1

Liability of Partners to Third Parties

GENERAL RULE: BASED ON AGENCY PRINCIPLE
IN CONTRACT
FOR WRONGS:
TORTS
CRIMES
MISAPPLICATION OF THIRD PARTYS PROPERTY
IMPROPER EMPLOYMENT OF TRUST PROPERTY
HOLDING OUT
INCOMING AND RETIRING PARTNERS


2
POWER OF PARTNER TO BIND THE FIRM
The law of agency as found in Part X of the Contract Act
1950, the Common Law and equity rules are applicable to
determine the various situations.

The power of a partner to bind the firm depends on whether
he has actual authority to do so.

Usual or apparent authority is the authority that the
third parties assume that every partner has in carrying
out acts for the purpose of the partnership business,
authority which he would normally have in businesses
of a similar nature. Thus, where a partner does an act that
normally other partners like him would have the authority to
do, the firm would be bound.


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GEN RULE OF LIABILITY OF PARTNERS TO THIRD PARTIES
S.7 Partnership Act 1961 states:
Every partner is an agent for the firm and his
other partners for the purposes of the business of
the partnership; and 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,
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 partner.
This provision recognizes the fact that agency
relationship exist between the partners.

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WHY PARTNERS ARE LIABLE TO THIRD PARTIES
Third parties could make the firm or the other
partners liable if the following conditions are
fulfilled:

1.The act done must be of the type of business
that is carried out by the firm;
2.It is carried on in the usual way;
3.The third party must know or believe the
person with whom he enters into the transaction is
a partner; and
4.The third party must not know the person with
whom he has entered into the transaction has no
authority or the permission of the other
partners to act on behalf of the firm.

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WHY PARTNERS ARE LIABLE TO THIRD PARTIES
1. The act done must be of the type of business that is carried out
by the firm.
The act that is done must be one which is related to the type of
business that is carried out by the firm

Mercantile Credit Co. Ltd. v Garrod [1962] 3 All. ER 1103
Parkin and Garrod ran business of renting out garages and repair of
cars. They expressly agreed not to be involved in the business of
buying and selling cars. P sold a customers car to the plaintiff, a
finance co. without Gs (who was a sleeping partner) knowledge.
Proceeds of sale were paid into firms account. When plaintiff co. found
out that P had no title to the car, it sued G for the return of the price it
had paid. G said he was not liable as Ps act was not lawful because the
type of action was expressly prohibited in their business.
The court rejected the denial and held G liable for Ps acts, as what P
had done was within the type of activity that is normally related
with a garage business. Outsiders would assume he has apparent
authority.

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Higgins v Beauchamp [1914-1915] All.E.R Rep 937
B (sleeping partner) & Milles were cinema proprietors. It was agreed no
partner should enter into any debt on behalf of the partnership without
the consent of the other, except in the usual and regular course of
business. M borrowed money from the plaintiff saying it was for the use
of the firm, but he used the money for his own needs as he never had
the intention to use it for the business. H then sued B to recover the sum
lent to M.
The action failed as the partnership was not a trading business, where
partners had implied authority to borrow money (within ordinary course
of business if trading partnership) thus M had no implied authority to
bind the firm in respect of the debt.
Chettinad Bank Ltd. v Chop Haw Lee & Anor. [1931-1932] FMSLR 31
Plaintiff was a firm of bankers and money lenders who had lent money to
Chin Yook, partner of two pawn broking firms. Chin Yook had signed two
promissory notes bearing the seal of both firms. The plaintiff sued the
defendants to recover the loans they had given to Chin Yook, who had
died. The plaintiffs believed that they were making the loans to the
defendants, but Chin Yook used the money for his own purpose. The
plaintiff was entitled to succeed in their action because a partner in a
pawn broking firm had implied authority to bind the firm in respect of the
debt. (refer to Higgins case on argument it was not a trading business.)
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Chan King Yue v Lee & Wong [1962] 28 M.L.J. 379
Plaintiff lent RM35000 to her husband, partner of Lee & Wong. and the
money was used to pay off some of the firms debts. When plaintiff
sued for recovery of the debt, Wong refused to pay on the grounds firm
was not liable for the debts, as plaintiffs husband had no authority to
receive any loan on behalf of the firm. Receipt of the loan by the
plaintiffs husband was an act necessary for the firms business,
and thus held that the act that a person does in the usual course of
the partnership business is binding on the firm and the other
partners.

