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Relation of Partners with One Another

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Relation of Partners with One Another

  1. 1. RELATION OF PARTNERS WITH ONE ANOTHER Rights & Duties of Partners Duty of Good Faith Partnership Property
  2. 2. Rights & Duties of Partners  Sec 26 -‘subject to any agreement’ - secondary in nature Tan Eng Choon v Foo Kai Yuen Mutual duties & rights maybe set up in the partnership agreement. If there is nothing in the partnership agreement,then only it will be referred to the provisions of the Act  Sec 21- varied or changed with consent
  3. 3. Sec 26 (a)  Partners share equally in CAPITAL,PROFIT & LOSSES  Un equal if stated in the agreement Binney v Mutrie Held:In the absence of the agreement to the contrary the partner must divide the profit and shared the losses equally.
  4. 4.  If there is insolvent partner, other partners have no duty to bear his losses Garney v Murray Held: Each partner shall only be liable to contribute 1/3 of the deficiency to the business because this was the proportion which the profits were divided
  5. 5. Sec 26(b)  Firm will indemnify any payment/liabilities incurred: - In the ordinary conduct of the firm’s biz or - Is necessary to preserve the business or property of the firm
  6. 6. Cases Matthew v Ruggles Kok Hong Leong v Seow Kah Cheng Ong Keng Huat v Hong Kong United Co Ltd
  7. 7. Ong Keng Huat Rigby J: “ in order to make one partner liable for any loss arising out of the partnership it was necessary to prove that he had committed fraud or culpable negligence”
  8. 8. Sec 26(c) Partners can contribute to the firm by way of advancement and are entitled for an interest (8%). Lord Lindley: Such an advance is not treated as an increase of capital but rather as a loan on which interest ought to be paid.
  9. 9. Sec 26 (d) Interest on capital can only be given after the ascertainment of profit
  10. 10. Sec 26(e) Every partner may take part in the management
  11. 11. Sec 26(f)  Partners are not entitle to a remunaration unless otherwise provided  If a partner is appointed as a receiver (dissolution) –entitled for a remuneration Case: Re Aldrige
  12. 12.  If a partner has to do all the work due to death,sickness,retirement etc – entitle to a remuneration Case: Airey v Bonham  Upon death of another partner, he becomes an executor – NOT entitle for a remuneration Case: Burden v Burden
  13. 13. Sec 26(g)  Introducing new partner- consent of ALL partners.  Consent must not be unreasonably withheld Case: Byrne v Reid
  14. 14. Sec 26(h) Decision making:  Differences as to ordinary matters; -by majority  Changing the nature of the business; -consent by all Cases: Highley v Walker Tham Kok Cheong v Low Pui Heng
  15. 15. Sec 26(i) Partnership books; - kept at the place of the business - every partner has access/copy Case: Krishinchand Bahjawi & Anor “partnership books should not be constrained to accounting records but other records kept by the partnership for example minutes of partners meeting.”
  16. 16. - agent of a partner can also have access/copy - Cases: Bevan v Webb Gan Khuan v Tan Jin Luan
  17. 17. Expulsion of a partner Sec 27  By majority , partners cannot expel any other partner unless authorised expressly, either in writing or by oral. Case: Re A Solicitors Arbitration
  18. 18.  Expulsion of a partner must be exercised in good faith and for good reason. Blisset v Daniel ‘power of expulsion should be exercised in good faith’ H:Notice of expulsion was invalid – not in good faith.
  19. 19. The duty of Good Faith  Important element in a relationship between partners  Being honest in all partnership dealings  Cover by Secs 30,31 & 32
  20. 20. R v Lee Kiong Kiat Terrel J: One has to remember what a partnership is. It is an association requiring the utmost good faith between the partners – each partner owes a duty to his co-partner and each partner is entitled to have confidence in his co-partner and good faith towards him.
  21. 21. Vasu Devan & Ors Mohamed Azmi J: ..the utmost good faith is due from every member of a partnership towards every other member…Good faith requires that a partner shall not obtain a private advantage at the expense of the firm…He is bound in all transactions to do his best…to share with his co-partners any benefit…
  22. 22. Sec 30  Every partner should render true account and give full information  Example: Sale of shares from a partner to another. A partner must reveal all material facts relating to it, otherwise the sale will be voidable and maybe set aside. Cases: Maddeford v Austwick Law v Law
  23. 23.  Maddeford v Austwick Held: Purchase of a share in the firm without disclosure of material facts with reference to the partnership assets would render the transaction voidable.
  24. 24. Law v Law F: A partner sold his share to another partner. Later he found out that the shares worth more that it should. He would have known about it if the existence of certain securities of the partnership had been revealed to him. H: In principle, the transaction could be set aside.
  25. 25. Sec 31  Accountability for private profits obtained from : - partnership transaction or - use of partnership property, - use of partnership name, - business connection. without the consent of other partners
  26. 26. Cases Bentley v Craven Held: The partner was accountable to the firm for the profits made. Clegg v Fishwick Held: Though the other p’ners cannot restrain the landlord frm granting the lease to only one p’ner, as btwn p’ners that p’ner was a trustee for the firm.
  27. 27. Pathirana v Pathirana Held: The other partners are entitled for the profits made by a partner.
  28. 28. Exception A partner may keep the profits: 1)When there is full disclosure of interest 2)Consent from other partners 3)Profit is derived from the use of information which is wholly outside the scope of partnership business
  29. 29. Cases Re Coffey’s Registered Design H:The firm involved in buying & selling products manufactured by ors and not in manufacturing the products itself. Therefore the partners are not accountable
  30. 30. Sec 32  A partner must not compete with the firm in the business of the same nature.  If he did so, must account any profits made to the firm. Aas V Benham
  31. 31. Case: Trimble v Goldberg Held: Action for the share of profit failed. The purchase of the property was not within the scope of partnership nor was it in rivalry with the partnership.

