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BT20403 COMMERCIAL LAWBT20403 COMMERCIAL LAW

TOPIC 2 (1)TOPIC 2 (1)

OUTLINE

�� Business Entities:Business Entities:

��Sole ProprietorshipSole Proprietorship

��PartnershipPartnership○○ DefinitionDefinition○○ Main characteristicsMain characteristics○○ Relations of partners to one anotherRelations of partners to one another○○ Liabilities of partnersLiabilities of partners○○ Partnership propertyPartnership property○○ Dissolution of partnershipDissolution of partnership

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BUSINESS ENTITIES

�� There are various types of business that are widely There are various types of business that are widely being carried out in Malaysia. being carried out in Malaysia.

�� The most common types of business are:The most common types of business are:�� Sole Proprietorship Sole Proprietorship ((PerniagaanPerniagaan TunggalTunggal))�� PartnershipPartnership ((PerkongsianPerkongsian))�� Companies (Companies (SyarikatSyarikat))�� Limited Liability Partnership (Limited Liability Partnership (PerkongsianPerkongsian

TanggunganTanggungan TerhadTerhad))

�� Sole proprietorships and partnerships Sole proprietorships and partnerships ––unincorporated associationsunincorporated associations, unlike companies., unlike companies.

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SOLE PROPRIETORSHIP

�� Sole proprietorship is the earliest form of doing Sole proprietorship is the earliest form of doing business and is still the most common form of business and is still the most common form of business model.business model.

�� The business is carried out by a person The business is carried out by a person individually.individually.

�� The sole proprietorship is the owner of the The sole proprietorship is the owner of the business, hence he has total control of the business, hence he has total control of the management and finances of the business.management and finances of the business.

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Characteristic of Sole Proprietorship

�� The sole proprietorship business has The sole proprietorship business has no separate no separate legal personalitylegal personality from the sole proprietor.from the sole proprietor.

�� The sole proprietor has the right to the profits of The sole proprietor has the right to the profits of the business since he is solely responsible for the the business since he is solely responsible for the business.business.

�� The The liability of the sole proprietor is unlimited liability of the sole proprietor is unlimited (no separation between personal and business (no separation between personal and business asset).asset).

�� If the sole proprietorship dies or becomes If the sole proprietorship dies or becomes bankrupt, the business comes to an end.bankrupt, the business comes to an end.

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Formation of Sole Proprietorship

��There is no formalities to be complied with.There is no formalities to be complied with.

��However, there is a requirement for registration of However, there is a requirement for registration of the business under the the business under the Registration of Business Registration of Business Act 1956 Act 1956 (except exempted by RBA).(except exempted by RBA).

�� It is an offence to carry on business if the business is It is an offence to carry on business if the business is not registered: not registered: s.12(1) RBAs.12(1) RBA..

��The person responsible for a business shall, not later The person responsible for a business shall, not later than 30 from the date of the commencement of the than 30 from the date of the commencement of the business, apply to the Registrar for the registration of business, apply to the Registrar for the registration of the business (the business (s.5(1) RBAs.5(1) RBA).).

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Advantages and Disadvantages of A Sole Proprietorship

Advantages Disadvantages

Easiest and least expensive form of ownership to organize.

Raising fund may be more difficult compared to other forms of business.

Sole proprietors have complete control, making decisions as they see fit.

Unlimited liability. Since sole proprietors are legally responsible for all debts against the business, their business and personal assets are at risk.

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Cont.

Advantages Disadvantages

Sole proprietors receive all income generated by the business to keep or reinvest.

May have difficulty attracting high calibre employees, or those who are motivated by the opportunity to own a part of the business.

Profits from the business flow through directly to the owner’s personal tax return.The business is easy to dissolve or sell, if desired.

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PARTNERSHIP

�� In Malaysia, the law that governs partnership is the In Malaysia, the law that governs partnership is the Partnership Act 1961Partnership Act 1961. .

�� The Act is similar to the English Partnership Act, The Act is similar to the English Partnership Act, 1890 and under 1890 and under s.47(1) s.47(1) of the Partnership Act of the Partnership Act 1961, it provides for the application of the 1961, it provides for the application of the rules of rules of equity and common lawequity and common law in partnership so long in partnership so long as they are not inconsistent with the express as they are not inconsistent with the express provisions of the Act.provisions of the Act.

