Partnerships (Q2) Flashcards

Question

Cheema v Jones (2017)

Answer 1

Topic: Partnership Formation (s.1 PA 1890) Summary: Cheema and Jones were GPs who operated a medical practice without a formal agreement. After a dispute, one argued no partnership existed. However, both contributed capital, shared profits and worked together. Held: There was a valid partnership based on their conduct, even without a written agreement. Use in exam: Use this case to show that partnerships can arise by conduct alone — the courts look at substance over form.

Answer 2

Topic: Partnership Property (s.20) Summary: Munro built a dance hall using funds from the partnership, but it was legally in Stein’s name. When the partnership dissolved, ownership of the hall was disputed. Held: The hall was partnership property because it was paid for and used by the partnership, even though Stein legally owned it. Use in exam: Great for showing how courts determine what counts as partnership property — it’s not about title deeds but use and intention.

Answer 3

💬 Topic: Fiduciary Duty – Full Disclosure (s.28, Partnership Act 1890) 📖 Facts: One partner bought out the other but hid that a business asset was worth much more than believed. ⚖️ Held: Breach of fiduciary duty — the buyout was set aside because he failed to make full and honest disclosure. 📌 Use in Exam: Partners must act with trust and honesty. Hiding key info to gain an advantage = not allowed. Courts will intervene to stop unfair deals.

Answer 4

💬 Topic: Fiduciary Duty – Full Disclosure (s.28, Partnership Act 1890) 📖 Facts: One partner secretly kept a client and earned money from that relationship without telling the other partner. ⚖️ Held: Breach of fiduciary duty — All profits made in connection with the partnership must be shared. Profit made from that client belonged to both partners, not just the one who made the side deal. 📌 Use in Exam: Partners must not take personal advantage of business opportunities that arise through the partnership, any benefits gained must be disclosed and shared, and no side hustles allowed

Answer 5

💬 Topic: Fiduciary Duty 📖 Facts: When certain partners left the firm, they took client files without the consent of the remaining partners. ⚖️ Held: The court held that this amounted to a breach of duty, as the departing partners damaged the firm's goodwill and acted unfairly. They were held liable for the loss in value caused by their actions. 📌 Use in Exam: This case shows that when partners leave a firm, they can’t take actions that harm the firm's ongoing reputation or client base.

Answer 6

💬 Topic: Fiduciary Duty 📖 Facts: In this case, a partner set up a rival business while still being a member of the partnership. ⚖️ Held: This was considered a serious breach of fiduciary duty, as partners owe each other loyalty and must act in the best interest of the partnership as a whole. The court held that the partner had to account for and hand over all profits made from the competing business. 📌 Use in Exam: The ruling reinforces that you cannot run a competing business while still in the partnership, because it creates a direct conflict of interest and undermines the trust between partners.

Answer 7

💬 Topic: Bad faith expulsion of a partner 📖 Facts: The majority partners expelled another partner, not because of misconduct, but so they could buy his share cheaply. ⚖️ Held: The court held that this expulsion was made in bad faith and was, therefore, invalid. Even if an agreement allows expulsion, it must be carried out honestly and fairly, not for selfish gain. 📌 Use in Exam: This case reinforces that partners must not abuse their powers to expel others.

Answer 8

💬 Topic: Valid expulsion of a partner 📖 Facts: In this case, one partner had been involved in dishonest conduct that directly harmed the partnership. ⚖️ Held: Although the specific details of the dishonesty were not extensively reported, the court found the behaviour serious enough to break the trust required between partners. Since the misconduct threatened the integrity and operation of the firm, the court ruled that the expulsion was valid. 📌 Key Point: The judgment confirms that serious breaches of trust or unethical behaviour by a partner can justify expulsion, provided that the partnership agreement allows for it and proper procedure is followed. This protects the business and the remaining partners from further harm. It also shows that courts support expulsion where the misconduct is genuine and not used as a cover for personal gain — making it a strong contrast to Blisset 📌 Use in Exam: Use Carmichael v Evans to show what a fair and lawful expulsion looks like — especially where the conduct of the partner clearly undermines the partnership's purpose, trust, or reputation