Osman bin Haji Mohamad Usop v Chan Kang Swi [1924] 4 FMSLR 292
3 active partners of a firm borrowed RM10,000 from a money lender
that was guaranteed by defendant. Defendant was sued for recovery of
the loan, when the firm was not able to pay. Defendant later sued all
the partners to be indemnified for the money he had paid. All the other
partners admitted liability except appellant. The debt was partnerships
debt since it was obtained and used for the partnership purposes,
and that the partners who signed the promissory noted had acted on
behalf of the firm and therefore all the partners were bound to
compensate the defendant.


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2. It is carried on in the usual way.

The act will only bind the firm, if, other than
the fact that it is one that is usually done by the
firm, the act must also be done in usual and
ordinary manner.

If the manner the act is carried out is in an
extraordinary way, the third party would be put
on inquiry of the authority of the so-called
partner.
In Chan King Yue v Lee & Wong , the judge
said that since the loan taken was necessary
for the firm to carry on business, the borrowing
was in the usual and ordinary manner.
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3. Third party must know or believe person with
whom he enters into transaction is a partner.
As liability of firm is based on apparent or usual
authority of a partner, third party must know or
believe that a partner has such authority. Third party
may assume that a partner would have the authority to
bind his firm.

Third party could gain knowledge or believe that
partner has authority:
(i)from having previous experiences with the firm,
or
(ii)where a partner is held out by the other
partners of the firm as a partner, and he could
believe that a person has the authority to act from
his conduct.


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Third party must know or believe person with
whom he enters into transaction is a partner.
Sithambaram Chetty v Hong Hing & Ors. [1928] SSLR 52
Two partners in Singapore opened a shop in Penang called Hop Hing,
managed by two managers, & the business was left completely to
them. One of them borrowed a sum of money from the plaintiff, and
then disappeared. Plaintiff then sought to recover payment from the
firm in Singapore as well as the remaining manager in Penang. The
firm denied liability on the grounds that the borrower was merely a
manager and did not have the authority to sign the promissory note
to receive the loan on behalf of the firm.
The court held the firm to be liable & rejected the argument as, due
to defendants failure to inform those who had business with the
firm, they had been misled into thinking that the manager who had
borrowed the money was a partner.

William Jack & Co. (Malaya) Ltd. v Chan & Yong Trading Co.
(supra)
Acts of a person who had been introduced as a partner (even though
it was an infant) was binding on the other partners.
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ACTUAL AUTHORITY
Term ACTUAL AUTHORITY covers express actual
authority as well as implied actual authority.
Express actual authority is the authority given to a
partner to do an act or execute a function in the firms
name and as such would bind the firm.
Implied actual authority is the authority exercised
by a person who has been given express authority.
This implied actual authority is to enable him to carry
out the expressed authority.

S.8 states:
An act or instrument relating to the business of
the firm or done or executed in the firm-name, or
in any other manner showing an intention to bind
the firm, by any person there to authorized,
whether a partner or not, is binding on the firm and
all the partners:

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ACTUAL AUTHORITY

Re Briggs & Co. [1906] 95 LT 61
A firm of father and son was asked to make payments by a
creditor, but there was no money to meet the claim. The son
without getting the fathers consent, agreed that the book
debts should be assigned to the creditor so that the
creditors would give the firm time to pay. The deed of
assignment purported to be made was between RB Briggs
and HR Briggs, trading under the style of firm of Briggs &
Co.. The fathers name in fact was forged by the son. Later
the firm became bankrupt, and the trustee in bankruptcy
sought to set aside the deed on the ground that it had been
executed by one partner only.
It was held by the court that the deed was binding under
the English equivalent of S.8 of the P.A 1961. It was an
instrument relating to the business of the firm done or
executed in a manner showing an intention to bind the firm,
and executed by a person who was authorized to do so,
namely, a partner.