�� A partnership is a type of business carried on by 2 A partnership is a type of business carried on by 2 or more persons who are known as ‘partners’.or more persons who are known as ‘partners’.

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CONT.

�� The partners of a firm must have agreed to carry The partners of a firm must have agreed to carry on a common business, with the aim of making on a common business, with the aim of making profit.profit.

�� S.6 PA 1961S.6 PA 1961 –– persons who have entered into persons who have entered into partnership with one another are collectively called partnership with one another are collectively called a a firmfirm..

�� Although any kind of business may be conducted Although any kind of business may be conducted through a partnership, not all business relations through a partnership, not all business relations create a partnership.create a partnership.

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Definition of Partnership

�� Definition Definition -- S.3(1) of the S.3(1) of the Partnership Act 1967Partnership Act 1967

�� Partnership is the Partnership is the relation which relation which subsists between personssubsists between personscarrying on business in common carrying on business in common with a view of profitwith a view of profit..

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...cont

�� From the definition in From the definition in s.3s.3, we can derive 3 salient , we can derive 3 salient features of partnership:features of partnership:

1.1. involves a relationship between 2 or more involves a relationship between 2 or more people;people;

2.2. relationship involved is for business purposes, relationship involved is for business purposes, SohSoh Hood Hood BengBeng v v KhooKhoo ChyeChye NeoNeo (1897) 4 (1897) 4 SSLR 115;SSLR 115;

3.3. profit driven, profit driven, Aw Yong Aw Yong WaiWai ChooChoo v v AriefAriefTrading Trading SdnSdn BhdBhd (1992) 1 MLJ 166.(1992) 1 MLJ 166.

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...cont�� Where a partnership agreement does not exist, Where a partnership agreement does not exist, s.4 s.4

provides a number of tests in determining the provides a number of tests in determining the existence of a partnership:existence of a partnership:

S.4(a) Joint tenancy, tenancy in common, joint property, or part ownership does not itself for a partnership

• Davis v Davis (1894)

• Fromount v Coupland

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...cont

S.4(b) The sharing of gross returns does not itself establish a partnership, whether the parties who share the returns have or do not have a joint right or interest in the property from which or from the use of which the returns are derived.

• Cox v Coulson (1916)

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...contS.4(c) Sharing of business profit by a person is a

prima facie evidence of partnership. However, the presumption may be rebutted if the sharing is for some other reasons:

1) Payment of a debt out of profits of the business to a creditor by instalmentsdoes not make the creditor a partner in the business.

• Cox v Hickman (1860)

• Buckingham v Port Jackson & Manly Steamship Co [1957]

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...cont

S.4(c) 2) Remuneration to a servant or an agent of the business from the profit of their employer’s business.

• Walker v Hirsch (1884)

3) Payment of an annuity or a portion of the profits to a widow or child of a deceased partner in the business.

• I.R.C. v Lebus’s Trustees [1946]

• Wong Peng Yuen v Senanayake[1962]

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...cont

S.4(c) 4) Payment of interest which varies with the profits on a loan advanced for use in the business under a written contract.

• Re Young [1896]

5) Payment to a seller of the good will of a business in the form of a share of the profits of the business.

• Pratt v Strick (1932)

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Main Characteristics

�� Formation:Formation:�� A partnership is known as ‘A partnership is known as ‘firmfirm’ (’ (s.6(1)s.6(1)););

�� A partnership has A partnership has no legal personalityno legal personality apart apart from the personalities of its members from the personalities of its members --AlagappaAlagappa ChettiarChettiar v v ColiesumColiesum CafeCafe (1962).(1962).

�� When a firm is being sued, it is the When a firm is being sued, it is the partnerspartners who who are being sued and being made responsible for are being sued and being made responsible for the firm’s debts. When a firm is sued, the 3the firm’s debts. When a firm is sued, the 3rdrd party party may sue the partner by making a claim against may sue the partner by making a claim against the partnership using the firm’s name or using all the partnership using the firm’s name or using all the individual partners’ names as defendants. the individual partners’ names as defendants.