Answer 9

💬 Topic: Dissolution notice 📖 Facts: One partner attempted to dissolve the partnership by giving notice under s.32 of the Partnership Act 1890, but died before the other partner received it. ⚖️ Held: The court held that for a dissolution by notice to be effective, the notice must be received by the other partner. Since that didn’t happen before the partner’s death, the notice was invalid. As a result, the partnership did not end by notice but instead dissolved automatically at the moment of death under s.33(1)(a). 📌 Key Point: This case highlights that the timing of notice is crucial, and a partnership can still legally exist right up until a partner dies — after which it ends by operation of law.

Answer 10

💬 Topic: Agreement overrides dissolution on death 📖 Facts: Under s.33, the default rule is that a partnership ends when a partner dies — unless the agreement says otherwise. In this case, one partner died, but the partnership agreement included a clause stating that the business would continue regardless of death. ⚖️ Held: The court upheld that the partnership continued 📌 Key Point: This case shows that a properly worded partnership agreement can override the default rules, giving stability to the business after a partner’s death.

Answer 11

💬 Topic: Illegality 📖 Facts: This case falls under s.34, where a partnership becomes illegal. During World War I, trading with German nationals became illegal under new legislation. ⚖️ Held: Since the partnership involved German partners, the court ruled that the partnership dissolved automatically. 📌 Use in Exam: This is a clear example of how a partnership must end by law if continuing it would involve illegal activity — even if the partners want to carry on.

Answer 12

💬 Topic: Court order for misconduct 📖 Facts: involves a partner applying to the court to dissolve the partnership under s.35 of the Partnership Act 1890 due to misconduct. One of the partners had been embezzling money from the business, which led to a complete breakdown of trust ⚖️ Held: The court agreed that this was a serious breach of duty and dissolved the partnership on just and equitable grounds. 📌 Key Point: The case shows that when a partner’s behaviour makes it impossible to continue the business properly — especially due to dishonesty — the court can step in and order dissolution.

Answer 13

💬 Topic: Court order for loss 📖 Facts: A partner applied for dissolution under s.35 due to the business facing persistent financial losses. There was no misconduct or argument, but the business simply wasn’t doing well. ⚖️ Held: The court allowed the dissolution, stating that unavoidable and continuing losses are a valid reason to end a partnership. 📌 Key Point: This shows that not all dissolutions are based on bad behaviour — economic failure alone can justify it.

Answer 14

💬 Topic: Asset division 📖 Facts: After the partnership was dissolved, a dispute arose about the value of the business assets. One side argued they should be valued based on what was originally put in, while the other said they should reflect their current market value. ⚖️ Held: The court agreed with the latter, confirming that assets must be valued fairly and realistically at the time of dissolution, not based on outdated figures. 📌 Key Point: The court agreed with the latter, confirming that assets must be valued fairly and realistically at the time of dissolution, not based on outdated figures.

Answer 15

💬 Topic: LLP (Limited Liability Partnership) & Fiduciary duties 📖 Facts: In this case, members of an LLP had a dispute over decision-making and alleged breaches of fiduciary duty. ⚖️ Held: The court held that, unlike in ordinary partnerships, fiduciary duties do not automatically apply in LLPs unless they are specifically included in the LLP agreement. 📌 Key Point: This case highlights that LLPs are more similar to companies than partnerships — the rights and obligations of members are based on contractual terms, not assumptions of mutual trust. It reinforces the importance of having a clear written agreement to define members' duties within an LLP.

Answer 16

💬 Topic: Agreement restricting dissolution 📖 Facts: One partner attempted to dissolve the partnership, but the partnership agreement included a clause that only allowed dissolution if certain conditions were met. ⚖️ Held: The court upheld the agreement, confirming that express terms in a partnership contract take priority over the default rules in the Partnership Act 1890. 📌 Use in Exam: This case reinforces that partners are bound by what they agree to in writing, and that those terms carry legal weight — especially when it comes to ending the partnership.

