LAW 604- Partnership

Law (Universiti Teknologi MARA)

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ESSAY QUESTION ON PARTNERSHIP

DR JOHN CHUA TUTORIAL

Question 1: Explain the differences between managing partner and sleeping

partner.

Managing partner is the partner who manages the firm. They makes all decision
regarding the case and they shall take as well as who will represent their client.
Meanwhile, sleeping partner is a dormant is one whose name does not appear in the
firm, and who takes no active part in the business, but who has an interest in the
concern, and shares the profits and thereby becomes a partner either absolutely, or as
respects to a third persons.

Question 2: What is the legal status of a salaried partner and minor partner?

In looking at the status of a salaried partner, Chua Ka Seng v Boonchai

Sompolpong illustrates what salaried partner is. In this case, the partner received 20%
of firm’s nett profits inclusive of salary and bonus. Court held that the CKS is only a
salaried partner, not a partner properly so called. No written partnership agreement
was made between the parties. In deciding the existence of partnership, court held that
Partnership act must be relied on. Under Sec 4 (c ) (ii), profit sharing is evidence of
partnership exist, but court also look at other surrounding circumstances. In this case,
the court decide that there is in fact two possibilities exist. For a salaried partner to get
was a full pledged partner in relation to dealing with a third party outsider. Meaning, you
can neter into a contract with a third party that is binding with all the other partners of
the firm. However, by far as partners within the firm are concerns, the salaried partner is
not a partner. He is just an employee receiving salaray (per DR Jc recording, a bit
vague, u might want to do a bit of research on your own)

In looking at another case, Walker v. Hirsch, a clerk received her monthly salary
and on top of that was paid ⅛ of the profit and losses. It was held that no partnership
existed as her status is that of an agent/ employee, and neither she is a salaried
partner. Further, in Stekel v Ellice, A salaried partner is not a partner in true sense. To
ascertain his status, must look at the substance of the relationship between parties

Therefore, it can then be understand that a salaried partner legal status is where the
acts done by them with 3rd party will bind the firm accordingly. However, within the
partnership itself, he is regarded as a mere employee.

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Subsequently. The status of a minor partner. In accordance with Sec 11 of

Contract Act 1950, a person that is competent to enter and make contract must be
one of the age of majority. The age of majority could be inferred from Sec 2 of Age of
Majority Act 1971, where a person shall be deem of the age of majority by the age of
18. In case of Mihori Bibee’s, any contract with a minor or an infant is neither valid nor
voidable but is void ab initio.

In looking at the status of a minor partner, William Jacks v Chan & Yong
Trading Co, illustrated the status of a minor partner. In this case, A minor is a full
fledged partner based on Section 200 the Contracts Ordinance, which stated that any
minor may be admitted to the benefits of partnership, but cannot be made personally
liable for any obligation of the firm. As such, any contract entered into by a minor will
bind the firm, but will not make the minor personally liable. A minor will continue to enjoy
his immunity under the law until he attains the age of majority. If he doesn’t repudiate
the partnership within a reasonable time, he becomes liable for all obligations incurred
by the partnership from the time he was admitted to the partnership.

Question 3: Explain whether partnership exists when persons do business together

prior to the setting up of a company

Answer:

In determining whether there’s an existence of partnership prior to the setting up of a

company, section 3(1) of the Partnership Act must be satisfied.

Section 3(1) provides that partnership is the relation which subsist between persons
carrying on business in common with a view of profit. Hence, there are 2 important
components that must be satisfied which are intention to make profit and carrying on
business in common.

There are two leading case in discussing whether there is a partnership in a pre-
partnership stage. For an example, in case of Keith Spicer v Mansell where in this
case, Bishop and the defendant decided to go into a business together and they wanted
to incorporate the business as soon as possible. In the preparation stage, they have
commenced business to a certain extent. Mr. Bishop entered into a contract with a third
party, he didn’t pay up and the 3rd party decided to sue the other partner. It was held
that that the 3rd party cannot sue the defendant because there was no evidence that
Section 3 of the said Act had been fulfilled, thus there was no partnership between the
alleged parties.

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However, the decision was different in case of Miah v Khan where in this case, four
persons decided to open a restaurant and they have make preparations such as
opening a bank account with 2 names. They even borrowed money to make preparation
for their food business. Most of the money in the account was furnished by Mr Khan.
The money in the account is used to pay the builders and all the services and
renovations in order to get the business started. They also have their own respective
task. The issue arose within this case was whether they were partners or not?

It was held that the main principle is there is no rule of law that a parties to a joint
venture becomes partners once they start trading. However, the partnership exists as
they have in this case carried on their respective activities tho the business has not yet
formally started. It was held that they have done sufficiently to show that partnership
does exists.

Both of the decision in Keith’s and Miah’s case differ from one another as the difference
are the intention to set up a company. In Keith, there’s an intention to establish
company while in Miah’s case, there is no intention to set up a company. The court
clearly stated in Miah’s case that the partnership relation has exist with the existence of
the partnership fund. Plus, there was also a partnership account.

Hence, in determining whether partnership exists or not during the pre-stage, the
intention of all the partners must be ascertained.