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...cont

�� In forming a partnership, In forming a partnership, elements of a elements of a contract have to be fulfilledcontract have to be fulfilled e.g. agreement, e.g. agreement, capacity, intention, consideration, certainty etc. capacity, intention, consideration, certainty etc. --William Jacks & Co (Malaya) Ltd. v Chan & William Jacks & Co (Malaya) Ltd. v Chan & Yong Trading Co.Yong Trading Co. (1964) MLJ 105.(1964) MLJ 105.

�� The term ‘The term ‘persons’persons’ refers to a body of persons refers to a body of persons corporate or uncorporate or un--incorporate. Hence, a incorporate. Hence, a partnership can exist between an individual and partnership can exist between an individual and a company, individuals with individuals or a company, individuals with individuals or between 2 or more companies.between 2 or more companies.

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FORMATION OF PARTNERSHIP

LAW

LAWFUL PURPOSE

CAPACITYAGREEMENT

REGISTRATION

20BT20403/Topic2 (1)

...cont�� Capacity:Capacity:

�� Persons of Persons of legal capacitylegal capacity are capable of are capable of entering into a partnership agreement;entering into a partnership agreement;

�� Even a minor (under 18 years old) are capable Even a minor (under 18 years old) are capable of entering into a partnership agreement of entering into a partnership agreement --William Jacks & Co (Malaya) Ltd v Chan & William Jacks & Co (Malaya) Ltd v Chan & Yong Trading CoYong Trading Co (1964)(1964)

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...cont

�� Goode v HarrisonGoode v Harrison [1821][1821]-- it was held that a it was held that a minor could be in a partnership for any duration minor could be in a partnership for any duration of time until he wanted to disaffirm it;of time until he wanted to disaffirm it;

�� However, a minor cannot incur or be responsible However, a minor cannot incur or be responsible for any contractual liability for the firm’s debts. for any contractual liability for the firm’s debts. Upon reaching the age of 18, the minor can, if he Upon reaching the age of 18, the minor can, if he wishes, discharge himself from all future debts by wishes, discharge himself from all future debts by terminating the p/ship agreement. Failure to terminating the p/ship agreement. Failure to repudiate the agreement makes him liable for the repudiate the agreement makes him liable for the p/ship debts.p/ship debts.

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...cont

�� Registration of partnership business:Registration of partnership business:�� A partnership business in Peninsular Malaysia A partnership business in Peninsular Malaysia

must be registered under the must be registered under the Registration of Registration of Business Act 1956Business Act 1956, ,

�� in Sabah, under the in Sabah, under the Trade Licensing Trade Licensing Ordinance No 16 1948Ordinance No 16 1948; and; and

�� in Sarawak under the in Sarawak under the Business Names Business Names Ordinance (Cap. 64) and Business, Ordinance (Cap. 64) and Business, Professions and Trade Licensing Ordinance Professions and Trade Licensing Ordinance (Cap. 33)(Cap. 33)..

�� Registration is required to enable the firm to sue Registration is required to enable the firm to sue or to enforce 3or to enforce 3rdrd party obligations owed to the party obligations owed to the firm.firm.

23BT20403/Topic2 (1)

...cont�� Registration (cont.):Registration (cont.):

�� Although businesses must be registered under Although businesses must be registered under RBA 1956, the fact that a partnership has not RBA 1956, the fact that a partnership has not been registered is irrelevant for the purpose of been registered is irrelevant for the purpose of establishing whether there is a partnership : establishing whether there is a partnership :

�� Cases to be referred:Cases to be referred:

��GulazamGulazam v v NoorzamanNoorzaman and and SobathSobath [1957][1957]

��RatnaRatna AmalAmal & & AnorAnor v Tan Chow v Tan Chow SooSoo [1964].[1964].

�� Required to inform changes.Required to inform changes.

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...cont

�� Partnership still exist though it is not registered Partnership still exist though it is not registered under the under the Partnership Act 1961Partnership Act 1961..

�� GulazamGulazam v v NoorzamanNoorzaman and and SobathSobath [1957]:[1957]:��Plaintiff was to provide capital for the purchase Plaintiff was to provide capital for the purchase

of cattle and the defendants were to look after of cattle and the defendants were to look after and sell the cattle. Plaintiff claimed money due and sell the cattle. Plaintiff claimed money due to him but defence brought by defendants was to him but defence brought by defendants was that p/ship never existed thus plaintiff had no that p/ship never existed thus plaintiff had no recourse for the outstanding amount.recourse for the outstanding amount.

