Brief slide for law of partnership

1. DML 2223:
COMMERCIAL
LAW 1 (LAW OF
PARTNERSHIP)
By:
Farah Yasmin binti Abd Radzak
Netherlands Maritime Institute of
Technology (NMIT), Malaysia

2. What is Partnership?
◦ Section 3(1)Partnership Act 1961 (Act 135): Partnership is the relation which subsists between persons
carrying on business in common with a view of profit.
◦ In Peninsular Malaysia, a partnership business must be registered under the Registration of Businesses Act
1956, in Sarawak under the Sarawak Cap.64 (Business Names) and Cap. 33 (Business, Professions and Trade
Licensing); in Sabah under the Trade Licensing Ordinance No 16 1948.
◦ However, the mere failure to register the partnership under these statutes would not mean that the partner
cannot enforce their rights against each other if on the facts a partnership exists.
◦ See, Gulazam v Noorzaman and Sobath (1957) 23 MLJ 45; Ratna Ammal & Anor v Tan Chow Soo
(1964) 30 MLJ 399
◦ Although the word ‘partnership’ does not appear in the agreement, a partnership may still exist if the
relationship between the individuals has the business character of a partnership within the scope of the Act.

3. Formation of Partnership
2-20
partners or
unlimited
numbers,
see s 47(2)
Registration of Business
Act 1956
Partnership
Act 1961
Lawful Purpose
Firm name
Ex: Orange,
Apple and
Partners
Formal or informal

4. How to become a partner?
Sui Juris, a minor can enter into partnership with adult, see Goode v
Harrison
Sound Mind
Age of Majority, to be responsible for any contractual liability, however
see William Jacks & Co (Malaya) Ltd v Chan & Yong Trading Co

5. Duration of Partnership
◦ Section 28(1) PA 1961: “Where no fixed term has been agreed upon for the duration of partnership, any
partner may determine the partnership at any time on giving notice of his intention to do so to all
the other partners”.

6. How to test whether a partnership exist or
not?
◦ Section 4 PA 1961 sets various tests on setting up a partnership, these circumstances not prima facie
partnerships:
◦ a) Joint Tenancy, Tenancy in Common;
◦ b) Sharing of Gross Returns
◦ c) Sharing of Profit :
◦ i) Payments by instalments;
◦ ii) Payment of servant or agent;
◦ iii) Payment of annuity to the widow or children of a deceased partner;
◦ iv) Loan given with a rate of interest varying with profits;
◦ v) Sale of goodwill

7. Relationship between the partners inter se
◦ Part IV of Partnership Act 1961 stated the relations between the partners inter se. According s26:
To share equally
capital & profits
Right to be
indemnified
Management of
the business
Power of decision
making if there are
disputes/issues
To inspect and
have access to
partnership books
To decide who can
become new
partners in the
business
Interest on the
capital
Interest at rate of
8% per annum for
advance payment
No remuneration for
acting in the
partnership business

8. Relationship between the partners inter se
S.30: Duty of Partners to render accounts
S.31: Accountability of Partners for private
profits
S.32: Duty of Partner not to compete with
firm

9. Relationship between partners and 3rd party
◦ Section 7: Every partner is an agent of the firm and his other partners for the purpose 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 a partner.
◦ Chan King Yue v Lee & Wong (1962) MLJ 379
◦ Facts: The Plaintiff’s husband borrowed from her RM 35,000 as a loan from her to the firm in which he was
a partner. He gave her a receipt in the name of the partnership. The money was paid into the partnership
account and immediately thereafter utilized by the firm to pay off some of its debts. The Plaintiff initiated an
action to recover the loan. The other partner of the firm contended that the plaintiff’s husband was not
authorised by the firm to borrow the money.

