business

o Case: Chua Ka Seng v Boonchai Sompolpong
 The defendant was a partner in an architect firm, of which the plaintiff
was an employee. The defendant later left the firm and set his own
architect firm under a different name. The defendant requested the
plaintiff to resign from the company and work with him at new company.
The plaintiff alleged that in their agreement, he will be a partner who is
entitled to 20% of the net profits. The defendant on the other hand
claimed that plaintiff was merely a salaried partner who was to receive
20% of profit inclusive of salary and bonus
  Held: The plaintiff was only a “salaried partner” remunerated by 20% of
net profits inclusive of salary and bonus
o Case: Walker v Hirsch
 Plaintiff gave loan of 1500 pound to defendant, where in return, he
would be repayed 1800 pound as salary and 1/8 out of the net profit.
 Held: Plaintiff is not a partner, eventhough the salary was paid out of
profit of the firm.

o Section 4(c)(iii) – payment of annuity or portion of profit to widow or child of a

deceased partner
o Case: IRC v Lebus’s Trustees
 A partner of a firm involved in making furniture bequeathed (thru will) his
share of the profits to his widow. In 1930, the widow’s share amounted
to large sum but owing to a financial strategy, the firm was unable to pay
her the money. However, the widow was assessed to income tax for that
year. A question arise as to whether the assessment ought to include the
sum representing her shares in the profits of the business
 Held: the widow was not a partner in the business and none of the assets
of the firm belonged to her. She only entitled on the profit and on
amount of the annuity.

o Section 4(c)(iv) – contract of payment of interest which varies with the profits
o Case: Re young
 A and B entered into a written agreement, where A would lend money to
B. A would be repayed weekly out of the firm’s profit. A was also given
option to be B’s partner. The business was under B’s name eventhough A
fully controlled the business. A never exercised the option to become a
partner. Later, B became bankrupt and A claimed for the partnership’s
money to be equally divided.
 Held: A is not a partner. He only received profit for the repayment of
money lent to B. The relation was between creditor-debtor only.

o Section 4(c)(v) – payment to the seller of goodwills

o Case: Pratt v Strick
 A doctor sold goodwill of his practice. The agreement stated that he
would stay of the business premise and introduce clients. Any profit
received of the first 3 months would be equally divided among them.
 Held: Eventhough both parties share the business profit, the doctor
would not be treated as partners.
PARTNERSHIP AGREEMENT
 The partnership agreement refers to a document where all necessary terms and
conditions are written. It is a written declaration of agreement among partners.
 It acts as a guideline for conduction partnership business.
 This is where court can discover consensus ad idem
 May consists:

1. Parties 2. Firm’s name 3. Duration 4. Modes of

termination
5. P/ship property 6. P/ship account and 7. Administration of 8. Striking off and
capital p/ship competition

REGISTRATION OF PARTNERSHIP
 Registration is not compulsory but it is encouraged to do it.
 There are consequences of non-registration: arbitration is not possible, recovery of
credit sales, chance of quickly dissolution
 Case: Gulazam v Noorzaman Sobath
o The plaintiff claimed defendants who were cattle dealers, had made
arrangements to form a partnership with him to purchase, keep and sell cattle.
The conditions were that plaintiff was to provide capital for the purchase of the
cattle and the defendants were to look after and sell them, with profits to be
divided equally among them. After a while, the defendants failed to render
accounts to the plaintiff neither did they pay his share of profits. The plaintiff,
claimed for an account to be taken and payment of any sum of money found due
to him. The defendants argued that partnership never existed.
o Held: Partnership existed between parties.
FIRM AND FIRM NAME
 Section 6 PA 1961

FORMATION OF A PARTNERSHIP
 A partnership can be formed with or without a written agreement.
 No formal requirements.
 However, a person must have the capacity to enter into a contract.
 There can be a partnership between a minor and an adult.
 A minor could be in partnership for any duration of time until he wanted to disaffirm it.
  However, a minor cannot incur or be responsible for any contractual liability for the
firm’s debts.
1) FULL AGE
 Case: William Jacks & Co Ltd v Cha & Yong Trading Co.
 The plaintiffs claimed against the defendants the sum of $12,734.91 for
goods sold and delivered by the plaintiffs to the defendants. The writ was
served on Chan and Yong the partners of the defendant firm. Yong did
not take any steps to defend but Chan denied the plaintiffs’ claim on the
following grounds:
o (a) no firm by the name of Chan & Yong Trading Co ever existed
and that if such a company did exist he was not a partner thereof
o (b) he had not in any way represented or held himself out as
partner of the said firm
o (c) the goods bought from the plaintiffs were for the personal use
of Yong who was a minor and that therefore the partners were
not liable.
 Held: Chan was a partner of Chan & Yong Trading Co. As Yong had not
taken any steps after attaining the age of majority to repudiate the
partnership he was also liable as a partner of the firm.

