RELATION BETWEEN PARTNERS AND

OUTSIDERS / THIRD PARTIES

Introduction
 S.7 to S.20 of the PA 1961 – effect of the ps relationship on the
partners vis a vis their individual and collective liability to those
who are outside the relationship. Such people are usually referred
to as “outsiders” or “third parties”.

 What is authority?
 Authority is a mandate given to an agent by the principal to
perform a particular act or services of an act for them. As an agent,
a partner may have:

 Actual authority
 Usual / Apparent authority
Actual authority

 It means that an agent may binds his principal to any act which is
expressly / clearly authorized by his principal to do so. Express
authority may be given in writings (as in the ps agreement) or
orally.

Usual / Apparent authority

 An authority which is not expressly given to the partner but third

parties may assume that a partner will have the usual authority of
a partner in that particular kind of business. Implied authority is
inferred from the conduct of the parties.
Usual / Apparent authority
 It is the authority that third parties see and understand as
authority or power that normally a partner has in carrying out acts
for the purpose of the ps business.

 The partner is seen to have authority that he would normally have

in business of a similar nature.

 Where a partner does an act that normally other partners would

have the authority to do, the firm would be bound by his act.

 The PA 1961 recognizes the fact that an agency relationship exist

between the partners as stated in S.7 of PA 1961.
S.7 of the PA 1961
POWER OF PARTNER TO BIND THE FIRM

 S.7 of PA –

“Every partner is an agent for the firm and his other partners for
the purpose of the business of the ps; and the acts of every partner
who does any act for carrying on in the usual way business of the
kind carried on by the firm of which he is a member, bind the firm
and his partners, unless the partner 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”.
 From the provision in S.7, it can be seen that there are several
requirements that has to be fulfilled before a third party could
bind the firm or the other partners :

 The act done must be of the type of business that is carried out
by the firm;

 It is carried on in the usual way;

 The third party must know that the person who is contracting
with him is an agent of the ps.

 The third party must not know that the person with whom he
has entered into the transaction i.e. the agent, has no authority
nor the permission of the other partners to act on behalf of the
firm.
i. The act done must be of the type of business that is carried out by
the firm.

 In order to bind the firm, the act that is done must be one which is
related to the type of the business that is carried out by the firm.

 Case : Mercantile Credit Co Ltd v Garrod

 Two partners, Parkin and Garrod, ran a business of renting out
garages and the repair of cars. They expressly agreed not to be
involved in the business of buying and selling cars. Without the
knowledge of partner G (who was a sleeping partner), P had sold a
car belonging to Plf’s finance company. The proceeds of sale was
paid into the firm’s account. When the Plf found out that P had no
title, it sued G for the return of the price it had paid for the car. G
denied liability due to the fact that the act was no legitimate as it
was the type that was expressly prohibited. This denial was
rejected by the court.
 It was held by the judge that G was liable for P’s acts, as
what P had done was within the type of activity that is
normally associated with a garage business, which is
what is apparent to the outside world.
 Case : Osman bin Haji Mohamed Usop v Chan Kang Swi

 Three active partners of a firm borrowed RM 10,000 from a

moneylender that was guaranteed by the Def. when sued for the
recovery of the loan, the Def had to pay as the firm was not able
to. Def later sued all the partners to be indemnified for the
money he had paid. The App refused to admit liability.

 The court of Appeal upheld the decision of the High Court that
the debt was the partnership’s debt since it was obtained and
used for the partnership purposes, and that the partners who
signed the promissory note had acted on behalf of the firm.
ii. It is carried on in the usual way.

 The act will only bind the firm, if, other than the fact that it is
one that is usually done by the firm, the act must also be done
in usual and ordinary manner.

 If it is not done in the usual and ordinary manner, the act is not
binding on the firm.
iii. The third party must know or believe the person with whom
he is entering into the transaction is a partner.

 The third party must know or believe that a partner has such
authority to act.

 The law allows a third party to assume that a partner would

have the authority to bind his firm.

 There could be several ways where the third party could gain
knowledge or believe that a partner has the authority.

 A third party could gain knowledge from previous experiences

with the firm, or where a partner is held out by the other
partners of the firm as a partner, and he could believe that a
person has the authority to act from his conduct.
 Case : Sithambaram Chetty v Hong Hing & Ors

 Two partners living in Singapore opened a shop in Penang

called Hop Hing, which sells liquor. The business was
managed by two managers, one of whom was the 2nd Def
and another named C.F.S. The partner never revealed their
connection with the business and the business were left
completely to the two managers. As far as the public could
see the managers were running the business as partners. One
of managers later borrowed a sum of money from the P and
then disappeared. The P then sought to recover payment
from the firm in Singapore as well as the remaining manager
in Penang. The firm denied liability on the grounds that the
borrower was merely a manager and did not have the
authority to sign the promissory note to receive the loan on
behalf of the firm.
 The court rejected the argument as it was due to the Defs
failure to inform of the true situation, that the public,
especially those who had business with the firm, had
been misled into thinking that the manager who had
borrowed the money was a partner.

