Partnership Flashcards
Unit 2 & 3
What are the essential elements of a partnership?
- ‘Persons’
- ‘Carrying on Business’
- ‘With a view of profit’
Section 1(1), Partnership Act (PA) 1890 – ‘Partnership is the relationship which subsists between persons carrying on business in common with a view of profit.’
It does not matter whether the business actually makes a profit as long as they aimed to.
What did the case of Pine Energy Ltd [2008] hold?
Lord Glennie commenting that there were;
- no partnership accounts,
- firm name,
- partnership premises,
- bank account, etc
‘None of these is fatal to the contention that there was a partnership but the lack of any such things points strongly against the likelihood of there being one [a partnership]’.
What did the cases of cheema [2017] and Wilson [2012] hold?
Where there is clear evidence individuals are treating each other as partners, a partnership can be held to exist, regardless of whether they referred to it as a partnership.
NB: The courts seem reluctant to say there is a partnership in the absence of a contract between the parties.
What are the rules for determining the existence of a partnership?
Section 2, Partnership Act 1890 sets out the rules.
Section 2(1) - Joint tenancy and joint property does not create a partnership whether the tenants or owners do or do not share any profits made by its use.
Section 2(2) – The sharing of gross returns does not create a partnership, whether the persons sharing such returns have or have not a right or interest in any property from which or from the use of which the returns are derived.
Section 2(3) - The Act sets out situations where share of a profit will not make the recipient a partner:
- Repayment of debt
- Remuneration
- Annuity to widow
- Loan
- Goodwill
What are the factors of the formation of partnership?
Constitution – There is no formality. It does not need to be in writing for instance, however, written agreements usually take the form of a partnership deed.
Capacity – Must have capacity to contract.
Illegality – Cannot have an enforceable partnership to do something which is illegal: Everet v Williams (1893).
Firm name – A partnership may trade under the names of the existing partners or under those names with certain alterations.
Passing off – Offence to trade under the same or similar name as another partnership, in such circumstances as may be deemed to be ‘passing off’.
The partnership is an independent legal entity in Scotland.
What section of what act establishes this point and what are the implications?
Section 4(2), Partnership Act 1890
Implications of separate personality:
- Partners are liable, jointly and severally, as debtors and creditors of the firm (s9 PA 1890)
- Firm can sue and be sued
- A partnership can hold property in its own name
Can partners bind a partnership firm?
Section 5, Partnership Act 1890 – Every partner is an agent of the firm and their acts bind the firm and his partners, unless 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.
Section 6, Partnership Act 1890 – An act done in the firm’s name and showing an intention to bind the firm, authorised by any person, whether a partner or not, is binding on the firm and all the partners.
Section 7, Partnership Act 1890 – 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 specially authorised by the other partners.
Section 8, Partnership Act 1890 – 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 in contravention of the agreement is binding on the firm with respect to persons having knowledge of the agreement.
Discuss joint and several liability in partnerships.
Section 9, Partnership Act 1890 – Every partner in a firm is liable jointly and severally with the other partners for all debts and obligations of the firm incurred while he is a partner; and after death their estate is also severally liable.
However, you can contract out of s9; Bagel (1903).
Discuss delictual liability of a partnership.
Section 10, Partnership Act 1890 – Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm, loss or injury is caused to any person not being a partner in the firm, the firm is liable therefore to the same extent as the partner so acting or omitting to act.
Section 12, Partnership Act 1890 – Every partner is liable jointly with his co-partners and also severally for everything for which the firm becomes liable while he is a partner.
However, liability of partners does not extend to the other partners:
Mair v Wood (1886) - a partnership; is not vicariously liable to a partner injured by the negligence of another partner when he has acted within the scope of his authority.
How does joint and several liability apply in relation to the misapplication of money?
Section 11, Partnership Act 1890 –
(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 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.
What is holding out?
Holding out is when an individual represents themself to be something they are not and the people who should contradict this position do not.
Discuss liability by holding out.
Section 14, Partnership Act 1890 –
(1)Everyone who by words spoken or written or by conduct represents himself as a partner is liable as a partner to anyone 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 or with the knowledge of the apparent partner.
(2)After a partner’s death, continued use of their name will not make their successors liable.
However, Tower Cabinet (1949) held that individuals will not be liable if they do not deliberately hold themselves out.
And, the firm is not liable for fraudulent representations -Soni [2013].
How does liability apply to incoming and outgoing partners?
Partners are only liable for things ahead of them, NOT behind them, unless contracted otherwise.
Section 17, Partnership Act 1890 –
(1)A person who is admitted as a partner into an existing firm does not become liable to tfor 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 expressed or inferred as a fact from the course of dealing between the creditors and the firm as newly constituted.
What are the general principles of Partnership?
Section 19, Partnership Act (PA) 1890 – Freedom of Contract
Delectus personae - ‘choice of person’ - A partner cannot be introduced as a partner without the consent of all the existing persons.
Section 28, Partnership Act (PA) 1890 – Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representatives.
Section 29(1), Partnership Act (PA) 1890 – 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, or from any use by him of the partnership property name or business connexion.
Fiduciary duty - All partners must act in good faith towards each other, make full disclosure of all matters affecting the partnership to their partners and not seek to obtain a personal gain without disclosing it.
Section 30, Partnership Act (PA) 1890 – Duty of partner not to compete with firm.
Discuss how partnerships affect property.
The firm can be tenant under a lease of heritable property.
Section 20(1), Partnership Act (PA) 1890 – All property originally brought into the partnership for the purposes and in the course of the partnership business, are partnership property and must be held by the partners exclusively for the purposes of the partnership, in accordance with their partnership agreement.
Section 21, Partnership Act (PA) 1890 – Unless the contrary intention appears, property bought with money belonging to the firm is deemed to have been bought on account of the firm.