��Held:Held:�� Partnership exist although it was not Partnership exist although it was not

registeredregistered�� Plaintiff claim was allowed.Plaintiff claim was allowed.

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...cont

�� RatnaRatna AmmalAmmal v Tan Chow v Tan Chow SooSoo [1964]:[1964]:��The parties entered into an agreement to form The parties entered into an agreement to form

a ‘syndicate’ for the purpose of selling a ‘syndicate’ for the purpose of selling condensed milk. The word ‘p/ship’ was not condensed milk. The word ‘p/ship’ was not used in the agreement.used in the agreement.

��Held:Held:�� From the facts, the relation of the parties had From the facts, the relation of the parties had

the business character of a partnership, and the business character of a partnership, and thus, although the word ‘syndicate’ was used thus, although the word ‘syndicate’ was used throughout instead of ‘partnership’, the throughout instead of ‘partnership’, the arrangement arrived at was in fact a arrangement arrived at was in fact a partnership as they had agreed to ‘partnership as they had agreed to ‘carry on carry on business in common with a view of business in common with a view of profitprofit’. ’.

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...cont

�� Contents of the partnership agreement:Contents of the partnership agreement:

�� Relationship between partners may be created Relationship between partners may be created orally, in writing or by conduct.orally, in writing or by conduct.

�� In the absence of any oral or written agreement, In the absence of any oral or written agreement, the terms prescribed in the the terms prescribed in the Partnership Act Partnership Act 1961 (s.26) 1961 (s.26) will be applicable.will be applicable.

�� Contents of the partnership agreement include Contents of the partnership agreement include name of the firm, place of business, list of name of the firm, place of business, list of partners and their contribution, duration (if any), partners and their contribution, duration (if any), asset (if any), p/ship account, profit and loss asset (if any), p/ship account, profit and loss distribution, methods of dissolution.distribution, methods of dissolution.

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...cont�Management: In absence of contrary agreement,

all partners are entitled to share in managing the firm (s.26(e)).

� Contractual authority: A partner is presumed in law to have authority to enter into contracts on behalf of the firm in the ordinary course of its business.� S.7 - a partner is an agent of the firm and other

partners (express or apparent authority)

� Numbers: Minimum of 2 partners but not more than 20 partners except for professional firms which have no maximum limit on the number of partners (s.3(1) and s.47(2)).

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...cont

� Liability: A partner is liable for the debts of the partnership to the full extent of his private estate;

� Dissolution:� by the expiration of the agreed period of its

duration� upon the completion of the particular

undertaking for which the firm was formed � death or bankruptcy of any partner� mutual agreement� by order of a court

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The agreement

is for business purpose

The business is for purpose of gaining profit

The relation between parties

•Agreement (binding)

•Number of partners

•Sect.2

•Business in common

•Net profit

•Voluntarily not partnership

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TYPES OF PARTNER

ACTIVE

PARTNER

DORMANT/

SLEEPING

PARTNER

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Advantages & Disadvantages of A Partnership

Advantages Disadvantages

A partnership is relatively easy to form and the start-up cost is low.

Unlimited liability.

Allows several people to combine resource and expertise, i.e. additional investment capital as well as a wider pool of knowledge, skills and contracts as compared with a sole proprietorship.

The partners are personally and jointly responsible or liable for all debts of the firm.

Limited regulation by authorities. It may be difficult to find suitable partners.

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Cont.

Advantages Disadvantages

Each partner is taxed individually, meaning that each partner includes business income on his personal income tax returns.

Lack of succession. The duration of partnership is uncertain: if any partner dies, withdraws, sells his interest or a new partner is admitted into the business the partnership comes to an end.

Partners can legally bind each other without prior approval.

Divided authority and the lines of authority may not be clear.

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Self Quiz

� Vince, Felix, Mawi and Marsha are good friends. They have finally agreed that each of them will contribute RM1,000 per month so that each of them can start their business.

� Avril and Lavigne have agreed in writing that both of them will set up a shop that sells donated goods and the income will be channelled towards victims of tsunami in Aceh, Thailand, Malaysia and Sri Lanka and earthquake in Pakistan and India.