 The court held the firm to be liable.

iv. The third party must not know the person with whom he has
entered into the transaction does not have the authority or
permission from the other partners to act on behalf of the
firm.

 Where a third party enters into a transaction with a person

knowing that such person does not have the authority to act,
then the firm will not be liable.
Actual Authority
 The use of the term actual authority covers express actual
authority as well as implied actual authority.

 Express actual authority is the authority given to a partner to do

an act or execute a function in the firm’s name and such would
bind the firm.

 Implied actual authority is the authority exercised by a person who

has been given express authority.

 This implied actual authority is to enable him to carry out the

expressed authority.

 Example: Where a person has been given the expressed authority

to sell car, he has implied authority to allow potential buyers to
test drive the car.
 Actual authority is expressed in s. 8, which states:

 PARTNERS BOUND BY ACTS ON BEHALF OF FIRM

‘An act or instrument relating to the business of the firm and done
or executed in the firm-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 the
partners.’

 Where an act is not related to the firm’s business, the act will be
binding on the firm only where a person have been expressly been
given the authority to act.
 S. 9 states:

 PARTNER USING CREDIT OF FIRM FOR PRIVATE PURPOSE

‘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 in fact specially
authorized by the other partners; but this section does not affect
any personal liability incurred by an individual partner.’
 Illustration: Fernando and Gerardo are partners and they run a
textile retail shop. Fernando, without the consent of Gerardo,
ordered from Altamirano Sdn Bhd a luxury yacht in the name
of the firm. Gerardo can avoid liability under s. 9 but Fernando
remains liable personally. But, if Fernando had bought the
yacht with Gerardo’s consent and authority, both Gerardo and
Fernando would be liable.

 A person who deals with a firm can only make the firm liable
for that debts if the partner with whom he dealt had authority
to contract it. For implied authority to exist, the act must
relate to the business of the firm.
 EFFECT OF NOTICE THAT FIRM WILL NOT BE BOUND BY ACTS
OF PARTNER

 This is expressed in s. 10, which states:

‘If it had 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.’

 Where a partner has been prohibited from carrying out certain

acts or functions, it will mean his actual authority is lesser than his
usual authority.
 When a partner carries out an act which had been expressly
prohibited, the issue as to whether the firm is bound or not will
largely depend on whether the third party was aware of the
restrictions (which is his actual power).

 If they were not aware and what the partner had done was within
his usual authority, the firm would be bound.

 If the third party knew of a partner’s actual authority and realize

that the partner had gone beyond his actual authority, then the
act will not bind the firm.
Liability in Contract- Sec 11
First limb: JOINT LIABILITY
Every partner is liable jointly with the other partners for all
debts and obligations of the firm incurred while he is a
partner.

 Kendall v Hamilton

Note: The third party only have one action against the
firm. Action to one partner is a bar to other partners –
Guinness Anchor Marketing
Guinness Anchor Marketing S/B

The essence of joint liability under Sec 11 is that if a

judgment is obtained against a partner in the partnership
for debt owed by the partnership and the judgment
remains unsatisfied because of the partner’s bankruptcy
or otherwise, any other partner who has not been sued in
the first instance cannot then be sued in a subsequent
proceeding. A joint liability essentially means that there
is only one cause of action for the recovery of debt.
 Second limb: SEVERAL LIABILITY
Refers to action taken against the estate of a person who
was a partner when the debt was incurred.

Cases: Re Doetsch
Bagel v Miller
 Re Doetsch
‘A creditor may proceed with the estate of the
dead p’ner without showing that the surviving
p’ner is insolvent and p/ship prop. was
insufficient to pay p/ship debt.’
 Bagel v Miller
‘Action succeeded in respect of the goods
delivered before Miller’s death…’
Liability For other wrongs – Sec 12

 Any wrongful act/omission which is within

ACTUAL /USUAL authority- Firm would be
liable.

Cases:
Lyold v Grace Smith
Hamlyn v Houston
Misapplication of money & property
Sec 13

 Sec 13(a) – Money or property received by a

partner within his apparent authority and he
misapplies it.

THE FIRM IS LIABLE FOR THE LOSSES

Cases

 Harman v Johnson
 British Home Assurance Corporation Ltd v
Patterson
 Sec 13 (b) – Money or property received by
the firm in the ordinary course of business and
the partners misapply it while it is in the
custody .

THE FIRM IS LIABLE FOR THE LOSSES

CASES

Rhodes v Moules
Tendering Hundred Waterworks Co
v Jones
Note: Sec 14
Sec 15 – Improper employment of trust
property for partnership purposes.

When a partner is also a trustee (in his personal

capacity) & had used the trust money for p/ship
purposes, Other partners will not be liable.