Answer 17

💬 Topic: Unanimity in major decisions 📖 Facts: This case focuses on decision-making and consent under s.24 of the Partnership Act 1890, which says that any major change in the business must have the unanimous agreement of all partners, unless otherwise agreed. In this case, one partner took out a loan in the firm’s name without consulting the others. ⚖️ Held: The court found this to be unauthorised. 📌Key Point: It highlights that key decisions — especially financial ones — require full consent, and that acting alone can be a breach of the partnership agreement or statutory rules

Answer 18

💬 Topic: Definition of a partnership 📖 Facts: Worbey and Campbell were involved in a property development project together, but when things broke down, Worbey claimed that a partnership existed and that he was entitled to a share of profits and partnership rights. ⚖️ Held: The court had to decide whether their relationship met the legal test for a partnership. It held that no partnership existed, as there was no business being carried on "in common" — there was no mutual decision-making, shared control, or continuous joint activity. Their arrangement was more like an informal investment or joint venture, not a legally recognised partnership. 📌Key Point: This case reinforces that a partnership requires active, ongoing business collaboration, not just contributing funds or helping out on a single project.

Answer 19

💬 Topic: Who qualifies as a partner 📖 Facts: In this case, the individual in question received a share of the profits from a business and was arguing that this made him a partner. ⚖️ Held: the court found that he was not involved in management, decision-making, or sharing business risks — all of which are key indicators of a true partnership. Instead, he was treated as an employee whose wages were linked to profits, not as someone who had mutual rights and obligations with the other partner(s). The court made it clear that profit-sharing alone is not enough to establish a partnership. What matters is the substance of the relationship, including whether the person has any authority, shares in losses, or plays an active role in the running of the business. 📌Key Point: This case is important because it helps distinguish between partners and others (like employees or creditors) who might have a financial interest in the business but don’t meet the legal test for partnership.

Answer 20

💬 Topic: Legal personality of Scottish partnerships 📖 Facts: A partnership was charged with criminal offences, but by the time proceedings began, the firm had already been dissolved. ⚖️ Held: The court held that because a Scottish partnership is a separate legal person, it could not be prosecuted after it no longer existed. 📌Key Point: This case reinforces that in Scotland, partnerships have their own legal identity, meaning they can sue, be sued, and be held liable separately from the individual partners — but only while they legally exist.

Answer 21

💬 Topic: Apparent authority 📖 Facts: One partner entered into a hire-purchase agreement, which was outside the firm’s usual line of business and done without the consent of the other partner. ⚖️ Held: The court held that the firm was still bound by the agreement because the third party reasonably believed that the partner had the authority to act. 📌Key Point: This case confirms that even where a partner lacks actual authority, the firm can still be held liable if the act was within the apparent scope of the business and the outsider had no reason to suspect otherwise.

Answer 22

💬 Topic: Liability for the misapplication of partnership property 📖 Facts: One partner left a defective trap door open, which led to the injury of another partner. The injured partner tried to hold the firm liable. ⚖️ Held: The court ruled that s.11 does not apply to harm done between partners — it only covers situations where a third party’s money or property is misapplied by a partner. 📌Key Point: This case clarifies that internal injuries or losses between partners are not covered under the same rules that apply to external claims.

Answer 23

💬 Topic: Misapplication of client funds 📖 Facts: One partner received money from a client in the normal course of business but then failed to apply it correctly, causing a financial loss. ⚖️ Held: The court held that the firm was liable for the partner’s misconduct because the funds were received in the ordinary course of the partnership’s business. 📌Key Point: It highlights that if a partner mishandles third-party money while doing typical business activities, the whole firm can be held responsible under s.11.

Answer 24

💬 Topic: 📖 Facts: ⚖️ Held: 📌Key Point: