Credits go to original creator.

1. 1
Ch. 2 : Partners & Outsiders
Remark: this topic is important to preserve the 3
rd
parties’ right instead of the
partner’s interest
Contents
I. POWER OF A PARTNER TO BIND THE FIRM...................................................2
1. Actual authority : s. 9............................................................................................. 2
2. Usual authority : S.7 .............................................................................................. 2
3. Apparent authority : S. 13...................................................................................... 3
II. WHAT TYPE OF PARTNERS ACTION WILL BIND THE FIRM AND
OTHER PARTNERS?.............................................................................................................3
A. Act in relation to partnership business (Act done with Actual Authority) – S 9: Partner
using credit of firm for private purpose .................................................................................3
B. Act for carrying on business in usual way (act done with usual authority) ...................4
C. Act to be done as a partner, so partners bound by act on behalf of the firm .................6
III. LIABILITY OF THE FIRM.......................................................................................7
A. s 12 covers tort liability, equitable liability and criminal liability.................................7
B. S 13 : Misapplication of Money/property of the 3rd Person received for or in custody
of the firm...............................................................................................................................7
IV. S 14 : MODE OF LIABILITY FOR TORT OFFENCES AND OTHER
WRONGS (FOR SECTION 12 AND 13)...............................................................................9
1. Jointly .................................................................................................................... 9
2. Severally ................................................................................................................ 9
V. IMPROPER EMPLOYMENT OF TRUST PROPERTY FOR PARTNERSHIP
PURPOSES.............................................................................................................................10
VI. S 11 : MODE OF LIABILITY FOR CONTRACT.................................................10
VII. LIABILITIES OF INCOMING AND OUTGOING PARTNERS ........................10
VIII. PERSONS LIABLE BY ‘HOLDING OUT’ S 16....................................................12

2. 2
I. POWER OF A PARTNER TO BIND THE FIRM
(why a partner’s action will bind the firm/other partners?)
A. POWER CAN BE SEEN IN THE CATEGORIZATION OF AUTHORITY
1. Actual authority : s. 9
a) Maksud actual : agent boleh bind his principle if he is specially
authorized as seen in section 9.
2. Usual authority : S.7
(elements which must be satisfied for the act of the partner to bind the firm
and other partners)
a) Interpretation of Section 7 :
 each partner in an agent to other partner.
 Each partner when contracting with outsiders are agents and
principals at the same time unless the proviso applies
 If a partner who is not authorised to act on behalf of the firm for
any transaction, and the third party knows about it, and if the third
party goes on to contract with the unauthorized partner, the other
partners cannot be held liable for his unauthorised act.
b) Note: usual authority is depends on the nature of agency
Requirements
• the act must be done in
relation to the
partnership business
• carrying on usual way of
business
• the act must be done in
the capacity as a partner
and not as an individual
person.
UNLESS
Proviso
• The partner has no
authority AND
• the person with whom
he is dealing either
knows that he has no
authority or does not
know or believe him to
be a partner.

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c) Kes : Chang Kin Yue v Lee & Wong
Facts: The firm run a business of electrical engineering. A partner
make a loan.
Issue: does the partner has the authority to do so?
Held: since the nature of the agency is non-trading partnership thus the
court held that there is no usual/ implied authority for him to make a
loan
3. Apparent authority : S. 13
a) Maksud: Authority that arises from representation made by
principals
b) Osman v Chang Kan Sui
Facts : 3 managing partners + 3 sleeping partners form a firm. MP buat
loan and SP jadi guarantor. Bila money lender sued, 3rd party paid, and
now he want to claim from the firm
Held: Upon the promissory note, it appears as the note of the firm
instead of MP only, thus the firm is liable.
II. WHAT TYPE OF PARTNERS ACTION WILL BIND THE FIRM
AND OTHER PARTNERS?
A. ACT IN RELATION TO PARTNERSHIP BUSINESS (ACT DONE WITH ACTUAL
AUTHORITY) – S 9: PARTNER USING CREDIT OF FIRM FOR PRIVATE PURPOSE
1. Concept : if a partner uses the fund of the firm for his personal
purposes which is not connected with the ordinary course of business, than the
other partners will not be liable for his act, but if it was specially authorised
(actual authority) by the other partners therefore all the partners can be made
liable.