2) ILLEGALITY
3) NUMBERS

RELATIONS OF PARTNERS WITH OUTSIDERS ( Section 7 – section 21 PA 1961)

 At common law, the law of partnership was considered to be a branch of the law of
agency. (eg: the agent owes a fiduciary duty to his principal)
 As partners are agents of the partnership firm, any act or omission committed by one
parties binds the rest of the partners if it is carried out within the ordinary scope of the
firm’s business.
 Section 7 of the PA 1961 stated that as partners are agents of the partnership firm,
any act or omission committed by one partner binds the rest of the partners if it is
carried out within the ordinary scope of the firm’s business.
 The authority of each partner may be either actual (express or implied) or apparent.
 Express authority may be given in writing or orally.
 Implied authority is inferred from the conduct of parties.
 Apparent or ostensible authority arises when the partner holds out to others that he has
such authority Sec 8, PA 1961.
 Sec 10 of the PA 1961 provide if the third party has notice of the agreement between
the partners that there are some restrictions on the power of any one or more of them
 to bind the firm, the firm will not be bound in respect of any act done in contravention
of the agreement.
 For the 3rd party to hold the partnership firm and the rest of the partners liable, the
following conditions must be satisfied:
o i. The act must be done for the purpose of the business of the partnership
(Section 7 & 9 of the PA 1961)
o ii. The act must be done in the firm’s ordinary course of business.
o iii. The act must be done by the partner as a partner of the firm and not in his
own personal capacity.

ACTUAL
1) Express
 Where partners expressly allow something to
be done by a co-partner in usual way of
carrying on the partnership business.
2) Implied
 The authority where the implication of law
regards as necessary for the carrying out of the
partner’s express authority
Case: Chan King Yue v Lee & Wong
- Plaintiff’s husband borrowed from her $35000
as a loan to the firm in which he was a partner.
He gave her a receipt in the name of
partnership. The money was paid into the firm
to pay off some of its debt. The plaintiff
initiated an action to recover the loan against
the firm. The other partner of the firm denied
liability by contending that the plaintiff’s
husband was not authorized by the firm to
borrow the money
- Held: The act of borrowing money for the
carrying of business of the partnership was
necessary and as such bound the co-partner.
The loan had been utilized for the payment of
the debt of the partnership, the lender was
entitled to repayment of money as if the
money had originally borrowed by the partner.
APPARENT
The authority of agent as it appears to 3rd party
Case: Osman Hj. Mohamed Usop V Chan Kang Swi
- Partnership firm established by 6 partners, 3
chinese who administered and managed the
business and 3 malays including appellant
who did not participate in management. The
3 chinese received loan $10000 from money
lender and have completed the promissory
note, loan was granted by Chan. When the
money lender demanded repayment, firm
cannot afford to pay so Chan paid them off.
Later, Chan demanded payment by taking
legal action against 6 partners. 5 admitted
liability except 1 of them (si Osman).
Evidence found, the money was used for the
purpose of partnership and partners had
signed promissory note that acting on behalf
of the firm. Thus firm is liable to 6 partners.
- Held: Partners bind to the firm’s liability if
the action done was for the purpose of
sharing business.
Case: Chop Cheong Tuck v Chop Tack Loong
- A managing partner represents to borrower
that he is borrowing for the purpose of the
firm
- Held: the lender is under no duty to enquire
whether the loan is necessary for the purpose
of the firm. As the leader has no knowledge to
contrary, and there is no suggestion of fraus,
the firm is bound to repay the loan.

SCOPE OF AUTHORITY

 Section 7
 “Every partner is an agent of the firm and that his other partners for the purpose of the
business of the partnership..”
o Case: Chan Yin Tee v William Jacks & Co (Malaya) Ltd

 “the acts of every partner who does any act for carrying on in the usual way business of
the kind carried on by the firm of which he is a member bind the firm and his partners”
o Case: Merchantile Credit Co Ltd v Garrod
o 2 partners, Parkin and Garrod were partners carrying out the business of renting
out garage and repairing cars. Parkin without Garrod’s authority, sold a car to
plaintiff. There was a partnership agreement expressly forbids any buying and
selling of cars. Parkin did not have ownership of the car. The money was
however credited into firm’s account. Plaintiff later discovered about it and
requested for the return of money.
o Whether parkin’s act was within authority?
o Held: The dealing in motor vehicles was usual for motor garage companies. Thus,
Garrod was liable for the act of parkin.
o
 Proviso to Section 7
o unless the partner so acting has in fact no authority to act for the firm in the
particular matter, and the person with whom he is dealing either knows that he
has no authority or does not know or believe him to be a partner.”:
i. A partner has in fact no authority to act on behalf of the firm
ii. The person whom he deals knows about the lack of authority, the firm is
not bound.
iii.
 Section 10 – Effect if notice that firm will not be bound by acts of partner.
  Section 8 – Partners bound by acts on behalf of firm – done/executed in firm-name – in
manner showing an intention to bind the firm.
o Case: Hock Hin Chan v Ng Kee Woo
o A bill of sale executed by one partner on behalf of the firm is valid as a partner in
a firm. It can alone grant a bill for himself and on behalf of all the partners.
 Section 9 – Partner using credit of firm for private purposes – firm is not bound unless
he is authorized by other partners!
LIABILITY OF PARTNERS