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QUESTION

Section 16 of the Partnership Act provides that where a person who is not a partner
make it known either by his words or conduct, to a third party, that he is a partner, and
as a result of the reliance on such representation, the third party suffers loss, such
person will be held liable as though he is a partner. In looking at the relationship
between section 16 to retired partners, this section aim to prove that there is a holding
out made by a retiring partner. Therefore, a few elements must be fulfilled in order to
establish that there is in fact holding out made by retiring partner.
There are a few elements to establish holding out as it could be found in section
16 of the Partnership Act. Firstly, where a person who is not a partner make it known
either by his words or conduct that he is a partner to the third party. In case of D & H
Bunny Pty Ltd v Atkins, Atkins and Naughton represented to the plaintiff’s agent that
they were partners where in fact there is no such partnership exists. Based on the
representation made, the plaintiff supplied good on credit to Naughton. It was then held
that Atkins was found liable as a partner because of the representation.
Further, in case of Fox v Clinton, holding out to public requires person to voluntary
hold himself out. This means lending his name to the partnership where under ordinary
circumstances, this act takes place when a person allows his name to continue to be
used by the firm whether publicly positioned at the shop entrance, or used in invoices or
advertised so that the knowledge or the consent of the person whose name is thus
used, become the basis to stop him from denying liability as a partner .However, the
communication to third party is not necessarily imperative where in case of Marilyn v
Gray, the representation made by the person holding out need not to be direct to a third
party, it is sufficient even if the third party heard it from someone else (hearsay
evidence). Plus, the fact of the use of headed notepaper representing a person as being
a partner is sufficient to establish a holding out and reliance so as to give rise to
estopple as in case of Nationwide Building Society v Lewis.
Secondly, the third party must have had relied on such representation. A person will
be liable as a partner if there is in fact reliance and belief that he is a partner. The third
party must have acted on strength of the representation and must have believed it to be
true. In case of Lynch v Stiff, the plaintiff sued Lynch, a solicitor in a legal firm for a
money misappropriated by the partner on the legal firm. It was then held that Lynch was
found liable as he had represented, and knowingly suffered himself to be represented,
as a partner in the firm which the plaintiff gave credit to because he trusted that Lynch
was a partner.
Thirdly, the third party must show that due to the reliance made, the third party had
suffered loss. If all the elements are being fulfilled, a third party can take action against
the firm. However, in case of Re Buchanan, the holding out does not give any rights to

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third party against actual partners. This means that a third party cannot sue party when
the actual partners had no knowledge of holding out nor had giving out consent
Therefore, it could be seen that in section 16, if a partner has decided to retired, he
or she must act accordingly with their decision. It is not advisable for them to represent
the firm or allowed the firm to act using their name. Section 16, however, are not
applicable to a dead partner.

QUESTIONS:
Explain how a partner who is a minor can contract with a 3rd party to attract
liability on the firm?

Section 7 of Partnership Act: A partner is an agent to the firm hence any act done is
binding upon the firm and other partners. . In accordance with Sec 11 of Contract Act
1950, a person that is competent to enter and make contract must be one of the age of
majority. The age of majority could be inferred from Sec 2 of Age of Majority Act 1971,
where a person shall be deem of the age of majority by the age of 18. In case of Mihori
Bibee’s, any contract with a minor or an infant is neither valid nor voidable but is void
ab initio.

However, William Jacks v Chan & Yong Trading Co, it allowed a minor to act as a
partner where, in this case, A minor is a full-fledged partner based on Section 200 of
Contracts Ordinance, which stated that any minor may be admitted to the benefits of
partnership, but cannot be made personally liable for any obligation of the firm. As such,
any contract entered into by a minor will bind the firm, but will not make the minor
personally liable. A minor will continue to enjoy his immunity under the law until he
attains the age of majority. If he doesn’t repudiate the partnership within a reasonable
time, he becomes liable for all obligations incurred by the partnership from the time he
was admitted to the partnership.

However,this judgement must be read in light of Section 201 of the Malay

Ordinance 1950 as it is doubtful whether the new Contracts Act 1950 or Partnership
Act 1961 applies the same principle in William Jack’s case. Partnership Act did not
explicitly mention the rights, duties and liabilities of minor. Contracts Act 1950 makes it
clear that a minor cannot enter into contract but if he acts as agent he may be able to
contract as a minor partner on behalf of the firm under Section 7 of Partnership Act but
not as a principal partner

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Explain how a partner who has retired can protect himself from liability after
retirement without resorting to a tripartite agreement. Would your answer be
different if this is a partnership at will as compared to a partnership with fixed
term.

Section 19(2) of the Partnership Act provides that retired partners would still be
liable for any debts or obligations that had incurred while he is still a partner. However,
by virtue of section 19(3), a retiring partner may be discharged from any existing
liabilities by an agreement to that effect between himself and the members of the firm as
newly constituted and the creditors, and this agreement may either express or inferred
as a fact from the course of dealing between the creditors and the firm as newly
constituted.
The contract made under this section is known as a novation agreement. This is
a tripartite agreement by which the creditor accepts the new firm as newly constituted
as taking over liability for the debt from the old firm. This means that when a partner
retired or a new partner joins, the existing partner i.e the new firm comes into place.
Therefore, in order to avoid the constitution of a tripartite agreement, section 28
of the Partnership Act state that for the retirement from partnership at will, that is where
no fixed term has been agreed upon for the duration of the partnership. In such
partnership, any partner may determine the partnership at any time by giving notice of
his intention to determine the partnership to all the other partner (Sukhinderjit Muker v
Arumugam Deva Rajah) Section 38(2) provides that an advertisement in the gazette or
newspapers of wide circulation, is sufficient notice to persons who had no dealings with
the firm before the partner However, Section 38(1) also provides that where a third
party 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 partners of the firm until he has notice of
the change retired.
In case of Tan Sih Moh v Lebel Ltd, the appellant had failed to inform the
respondents, who have had dealings with the firm about his withdrawal from the firm. It
was held that a person who had habitually dealings with the partnership was entitled to
be specifically notified of a partner resignation from the firm.
In case of Philips v Jong Kuang, registration of retirement is not sufficient for
old client. What is required is notice of retirement that is specific. The notice provided to
old customers must be a personal notice which is specific and makes clear that the
partner with whom they have been dealing with has retired.
In Re Siew Inn Steamship Co, a retired partner gave notice of his retirement by
advertising it in three Chinese newspapers. After his retirement, several of the firm old
customers lend money to the firm on the security of promissory notes executed by the
remaining members. The plaintiff was later sued by one of these lenders, who denied
having notice of the retirement from the newspaper. It was held that retired was liable as

