PARTNERSHIP

Section 3: Definition of partnership

 Section 3 (1): To establish partnership in Malaysia: (i) persons carrying out business in
common/same type of business (ii) profit is crucial/must have a view of profit. Can be
done/formed formally/informally, but must register.
 Aw Yong Wai Choo v Arief Trading Sdn Bhd: To ascertain partnership, court must look
at the definition of Section 3 and 4 of PA, the existence of a partnership agreement, the
intention of parties, and the surrounding circumstances. Just because parties profess to
be partners, the court may decide otherwise.
 Chooi Siew Cheong v Lucky Heights Development: Land owners entered a JVA,
contributed land and developers then built shops and houses on the said land. The shops
and houses were sold and distributed as per agreement. Are they partners? It was held
that they are not partners as they was no partnership agreement and no business in
common as stated under Section 3 of PA.
 Ratna Amal v Tan Chow Soo: Partners syndicated an agreement to sell condensed milk.
However there was no partnership agreement. It was held that there’s partnership as the
requirements under Section 3 are satisfied, need not expressly use the word
‘partnership’ in the agreement.
 Ghulazam v Noorazman & Sobath: Policemen made agreement to buy, rear and sell
cattle whereby he would provide the capital. The court held that the business had the
characteristics of a partnership (depends on the subjective intention of court).
 Wong Peng Yuen v Senanyake: Capital of a firm (shares) were transferred by a partner
under a partnership deed. Capital transferred to his children. Children were not partners.
Names of the children were not incorporated in the partnership agreement, thus they
are not partners. Transfer amounted to assignment, does not give the children status as
partners. They are still outsiders.
 Sinnatamby v Brijkishore: Parties entered into a JVA to buy land for the purpose of
constructing a building. Even if they entered into a JVA, does not mean it is a
partnership. Depends if they fulfil requirements in Section 3.
 Fletcher: In the absence of a partnership agreement, the joint (not individual) intention
of the parties must be ascertained.
Section 4: Certain circumstances not prima facie partnership

 Section 4 (a):
o Common property: bridges, roads (can be used by anyone)
o Joint property: a house under two names
o Joint tenancy/tenancy in common: the boundaries have not been divided. If a
person of a joint tenancy dies, his part of property will go to his next of kin.
o Part ownership: extension of joint property.
 Section 4 (b): sharing of gross returns does not in itself create a partnership
 Section 4 (c): receipt of a share of the profits is prima facie evidence, there is a good
chance that they are partners. But not necessarily.
o Chooi Siew Cheong v Lucky Height Development: Prima facie evidence means
evidence which will establish partnership if the contending evidence is on par
or does not outweigh it. If profit sharing is stronger than the contending
evidence, it becomes prima facie evidence.
 Section 4 (c) (i): debtor-creditor scenario
o Creditor receives money from the debtor’s business (profit). Are they partners?
Not necessarily. Depends on the definition in Section 3.
 Section 4 (c) (ii): a contract for remuneration of agent in a business, an agent is not
necessarily a partner. An employee is not necessarily a partner if section 3 is not
satisfied.
o Walker v Hirch: Clerk receives monthly pay + 1/8 of the profit and losses. It
was held that she was not a partner, even if they share profit. She was merely
an employee.
o Cox v Hickman: A trader agreed with creditors to manage his business and
assign them land, however it was held that there was no partnership.
 Section 4 (c) (iii): if a partner is dead, his next-of-kin receives profit (widow/child).
They are not partners. In order to be partners, must fulfil requirements Section 3 + get
consent of all existing partners.
o IRC v Lebu’s Trustee: Share of profits was transferred to the wife. Wife was not
a partner. In order to be a partner, Section 3 must be fulfilled and consent of all
other partners.
o Chua Ka Seng v Boonchai: If there’s profit sharing, it is most probably a
partnership. It depends on the circumstances of the case. A ‘salary partner’ –
 not trusted by other partners yet. He has liabilities, thus he is a full-pledge
partner. But within the firm, he is merely an employee. To outsiders, a salary
partner is a partner.
 Section 4 (c) (iv): the advancement of money by way of loan. Lender shall receive share
of the profit – does not in itself make the lender a partner.
 Section 4 (c) (v): A person who receives a portion of profits of a business in
consideration of the sale by him of the goodwill of the business is not, by reason only
of such receipt, a partner. Old owner of business, sells to another person but can’t afford
to pay lump sum. Paid in instalment + paid in goodwill (recommend clients).