However, other partners will be liable :

- When they have notice of the breach of trust
- The trust money is still in the firm’s possession
or traceable.
Case: Ex parte Heaton
Criminal Liability

 Personal liability
 Firm not liable, unless all partners had been a
party to the crime
 “…a principal will not be liable for offences
requiring mens rea merely by the fact that his
agent had the necessary mens rea”

Case: Chung Shin Kian v PP

Section 16- Holding out

 A person who is not a partner but has been

represented as a partner, he will become a
partner. (partnership by estoppel)

Waugh v Carver

“If he lent his name as a partner, he becomes

against the rest of the world a partner…upon
the principle of general policy”
Elements of Holding Out

1) Representation
2) Knowingly suffers
3) Third party has given credit based on such
representation.
Representation

 Words spoken, Written or Conduct

 Made by – that person himself or

by a partner
Knowingly suffers

 Means knows about the representation.

Bunny Pty Ltd v Atkins

Sochall J: …he was apparently named as one of

the member of the firm, he did nothing to ensure
the communication to the plaintiff of any denial
by him of his ostensible, such conduct amounted
either to knowingly held himself out and to
knowingly allowing himself to be held out as a
partner.
 Wong Peng Yuen v Senanayake

The def was a partner in a firm of stock and

share broker. The plf some money to def in
consideration that he is to be made as one of
the partners. The plf then acted and though
himself as a partner. However, he did not take
part in the management of the firm and only
attended two meetings before the firm was
dissolved.
 Held: There was representation by the plf
that he is partner although he did not take
part in the management of the firm.
Tower Cabinet Co.Ltd v Ingram
Mr.Christmas and Mr.Ingram set up a partnership of
selling household furniture under the name of Merry’s.
The partnership was dissolved by mutual agreement in
1947. Later,Mr.Christmas carried on the business on his
own under the same business name (Merry’s). He
ordered some furniture from the plf and by mistake the
order was confirmed on an old note paper (belong to the
firm) which has Mr.Ingram name on it.

When Mr.Christmas failed to make the payment, the plf

sought to claim from Mr.Ingram on the ground that he is
a partner to Mr.Christmas.
Held:
Mr.Ingram was not liable because he had not ‘knowingly
suffered’ himself to be represented as a partner. The fact
that he might be careless or negligent for not destroying
all the old note paper, was not sufficient to hold him to
be ‘knowingly suffered’.
The third party has given credit
based on such representation
Lynch v Stiff

Mr.L (the app) was employed as a solicitor in solicitor

firm. Although, his name appeared as a partner in the
firm’s note paper, he had never received the firm’s
profit or took part in the management of the firm. The
resp was a client of the firm. He gave some money for
investment to the firm on the basis that he believed
that Mr.L is a partner as he had known Mr.L for a long
time and trusted him as his solicitor.One of the
partners misapplied the resp’s money. The aop seek to
be exempted from liability on the ground that he was
not a “partner”
 Held: Mr.L is a partner because he allow the
representation to be made. L had held and
suffered himself to be represented as a partner.
The heading of the note paper is conclusive upon
this point. Secondly, the client gave credit in that
he entrusted the firm and thirdly, there is
evidence that the client gave the credit because
he believe that Mr.L whom he entrusted is a
partner.
 It is sufficient if the representation is
communicated to the creditor by a third party. –
Martyn v Gray(1863)
 Not necessary for the third party to make an
inquiry to ascertain whether a person is a partner
or not, unless in suspicious situation
- Bunny Pty Ltd v Atkins
Proviso:
When there is holding out by the continued use
of a partner’s name (who had died), his
executors will not be liable for any contract after
his death.

Note: Under Sec 16 a person will be liable as a

partner in that particular transaction only.
Sec 19(1) – Incoming Partner

 Liable for transactions entered by the firm

AFTER becomes a partner
 Not liable for those transactions before he
becomes a partner

Case: Court v Berlin

Sec 19(2) – Outgoing partner

 A retired partner will still be liable for debts

incurred before his retirement,
 But not liable for those incurred after his
retirement.
Sec 19(3) - Novation

 An agreement between a retired partner,

other partners and creditors to discharge the
liability of the retired partner.

 Such agreement can be express or inferred by

conduct.
Notice –Sec 38(1)

 Actual notice of retirement should be given to all

customer – Sec 38(1)
 Non customer, notice in the gazette would be
sufficient – Sec 38(2)
Cases: Tan Sin Moh v Lebel Ltd
Tan Boon Cheo v Ho Hong Bank Ltd
Philip Singapore Pty Ltd
Jemco Sdn Bhd v Andrew
Tan Boon Cheo v Ho Hong Bank
Ltd
Prichard J:
 Dormant partners who retire, no need notice
 Previous customer- entitle for a more specific
notice.
 When a known partner retires or a partnership
dissolve – notice to the world by advertisement
and to old customers by special communication