Notas do Editor

  • Sec 21 Duties can be varied or changed by consent of ALL partners express or inferred
  • If one of the partners could not paid off his liability(maybe due to insolvency), the other partners are under no duty to pay/make contribution for him. Garney v Murray A partnership was formed on the terms that the capital should be contributed by 3 partners in unequal shares but shall received equal shares of net profits. A deficit arose by default of one partner who failed to contribute his share of deficiency- I.e. a deficit arose. Qn: How this deficiency should be borne. Further held nothing in PA 1890 which hold a solvent partner liable to contribute for an insolvent partner who failed to pay his share.
  • # 1 A lease hold was given to C & M(partners). They transferred the lease to the company they formed. C died and followed by M. The lessor sued the plaintiff(M’s executor) for arrears of the rent and breach of covenants in the lease. The firm was insolvent and the action was settled by surrender of the lease and payment of a certain amount. Plaintiff claimed a contribution from the defendant(C’s executor) for the payment made. Held: Action succeeded. Payment was a partnership debt. #2 The respondent was a partner who succeeded to lessen the business debt. When the partnership was dissolved, the court ordered the other partners to indemnify the respondent for the performance of the excellent duty
  • Facts: Parties formed a p’ship for the purpose of operating a cinema. The App. was entrusted with the management of the cinema. In 1957, the cinema was damaged by fire and the firm suffered loss as the fans in the cinema was not insured and the insurance against workmen’s compensation was inadequate. The other 2 parties sued the appellant for breach of duty. Held: Liability should be shared although there was breach of duty on the part of the App. The App. Is not personally liable by mere breach of duty.
  • If a partner is appointed as a receiver (dissolution) –entitled for a remuneration for extra work rendered.
  • #1 2 partners quarrel. So only one partner attended the partnership business. Ultimately the partnership dissolve.Should he be paid. Held: Should be paid remuneration for the extra burden incurred.
  • Clause in the partnership provides ‘ a partner has power to nominate his son as a partner’ A partner did so but other partners refused to accept him. COA: The clause was so wide and contained no restriction. The partners are considered to have consented in advance to the sons nomination.
  • #1 3 partners. One of the partners applied for injunction to prevent the other two partners who had resolved to introduce into the partnership a son of one of them with the purpose of learning the business. Held: Differences between the partners was an ordinary matter, thus should be determined by majority. #2 One of the partners in the firm was not inform in the sale of the partnership. i.e. change in the nature of the business. Held: As the plaintiff had not consented and aware of the sale of the partnership. The sale was ineffective. Partnership exist until the date when the plaintiff was informed.
  • #1 Sleeping partner wanted to sell his interest to the managing partner. He employed a valuer to inspect the partnership book. Managing partner – valuer has no right to do so.The sleeping partner applied for an injunction. Held: Granted. Right of inspection could be delegated to an agent provided: He was a person accepted by all partner (no reasonable objection frm them) Undertake that he will not use the information gather for any other purposes #2 the above decision was approved Facts: An independent accountant was appointed by a partner Held: An agent of a partner has a right to inspect and make copies of the firm’s book if…
  • Facts: Partnership of 3 partners. A clause in PA provides “If any partner shall commit or be guilty of any act of professional misconduct…the other partners may by notice in writing given to him …expel him from the partnership” One of the partners served on the other two partners a notice that expel them on the ground of misconduct. Held: One partner cannot exercise the power so as to expel, eventhough they may be guilty of misconduct. He must join with anyone of the other two partners.
  • Barnes v Young A clause allowed the majority to expel a partner for breach of certain duties and in case of dispute the matter should go to arbitration. The majority expelled B but give no detail about the act complained of. Romer J: Expulsion was unlawful. Good faith requires that B should be informed about the cause of complaint and he should be allowed to answer the allegation. Green v Howell Facts are similar with the above. The facts provided that the act of expulsion was done in good faith. H: not necessary to disclose the reasons and causes of his flagrant act.
  • To do things in the interest of the firm, not personal interest. Reveal all knowledge, being honest and does not compete with the partnership business.
  • Exception: Transaction is valid if the partner who is entitled to repudiate the agreement, knows that the material facts have been concealed, deliberately elect to stand by the agreement without insisting on his right to full disclosure.
  • However in this case a settlement of the claim had been made and the partner had elected to be bound by it. So the transaction would not be set aside.
  • Good faith requires a partner not to obtain any private advantage at the expense of the firm. A partner is not at liberty to use information acquired as a partner or/and to acquire gain at the expense of his co-partners without their full knowledge and consent either by directly making a profit or appropriating benefit which ought to have been acquired for the firm. Example: If a partner is selling or buying for the firm, he cannot sell to it or buy for it at a profit for himself.
  • Example:Purchase property which the partnership intended to purchase or renewed lease for himself which originally belonged to the firm. #1 Partnership – refining sugar. A partner was employed to buy goods for the firm. He supplied to the firm at market price good previously bought by him at a lower price.He make considerable profits. Can he keep the profits? #2 A partner renewed lease which originally belonged to the partnership
  • Partnership selling Caltex oil(agent of Caltex). Differences arose with one of the partners who subsequently gave notice to dissolve the partnership. Before the notice expired, without the knowledge of other partners he entered into an agreement with Caltex and carried on the business of selling Caltex oil by himself. He did not account the profits made to the other partners. The other partners claimed for the profits.