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2. Proviso : but this section does not affect any personal liability incurred
by an individual partner. It means even though the firm is not liable, the
liability of default partner remained exist
3. Section 10: If it has been agreed between the partners that any
restriction shall be placed on the power of any one or more of them to bind the
firm, no act done in contravention of the agreement is binding on the firm with
respect to persons having notice of the agreement
4. London Chartered Bank of Australia v Kerr
Fakta : the firm is liable since the other partners failed to object to X’s action
who drawed partnership cheques to meet his personel matter 6 months before
a bill. This failure to object represents that X was authorised to borrow
partnership funds to meet his personel debts.
Plus, the 3
rd
party x boleh terima bill daripada partner yang draw the bill of
partnership for private purpose sebab 3
rd
party tahu that bill is for private
purpose melainkan the other partners by words or conduct indicates that X is
authorized to do so.
B. ACT FOR CARRYING ON BUSINESS IN USUAL WAY (ACT DONE WITH USUAL
AUTHORITY)
1. sekiranya partner buat something yang in the ordinary course but in
extraordinary manner,
a) the partnership will not bound and
b) the 3
rd
party has the duty to inquiry the authority of a partner to
act in such manner.
c) Tapi ada cara untuk untuk partner yg act extraordinarily,
towards 3
rd
party, untuk menyebabkan other partners liable.

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2. Suffin J dalam kes Chan Kin Yue v Lee & Wong
Cara tersebut ialah regardless that act is not usually done in carrying in the
course of the business (ex: act without mandate), it is nevertheless, necessary
for carrying the partnership business
Facts of the case: In this case, it is a necessary for the partner to make loan
because the firm is owing over RM 100,000 and the firm’s account overdrawn
thus making a loan is the best way for carrying on the partnership business.
3. Trading partnership
It is usual in trading partnership for a partner to borrow money and to purchase
n sell trading stock
a) Mercantile Credit v Garrod [1962]
Fakta : melibatkan firma/ perkongsian yang menyewakan lokap garaj
dan baiki kereta. Dalam partnership agreement tu dah clearly stated
yang any partner x leh jual or beli kete tapi salah satu partner tetap jual
kepada a credit company tanpa kebenaran partner yang lain, Garrod
(partner yg x bersalah). So bila credit company found out yg kete tu
sebenarnya bukan partner yg bersalah tu punya, dia nak sue Garrod.
Held : it is ordinary for this type of firm to sell cars, so Garrod liable as
a partner
4. Non-trading partnership (maksudnya partnership yang tidak
melibatkan jual beli barang dan melibatkan jualan perkhidmatan sahaja)
a) Higgins v Beauchamp [1914] – the position has been
challenged by recent cases
Fakta : melibatkan cinema operator firm dan keadaan di mana B
adalah sleeping partner while another partner named Miles. Mile buat
loan from Higgins kononnya untuk bisnes padahal dia misapply it.
Skrg ni Higgin nak sue B utk ganti balik duit dia.

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Isu : adakah perbuatan partner buat hutang dengan bank itu boleh
dikategorikan sebagai satu perkara yang biasa? Dan adakah sleeping
partner akan turut liable?
Held : only partners of a firm which the nature is to possess an asset
(trading partnership) can make a loan because there is implied
authority for them to enlarge the economy of the firm. Tapi dalam kes
ni, it is not a trading partnership sbb dia provide servis sajoh.so, B x
liable
C. ACT TO BE DONE AS A PARTNER, SO PARTNERS BOUND BY ACT ON BEHALF OF
THE FIRM
1. S 8 : An act or instrument relating to the business of the firm and done
or executed in the firm name or in any other manner showing an intention to
bind the firm, by any person thereto authorised, whether a partner or not, is
binding on the firm and all the partners….”
2. Re Briggs & Co, Ex parte Wright [1906]
Fakta : partnership yang terdiri daripada ayah dan anak. Anak forged nama
ayah masa tandantangan deed of assignemnt untuk bayar hutang pada creditor
Isu : adakah ayah akan liable?
Held : yes sbb tujuan anak dia buat macam to for the sake of the partnership
and was excuted by a partner , anak tu.