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personal notice is required for old customers, it is insufficient if the notice is post in
newspapers only.

However, in looking at the partnership of a fixed term. Section 34(1)(a) provides

that a fixed term partnership shall ceased upon its expiration term. This would mean
that the partnership was created for a fixed duration of term. Such partnership shall not
be a partnership at will as it shall be treated as a partnership of a fixed term. Section 42
of the Partnership Act provides that where a partnership for a fixed term is dissolved
before the expiration of the term, the court may order the repayment of the premium
paid by a partner as it thinks fits having regard to the partnership agreement and the
unexpired period of the partnership term. However, the court will not order dissolution if
the dissolution is wholly or chiefly due to the misconducts of the partner who paid the
premium or the partnership has been dissolved by an agreement containing no
provision for a return of any part of the premium.

Hence, the answers for both situations shall be different as section 19 provides
that a retiring partner shall still be hold liable unless if a tripartite agreement is
constituted under section 19(3). A partner who retired prematurely from a fixed term
partnership is not entitled to serve notice as it is not sufficient and it could only be made
by partnership at will.

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PROBLEMATIC QUESTIONS ON PARTNERSHIP

LAW 604: Tutorial question (DR JOHN CHUA)

1. Maya and Ella does business together in the same premise at Lot A 11 at Mid
valley Megamall. Ella is doing floral management whilst Maya is doing facial
treatment. The tenancy to their premises is under joint names and every month
the profits they generate from the premise is shared. Rita who assists both of
them also gets a small share of the as stated in her contract of employment.
Lately, Rita’s father has been diagnosed with cancer and he assigned his
partnership shares in his law firm to his wife, Fasha and Rita to take effect upon
his death. Ella owes X bank money and proposes to pay back with her profit
sharing every month which is agreed by the bank. Maya in the meantime gave a
loan to Lis to carry out business in fitness with the agreement that 20% of the
profits made is used to repay the loan and 5 % is interest repayment for the next
5 years.

Answer:

There are a few issues found within the above scenario. The first issue is whether
there’s business in common under section 3(1) between Maya and Ella?

In Aw Yong Wai Choo v Arief Trading, in order to ascertain someone intention to

create a partnership, the court will take into account any verbal or written agreement
and the surrounding circumstances of the case. It is important to bear in mind that
although the parties professed to have an intention to create a partnership, it does not
necessarily make them partner. Therefore, it can be understand that at the end of the
day, it does not matter what the parties had said, it depends on the subjective
evaluation of the courts after hearing both parties. One of the instruments that the court
will look at is the agreement where it would be used to ascertain whether there’s a
partnership or not. In the absence of any written or verbal agreement, the court will look
at the provision in Partnership Act.

Section 3(1) provides that partnership is the relation which subsists between persons
carrying on business in common with a view of profit. The two important components
within section 3(1) is intention to make profits and carrying on business in common.

Sections 4(a) of the Partnership Act dispel public perception where it does not
necessary that there’s a partnership in a joint tenancy, tenancy in common, joint

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property and in common property. What important is section 3(1) must be fulfilled in
order to prove that there’s a partnership.

In Federal Court case of Chooi Siew Cheong v Lucky Height Development where in
this case, the land proprietor entered into a joint venture agreement where they
contributed the land and the developers, whose the other parties to the contract develop
the land into building houses and shop lots. The profits earn from the houses and shop
lots sell will then be divided. It was held that there is no partnership as the court held
that there was no intention for partnership but for different business. Hence, there’s no
business in common.

In case of Gulazam v Noor Zaman & Sobath, a policeman make arrangement with the
defendant to sell rear and buying cattle. The policeman will provide capital while the
defendant would sell and rear the cattle and the profits that they get will be shared. It
was then held that the business had the characteristics of a partnership.

In case of Ratna Amal & Anor v Tan Chow Soo, the parties had entered into an
agreement to form a ‘syarikat’ for the purpose of selling condensed milk. There was a
deliberate absence of the word ‘partner’ or partnership in the agreement despite using
the term ‘syndicate’ through out, Here, the court look at the partnership Act section 3(1)
and decided that there was partnership because there is business in common with a
view of profit. In short, although the agreement left out the term ‘partners’, the court will
not take account all the semantics so long as section 3(1) is satisfied.

Therefore, it can be understand that in ascertaining whether there’s a partnership or not,

it is reflected from the subjective evaluation by the court as it was decided in case of
Arief Trading’s

In application to our above scenario, section 4(a) is use to dispel public perception that
a joint venture is partners. Therefore, although the tenancy agreement between maya
and ella is under a joint name, it does not necessarily makes them partners.

