Dissolution of partnerships

Question 1

s43 PA - any money due to the outgoing partner from the firm…

Answer 1

Is a debt due to him or his estate if he died

Question 2

s31(1) PA - partnership automatically dissolves at…

Answer 2

The death or bankruptcy of a partner

Question 3

s35 PA - any partner may apply to the court…

Answer 3

For an order to dissolve the partnership

Question 4

What is a common variation to the statutory rule that the death/bankruptcy dissolves the entire partnership?

Answer 4

For the partnership agreement to provide that the death or bankruptcy of a partner will dissolve the partnership but only as regards the partner who died/was made bankrupt

Question 5

What is the effect of the common variation to the statutory rule hat the death/bankruptcy dissolves the entire partnership?

Answer 5

That other partners are bound to continue in the partnership despite the death or bankruptcy

Question 6

s34 PA - if an event occurs that makes it unlawful for the business of the firm to be carried on or for the partners to carry on that business in the partnership, the partnership…

Answer 6

Automatically dissolves

Question 7

s33(2) PA - if a partners allows his share of partnership property to be charged for his separate debt…

Answer 7

The partnership may be dissolved at the option of other partners (variation: only as regards that partner)

Question 8

Which section defines three types of partnership?

Answer 8

s32 PA

Question 9

Three types of partnership under s32 PA

Answer 9

• A partnership for a single adventure or undertaking
• A partnership for a fixed term
• A partnership for an undefined time which is dissolved by any partner giving notice to the others

Question 10

Which section provides for another type of partnership except for those listed in s32?

Answer 10

s26 - a partnership where no fixed term has been agreed upon for the duration

Question 11

How did the courts reconcile s26 and s32?

Answer 11

The no fixed term partnerships have been limited to only those partnerships where the agreement is silent about the possible duration of the partnership

Question 12

Moss v Elphick 1910

Answer 12

The agreement didn’t specify duration but did provide that the partnership could only be terminated by mutual agreement, neither s26 nor s32 applied

Question 13

Walters v Bingham 1988

Answer 13

A partnership agreement whereby when a fixed term partnership deed expired, to continue on the same terms until a new deed has been executed, neither s26 nor s32 applied

Question 14

James v Lloyd 1874

Answer 14

Once given, a notice cannot be withdrawn, except with the unanimous agreement of all the partners

Question 15

Trego v Hunt 1896 definition of goodwill

Answer 15

The whole advantage, whatever it might be, of the reputation and connection of the firm which may have been built up by years of honest work or gained by lavish expenditure of money

Question 16

Churton v Douglas 1859

Answer 16

• The purchaser of goodwill may represent himself as continuing or succeeding to the business of the seller
• The seller may open a competing business provided that he does not use a name which would suggest that he would continuing the old business

Question 17

Hancock v Smith 1889

Answer 17

There is nothing preventing the seller’s spouse or partner from opening a similar business unless it can be shown that by this action he is deceiving the public

Question 18

Curl Bros Ltd v Webster 1904

Answer 18

The purchaser has the sole right to solicit the customers of the old firm; however, if the old customers wish to continue to deal with the seller, they’re free to do so

Question 19

Burchell v Wilde 1900

Answer 19

The purchaser must not use the name of the old firm in such a way as to give impression that the seller is still liable as a partner

Question 20

Banks v Gibson 1865

Answer 20

Where the goodwill is not sold, each partner is entitled to canvass old customers and to use the firm’s name but none is permitted to hold out the other partner as remaining in the partnership together

Question 21

Jennings v James 1898

Answer 21

The same rules as the ones relating to goodwill apply where on the dissolution one partner buys the assets from the other partner

Question 22

Covenants in partnership agreement preventing the dangers relating to goodwill

Answer 22

• He will not open a competing business in the same area

- Undertaking that the partner will not accept orders from customers for some period of time

Question 23

The guiding principle on enforceability of goodwill clauses

Answer 23

The clause is reasonable between the parties and also in the public interest, especially prevention of monopoly

Question 24

Bridge v Deacons (a firm) 1984

Answer 24

As the partners are entitled to protect their interests, provided that the restraints imposed do not do more than protecting the interests of the partners, the courts will uphold the covenants

Question 25

s25 PA - a partner cannot be expelled from a partnership unless…

Answer 25

The right to expel has been expressly agreed by the partners

Question 26

An expulsion clause should specify what?

Answer 26

That the other partners want to continue trading

Question 27

What is a common approach to leaving partners clauses?

Answer 27

The clause allowing the continuing partners to acquire the departing partners’ share and, provided that they elect to do so within a specified period of time, the partnership can continue

Question 28

s36(1) PA - where a person deals with a firm after a change in its constitution…

Answer 28

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

Question 29

Tower Cabinet Co Ltd v Ingram 1949

Answer 29

Three types of creditors distinguished:

• Person who dealt with the firm before the partner’s retirement - the retiring partner must ensure that individual notice of his retirement is sent
• Persons who didn’t deal with the firm before the partner’s retirement but who know of the firm’s composition - they require a notice in the Gazette
• Persons who are neither - cannot hold a partner who has retired liable

Question 30

What needs to be done to ensure that a partner’s ostensible authority is limited by s38 PA?

Answer 30

The dissolution of the partnership needs to be notified

Question 31

Manley v Sartori 1927

Answer 31

In calculating the outgoing partner’s entitlement, some allowance must be made to pay for any services rendered by the continuing partners after the dissolution, e.g. management of the business

Question 32

Barclays Bank Trust Co v Bluff 1981

Answer 32

There was an increase in business’ value between a partner’s death and distribution of assets, held that that was held by the surviving partner on trust for the benefit of the estate

Question 33

s39 PA - upon dissolution of a partnership, every partner is entitled as against other partners to…

Answer 33

Have the property of the partnership applied in payment of the firm’s debts and liabilities and to have any surplus remaining divided among the partners according to their respective shares

Question 34

Equitable lien enforceable by the sale of the assets

Answer 34

This is what the partner has after applying to the court to wind up he business for the purposes of enforcing the right of application of partnership property

Question 35

Do the costs of winding up rank before or after the debts of the firm?

Answer 35

After

Question 36

What happens when the assets are insufficient to meet the costs?

Answer 36

The partners must bear them in proportion in which they bear the firm’s losses

Question 37

Garner v Murray 1904

Answer 37

If a partner is insolvent, the loss must be borne by the solvent partners in the same ration as their last agreed capital contribution