Royal University of Law and Economics Business Organization Final Exam

English Language Based Bachelor of Law Professor Sun Samnang

MEMORANDUM
by San Kiri Summary of Fact and Issues This case starts from Seang Nita (Nita) a member in Sunshine Company joint Sam Bopha (Bopha) and Keo Narath (Narath) partnership in B&N Garment. Notwithstanding partnership requires contribution USD500,000, Nita had invested only USD200,000 not further in agreement not to make important decision in management of partnership. Thereafter, in 2008, B&N Garment has decreased order and demand of product from Europe and America arise from world economic crisis. Since Nita doubted Narath, managing partner, ability to run business, she has promised in February 2009 to pay 20% commission to Park Lee Jung (Park) for persuading Jee Young Sun (Jee) as well as offered 10% discount; Nita informed other partners about her activity but didnt mention about commission and discountthey were happy. In March 2009, B&N Garment went into worst situation that became indebted and lay off one-third workers. Eventually, Jee had offered to buy product from B&N Garment; after consulting with Nita, all partners have agreed to accept the offered despite less workers; so that B&N Garment entered into a contract with Jee to deliver the products to Korea in August. Meanwhile, Narath a managing partner asked Nita to find a good shipping service to deliver product. Nita had chosen her company Sunshine as long as it offered good price and services. Thereafter, B&N Garment failed to deliver product to Jee upon promised due to lack of workers. Moreover, B&N Garment denied Parks commissions in which Nita had promised and B&N Garments creditor sues Nita alone since believe that other partners could afford to pay off debt. The first issue in this case is whether B&N Garment held liable for Nitas promised to pay Parks commission for persuading Jee to buy product from B&N Garment. Second, whether or not Nita take personal responsible to pay for Parks commission if B&N Garment has not agreed. Third, whether Nita has violated fiduciary duties to B&N Garment partnership by chosen her company, Sunshine, for shipping product for Jee over trusted by Narath, managing partner, to find a good shipping service. Forth, whether Nita alone would liable to creditor for B&N Garment debt since

San Kiri (Submitted 24th June, 2010)

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Royal University of Law and Economics Business Organization Final Exam

English Language Based Bachelor of Law Professor Sun Samnang

other partners could afford to pay off the debt or she has to joint responsible for B&N Garments debt. Issue #1 and #2 Mrs. Park v. B&N Garment and Nita This issue is whether B&N Garment became liable as a principal on contract made by Nita. B&N Garment contends that no agency relation was established despite Nita has joint B&N Garment merely a limited partner, she cant deal with other business on behalf of B&N Garment. However, B&N Garment by its apparent authority may become a principal with liability for the transactions entered into by its agent Nita. This issue, B&N Garment may hold responsible to pay for 20% commission that Nita promised to Park for four reasons: First, Pursuant to Article 79 Paragraph 5 of the Law on Commercial Enterprise, a limited partner may be held responsible in the same manner as a general partner for all the obligation of the limited partnership if the number of these acts, or the importance of them with respect to the partnership business, indicate that the limited partner in fact as a general partner. In this case, Nita has to take action in order to recover B&N Garment as much as she could; otherwise, B&N Garment would be collapse in effect of world economic crisis. In addition, in the amount of 20% commission in order to get a potential customer like Jee will not great amount while some garments has been closed due to deficit. On the other hand, when Jee offered to buy product from B&N Garment, Bopha and Narath has consulted Nita about this issue; Also, I concluded that all partners accepted Jees claim 10% discount upon Nita previously promised. Therefore, Nita deem to be a general partner in the B&N Garment partnership at the time of promised has made. Second, Pursuant to Article 40 of the Law on Commercial Enterprise, Each general partner is an agent of the general partnership in respect of third parties acting in good faith and each general partner are binds the general partnership for every act performed in its name in ordinary course of its business. According to Nita became a general partnership at the time promised has made, therefore she became an agent of B&N Garment; so from her perspective to deal with Park will bind the B&N Garment in accordance with Article 364 of the Cambodia Civil Code adopted in 2002, Agency is defined as relationship where a representative enter into a contract with another party by stating that he is acting on behalf of a principal with the scope of the agency authorization, the effect of the contract are imputed directly to the principle. That is,

San Kiri (Submitted 24th June, 2010)

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Royal University of Law and Economics Business Organization Final Exam