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III. LIABILITY OF THE FIRM
A. S 12 COVERS TORT LIABILITY, EQUITABLE LIABILITY AND CRIMINAL
LIABILITY
1. Hamlyn v Houston & Co [1903]
Fakta: D telah memberi rasuah kepada kerani P bagi memperoleh maklumat
mengenai firma B
Isu : Adakah partners dalam firma D akan bertanggungan ke atas kesalahan D?
Held : Yes, they are liable because an act to obtain informations about
competitor can be considered as in the ordinary course of their business,
whether the act is legal or illegal is not an issue.
B. S 13 : MISAPPLICATION OF MONEY/PROPERTY OF THE 3RD PERSON
RECEIVED FOR OR IN CUSTODY OF THE FIRM
1. Receipt by a partner: 13(a) : 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
a) Firm is liable only if partner who actually receives the money
misapplies it.
Compulsory element :
If any partner commit or omit any
wrongful act
Optional element :
• in the ordinary course of the business
of the firm OR
• with the authority of his co-partners
loss or injury is
caused to any
outsider, the firm is
liable to the same
extent as the
partner who
commit/omit the
wrongful act

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b) Not necessary that the partner applies to its own purpose, firm
would still be liable if the moneys or property of one client were
applied for purpose of another or for the firm’s purpose.
c) Apparent authority does not just mean authority created by
representation of words or conduct, it also means authority derived
from nature of business and status of partner.
d) National Commercial Banking Co Ltd v Batty
An accountant who was appointed executor of a client’s will and in
that capacity misappropriated a business’s assets by banking its
cheques to credit of his firm’s trust account and subsequently diverting
the proceeds to his own use. The court held that the firm was not liable
for the executor’s actions because they were not within the scope of the
partner’s apparent authority and it had not received the money in the
course of the ordinary course of business of an accountancy practice.
2. Receipt by firm : 13 (b) : Where a firm in the course of its business
receives the 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.
a) Rhodes v Moules [1895] – illustrates the overlapping of the
sections 13(a) and (b)
Fakta: plaintiff who wanted to raise money by way of a mortgage on
his property thus, he asked for a solicitor, a partner to law firm to help
him. The solicitor told him that the lender asked for additional security
but turned out the solicitor misappled the warrants, so plaintiff sued
firm under Section 13.
Isu : adakah firm liable?
Held : yes sbb the certificates were received in the ordinary course of
the firm’s business

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IV. S 14 : MODE OF LIABILITY FOR TORT OFFENCES AND
OTHER WRONGS (FOR SECTION 12 AND 13)
A. CONCEPT
1. Every partner is liable jointly with his co-partners and also severally
for everything for which the firm is liable while he is a partner in it under
section 12 or 13.
B. CHUNG SHIN KIAN V PP [1980] –ADAKAH SECTION NI TERPAKAI UNTUK
CRIMINAL LIABILITY
1. Fakta : melibatkan firma yang melibatkan aktiviti penampalan yang
telah infringe someone’s copyright. A telah ditangkap semasa menampal dan
dia cuba untuk mengheret sama partner B sedangkan semasa penangkapan, B
tidak berbuat apa2.
Held : kalau untuk kes jenayah, charge kena bawak satu2.
C. IT’S A MATTER OF STRATEGY EITHER WANT TO CLAIM UNDER JOINTLY
LIABLE/ SEVERALLY LIABLE (KENDALL V HAMILTON)
1. Jointly
satu tindakan yang akan impose liability to all partners at one time only. If an
action is brought against a partner of some of the partners and they were found
liable and judgment is entered, no further can be brought to other partners who
were jointlty liable even if the judgment remains unsatisfied
2. Severally
allow to file an action to claim for liablity in several time. 1st action may
involve partner A and B while 2nd action may involve partner A,B and C. If
judgment in an action is not fully satisfied, another action may be maintained
against each of the partner