In ascertaining the intention to create partnership between Maya and Ella, it is best to
bear in mind that in Aw Yong Wai Choo v Arief Trading Sdn Bhd, in order to ascertain
intention to create a partnership, the court will take into account any verbal or written
agreement and the surrounding circumstances of the case. Although, the parties might
have professed to have a partnership, it does not matter as it is upon the court
subjective evaluation in determining whether they are partners or not. In applying this to
Maya and Ella situation, although they might have impliedly professed that their
intention is to create a partnership, it is still upon the subjective evaluation of the court
by looking at the partnership agreement.

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In a joint venture, there might be a partnership and there might not be a partnership at
all. For an example, it can be reflected in the decision of Gulazam and Lucky height
differs as it applied the principle of subjective evaluation in Arief Trading’s. In applying
the decision in Lucky height Development, there will be no partnership existed between
Ella and Maya as it was held in Lucky Height Development that there was no intention
to create a partnership to begin with but for a different business. In our presence case,
although they share profits and shared the same premises, it does not necessarily
makes them partner as in pursuance with section 4 (a), where this section is further
supported by the decision made by the court in the case of Lucky Height Development.
Hence, there’s no partnership.

The second issue found within the above presence case is whether Rita is a partner or
an employee to the business?

Section 3(1) stated that partnership is the relation which subsists between persons
carrying on business in common with a view of profits. The two important components
within this section is the intention to make profits and carrying business in common.

Section 4(c) ii dispels the public perception that there is a partnership where a servant
or agent of a person engaged in a business receives a share of profits in the business
although profit sharing is a prima facie evidence of a partnership, it does not necessarily
make someone a partner.

Section 4(c)ii can be further illustrated in case of Abdul Gaffoor v Mohamed Kassim,
where in this case the manager of a business who shares a percentage of the profits in
the business was held to be an employee and not partner.

Section 4(c) ii can also be illustrated in case of Walker v Hirsch where the plaintiff, a
clerk in the defendant firm entered into an agreement that for the part taken by him in
the business, he should receive a fixed salary and 1/8 th share of the net profit and also
losses. He on the other hand agreed to advance 1,500 pound to the business. The
agreement could be determined on 4 months’ notice. Plaintiff continued his work but
was never introduced to the customers and did not have any voice in the conduct of
business. Defendants being dissatisfied with his work and gave him a notice. Plaintiff
claimed dissolution of the firm and accounts. It was held that there was no partnership
as there was no intention to create partnership. The plaintiff never took part as partner
and no authority of partnership was exercised on his behalf.

In alleging that there might be no partnership at all, it can be supported with the
presence of contract of employment which can indicates that she was just an employee
and not a partner to the business. Similarly in Abdul Gaffoor, where although he shares

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a percentage of the profits, it does not make him an employer but only as a manager in
the business. This is also in pursuance with the court decision in Walker as it was held
that there was no partnership as there was no intention to create a partnership as the
plaintiff never took part as partner and no authority of partnership was exercised on his
behalf. In applying to our presence case, section 4(c) ii need to be apply together with
the decision in Abdul Gaffoor and Walker, it is then decided that there might not
necessary to be a partnership between Rita, Maya and Ella.

The third issue found within the above scenario is whether Fasha and Rita are partners
to the firm?

Section 3(1) stated that partnership is the relation which subsists between persons
carrying on business in common with a view of profits. The two important components
within this section is the intention to make profits and carrying business in common.

Section 4 (c) iii provides that the prima facie evidence of a partnership does not apply to
the widow or child of a deceased partners who receives by way of annuity a portion of
the profits made in the business in which the deceased was a partner. This section
indicates that a child or a family member of a deceased partner cannot entered into a
partnership without the consent of the other partners as partnership is a contractual
relationship.

It can be illustrated further in case of Wong Peng Yuan v Senakayake where in this
case a partner of a firm executed a partnership deed which transferred shares from the
capital of the firm to his children, which was an attempt to admit them as partners. It
was held that the children were not partners since there was no agreement given by the
other partner.

This rule was also applied in Commissioners of Inland Revenue v Lebus where the
court overruled the Commissioner of Inland Revenue who sought to impose tax on a
widow of a deceased partner on the share of the profits received by her as partners,
and not as a beneficiary under a will.

In application to our presence case, Section 4 (c) iii dispels the public perception where
just because a family member becomes a partner to the firm after being appointed by a
deceased partner of the firm, it does not necessarily makes them partner. Plus, the
arrangement was made after Rita’s father had being diagnosed with cancer not prior to
the partnership agreement that was signed by Rita’s father and also the other partners
to the firm. Plus, in applying the decision in case of Senakayake and Lebus, both cases

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clearly indicate that Rita and Fasha are not partners to the firm. Hence, there’s no
partnership between Fasha, Rita and the firm.

Fourthly, the issue is whether there’s an intention to create a partnership between Ella
and X’s bank.

Section 3(1) stated that partnership is the relation which subsists between persons
carrying on business in common with a view of profits. The two important components
within this section is the intention to make profits and carrying business in common.

Section 4 (c)i of the Partnership Act provides that the receipt by a person of a debt or
other liquidated amount, by installments or otherwise, out of the accruing profits of a
business does not of itself makes him a partner in the business or liable as such.

Section 4 (c)i can be further illustrated in case of Cox v Hickman where in this case,
the creditors of an insolvent partnership took over the management of the business
pursuant with a deed entered between the partners and the creditors. Pursuant to the
agreement, the creditors will share the profits of the business to repay the debt owed to
them. The creditors empowered certain trustees to carry on the business. The trustees,
in running the business, incurred debt to Hickman, who sued two of the trustees,
alleging that they’re partners to the firm. It was held that the court rejected Hickman’s
claim, holding that the deed did not make the creditors (including the 2 trustees)
partners to the business as their interest in the business are merely as creditors.