10. ◦ Held: The borrowing was an ‘act necessary for the carrying on of the business’ of the partnership under
section 204 of the Contracts (Malay States) Ordinance and as such bound the co-partner. Even apart from
the statutory provision, the fact that the loan had been utilised for the payment of the debts of the
partnership, meant that the lender was entitled in equity to stand in the same position as if the money had
originally been borrowed by the partner.
◦ THE CREATION OF AN AGENCY
Actual
(Express/Implied)
Apparent
(Ostensible)

11. ◦ Section 8: Partners bound by acts on behalf of firm
◦ “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: provided that this section shall not affect any general rule of law relating to the execution of deeds or negotiable
instruments.”
◦ Case : Restoran Rizqin v Asia Commercial Finance (M) Bhd (2005) 4 MLJ 157
◦ LIABILITIES AND CONTRACTS
◦ Section 10 : Effect of notice that firm will not be bound by acts of partner.
◦ “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.”
◦ For a 3rd party to hold the partnership firm and the rest of the partnership, the following conditions must be
satisfied:
◦ 1. The act must be done for the purpose of the business of the partnership (s.7 & 9)
◦ 2. The act must be done in the firm’s ordinary course of business.

12. ◦ Section 9: Partner using credit of firm for private purposes.
◦ “Where one partner pledges the credit of the firm for a purpose apparently not connected with the firm’s ordinary course of
business, the firm is not bound, unless he is in fact specially authorised by the other partners; but this section does not affect any
personal liability incurred by an individual partner.”
◦ Mercantile Credit Co v Garrod [1962] All ER 1103
◦ Facts: P & G were partners in a firm which carried on a garage business. A partnership agreement stated that
their usual scope of business would be the buying and selling of cars. P, without G’s authority, sold a car to
which has no title, to Mercantile Credit Co Ltd for €700. The Co brought an action to claim back €700 since
P had no title to the car.
◦ Held: The firm was liable as the sale of the car to the company was ‘an act for carrying on in the usual way
pf business of the kind carried on by the firm’ within the scope of Partnership Act.

13. Liability of Partners
Ordinary Torts-
S.12
Misapplication –
S.13
Liability for
wrongs joint &
several–S.14
Misappropriation
– S.15
Criminal Liability
Contractual
Liability-S.11

14. Duration of liability
◦ Section 19: Liability of incoming and outgoing partners
◦ (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.
◦ (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 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 be either express or inferred as a fact from the course of
dealing between the creditors and the firm as newly constituted.
◦ Section 16: Liability of Persons for Holding Out
◦ Every one who by words spoken or written or by conduct represents himself, or who knowingly suffers himself, to be represented, as a
partner in a particular firm is liable as a partner to any one 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 partner’s death, the partnership business is continued in the old firm-name, the continued use of that name
or of the deceased partner’s name as part thereof shall not of itself make his executor’s or administrator’s estate or effects liable for any
partnership debts contracted after his death.
◦ See: William Jacks & Co (Malaya) Ltd v Chan & Yong Trading Co [1964] 30 MLJ 105

15. Liability of retired partners
◦ 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.
◦ See:
◦ Re Siew Inn Steamship Co
◦ Malayan Banking Berhad v Lim Chee Leng & Anor

16. Dissolution and termination of partnership
Methods to
dissolve/terminate
a partnership
By
agreement
By
operation
of law
By death or
bankruptcy
By charging
on shares
By
supervening
illegality
By court
order

17. ◦ Besides, the court may order the dissolution of the partnership, on application by a partner, in any of the
following circumstances:
◦ 1. Insanity of a partner- s.37(a)
◦ 2. Permanent incapacity of any partner to perform his duties-s.37(b)
◦ 3. Conduct calculated to prejudicially affect the carrying on of the business-.37(c)
◦ 4. Wilful and persistent breach of the partnership agreement-s.37(d)
◦ 5. When the business of the partnership can only be carried on at a loss-s.37(e)
◦ 6. Where, in the opinion of a court, it is just and equitable to dissolve the partnership-s.37(f)

18. ◦ Carmichael v Evans [1904] 1 Ch 486
◦ Facts: One partner was convicted of travelling on the railway without a ticket and with intent to defraud.
◦ Held: As the conviction was for dishonesty, it was calculated to be detrimental to the partnership business.
◦ Clifford v Timms [1908] AC 12
◦ Facts: The appellant and respondent, both surgeons, were partners. The appellant was a director of the
American Dental Institute Limited, a party to self-puffing advertisements. The respondent gave notice to the
appellant of his intention to dissolve the partnership.
◦ Held: The appellant’s conduct was prejudicial and the partnership could be dissolve.

19. ◦THE END
◦ farah.yasmin@nmit.edu.my