� Consider whether partnership exists in these situations?

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Relations of: (a) partners to 1 another;(b) firm and partners; and(c) partners and 3rd parties

� The partners are governed by their partnership agreement.

� In the absence of such agreement, the Partnership Act 1961 will be applicable- S.26

� The principle of utmost good faith between partners is envisaged in these provisions:� S.30 – duty of partners to render accounts etc;� S.31 – accountability for private profits;� S.32 - duty of a partner not to compete with him

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Relations of Partners to 1 Another

� S.7- A partner is an agent of the firm and other partners:

‘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 of business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partners 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.’

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...cont

� The authority of each partner may either be an actual authority or apparent authority.

� Actual authority (express or implied).� Express authority may be given in writing (as in

the partnership agreement) or orally- Chan King Yue v Lee & Wong (1962) (*)- Osman bin Haji Mohamed Usop v Chan Kang Swi (1924) (*)

- Sithambaram Chetty v Hong Hing (1924)- William Jacks & Co (Malaya) Ltd. v Chan & Yong Trading Co. (1964) (*)

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...cont

� Chan King Yue v Lee & Wong [1962] MJ 379Plaintiff’s husband borrowed from her RM35,000 as a loan from her to the firm in which he is a partner. He gave her a receipt in the name of the partnership. The money was paid into the partnership’s account and immediately utilized by the firm to pay off some debts. Plaintiff sued for the recovery of the loan.

Held: The borrowing was an act necessary for the carrying on of the business of the partnership and as such bound the co-partner.

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� Osman b Haji Mohamed Usop v Chang Kang Swi(1924) 4 FMSLR 292 –A partnership has been formed by 6 partners including the appellant. 3 of the partners borrowed RM10,000 from a 3rd party by effecting a promissory note. The loan was guaranteed by the respondent (Chan Kang Swi). Later, the firm failed to pay the debt and Chan was called to pay for the debt on his own account. He then initiated action against the 6 partners for recovery of his money and 5 partners accepted their liability, except the appellant.

Held: The debt was a firm’s debt and was obtained for the purpose of partnership. The partners who signed the promissory note had acted for the firm and they were authorized to do so. Therefore, the firm or the 6 partners were liable.

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...cont ...cont� William Jacks & Co (Malaya) Ltd v Chan & Yong Trading Co (1964)The plaintiff claimed against the defendants the sum, of RM12,734.91 for goods sold and delivered by the plaintiff to the defendants. Chan and Yong were sued as partners of the firm. Yong (a minor) did not take any steps to defend but Chan raised the following defences:1. that no firm by the name of Chan & Yong Trading

Co. ever existed, and that , if such a firm did exist, he was not a partner thereof;

2. that he did not in any way represented or held himself out as a partner of the said firm;

3. the goods bought from the plaintiff were for the personal use of Yong and that the partners were therefore not liable.

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...cont

� The court held:� Chan was a partner of Chan & Yong Trading;� Chan represented himself to be partner in the firm

by approaching a salesman of the plaintiff to ask for credit facilities with the plaintiff company by registering the partnership with the ROB, and by opening a banking account with his own money in the name of the partnership.

� The fact that Yong made use of the goods bought from the plaintiff for his own purpose did not mean that the partnership and partners were not liable.

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...cont

� Apparent authority (or ostensible authority):� When a partner (who does not have the

authority) holds out that he has such authority, or a person holds out that he is a partner and the other partners knew about it yet do nothing to stop it, hence the partners are liable.

� Garland v Jacomb� Kendal v Wood

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...cont

� Partners are bound by acts done on behalf of firm:

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

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...cont

� Partner using credit of firm for private purposes:

� S.9: “Where one partner pledges the credit of the firm for a purpose apparently not connected with firm’s ordinary courses of business, the firm is not bound, unless he is in fact specially authorised by other partners; but this section does not affect any personal liability incurred by an individual partner.”

� Bank of Australasia v Breillat� Mercantile Credit Co v Garrod

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...cont

� Effect of notice that firm will not be bound by acts of partner - If the 3rd party has notice of the agreement between the partners (restricting the power of any one or more of them of them to bind the firm) then the firm will not be bound in respect of any act done in contravention of the agreement.