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V. IMPROPER EMPLOYMENT OF TRUST PROPERTY FOR
PARTNERSHIP PURPOSES
A. S 15 OF PA 1961
If a 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
person beneficially interested therein:
Provided… (a) 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.
1. Note: This section imposes a duty to all partners to stop any partner
who attempt to commit or committing breach of trust.
VI. S 11 : MODE OF LIABILITY FOR CONTRACT
1. Every partner in a firm is liable jointly with the other partners for all
debts and obligations of the firm incurred while he is a partner…
2. Note: this sections applies only to debts and contractual obligations
3. Bagel v Miller [1903]
Held: a deceased partner’s estate was held to be not liable under contract of
goods sold and delivered because it was entered into before his death
VII. LIABILITIES OF INCOMING AND OUTGOING
PARTNERS
A. INCOMING PARTNERS: S 19 (1)
A person who is admitted as a partner into an existing firm does not thereby become
liable to the creditors of the firm for anything done before he became a partner.

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1. Therefore any debts contracted before he joined the firm are to be
shouldered by his co-partners alone. However the Partnership Act does not
impose any restriction or prohibit ant incoming partner from concluding an
agreement whereby he holds himself liable to the firm’s creditors for debt
contr4acted while he was the partner of the firm
B. OUTGOING PARTNER: S 19(2)
A partner who retires from a firm is liable for partnership debts or obligations
incurred before his retirement.
1. Court v Berlin [1897]
Court was a solicitor retained by partnership to recover debt due to it. Firm
consisted of Berlin, the sole active partner and 2 dormant partners. During the
solicitor’s work for the firm, the 2 dormant partners retired. After the
proceeding for recovery of debt were completed, the solicitor sued Berlin and
the former partners for his costs. Dormant partners claimed that they were
only liable for costs incurred up to the date of their retirement. They were
indeed fully liable. Contract entered into whilst they were partners was one
entire contract to conduct the action to the end; the solicitor did not need to
come for fresh instructions at each step of action. Dormant partner’s liability
for costs was for all the costs in the action.
Concept: single continuing contract, former partner remains liable and new
partner is exempted
C. GUARANTEES: S 20
A continuing guarantee given either to a firm or to a third person in respect of the
transactions of a firm is, in the absence of agreement to the contrary, revoked as to
future transactions by any change in the constitution of the firm to which, or of the
firm in respect of the transactions of which, the guarantee was given.
D. FUTURE DEALINGS: S 38(1)
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.

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1. Seksyen ni kena baca seiring dengan seksyen 38 (3), retired partner
akan relieve from any liability sekiranya pada masa urusan 3rd party dengan
partnership itu berlaku, dia tidak diketahui oleh 3rd bahawa dia merupakan
partner.
2. Elders Pastoral Ltd v Rutherfurd
The person sought to be made liable was known to the creditor before actual
retirement to have been a partner. Knowledge in that sense would we think
include belief arising from general notoriety or use of names on letterheads,
advertisement and the like. Next, former partner must still be an apparent
member. Ordinary meaning of apparent is visible, evident, manifest to the
understanding.
3. Tower Cabinet Co Ltd v Ingram [1949]
For retired partner to be liable, what was once actually known to the person
dealing with firm must continue to appear to be true, although it has in fact
ceased to be true.
VIII. PERSONS LIABLE BY ‘HOLDING OUT’ S 16
A. THE BASIS OF THE DOCTRINE: ESTOPPEL. IT MEANS
1. S16 holding out, apparent partner are preferable to one who represents
himself, or knowingly suffers himself to be represented as a partner.
2. A retired partner who gives no notice may be an apparent partner if his
name continues to be used which he can prevent by giving notice of
retirement.
3. However, he cannot be said to be apparent partner because former
partner says he is still a partner.
4. PP v Wong [1991] 3 CLJ 2188