Therefore, in applying section 4(c)i and the decision held in Cox v Hickman, it can be
seen clearly that there’s no partnership between Ella and X’s bank as the intention was
not to create partnership but to lend loan. Hence, section 3(1) is not satisfied.

Lastly, is whether section 4(c)(i) and (iv) has dispels the public perception on the
existence of a partnership between Maya and Lis?

Section 3(1) stated that partnership is the relation which subsists between persons
carrying on business in common with a view of profits. The two important components
within this section is the intention to make profits and carrying business in common.

Section 4(c)i provides that the receipt by a person of a debt or other liquidated amount,
by installments or otherwise, out of the accruing profits of a business does not of itself
makes him a partner in the business or liable as such.

In addition section 4(c)iv further stated that the advance of a money by way of loan to a
person engaged or about to engage in any business on a contract with that person that
the lender shall receives a rate of interest varying with the profits or shall receive a
share of the profits arising from carrying on the business, does not of itself makes the
lender a partner.

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Both section can be best illustrated in case of Re Young where Jones agreed to lend
Young $500 in consideration for the payment to Jones of $3 per week out of the profits.
Pursuant to the agreement, Jones will assist in the office, have control over the money
advanced and to be empowered to draw bills of exchange. He also had the right to
enter into a partnership within a period of seven months. William J held that in spite of
these clauses which give such unusual and extended powers to Jones, he is not a
partner in the business but merely a lender and that there was no intention of
constituting a partnership.

Lending a loan activities does not constitute there’s a partnership. It can be seen in
case of Soh Hood Beng v Khoo Chye Neo where here, a Chinese loan association is
not a partnership because the intention is not to make profits but to assists its members.

In applying it to our presence case, it can be deduced that there might be no intention at
all to create a partnership as there was no intention to make profits together, plus the
20% profits will be given to Maya as a way of repaying the debt back to her. Section
4(c)iv clearly dispels that there might be a partnership in this situation as it was stated
clearly under this provision that where a person receive a share of the profits arising
from carrying on the business, does not of itself makes the lender a partner. This in fact
had also been stated earlier at section 4(c)i that the receipt by a person of a debt or
other liquidated amount, by installments or otherwise, out of the accruing profits of a
business does not of itself makes him a partner in the business or liable as such.

Hence, in applying the decision of Re Young and Soh Hood Beng, together with section
4(c)I and (iv) it can then be clearly seen that there’s no intention to create a partnership
at all to begin with.

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Questions:
A,B and C are partners in firm ABC which deals with selling sport products. Last week,
C a minor entered into contract to purchase weight for the firm from Jan but has not
paid any amount. B negligently sold a faulty rowing machine to X causing his serious
injuries. A set up a firm of sporting consultation whereby he did not disclose the same to
B and C. Some of the firm’s customer went to A’s firm for advice and noticed that A was
using the laptop of firm ABC
Answer:
There are a few issues found within the above scenario. The first issue here is whether
A and B could be made liable for C.
In determining whether A & B would be liable, section 7 of the Partnership Act is
worth noting. Section 7 of the said Act stated that every partner is an agent and the acts
of every partner who does any act for carrying on in the ordinary course of business
shall bind the firm and his partner unless the said partner has no authority to act for the
firm. In addition it is important that the act made by the said partner must be necessary
and not merely necessary.
This test had been laid down in case of Union Bank of Australia v Fisher,
where for an act to be in the usual way of the kind, carried out, the act must be
necessary and not merely convenient for the carrying on of such business. In
Mercantile Credit v Garrod, the partnership carried on garage business, but the
partnership agreement excluded buying or selling of cars. One of the partners without
authority sold a car, which he has no title to. It was held that as selling of cars is a usual
way of garage business therefore the sale was binding on the firm despite the
contradiction in the partnership agreement. Partners cannot contract out of their
business culture
In Chan King Yue v Lee & Wong, the plaintiff borrowed money to pay off the
partnership debts, which was acknowledge by a receipt issued in the name of
partnership. It was an electrical engineering firm. It was held that borrowing money is
not the usual way of business of an engineering firm as it is not a trading firm. There is
no express or implied authority in the partnership agreement that allowing it either.
However, this case is an exception as the money borrowed is important to the survival
of the firm. In Polikinghorne v Holland, a lawyer in a law firm gave advice on financial
investment is not a usual way of business of a law firm. The lawyer was obliged to
advise the third party to seek for proper advice. In Golgberg v Jenkins, the partnership
was a trading firm as such borrowing money is within usual way of business. However,
as the lending rate was too high, interest rate exceeded the market rate, it became not
the usual way of business.
In applying this to the above scenario, the decision in Fisher’s clearly stipulates
that to determined whether the partner act is in the ordinary course of business, it must
be proven necessary to do so. Hence, in applying it to our situation, C’s act by entering