� S.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.”

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Liability of Partners

� The concept of “Joint and Severally Liable”� Partners’ liabilities:

� Contractual liability;� Tortious liability;� Misapplication of money and/or property;� Criminal liability.

○ The above liabilities will be discussed in turn

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Cont.

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Contractual Liability

� S.11:

“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, 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 unsatisfiedbut subject to the prior payment of his separate debts.”

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...cont

� S.11 deals with partners’ contractual liability to 3rd

parties:

� While he is a partner, every partner is liable jointly with the other partners for all debts and obligations of the firm; and

� After his death, his estate is also severally liable.

� Osman Hj Mohamed Usop v Chang Kang Swi (1924)

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Liability between firm and partnersLiability between firm and partnersLiability between firm and partnersLiability between firm and partners::::

JOINT LIABILITYJOINT LIABILITYJOINT LIABILITYJOINT LIABILITY –––– S.11S.11S.11S.11

Plaintiff can opt either toPlaintiff can opt either to

Sue all the partners Sue all the partners jointlyjointly

May sue one or more May sue one or more of the partners of the partners concernedconcerned

Every partner is liable jointly for every conduct of the

firm while he is a member of the firm.

50BT20403/Topic2 (1)

...cont

� For example: if Mr X, Mr Y and Mr Z are partners in the firm named ‘XYZ Enterprise’ the legal entity may be described as ‘Mr X, MrY and Mr Z trading as XYZ Enterprise’

� Kendall v Hamilton (1897) (*)

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...cont

Kendall v Hamilton (1897)

� A creditor sued all the obvious members of a partnership and was awarded judgement against them. He failed to recover the debt in full. He subsequently discovered a wealthy dormant partner whom he sought to sue for the balance of the debt.

� The House of Lords held that since the debt was a joint one only, by suing the apparent partners the creditor elected to sue only them and could not commence fresh proceedings against the other partner.

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Tortious Liability

� Tort refers to the breach of a duty imposed by the law. The law of torts seeks to compensate the victims of certain forms of harmful conduct by an award or an injunction which prevents the same from reoccurring.Eg. A negligently collides with B’s stationary car on the road and causes damage to it.

Eg: trespass

� For tortious liability to arise, there must be:�a duty of care;�breach of the duty of care; �damage occurs.

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...cont

� S.12:“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 any person not being a partner in the firm, or any penalty is incurred, the firm is liable to the same extent as the partner so acting or omitting to act.”

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Section 12

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 any person not being a partner in the firm, or

any penalty is incurred, the firm is liable

In the ordinary course of business.

If not, the wrongful act must be committed

while carrying on the job.

Conditions

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...cont

� In order to make a firm liable, the tortious act must be committed by a partner either in the ordinary course of the business of the firm or with the authority of his co-partners.

� Blyth v Fladyate [1891]

� Hamlyn v Houston & Co [1905]

56BT20403/Topic2 (1)

Liability for Misapplication of Money or Property – S.13

“ 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 or property so received is misapplied by one or more of the partners while it is the custody of the firm,

the firm is liable to make good the loss.”

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...cont

� Liability for wrongs joint and several:

� S.14: Every partner is liable jointly with his co-partners and also severally for everything for which the firm while he is a partner therein becomes liable under s.12 or s.13.

� This means that if the partnership firm is liable for wrongs under s.12 or to liable to make good the loss due to misapplication of money or property under s.13, the plaintiff can sue all the partners jointly or may even sue 1 or more of the partners concerned.

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Criminal Liability

� Partners are only jointly liable in civil cases, they are not jointly liable in criminal cases.

� Criminal liability is a personal liability of partners who have committed it, its requires mens rea.

� The above rule is clearly envisaged in the case of Chung Shin Kian & Anor v Public Prosecutor [1980] 2 MLJ 246

� Garrett v Hooper [1973]

59BT20403/Topic2 (1)

� S.15: If a partner being a trustee, and employs trust property in the business, no other partner is liable for the trust property to the beneficiaries for the breach of trust. The other partner can be sued if they have notice of the breach of trust. If the property still in the firm’s possession, the beneficiaries can recover it.