 Section 11,12,13,15
 Section 11 – Liability in contracts: debts and obligations of firm
o Joint liability
o Severally liable – death of a partner
o Case: Kendall Hamilton
o There was a proceeding against partnership. Plaintiff discovered defendant was
also a partner to the firm. However, he was considered as inactive partner.
o Held: Defendant is not liable
o Case: Bagel v Miller
Held: A deceased partner’s estate was held to be not liable under contract of
goods sold and delivered because it was entered into before his death.

 Section 12 – Liability of firm for wrongs: loss or injury caused to an outsider

o Case: Hamlyn v Houston & Co
o One of the partners had gave bride to a staff of competing firm to leak some
confidential info on firm’s contract and tenders
o Held: Giving bribe was the usual way of doing business, whether act is legal or
illegal is not an issue. The firm was liable.

 Section 13 – Misapplication of money/property received for or in custody of firm

o S 13(a) – Firm is liable if partner who actually receives money misapplies it
o Not necessary that the partner applies to its own purpose, the firm would still be
liable – even if used for the firm’s purpose
o Apparent authority does not mean authority created by representation of words
or conduct, it also means authority derived from nature of business and status of
partner.
o S 13(b) – Where firm receives money/property of a third party, and misapplied
by one or more of partners while it is in the custody of firm
Case: Blair v Bromley
 A firm receives amount of money for purpose of investment. However, it was not being
used for specified investment but was used by one partner for a private purpose.
Held: Firm was liable for the misappropriation.

 Section 15 – Improper employment of trust property for partnership purposes

DURATION OF LIABILITY
 Persons liable by Holding Out – Section 16
Elements: representation – knowingly suffers – third party has given credit based on
such representation
Case: Wong Peng Yuen v Senanayake
The def was a partner in a firm – the plaintiff gave some money to def in consideration
that he is to be made one of the partners. The plaintiff then act and thought himself as
a partner. However he did not take part in management of firm and only attended 2
meetings before firm dissolved.
Held: There was representation by P – he is a partner eventho not taking part in
management of firm.
 Persons liable by incoming and outgoing partners
Person admitted as partner into existing firm – become liable to creditors of firm for
anything done AFTER becomes a partner

PARTNERS AND EACH OTHER

 Partners owe each other a duty of good faith – to act honestlt and for the benefit of
the partnership as a whole.
 A partnership is both a fiduciary and a contractual r/ship.
 FIDUCIARIES DUTY –
o S.30 : HONESTY AND FULL DISCLOSURE
o S.31 : UNAUTHORISED PERSONAL PROFITS
o S.32 : CONFLICT OF DUTY AND INTEREST
 THE IMPLIED TERMS (DUTY) – Section 26
(a) equal share of profit and loss
(b) indemnification of personal liabilities incurred
(c) Interest on payment or advancement beyond capital
(d) before ascertainment of profits, partners are not entitled to interest in capital
(e) taking part in management
(f) no remuneration
 (g) no person may introduced a spartners without consent of all existing partners
(h) no change of nature of partnership business without consert of all partners
(i) partnership books to be kept at the place of business

DISSOLUTION OF PARTNERSHIP
Ada dua cara NOTICE OCCURRENCE OF EVENT

 S 34 – DISSOLUTION BY EXPIRATION OF NOTICE

o Tham Kok Cheong v. Low Pui Heng
o One of the partners in firm was not informed in the sale of partnership. There
was a change in nature of business.
o Held: Majority partner’s decision to convert the p/ship into a limited company
will prevail notwithstanding the dissent of a minority.
 S 35 – DISSOLUTION BY BANKRUPTCY/DEATH/CHANGE
 S 36 – DISSOLUTION BY OPERATION OF LAW – Illegality of partnership – immaterial
whether the partners knew of illegality of not
 S 37 – DISSOLUTION BY COURT – involuntary dissolution (a-f)
o Mental incapacity
o Physical incapacity
o Conduct prejudicial to the business
o Breach of agreement
o Business carries on at a loss – impossible for business to make profit – partners
have done everything they are obliged to do under partnership agreement and
profit cannot be made
 Case: Jennings v Baddeley
 Partners in mining venture had contributed and exhausted all the capital
they were obliged to contribute under terms of agreement. They had
failed to make profit. There was evidence profit would probably be made
in future, if more capital were to be provided but court ordered
dissolution of partnership.
o On just and equitable ground