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into a contract to purchase weight is deemed necessary to the firm business as firm
engaged in selling sport products. Moreover, in applying the decision made in case of
Chan King Yue, Polkinghorne and Golberg, it could be seen that a firm must practice
the usual way of business in accordance with their type of business. Therefore, section
7 shall be applicable along with the decision made in Fisher’s.
Section 11 of the Partnership Act provides that every partner in a firm is liable
jointly with the other partner for all debts and obligations of the firm. Section 11 indicates
that every partner shall be liable for all of the default that have incurred except in a
special circumstance. For an example, in the event where the partner is a minor.
In case of William Jack & Co (Malaya) Ltd v Chan & Yong Trading, Justice Gill had
laid down a few rules as regards to a partner who is a minor.
(1) A minor can be a partner in the limited sense that he can be admitted to the
benefits of partnership.
(2) As the case of any other partner, his acts will bind the firm
(3) However, he will not be personally liable for the obligations of the firm.
(4) He will, however, be liable for all obligations incurred by the firm from the time he
was admitted to the partnership if, on attaining the age of majority, he does not
repudiate the partnership within a reasonable time.
Hence, in applying William Jack and section 11 of the partnership Act, although it is
stated that the liability will be shared jointly, by virtue of section 11 of the Partnership
Act and the decision made in William Jack, it is clear then that as a minor C will not be
personally liable for the obligations of the firm.
The 2nd issue found within the above scenario is whether X could sue B for the
injury suffered by him?
Section 12 states that any wrongful act or omission by any partner that acted in the
ordinary course of business of the firm or with the authority of his co-partners, loss or
injury to any person, the firm will be made liable.
Section 12 of the Partnership Act deals with tortious act and criminal liability. Any
wrongful act or omission refers to breach of equitable duties like breach of trustee’s
duties, tortious matters and criminal liability where every partner is liable jointly with his
co-partners and severally for everything under section 14.
In Cricklewood Holdings Ltd v CV Quigley (1990), a partner in a legal firm had acted
dishonestly by raising money via mortgages through the solicitor’s nominee company.
He later stole the money. The said partner fraud binds the other partners and they were
liable for plaintiff loss since the dishonest act was committed in the ordinary course of
the firm’s business.
The act committed by the said partner must be deemed necessary and not merely
necessary as had been decided in case of Union Bank of Australia v Fisher

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B has the authority to buy the rowing machine and he has an implied authority and
obligations as a partner to make sure that the rowing machine is safe to use. This
authority have been provided in Section 7 of the said Act where it stated that every
partner is an agent and the acts of every partner who does any act for carrying on in the
ordinary course of business shall bind the firm and his partner unless the said partner
has no authority to act for the firm.
In application to our scenario, any wrongful act or omission constitutes tortious and
criminal act. In our presence case, X’s had suffered serious injuries as B’s had
negligently sold a faulty rowing machine thus fulfilling the requirement of Section 12 of
the Act.
The second requirement that has to be fulfilled is that B’s must acted in the ordinary
course of business and it must be deemed necessary not merely as in case of Union
Bank of Australia v Fisher. Rowing machine is part of sport products and Firm ABC is a
firm that sell sport products and although it was done negligently, B’s is said to have
acted in the ordinary course of business. Section 12 shall be applied.
The decision made in Cricklewood’s showed that the firm were liable for the plaintiff loss
since the dishonest act was committed in the ordinary course of business. And thus,
under section 14, all the partners is liable jointly with his co-partners and severally for
everything under section 14. However, X’s can sue the firm or B’s solely or the third
possible cause of action is by suing A and B.
The third issue found within the above scenario is whether A could be sued as an
individual and not under a partnership?
Section 3(1) provides that partnership is the relation which subsists between persons
carrying on business in common with a view of profit. The two important components
within section 3(1) is intention to make profits and carrying on business in common
Sections 4(a) of the Partnership Act dispel public perception where it does not
necessary that there’s a partnership in a joint tenancy, tenancy in common, joint
property and in common property. What important is section 3(1) must be fulfilled in
order to prove that there’s a partnership.
In Aw Yong Wai Choo v Arief Trading, in order to ascertain someone intention to create
a partnership, the court will take into account any verbal or written agreement and the
surrounding circumstances of the case. It is important to bear in mind that although the
parties professed to have an intention to create a partnership, it does not necessarily
make them partner. Therefore, it can be understand that at the end of the day, it does
not matter what the parties had said, it depends on the subjective evaluation of the
courts after hearing both parties. One of the instruments that the court will look at is the
agreement where it would be used to ascertain whether there’s a partnership or not.
The demonstration of the subjective evaluation test can be seen in two cases
For an example, Chooi Siew Cheong v Lucky Height Development, the land proprietor
entered into a joint venture agreement where they contributed the land and the
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developers, whose the other parties to the contract develop the land into building
houses and shop lots. The profits earn from the houses and shop lots sell will then be
divided. It was held that there is no partnership as the court held that there was no
intention for partnership but for different business. Hence, there’s no business in
common.
However, the court take a different approach in case of Gulazam v Noor Zaman &
Sobath, where a policeman make arrangement with the defendant to sell rear and
buying cattle. The policeman will provide capital while the defendant would sell and rear
the cattle and the profits that they get will be shared. It was then held that the business
had the characteristics of a partnership.
In application to our presence case, it is important to determine whether A is a partner
to Firm ABC. Section 3(1) provides that in order for partnership to exists, it is important
that the two components must be fulfilled.
Sections 4(a) of the Partnership Act dispel public perception where it does not
necessary that there’s a partnership in a joint tenancy, tenancy in common, joint
property and in common property. However, section 4(a) can be debunk if section 3(1)
is fulfilled.
In Arief Trading’s it was provided that in ascertaining whether there is a partnership or
not, it will depend on the subjective evaluation by the court where in case of Lucky
Height Development, the court held that there was no partnership as it is for different
business where one parties contributed a land and the other parties developed it into
building houses and shop lots.
In our presence case, Firm ABC main purpose is to sell sport products where it does not
stated expressly that they are doing a separate business as in case of Arief Trading’s. It
is then appropriate to look at Gulazam’s case as where both parties have business in
common with view of profit as they’re doing a same business.
By virtue of section 3(1) of the Partnership Act and the decision made in
Gulazam’s, it can then be deduced that A’s is a partner to the firm.
Section 31(1) provides that every partner must account to the firm for any benefit
derived by him, without the consent of the other partners, from any transaction
concerning the partnership or from any use by him of the partnership property, name, or
business connection.
Section 31(1) can be further illustrated in case of Russell v Austwick, held that a party
to a joint venture was under a very stringent fiduciary duty to his co-venturers. In that
case, a party to a joint venture, negotiated a contract with the Royal Mint for the
carriage of coin along a particular route the object of the joint venture being the carriage
of goods along that route as common carriers. He subsequently negotiated another
contract with the Mint for the carriage of coin along a different route and claimed the
benefit of this contract for himself and one of the other joint venturers. The other