� Ex Parte Heaton

Liability for improper employment of trust property

for partnership purpose

60BT20403/Topic2 (1)

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Liability of Persons for Holding Out

� S.16: either by: - words spoken or written; or- conduct; or- who knowingly suffers himself,

� liable as a partner to anyone who has on the faith of any such representation

� Proviso: 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’s debt contracted after his death.

� William Jacks & Co (Malaya) Ltd v Chan & Yong Trading Co. [1964]

61BT20403/Topic2 (1)

...cont

� The liability is based on the principle of estoppel.

� When a person makes a representation that induces 3rd party to believe and rely on such representation that he is a partner, the person is estopped from denying or contradicting the statement.

� In Re Buchanan & Co. (1876), it was held that if the holding out or representation is made without the knowledge or consent from the real partner, only the person holding out as a partner shall be liable to the third party acting in reliance of the representation.

62BT20403/Topic2 (1)

Liability of Outgoing Partners (Retiring)

� Retiring partner may still liable unless he gave notice that he is no longer a partner.

� 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.”

63BT20403/Topic2 (1)

...cont

� Re Siew Inn Steamship Co [1934] MLJ 180 –

The court held that the retired partner was liable on the promissory notes for money lent to the firm.

Actual notice was necessary as far as old or existing customers were concerned. Notices on the retirement of the plaintiff in 3 Chinese newspapers were insufficient and ineffective notice to those who had dealings with the firm that he was no longer a partner. The effectiveness of such notice depends on to whom the notice is made.

64BT20403/Topic2 (1)

...cont

� 2 parties considered to have dealings with firm are:�For unknown person who has no previous dealing

with the firm before the change in the firm’s constitution, a notice in a national gazette is sufficient and effective that the partner is no longer a partner in that firm.

�For those who have previous dealings with the firm, a more specific and clear notice is required (as held in Hup Aik Tin Mining Co v Kam Hoy Trading (1969) MLJ).

�� TanTan SinSin MohMoh vv LebelLebel LtdLtd [1988] 2 MLJ 51

65BT20403/Topic2 (1)

...cont

� S.19(2) : A partner who retires from a firm does not thereby cease to be liable for partnership debts or obligations incurred before his retirement.

� S.19(3) : A retiring partner may be discharged from any existing liabilities by an agreement to the effect between himself and the members of the firms 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 firms as newly constituted.

66BT20403/Topic2 (1)

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12

...cont

� Malayan Banking Bhd v Lim Chee Leng & Anor (1985) 1 MLJ 214: The respondents were held to be liable for the debts incurred before they retire or resign. In this case the respondents had incurred the debt on the trust receipt before their resignations or retirement and they could not escape liability by merely pleading resignation or retirement.

67BT20403/Topic2 (1)

Liability of incoming partners (new)

� General rule: a new partner is not liable for the debts incurred prior to his admission, refer 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 partner.”

68BT20403/Topic2 (1)

RIGHTS & DUTIES OF PARTNERS

� Right and duties of partners to one another are governed by the terms under partnership agreement.

� In the absence of the provisions in the partnership agreement, the Partnership Act (PA) will apply.

� S. 21 PA:The mutual rights and duties of partners, whetherascertained by agreement or defined by this Act, may bevaried by the consent of all the partners, and suchconsent may be either express or inferred from a courseof dealing.

69BT20403/Topic2 (1)

1.Capital, profit & loss

- S.26(a)

9. Partnership book –

S.26(i)

7. Introduction of new

partner - S.26(g)

3. Interest on extra capital subscribed

- S.26(c)

5. Management of

business - S.26(e)

2.Indemnity - S.26(b)

4.Interst on capital

subscribed - S.26(d)

6. Remuneration -

S.26(f)

8. Differences as to ordinary matters -

S.26(h)

10. Expulsion of partner - S.27

RIGHTS

BETWEEN

PARTNERS

70BT20403/Topic2 (1)

Fiduciary Duties of Partners

� The principle of utmost good faith between partners are implicit in every partnership agreement and is a prime requisite in relations between partners.

� This is because the relationship between partners is based on mutual trust and confidence.

� The relevant provisions in the Partnership Actpertaining to this are s.31, s.32 and s.33.

71BT20403/Topic2 (1)

Cont.