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ACTUAL AUTHORITY
Where an act is not related to the firms
business, the act will be binding on the firm
only where a person have been expressly
been given authority to act.
S.9 states: Where one partner pledges the
credit of the firm for a purpose apparently
not connected with the firms ordinary
course of business, the firm is not bound,
unless he is in fact specially authorized
by the other partners; but this section
does not affect any persons liability incurred
by an individual partner,

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LIABILITY IN CONTRACT
S.11, states :
Every partner in the firm is liable jointly with the
other partners for all debts and obligations of the
firm incurred while he is a partner; and after his
death his estate is also severally liable in due
course of administration for such debts and
obligations, so far as they remain unsatisfied but
subject to the prior payment of his separate debts.

(i) All partners are generally jointly liable
for a firms contract that had been made
while they were partners, but ,
(ii) after his death, a partners liability still
remains, but liable severally.

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LIABILITY IN CONTRACT
Joint liability - Every partner is liable jointly with
the other partner for all debts and obligations of the
firm incurred while he is a partner.
A partner is liable for the whole debt of the
partnership. Legal action can be taken against one or
all the partners so as to recover the debts. But
plaintiff can bring only one action and not several
actions against the members of the firm. The plaintiff
is not bound to join all the partners in one action. If
he chooses to sue only one of the partners, he loses
his right against those whose names he did not bring
into the action.


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LIABILITY IN CONTRACT
However, even if action is taken against one of the
partners only, it does not necessarily mean that the
rest of the other partners are not liable. They are
still jointly liable, because if the partner named in
the action is directed by the court to pay the debt,
he may request the same court for an order to the
other partners not named in the action to jointly
contribute towards the payment of the debt.

Third parties can also take action in the firms
name. All partners and the firm are assumed to
have been mentioned in the action as if the action is
taken against each individual partner. If the order
by the court is made towards a partner who is
unable to pay or becomes bankrupt, the plaintiff will
lose the right to claim towards the other partners.
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LIABILITY IN CONTRACT
Kendall v Hamilton (1897) 4 App. Cas. 504
K had given a loan to X and Y, two partners in a trading firm. K
took legal action to recover payment from X and Y, and the court
ordered X and Y to pay the debt. X and Y subsequently went
bankrupt and could not afford to pay. Later K realized that the
defendant, H, who was solvent, was an undisclosed partner of X
and Y. He then began fresh proceedings against the defendant.
Held as the partners are jointly liable, the earlier action would bar
another action from being taken. As the court had already made
the firm liable by an order towards X and Y, even if the debt had
not been paid, another action cannot be taken.

Bagel v Miller [1903] 2 KB 212
B supplied goods to a partnership of which M was a member. Some
were ordered and delivered before M died, but others were
delivered after his death. B brought an action to recover the price
from Ms executors.
Held by the court that the action succeeded in respect of the
goods delivered before Ms death. But in respect of those delivered
afterwards, the action failed since the obligations to pay did not
arise whilst M was partner.

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LIABILITY IN CONTRACT
Several liability and after his death his estate is
also severally liable in due course of administration
for such debts and obligations, so far as they remain
unsatisfied but subject to the prior payment of his
separate debts.

When a partner dies, his liability for the debts and
obligations that arose while he was partner does
not end. His estate is severally liable for the
debts.
Liability is imposed on his estate (whatever assets
he has left behind.)
After the executors of his estate have settled his
separate personal debts, what remains from his
estate, whether sufficient or not, will be used to
satisfy whatever is still unpaid.