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members of the joint venture while admitting that the second contract had no connection
with the route of the joint venture, nonetheless claimed the benefit of it on the grounds
that it was entered into by the Mint as connected with and a continuation of the joint
venture agreement
Section 32 states that If a partner, without the consent of the other partners,
carries on any business of the same nature as and competing with that of the firm, he
must account for and pay over to the firm all profits made by him in that business.
In Aas v Benham, Benham was a partner in a ship-broking firm which hoped to
act in negotiations between the Spanish and Portuguese Governments and ship
builders. He had also been approached for advice by a shipbuilding company. He
received information while acting for the firm suggesting that it could be reconstituted as
a builder of warships and acquire a yard he discovered in Bilbao. He used that
information to help write a prospectus for the ship-building company’s reconstruction
and made profits for himself as a result of the reconstruction.
It was held that in this case, Mr Benham was not liable to account to his partners.
It was no part of the firm’s business to advise on corporate reconstructions or to build
ships. Even though Mr Benham had learnt of the information whilst on the firm’s
business, he owed no fiduciary duty to his partners which prevented him from making
use of the information as he did.
In application to our presence case, section 31 provides that every partner must
be responsible for any benefit derived from them if they used the firm property, name or
business connection. In our presence case, some of the A’s customers are coming from
the firm, indicating that he might have use business connection for his business. In
Austwick’s, the other members of the joint venture while admitting that the second
contract had no connection with the route of the joint venture, nonetheless claimed the
benefit of it on the grounds that it was entered into by the Mint as connected with and a
continuation of the joint venture agreement. Similarly in our situation, B and C can
argued the profits derived from A’s firm is under section 32 derived from business
connection.
Section 32 further stated that a partner must account and pay to the firm any
profits made by him if he engages in a business of a same nature as and competing
with the firm. In Aas v Benham,it was held that Mr Benham was not liable to account to
his partners as it is not a part of the firm’s business to advise on corporate
reconstructions or to build ships. Even though he had learnt of the information whilst on
the firm’s business, he owed no fiduciary duty to his partners which prevented him from
making use of the information as he did. A’s firm is a firm where it gives consultation on
sports and it does not interfere with the Firm ABC practice, which is selling sport
products. Section 32 of the Partnership Act will not be applicable if it can be proven that

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both of the business is not in a same nature. The decision made in Benham’s clearly
showed that just because a partner gave advice on the business related to the firm, it
does not necessarily makes him breach his fiduciary duty under section 32.
P/s: application ada dua. Whether u kata ada its in the same nature or not. I choose the
other way around

QUESTIONS

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X, Y and Z are partners of firm XYZ issued on 2000. Lately, Z has given notice of
retirement to the firm and advertised retirement in Federal gazette. X is always on
holiday when notice was served. The firm is partnership at will. Z’s name is however still
on firms letterhead. X also served his notice of retirement lately but still participates in
the activity of the firm every now and then. M is a creditor of the firm wants to sue Firm
XYZ for outstanding debts occurring since 2010. Advice M.
There are a few issues found within the above scenario. The first issue is
whether Z and X could escape liability after their retirement.
Section 19(2) of the Partnership Act provides that retired partners would still be
liable for any debts or obligations that had incurred while he is still a partner. However,
by virtue of section 19(3), a retiring partner may be discharged from any existing
liabilities by an agreement to that effect between himself and the members of the firm as
newly constituted and the creditors, and this agreement may either express or inferred
as a fact from the course of dealing between the creditors and the firm as newly
constituted. .
Section 38(2) provides that an advertisement in the gazette or newspapers of
wide circulation, is sufficient notice to persons who had no dealings with the firm before
the partner However, Section 38(1) also provides that where a third party 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 partners of the firm until he has notice of the change retired.
In case of Tan Sih Moh v Lebel Ltd, the appellant had failed to inform the
respondents, who have had dealings with the firm about his withdrawal from the firm. It
was held that a person who had habitually dealings with the partnership was entitled to
be specifically notified of a partner resignation from the firm.
In case of Philips v Jong Kuang, registration of retirement are not sufficient for
old client. What is required is notice of retirement that is specific. The notice provided to
old customers must be a personal notice which is specific and makes clear that the
partner with whom they have been dealing with has retired.
In Re Siew Inn Steamship Co, a retired partner gave notice of his retirement by
advertising it in three Chinese newspapers. After his retirement, several of the firm old
customers lend money to the firm on the security of promissory notes executed by the
remaining members. The plaintiff was later sued by one of these lenders, who denied
having notice of the retirement from the newspaper. It was held that retired was liable as
personal notice is required for old customers, it is insufficient if the notice is post in
newspapers only.
In application to the above scenario, Z and X could still be made liable for any
debts or obligations that had incurred during their partnership. The liability shall not
cease just because a partner decided to retire. This had in fact in pursuance with
section 19(2) of the Partnership Act as had been provided above. In order to escapes

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liability, a retiring partner may be discharged by making an agreement between himself,

members of the firm and the creditor as newly constituted.

A retiring partner may make an advertisement about the retirement into Federal
Gazette as had been provided in section 38(2) of the Partnership Act. However, in
pursuance with section 38(1), a third party of the clients to the firm is entitled to receive
notice of change or they have the right to treat all apparent members of the old firm as
still being partners of the firm. The application of section 38(1) can be further supported
in cases such as in the case of Philip’s where registration of retirement are not sufficient
for old clients. The old clients must be served with a specific notice of retirement by the
retiring partner.
It is not sufficient if the retiring partner does not serve a specific notice of
retirement to the old customers. In looking at the above scenario, X does not advertise
his retirement at the Federal Gazette but Z does advertise his retirement at the Federal
Gazette, the matter however, are silent on whether a specific notice has been served to
the old customers. Therefore, in applying the decision made in case of Tan Sih Moh’s,
Philips’s and Ri Siew Inn, it is then safe to said that Z and X would still be liable to any
liability incurred if they failed to server private notice as notice of retirement is
insufficient if it does not be served specifically to the old customers.
The second issue found within the above scenario is whether there is still
existence of presumption of partnership by X and Z?
Holding out is made by a person who by conduct or words represents, or allows
him or herself to be represented, as a partner in a firm is liable for the credit or loans
obtained by firm on the basis of such representation. A partner is presumed to still be a
partner to a partnership by holding out.
Section 16 of the Partnership Act provides that where a person who is not a
partner make it known either by his words or conduct, to a third party, that he is a
partner, and as a result of the reliance on such representation, the third party
suffers loss, such person will be held liable as though he is a partner.
There are a few elements to establish holding out as it could be found in section
16 of the Partnership Act. Firstly, where a person who is not a partner make it known
either by his words or conduct that he is a partner to the third party. In case of D & H
Bunny Pty Ltd v Atkins, Atkins and Naughton represented to the plaintiff’s agent that
they were partners where in fact there is no such partnership exists. Based on the
representation made, the plaintiff supplied good on credit to Naughton. It was then held
that Atkins was found liable as a partner because of the representation.
Further, in case of Fox v Clinton, holding out to public requires person to voluntary hold
himself out. This means lending his name to the partnership where under ordinary
circumstances, this act takes place when a person allows his name to continue to be

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used by the firm whether publicly positioned at the shop entrance, or used in invoices or
advertised so that the knowledge or the consent of the person whose name is thus
used, become the basis to stop him from denying liability as a partner .However, the
communication to third party is not necessarily imperative where in case of Marilyn v
Gray, the representation made by the person holding out need not to be direct to a third
party, it is sufficient even if the third party heard it from someone else (hearsay
evidence). Plus, the fact of the use of headed notepaper representing a person as being
a partner is sufficient to establish a holding out and reliance so as to give rise to
estopple as in case of Nationwide Building Society v Lewis.
Secondly, the third party must have had relied on such representation. A person
will be liable as a partner if there is in fact reliance and belief that he is a partner. The
third party must have acted on strength of the representation and must have believed it
to be true. In case of Lynch v Stiff, the plaintiff sued Lynch, a solicitor in a legal firm for
a money misappropriated by the partner on the legal firm. It was then held that Lynch
was found liable as he had represented, and knowingly suffered himself to be
represented, as a partner in the firm which the plaintiff gave credit to because he trusted
that Lynch was a partner.
Thirdly, the third party must show that due to the reliance made, the third party
had suffered loss. If all the elements are being fulfilled, a third party can take action
against the firm. However, in case of Re Buchanan, the holding out does not give any
rights to third party against actual partners. This means that a third party cannot sue
party when the actual partners had no knowledge of holding out nor had giving out
consent.
In application to the above scenario, in pursuance with section 16 of the
Partnership Act, a retiring partner or a person who is not a partner that makes it known
to other people that he is a partner shall be liable if the party who relied on his
statement suffered loss. It could be inferred by words or conduct made by that person.
Therefore, in applying the decision made in case of Atkin’s, X conduct that still
participates in the firm business after his retirement, could still be made liable if any of
the client suffered loss from his representation during his participants after he had in
fact issued his notice of retirement.
Holding out does not only confined to the act of a person presenting themselves
through words to the third party solely but also by conduct. This could be inferred by the
decision made in case of Fox v Clinton, Marilyn v Gray and Nationwide Building Society
case, where the communication to a third party is not imperative as a third party could
also learn from other people (hearsay evidence).
Therefore, although Z’s had served his notice of retirement and had advertised it
into Federal Gazette, he could still be made liable for holding out as his name is still in
the letterhead. This in fact could be supported in case of Nationwide, where the fact of a
letterhead used to present a partner is sufficient to constitute holding out. Similarly, Z’s

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name is still on the letterhead, therefore, in pursuance with the decision made in
Nationwide, he could still be made liable for holding out.
In application, M, as a creditor can take an action against firm XYZ and X and Z
could still be made liable as a partner for holding out.

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