� S.30: Duty of partners to render true accounts.Partners are bound to render true accounts and full information of all things affecting the partnership to his co-partner(s).

� Maddeford v Austwick [1826] – It was held that the sale and purchase transaction of a share in the firm without disclosure of material facts on the partnership assets was voidable.

� Law v Law [1905]

72BT20403/Topic2 (1)

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13

Cont.

� S.31: Accountability of partners for private profit.Every partner must account to the firm for any benefit derived by him, without the consent of the other partners, from any transaction concerning the partnership.

� Bentley v Craven [1853] – The court held that a partner cannot make a profit from a resale of any property owned by him to the firm without full disclosure to the other partners

� Aas v Benham [1891]

73BT20403/Topic2 (1)

Cont.

� S.32: Duty of partner not to compete with firm.If a partner, without the consent of the other partners, carries on business of the same nature as and competing with that of the firm, he must account for and pay over to the firm all profits made by him in that business.

� Green v Howell [1910]

74BT20403/Topic2 (1)

Cont.

� Ass v Benham [1891] - A partner in a ship-brokerage firm assisted in the incorporation of a ship building company using information he obtained from the firm's business. He was then appointed as a director in the said company and received a salary in consideration for the services he rendered. Other partners claimed for the benefit to be given to the firm.

� The Court held that: Other partners had no right to claim for the benefit since the ship building business was of different nature from the ship-brokerage business.

75BT20403/Topic2 (1)

Cont.

� If there is a breach of duty committed by a partner, he is only liable to make good the loss suffered by the partnership if he is guilty of fraud or culpable negligence or willful default.

� Ong Keng Huat v Hong Kong United Co Ltd[1961] 27 MLJ 36.

76BT20403/Topic2 (1)

Partnership Property

� S.22(1): Partnership property is defined as:

“All property and rights and interests in property originally brought into the partnership stock or acquired, whether by purchase or otherwise on account of the firm or for the purposes and in the course of the partnership business,… and must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement.”

77BT20403/Topic2 (1)

...cont

� Any property which is purchased out of partnership asset is regarded as partnership property though it is not used for carrying out the partnership business - s.23

� Wray v Wray [1905] � Ponnukon v Jebaratnam [1980] 1 MLJ 282

� S.24: In the absence of an agreement to the contrary, the property of the partnership has to be sold on dissolution of partnership.

78BT20403/Topic2 (1)

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Dissolution

� Several ways in which a partnership is dissolved:

1. By agreement:a. Upon the expiry of specific duration (if any)b. Mutually agreed by the partners

2. By operation of law (s.34);a. by the expiration of the term fixed, orb. by the termination of an adventure or

undertaking, orc. by any partner giving notice to the other of

his intention to dissolve the partnership

79BT20403/Topic2 (1)

…cont

3. By death or bankruptcy (s.35);� s.35(1): death or bankruptcy of any partner;

(see Lee Choo Yam Holdings Sdn. Bhd. v Khoo Yoke Wah & Ors )

� s.35(2): by charging his shares, dissolution at the option of other partners

4. By supervening illegality (s.36);

80BT20403/Topic2 (1)

...cont

5. By Court order (s.37): The court may order the dissolution of the partnership, on application by a partner:-

a. Insanity of a partner;

b. Permanent incapability of performing his contractual obligations;

c. The partner will affect prejudicially the carrying on of the business � Charmichael v Evans [1904];� Clifford v Timms [1908] AC 12

81BT20403/Topic2 (1)

...cont

d. Where a partner, wilfully or persistently commits a breach of partnership or otherwise so conducts himself in matters relating to partnership business- not reasonably practicable for others to carry on the business with him;

e. When the business of the partnership can only be carried on at a loss; or

f. It is just and equitable in the court’s opinion to dissolve the partnership.� Re Yenidje Tobacco Co. Ltd. (1916)

82BT20403/Topic2 (1)

Consequences of Dissolution

� Right to notify outsiders, s.38

� Right of a partner to give public notice of retirement or dissolution, s.39

� Refer cases:

� Re Chop Yew Seong� Tan Siin Moh v Lebel Ltd [1988] 2 MLJ 51

� Jemco Sdn Bhd v Andrew Liau Ka Lieng & Ors [1985] 2 MLJ 119

83BT20403/Topic2 (1)