English Language Based Bachelor of Law Professor Sun Samnang

B&N Garment became her principle upon this circumstance which is liable to agents action Nitas promised to pay commission to Park. Third, Pursuant to Article 372 Paragraph 1 of the Civil Code under agency by estoppels, where an agent executes a contract outside the scope of agency, authorization, and the other party believe without negligent that the agency was authorized to enter into the contract; the principle is responsible for performing under the contract. In other word, apparent authority on the other hand is not actual authority but is the authority the agent held out by the principal as possessing. It is a matter of third parties comes to rely. In this case, Park has believed that Nita was a partner in B&N Garment that could made decision namely Nita also made a discount price 10% to customer. Moreover, Park never known or in touch with other B&N Garment partners like Bopha or Narath until she met Nita who asked her to find customer. Ultimately, Park completely relied on Nita; that is B&N Garment would pay her for commission when she could persuade Jee to buy B&N Garment product. Forth, Article 372 Paragraph 3, despite the absent of agency authorization, a punitive principle give the impression that agency authorization has been conferred on another or allow another person to give the impression that he has receive an agency authorization, the punitive principle is obligate to other party to make performance under the contract. That is, when Nita told other partners about her negotiation with Park despite she didnt mention about commission; by the way all partners were not stop her from making any deal with Park but they were pleasant with her activity at that time. Therefore, she would consider that all partner support her to make deal in business despite she is not originally authorized. This issue, however, B&N Garment would defend that Nita hasnt discussed about the commission with other partners in B&N Garment where she solely agreed; then she would be personally liable to Park not B&N Garment for two reasons: First, Pursuant to Article 79 Paragraph 3 of the Law on Commercial Enterprise, Limited Partner may not negotiate any business on behalf of the limited partnership, or allow his name to be used in any act of the limited partnership. Also, Paragraph 4, a limited partner who performs any of these acts is liable for the obligation of the limited partnership resulting from these acts. In this case, Nita has no legal authorization on behalf of B&N Garment according to her distribution and agreement not to make an

San Kiri (Submitted 24th June, 2010)

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Royal University of Law and Economics Business Organization Final Exam

English Language Based Bachelor of Law Professor Sun Samnang

important decision. So her contract with Park such as giving commission for persuading Jee to buy B&N Garment product; although Nitas promised for benefit of B&N Garment it will not bind partnership to held liable for her solely promised. Second, Pursuant to Article 371 Paragraph 1 of the Civil Code, Liability of person acting without agency authorization, where a person who executes a contract as agent for another cant establish the existing of an agency authorization or obtain ratification from the putative principal such person is responsible for either performing under the contract or paying damages at the election of other party. In other word, implied authority or actual authority proven which the principal actually intended the agent to possess and includes such power as are practically necessary to carry out the duties actually delegated. In this regard, Nita has no authorized from partnership to make any promise with other business on behalf of B&N Garment. Indeed, Nita failed to discuss about the deal with Park to other partners prior encouraged them to accept Jee offered. Therefore, Nita would personally responsible for paying commission to Park without B&N Garment joint responsible. Issue #3 B&N Garment v. Nita This issue is whether Nita has violated fiduciary duties to B&N Garment by choosing Sunshine in which she is a member in that company, and making a solely promised with Park without agreement by other partners. In general, the only fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and duty of care. That is, a partner must be loyal or faithful to the partnership; a partner must not obtain any secret profit or benefit from the partnership; if the partnership seeking to buy or rent property, the partner cannot secretly obtain the property and then sell or lease it to the partnership at a profit. Alternative, a partner cannot act as agent for both parties to transaction unless both know of the dual capacity and agree to it; if the partner does so act without consent of both parties, the transaction is voidable at the election of any partnership who did not know of the agents double status. On the other hand, a partners duty of care to the partnership and the other partners in the conducting winding up of the partnership or reckless conduct, intentional misconduct, or a knowing violation of the law. Therefore, when a partner breach of duty causes harm to the partnership, the amount of loss may be

San Kiri (Submitted 24th June, 2010)

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Royal University of Law and Economics Business Organization Final Exam

English Language Based Bachelor of Law Professor Sun Samnang

deduct from any compensation due the partner and if the partner has made a secret profit, the partnership may recover that profit from the partner. Under these circumstances, Narath, managing partner, trusted Nita to find a good shipping service that could deliver product to Korea. Consequently, Nita choose her company, Sunshine, after discover that it offered a lower price and better quality. More or less, Nita whose a member in Sunshine hard to make decision without impartial; Nita alone suppose to see Sunshine offered good price and service but other partners havent review afterward. On the other hand, if Nita is honest to partnership she would inform her membership in Sunshine; that is a good partner should do when they share profit and lost. Moreover, when Jee offered to buy product from B&N Garment she would clearly know that one-third of worker has lay off but she still encourage other partners to accept that offer; this seem that she without taking into consideration about risk result from her advice. Thats mean she has breach duty of care which she hasnt exercise her skill and knowledge in the right circumstance. In other word, Nita had secretly promised with Park 20% commission and make a discount 10% to Jee was a breach of loyalty although it was in the course of B&N Garment regardless her informed activities. In the courses of selecting shipping service, however, Nita has compared a number of services to deliver the product; unfortunately there was no other better than Sunshine as long as it offered good price and service. Although, Nita failed to inform other partners about her membership in Sunshine but it doesnt mean she was disloyal to partnership or breach of duties particularly fiduciary duty. Since the fact state clearly that all members in Sunshine are her close relatives; this could assume that Nita is not an important partner in Sunshine to make decision in setting the prices of quotation. Furthermore, Nita has been very concern about B&N Garment profit rather than Sunshine where it is her own share in business. On the other hand, in case Nita advised other partners to accept Jee offered to buy product from B&N Garment; she was seriously consider about challenges but its happened beyond her reasonable analyst. Likewise, Nita just give an opinion to other partners whether accepting or not it is their decision. For this reason, Nita may not liable to any harm result from her opinion that lead B&N Garment entered into contract with Jee. Although, B&N Garment loss the case with Jee its not Nitas false or negligence its all partners