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LIABILITY FOR WRONGS
WRONGS UNDER THE PARTNERSHIP ACT:
TORTS AND CRIMES
MISAPPLICATION OF THIRD PARTYS PROPERTY
IMPROPER EMPLOYMENT OF TRUST PROPERTY
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LIABILITY IN TORT
Torts (negligence, nuisance, trespass and
defamation) give rise to civil actions allowing the
injured party a right to claim unliquidated damages
against the wrongdoer. A partner can commit any of
these wrongful acts or omissions.

S.12 states :
Where, by any wrongful act or omission of any
partner acting in the ordinary course of the
business of the firm or with the authority of his
co-partners, loss or injury is caused to another
person not being a partner in the firm, or any
penalty is incurred, the firm is liable there for to the
same extent as the partner so acting or omitting to
act.

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LIABILITY IN TORT
Liability is seen in two instances:
1. There is liability where the result of a wrongful act or
omission is done in the ordinary course of the business
of the firm. The firm is liable for the wrongful act or
omission of a partner. This can be seen in the following
case.

Hamlyn v Houston & Co. (1903) 1 KB 81
A partner in H & Co. bribed a clerk in a rival firm to disclose
to him confidential information relating to it. The rival firm
suffered a loss in consequences, and sued H & Co. for
damages.
Court of Appeal held, H & Co. were liable for the partners
wrongful act as he had been acting in the ordinary course
of the business to obtain information about a trade
rival. Whether the partner did so by legitimate or
illegitimate means, was immaterial.


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LIABILITY IN TORT
2. Liability which is the result of a wrongful act or omission of a partner
acting in the ordinary course of the business of the firm, where the
act or omission is done with the consent of the other
partners.

Although a firm cannot be assumed to have given one of its members
authority to commit a wrong, yet where it has given him authority
to do a class of acts on its behalf, it is liable for his tort either in
the manner of doing such acts or in doing them in circumstances in
which they ought not to be done at all.
e.g. a firm of solicitors would be liable for the negligence of one of the
partners, while a medical partnership would be liable for the negligent
treatment of a patient by one of its members.

If the tort is committed without the actual authority of the partners
and outside the scope of the partners usual authority, the firm and
the other partners would not be liable. Mara v Browne [1896] 1 Ch.
199

In contrast to legal action for debts and contractual obligations, for
an action in tort, the plaintiff may issue separate writs against
each partner either contemporaneously or successively. If the first
one sued becomes bankrupt, the fact of having sued him alone would
not be a bar to a second action against another partner.
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LIABILITY FOR CRIMES
The terms wrongful act, omission and penalty used in S.12, does not
necessarily mean that it refers to criminal liability towards the firm or the
partners.

Criminal liability is personal liability of the partner who commits the
crime, especially a crime that requires mens rea (a mental intent to
commit the crime). In Garret v Hooper [1973] Crim. L. R. 61, Lord
Widgery stated; The general principle in criminal law is that a principal
cannot be made liable for an offence that requires mens rea simply
because his servant or agent has the necessary mens rea.

Chun Shin Kian & Ors v D.P.P (1980)2 MLJ 246
The second accused was away but was charged with the criminal offence
of applying a false trade description to the jeans and jackets after a raid
by officers from the Trade Description Department. Both partners were
convicted of the offence by the magistrate. They appealed against their
conviction.
High Court allowed the appeal of the second accused and quashed his
conviction as he was not present during the raid on the premises. S.14 of
the Partnership Act 1961 provides for joint liability for contracts and
recovery of damages and fines, not criminal liability.

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LIABILITY FOR MISAPPLICATION OF MONEY OR
PROPERTY OF A THIRD PERSON

S .13 provides that:
In the following cases namely:
(a) where one partner, acting within the scope of his
apparent authority, receives the money or property
of a third person and misapplies it; and
(b) where a firm in the course of its business receives
the money or property of a third person, and the money
and property so received is misapplied by one or more
of the partners while it is in the custody of the firm,
the firm is liable to make good the loss.

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LIABILITY FOR MISAPPLICATION OF MONEY
OR PROPERTY OF A THIRD PERSON

In the course of a partnership business, many
transactions may take place on behalf of the third
party by the firm. Certain documents of title, money
or other property may be deposited with the firm, &
sometimes unscrupulous partners may use the
property or money for their own personal purpose.
The firm is liable for the misapplication of the
money or the property of a third party in two cases:
i. Where the money or property is received by a
partner who acts with apparent authority; and
ii. Where the money or property is received by the
firm in the course of its business.


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LIABILITY FOR MISAPPLICATION OF MONEY OR
PROPERTY OF A THIRD PERSON
i. Received by partner who acts with apparent authority.
Where one partner acting within the scope of his apparent authority
receives the money or property of a third person and misapplies it, the firm is
liable to make good the loss e.g. solicitors receiving money and misapplies it.
What are acceptances that are regarded as within the ordinary scope of a
solicitors apparent authority?
Blair v Bromley (1847) 2 Ph. 354
A sum of money was paid into the joint account of a firm of solicitors to be used
for investment in certain securities. One of the partners then told the plaintiff
that the money had been invested as required, but instead he had
misappropriated the money.
It was held by the Court, receiving money for investing in certain or
specific securities comes within the ordinary course of a solicitors business,
and with that decided that all the other partners were liable for the misapplication
of the money.

Earl of Dundonald v Masterman (1896) LR 7 Eq 504
Where money is received by a partner in a firm of solicitors in the course of the
management and the settlement of the affairs of a client of the firm was
held to be money paid to the firm in the course of its professional business. The
other partners were liable to make good any loss caused by the negligence or the
dishonesty of the partner receiving the money, because it was received by him
in the performance of the duties for which the firm was employed.


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LIABILITY FOR MISAPPLICATION OF MONEY
OR PROPERTY OF A THIRD PERSON
Harman v Johnson (1853) 2 E & B 61
Receipt of money by a partner in a firm of solicitors from a client for the
purpose of investing it as soon as he could find a good security has
been held not to be an act within the scope of his apparent authority.
Thus his partners were not liable to account for the money so deposited;
as such a transaction was not business of the solicitor.

In order to make the firm liable, the third party must show that he dealt
with the partner as a partner and not in his capacity as an
individual.

British Homes Assurance Corpn. Ltd. v Patterson [1902]2 Ch.404
In 1899 the BHA appointed Atkinson, a solicitor in the firm of Atkinson &
Atkinson, to act for it in mortgage transactions. On 5 Feb. 1901, A gave
notice to the company that he had taken Patterson into partnership, and
that the name of the partnership was thenceforth Atkinson & Patterson.
On 28
th
Feb. the company sent A a cheque payable to A & A for the
purpose of completing a mortgage. The cheque was misappropriated.
The company sued P for the loss under the English equivalent of S.13.
The court held P was not liable because the company had dealt with A in
his personal capacity, and not that of a partner in a firm.


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LIABILITY FOR MISAPPLICATION OF MONEY OR
PROPERTY OF A THIRD PERSON
ii. Received by the firm in the course of its business.
Where a firm in the course of its business receives money or
property of a third person, and the money or property so
received is misapplied by one or more of the partners while it is
in the custody of the firm, the firm is liable to make good the
loss.
No question of the partnerships authority to receive the money
or property arises. , as long as the receipt is in the ordinary
course of the firms business.
Rhodes v Moules (1895) 1 Ch. 236
Rhodes wished to obtain a loan, so he mortgaged his property.
He was told by Rew, a partner in the solicitors firm of Messers
Hughes and Masterman, that the mortgagees wanted additional
security, so he handed him some share warrants payable to
bearer. Rew misappropriated them, so Rhodes sued the firm in
respect of the loss under the English equivalent of S.13 of the P.A
1961.
Held by the C.A., that the action succeeded, for the warrants had
been received by the firm in the ordinary course of the business.


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LIABILITY FOR MISAPPLICATION OF MONEY
OR PROPERTY OF A THIRD PERSON
To render firm liable, the misapplication must be made while the money
or property was in the firms custody. Where the money or property is
placed in the possession of the one of the partners by fraudulent means of
such partners, the money is not considered as in the custody of the firm.
Tendering Hundred Waterworks Co. v Jones [1903] 2 Ch. 615
Plaintiff co. wanted to buy property and they employed Jones and Garrad,
who were solicitors in a partnership to negotiate the deal for them. G was
also secretary to the plaintiff co. The plaintiff instructed that the property to
be conveyed to G, who was to be their nominee. The vendors handed over
only the conveyance without the title deeds to him. Later G borrowed 500
by depositing the conveyance as security for the loan. The partnership
between J & G later was dissolved. The plaintiff co. brought action against J
claiming he was liable under the English equivalent of S.13 (b) for the fraud
of his partner.
Chancery Division held action failed because by of the plaintiffs express
instructions. By giving G the legal title to the deeds, plaintiff had allowed
him to use the deeds as the legal owner. G did not receive the conveyance
as a partner of the firm but as owner under plaintiffs instructions.
Consequently, they were not in the custody of the firm within s.13(b)
when he used them.

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4. The third party must not know the person
with whom he has entered into the transaction
has no authority or the permission of the other
partners to act on behalf of the firm.

Where a third party enters into a transaction with a
person knowing that a person does not have the
authority to act, then the firm will not be liable.
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S. 15 states that: If a IMPROPER EMPLOYMENT OF TRUST
PROPERTY FOR PARTNERSHIP PURPOSES
partner, being a trustee, improperly employs trust property
in the business or on the account of the partnership, no
other partner is liable for the trust property to the persons
beneficially interested therein: Provided as follows:
This section shall not affect any liability incurred by any partner
by reason of his having notice of a breach of trust: and
Nothing in this section shall prevent trust money from being
followed and recovered from the firm, if still in its possession or
under its control.
If trust property that has been entrusted to a partner who is a trustee,
and if it is improperly used by the partner, the other partners cannot
be made liable, unless the other partners knew of the breach.

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IMPROPER EMPLOYMENT OF TRUST
PROPERTY FOR PARTNERSHIP PURPOSES
Ex parte Heaton (1819) Buck. 386
A son, partner of his father, as trustee of a will had used the trust money of the purpose
of the firms business. When the firm became insolvent, the court decided that the trust
money improperly used cannot be paid out of the partnership property. Liability of the
other partners will only lie if the other partner knew of the breach.

Jacobs v Morris [1902] 1 Ch. 816
The court was of the opinion the knowledge is either actual or implied knowledge,
which is knowledge which a person can reasonably obtain. The liability will thus exist
when a partner actually knew of the breach, or where he is deemed to have implied
knowledge of the breach if he takes reasonable effort to inquire.

Re Bells indenture; Bell & Anor v Hickley & Ors [1980] 3 AllER 425
Money from a trust was paid into the firms client account in the names of certain
members of a solicitors firm who were trustees . They misappropriated the money.
Heaver, a partner, had no actual knowledge of the misappropriation and acted throughout
honestly and reasonably in regard to the firms affairs. However, as a partner he had
access to documents, the inspection of which would have revealed a breach of trust.
Heaver died before proceedings were commenced. One of the issues was whether Hs
executors were liable on the basis that he had been a constructive trustee or was liable
under implied terms of the partnership agreement.
It was held by the Chancery Division the executors were not liable for any misapplication
of the trust property because H had taken no part in and was ignorant of the transaction
in question.
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LIABILITY OF HOLDING OUT
Holding out - where a person who is not a partner, makes it
known either by his words or conduct to a third party, that he is
a partner. Because of this representation he would be liable as if
he was partner.
Meaning of holding out was explained by Tindal C.J in Fox v
Clinton (1803),.:
Holding out to the public as a partner requires a person to
voluntary hold himself out. This means lending his name to
the partnership, Under ordinary circumstances, this act takes
places when a person allow his name to continue to be used
by the firm, whether publicly positioned at the shop entrance, or
used in the invoices or advertised, so that the knowledge or the
consent of the person whose name is thus used, becomes the
basis to stop him from denying liability as a partner.

34
LIABILITY OF HOLDING OUT
S.16 states:
Everyone who by words spoken or written or by conduct presents
himself, or knowingly suffers himself, to be represented as a
partner in a particular firm is liable as a partner to anyone who has
on the faith of any such representation given credit to the firm,
whether the representation has or has not been made or
communicated to the person so giving credit by or with the
knowledge of the apparent partner making the representation or
suffering it to be made:
Provided that where, after a partners death, the partnership
business is continued in the old-firm name, the continued use of
that name or of the deceased partners name shall not of itself
make his executors or administrators estate liable for any
partnership debts contracted after his death.

35
LIABILITY OF HOLDING OUT
Based on the estoppel doctrine.
i. Where a person makes a representation to a third party,
ii. who on believing the representation, relied on it,
iii. as a cosequence of which he suffers loss.
The person making the representation will be estopped from denying
that he had made the statement.
i. Representation :person consents or knows that this his name
is used as a partner, or wher.e he holds himself out to be a partner.
To determine whether a person had been held out as a partner, it
is necessary to find the existence of an apparent (as opposed to
real) partnership. It can be expressed or implied or made orally
before credit is given.
Tower Cabinet Co. Ltd. v Ingram [1949] 2 KB 393
Failure to destroy, or was negligent in not destroying the former
partnerships letterheads does not mean that he consented to be held out
as a partner .
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LIABILITY OF HOLDING OUT
ii. There is reliance on the representation by the third party:
The statement or the conduct of holding out is communicated to
the third party who acts on the statement. The third party must
show that he was aware of the holding out. He must show that he
had given credit to the firm because he had relied on the
representation.

iii. As a consequence credit is given to the firm by third party.
The doctrine of holding out can be applied by those persons who
have dealt with the firm in the belief that the person whom they
seek to make liable is a member of the firm.

37
LIABILITY OF INCOMING AND RETIRING
PARTNERS
S.19 states:
(1) A person who is admitted as partner into an existing firm
does not thereby become liable to creditors of the firm for
anything done before he became a partner.
(2) A partner who retires from a firm does not thereby cease
to be liable for partnership debts or obligations incurred before
his retirement.
(3) A retiring partner may be discharged from any existing
by an agreement to that effect between himself and the
members of the firm as newly constituted and the creditors
and this agreement may be either express or inferred as a fact
from the course of dealing between the creditors and the firm as
newly constituted.

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LIABILITY OF NEW PARTNERS
A new member would not be liable for contracts made
before his admission to the partnership. His liability would
be only to continuing contracts that had been entered into
before he became a partner, but continued on after his
admission.

However, the principle of novation can make a new partner
liable for debts or obligations that had transpired before he
became a member. Novation is where the new partner
agrees to take over the liabilities of the firm that it had
incurred before he became a partner and becomes liable to
the creditors. The agreement may be expressed or implied
from the conduct of the partner.

