Capacity of a minor
- A minor can be a partner, nevertheless, the implication of a minor in a partnership will be seen in the contract made by them.
- Contract made by minor is void
Tan Hee Juan v Tan Boon Keat
HELD: The effect of partnership entered by and adult and minor is valid
Chan Yin Tee v William Jack & Co
FACT: An adult and a minor formed a partnership. The minor ordered goods from the supplier and when the goods is delivered, he failed to pay for the goods. At the same time when he ordered the goods, he already reached his Age of Majority (AOM), nevertheless, he didn't do anything to terminate the partnership as a minor have an alternative to either terminate or continued with the partnership when they reach the AOM. If they choose to continue, they will be liable for the partnership liability
HELD: The court held that since the minor failed to terminate the partnership after he reached AOM, thus, he is liable for the liability of the partnership
Lovell and Christmas v Beauchamp
HELD: A partner who is a minor is not liable for the firm liability
2. Number of Partners
- Section 3(10) of the Partnership Act (PA) stated that, a partnership is a person or persons doing a business in common with a view of profit
- Section 47(2) of the Partnership Act stated that the members should not be more than 20 person
- Section 14(3)(a) and (b) of the Companies Act stated that for a professional partnership, the members should not be more than 50 person
3. Rules to Determine Partnership
- Section 4 of PA portray a situation where element of section 3(1) has been fulfilled but the partnership could not be form.
a. Joint tenancy and tenancy in common
- Section 4(a) of PA
- Example situation - A land was rented by A and B. Part of the land is rented out by them. The profit made will be divided equally. This is joint tenancy
Davis v Davis
FACT: A father left his 2 sons his business and 3 houses. 2 of the houses were occupied by the son and the other house were rented out. The profit made from the rented house will be divided equally
ISSUE: Whether there is a partnership formed by the 2 sons for the rented house
HELD: The court held that the business left by their father made them partners, bot, for the rented house in relation of income or profit, there are no partnership as there is no element of business
b. Sharing gross return
- Section 4(b) of PA
- Example situation - A society who held dinner event sell the table to and outsider. The gross profit of the table selling will be divided equally among the committee
Cox v Caulson
FACT: The defendant (D) and Mr. Mill has agreed that the later will provide theater, pay for the lighting and pat they play bill. In return, Mr. Mill will received 60% and the remaining 40% of the gross return will be given to D. Problem arose when the plaintiff (P) was injured when he was accidentally shot by one of the actor during the performance. P then sued D and Mr. Mill claiming that they are partners.
HELD: The D is not liable because he was not a partner pursuance to the Partnership Act 1890 and it is equivalent to Section 4(b) of Malaysia's PA
c. Receipt of share of profit
- Section 4(c) of PA
- When a person received a profit from a business, prima facie, he is a partner
i. Payment by installment
- Section 4(c)(i)
- A person received payment from the the profit of a business is not a partner when he gives loan for that purpose of business A creditor getting back from his loan from the partner of the debtor's business does not make him a partner
- Example situation - A need to start a business and apply for a loan. Creditor has loan some money to A. A pay back the loan using profit from his business. Even though the creditor received profit from A's business, they are not partner
Badely v Consolidated Bank
FACT: Plaintiff (P) had burrowed certain amount of money from Defendant (D) to construct a railway project. In order to secure the loan, a charged was created. Further, D will charge 10% interest and 10% nett profit derive from the project.