San Kiri (Submitted 24th June, 2010)

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Royal University of Law and Economics Business Organization Final Exam

English Language Based Bachelor of Law Professor Sun Samnang

together liable. However, regarding Nita secretly promised with Park 20% commission and 10% discount to Jee was not consider disloyal on the ground that all partners would have agreed about 10% discount when accepted Jees offered and since Nita contacted with Park to persuaded Jee all partners has informed about this activity. Therefore, under customary rules facilitator, Park, would entitled to receive some amount of commission when she has successful persuaded. Issue #4 Creditor v. Nita This issue is whether Nita alone responsible for B&N Garment debt while other partners could afford to pay off the debt. Under the Law on Commercial Enterprise Article 81, a third party who is a creditor may claim the debt against the limited partnership and the general partners in the same manner as the general partnership. In the same manner, Article 82, where the property of the limited partnership is insufficient, the general partners are jointly and severally liable for the debts of the limited partnership to third persons. A limited partner is liable for the debts up to the agreed amount of his contribution, notwithstanding any transfer of his interest. Under these rules, in order to liable for debt Nita must have joint B&N Garment as a general partner upon jointly and severally liable for the debts. According to Black Law Dictionary, jointly and severally liability means liability that may be apportioned either among two or more parties or to only one or few select members of the group, at adversarys discretion. Thus, each liability party is individually responsible for the entire obligation, but a paying party may have a right of contribution and indemnity from non paying parties. Since Nita contribution only USD200,000, not further and her agreement with other partners not to make important decision; therefore, she is merely a limited partner in accordance with Article 73 of the Law on Commercial Enterprise, a limited partner is liable only to the extent of the sum of money or value of the property he agreed to contribute. On the other hand, although Nita was deem to be a general partner upon her dealing with other business on behalf of B&N Garment but its just a temporary situation; its merely consider at the time Nitas made that promised regardless she wanted to convert her status to be a general partner by contribution more money up to USD500,000 with agreement from all partners. It is, however, creditor may contend that Nita has been acted beyond limited partner liability into management of B&N Garment upon making promised commission

San Kiri (Submitted 24th June, 2010)

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Royal University of Law and Economics Business Organization Final Exam

English Language Based Bachelor of Law Professor Sun Samnang

to Park and set a discount to Jee without inform other partners. Therefore, Nita would become a general partner in B&N Garment pursuant to Article 79 of the Law on Commercial Enterprise a limited partner shall not participate in the management of the limited partnerships business. A limited partner may not negotiate any business on behalf of the limited partnership, act as agent for the limited partnership, or allow any of these acts is liable for the obligations of the limited partnership resulting from these acts. A limited partner may be held responsible in the same manner as a general partner for all the obligation of the limited partnership if the number of these acts, or the importance of them with respect to the partnership business, indicate that the limited partner in fact acted as a general partner. Conclusion As we have seen Nita may not personally hold liable to pay commission to Park upon agency relation was established between her and B&N Garment. Although, B&N Garment contend that she is merely a limited party cant deal with other business on behalf of B&N Garment; however, Nita deem to be a general partner while her action was under scope of business in good faith and its customary rule that facilitator should have to receive commission when transaction completed. Therefore, B&N Garment will responsible for her promised commission with Park. According to evidences Nita may not breach fiduciary duty within B&N Garment in which she has utilized her skilled and knowledge to select a shipping services company that offered lower price and good services by comparing several companies in advanced. Despite she failed to inform her partners about her membership in that company but it doesnt mean she was biased in choose the Sunshine which is completely her family business. Therefore, Nita may not breach fiduciary duty include loyalty and duty of care. Finally, its unfair to Nita that creditor only sue her without taking into account to bring other general partners to pay off debt. Regarding her agreement with other partners Nita just only a limited partner who is not liable exceeds her contribution. Despite her status was considered to be a general partner at the time she was deal with other business but its just a temporary consideration; it does not change her status permanently in B&N Garment regardless her consent to contribute more money and

San Kiri (Submitted 24th June, 2010)

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Royal University of Law and Economics Business Organization Final Exam

English Language Based Bachelor of Law Professor Sun Samnang

with agreement from other partners to become a general partner. Therefore, the creditor cannot claim debt from Nita without her consent in advanced. Advice Nita should proceed with an action for contend against B&N Garment on Parks compensation due to her promised was apparently and within the course of business in good faith. On the other hand, regarding breach of fiduciary Nita may not justify breach of fiduciary duty regardless her action cause serious harm to B&N Garment partnership. However, regarding creditors suit Nita has no obligation to pay for the whole B&N Garments debts instead of other partners while she is merely a limited partner.

San Kiri (Submitted 24th June, 2010)

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