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LIABILITY OF RETIRING PARTNERS
A partner who has retired would still be liable for partnership debts or
obligations incurred while he was a partner.
Court v Berlin [1897]2 B 397
The plaintiff was a solicitor who was employed by firm, which carried on
business under the name of I. Berlin to recover a debt due to the firm.
The firm consisted of Berlin, who was the managing partner, and two
dormant partners. While the action brought by the plaintiff to recover the
debt was proceeding, the two dormant partners retired from the firm. The
plaintiff continued the proceedings, and then sued Berlin and the dormant
partners for his cost. The dormant partners refused to pay the cost
incurred after their retirement
It was held by the Court of Appeal, that the dormant partners were liable
for the entire costs incurred. The solicitors retainer was one entire
contract to conduct the proceedings to the end. Liability for costs did not
arise from day to day as they were incurred. The plaintiff did not have to
obtain fresh instructions at each step in the proceedings.

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LIABILITY OF RETIRING PARTNERS
Malayan Banking Bhd. v Lim Chee Leng & Anor [1985] 1 MLJ 124
The respondents were partners of a firm called Berjasa Corp. The
appellant sued the respondent under a trust receipt which matured
and become payable on 14 June 1975. Two of the respondents had
resigned from the firm on 26 August 1970.
It was held by the Federal Court, the respondents incurred the debt
on the trust receipt before their resignation or retirement and they
could not escape their liability by merely pleading resignation or
retirement.
Although a partner has retired, s.19 clearly express that he is still
liable for the debts of the partnership during his tenure as a
partner. He also remains liable to the third parties for debts
that are incurred by the firm after he has left, unless he has
given express notice of his retirement as according to S.38 (1)
which says:
Where a person deals with a firm after a change in its constitution,
he is entitled to treat all apparent members of the old firm as still
being members of the firm until he has notice of the charge.

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According to S.38 (LIABILITY OF RETIRING PARTNERS
2) any advertisement in the Federal Gazette, Sabah Gazette or
Sarawak Gazette as to a firm whose principal place of business in the
respective territories, shall be notice to persons who had no dealings
with the firm before the date of dissolution or change so advertised.
If notice of the retirement is not given, a partner may held be liable on
the grounds of holding out as a partner or knowingly suffers himself
to be represented as a partner.
Re Siew Inn Steamship Co. ; ex parte Ho Hong Bank Ltd.[1934]
MLJ 180
A retired partner gave notice of his retirement by advertising it in
three Chinese newspapers. After his retirement several of the firms
old customers lent 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 newspapers.
Held by the court, that the retired partner was liable as actual notice
was required for old customers.

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LIABILITY OF RETIRING PARTNERS
For an advertisement of a retirement to be effective as notice
depends on whom the advertisement is meant for.

1.Those who have been dealing with firm before the
change.
Where a person deals with a firm after a change in its constitution,
he is entitled to treat all apparent members of the old firm as still
being members of the firm, until he has notice of the change. For
this group who has been dealing with the firm before the partners
retirement, they have to be given notice that is more specific and
clear.
Tan Sin Moh v Lebel Ltd. [1988] 2 MLJ 52
The appellant had failed to inform the respondents, who have had
dealings with the firm, of his withdrawal from the firm.
The Supreme Court held that a person who had habitual dealings
with the partnership was entitled to be specifically notified of a
partners resignation from the firm.


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LIABILITY OF RETIRING PARTNERS
2. Future dealings. Those who have never dealt with the
firm before the change in the constitution of the firm cannot
make a retired partner liable for the obligations of the firm
after the retirement. For this group, an advertisement in
certain gazettes or papers of wide circulations is sufficient
as notice of the retirement.
Tower Cabinet Co. Ltd. v Ingram
It was held by the court that Ingram was not liable because
the company had no knowledge of his connection with
Merrys except for the name on the letterhead.
Where a partner dies, his personal representatives continue
to be liable for executory engagements made in his lifetime
by the firm (note- severally liable under S.11), unless they
were made dependent on the personal conduct or capacity
of the deceased and have therefore become incapable of
performance by reason of his death. -Philips v Hull
Alhambra Palace Co. [1901] 1 KB 59)



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