HELD: P and D are not partner even though D is entitled for the nett profit of the business
Pooley v Drive
PRINCIPLE: If the creditor is given a power to manage the business, he is likely to be treated as partner
FACT: B and H form a partnership for 14 years. In order to obtain capital, they opt for a loan from a creditor. However, the creditor was given a share in the partnership
HELD: The court held that, since the creditor was given a share in the partnership, therefore the creditor has a partner to both of them
ii. Remuneration of servant/agent
- Example situation - A employed B and pay the salary. If B bring project to A's company, B will received commission from the nett profit of the project. Any payment/commission to B under any arrangement does not made him partner's to the partnership
- However, 'salary partnered' is valid so long that it is expressly stated in the partnership agreement as stated Section 26 of PA
Chua Ka Seng v Boonchai Sompolpong
HELD: The court decided that the person is not a partner even though he received salary as there is no clear provision in the agreement
iii. Annuity to widow or children of a deceased partner
- The dependant of the deceased partner may received a portion of the profit from the partnership but it does not made them a partner in the partnership
IRC v Lebus's Trustee
FACT: The deceased had leave a will to give a share and profit in the partnership to his wife. Later, the government has imposed tax to the wife on the ground that she is a partner in the partnership
HELD: She is not entitled to pay the tax even though she received share and profit as she is not a partner in the partnership
iv. Loan given to a firm with rate of interest varying with the profit
- A person who give advance to any person or firm, who is about to start a business and later received profit from the business does not make him a partner
Re Young ex parte Jones
FACT: Lloyd has given Young a loan for £500. based on the agreement agreed by both parties, Lloyd will received £3 per week from Young, Lloyd will assist in the management of the partnership, and was given a chance to enter into the partnership within 7 months from the date of the agreement. Nevertheless, he refuse to join the partnership
HELD: The court held that, Lloyd is not a partner as he refuse to join in
v. Sale of goodwill
- Example situation - A sell his business to B. When he do this, he is not only selling his business, but he is also selling the reputation of the business to B. If A received profit from the goodwill, this will not make him partner to B
Pratt v Strick
FACT: A man sold his practice and goodwill to another professional man. In the agreement, it was agreed that he will continue to received profit
HELD: The court held that, the man was not a partner
4. Relation between partners and third parties
1. Liability of partners for debts and obligation
a. The act must be within his actual or apparent authority
- Section 7 of PA stated that every partner is an agent for the partnership (other partner) and his firm
- In the Law of Agency, the principle is bound by the act of the agent if the agent acted within his authority
- Authority can be divided into 2; actual which can be either express or implied and apparent/ostensible which arises when the partners hold out to the others that he has the authority even though in fact he does not have the authority
- Section 10 of PA explain that if the third parties knows that the person has no authority to act as the partners but allowed the dealing, he then cannot sue the partnership
- The same principle applied if the third parties knows that there is a limitation impose on the partners but still made a dealing with the said partners
Sithambaran Chetty v Hop Hing
FACT: A and B sells medicated wine, but their partnership was not make public. For the purpose of the business, they entrusted 2 persons to manage the business which is the second defendant (2D) and C. At the same time, members of the public did not know that 2D was not the partners in the business. 2D then burrowed money from the plaintiff (P) using the partnership name. He later absconded. P then sued the partnership.
HELD: The firm is liable because there is no notice that the 2D is not a partner in the partnership. Not only that, they failed to mention that 2D only have apparent authority
b. The act of the partner must be done for the purpose of the partnership or in relation to the partnership business
Chan Kin Yue v Lee & Wong
FACT: Lee burrowed money from his wife for RM35,000. He then issued a receipt to acknowledge that he has received the money on behalf of the partnership. When the partnership refuse to pay back the money burrowed, the wife then sue the partnership.
HELD: The court held that since the money was used to pay the debt of the partnership, the partnership is therefore liable to pay the wife the burrowed money
Osman Haji Usop v Chan Kong Swil
FACT: 3 Malays and 3 Chinese formed a partnership where the 3 Malay did not participate in the business, and this is including the plaintiff (P). The other 3 partners obtain a loan of RM10,000 form a chattier and sign a promissory note in the name of the firm. The particular loan was secured by a guarantor. Since there was a default in the payment of the loan, the chattier sued the guarantor who obediently pay for the loan. Later, the guarantor put the liability on all of the partners. All of the 5 partners accept the liability but P objected, on the ground that the loan was nor obtain for the purpose of the partnership
HELD: The court held that since the money was used for the purpose of the partnership, therefore the partnership and all of the partners are liable for the liability imposed to them by the guarantor
c. The act of the partners must be done in the firm ordinary course of business or in the usual way of business
- Bank Of Australasia V Breillat, hold that ordinary course of business are; i. pledging or selling partnership goods, ii. buying goods on the firms name, iii. burrowing money, iv. contracting debts and paying it back, and v. drawing, marking, signing, endorsing, or accepting negotiable instrument
- In Beckham v Drake, employment of staff is also falls under the ordinary course of business
- In Porter v Taylor, acknowledgement of debt is also common in business
Merchantile Credit v Garrod
FACT: There are 2 partners in a partnership; Parkin and Garrod where Garrod was a sleeping partner. The nature of the business partnership was to provide garage and repairing car. 1 day, Parkin, without the authority from Garrod sold a car which was not belong to them to the plaintiff (P) for £700. The P then sued Garrod and the partnership as Parkin did not have the right to sell the car
HELD: The court stated that action subsided as the act of selling the car is the usual way of business
That's all for now. Sorry for the late entry. Was very busy. Part 4 of above lesson will be continued in the next entry
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