Relations of Partners to Persons Dealing with Them

 Section 7: every partner is an agent of the firm. Whatever he does, other partners are
liable. (applies to partners, not employees). The acts of every partner carrying out usual
way of business, binds the firm and its partners. Only if it is a usual way of business,
otherwise the firm is not liable.
o Mercantile Credit v Garrod: Partnership (garage business). The partnership
agreement excluded buying/selling of cars. The culture in England includes
buying, selling and fixing. One of the partners sold a car. It is in a usual way of
business (garage business). The whole firm was liable even though the
partnership agreement excludes buying and selling cars. Section 7 cannot be
contracted out via the partnership agreement. Proviso: the partner has no
authority to act for the firm in that particular business. And if the third party
knows that the partner has no authority to deal/act for the firm. It can be said
that the party wanted to sue the firm with bad intention.
o Chan King Yue v Lee & Wong: Plaintiff borrowed money to pay partnership
debt. Partners denied that the partner had the authority to borrow money – to
avoid liability. It’s an electrical engineering firm, thus borrowing money is not
a usual way of business. There was no express authority to borrow money. Court
held that Section 7 is applicable because borrowing money is crucial for the
survival of the firm. Depends if it’s necessary for the survival of the firm. Other
partners had to be held liable.
o Bank of Australiasia v Breillat: If partnership is of general commercial nature,
Section 7 is construed widely to cover everything – usual way of business.
 o Pulikinghorne v Holland: Giving financial advice – investment is not in the
usual way of business of a legal firm. If financial advice is wrongly given, the
person giving the advice is personally liable. Not a usual way of business.
o Union Bank of Australia v Fisher: The act must be necessary, not merely
convenient to carry out the business.
o Goldberg v Jenkins: For a trading firm, lending/borrowing money is a usual way
of business. But the lending rate is too high, not usual way of business.
 Section 8: applies to any person authorized, not necessarily a partner. Must be the usual
way of business. “Bind the firm” every partner is liable. Lawyer (not a partner)
authorized to sign, the firm is liable.
o Re Briggs: son signed a deed by the firm. Son forged father’s signature. The son
was a partner. The firm was held liable, even though the signature was forged.
o Asamaju Enterprise v MBB: The cheque not endorsed by all the partners. No
requirement that all partners must endorse the cheque. Presence of two partners
is sufficient for Section 8 to apply. Depends on the number of partners stated in
the partnership agreement.
 Section 9: partner uses credit (not a usual way of business). Take a loan under the firm’s
name. Deals with partnership business. If not a usual way of business, firm is not bound.
Only individual partner is liable (the person taking the loan). Proviso: if authorized by
the other partners, the other partners will be liable – given authority by other partners.
o Higgins v Beauchamp: One partner borrowed money but used it for his own
needs. The firm was a cinema firm and not a trading firm. It was stated in the
partnership agreement that partners were not allowed to borrow money without
consent from all other partners. Section 9 does not apply. Cinema firm:
borrowing money is not an ordinary course of business.
o Wheatley v Smithers: Auctioneer is not a trading firm.
o London Chartered Bank of Australia v Kerr: In order for Section 9 to apply, it
must be shown that other partners have consented. In this case, partners failed
to object within the period of 6 months. Failure to object tantamount to
authority, the other partners are liable under Section 9. For private purposes,
only the borrower is liable. If borrow money for the benefit of the partnership,
the firm and partners are liable.
 Section 10: Agreed between parties. Applies when there is a partnership agreement.
Deals with restriction of power. Partner not authorized to do something, but he did it
anyway, the firm is not bound by Section 10. The firm is only bound if the third party
has good faith. Without authority and bad faith by third party, the firm is not bound by
Section 10.
 Section 11: Every partner in a firm is jointly liable. Other partners incurred liabilities
while he was a partner (alive). When he’s dead, his estate is severally liable. Joint liable
= sue once with the same cause of action. Severe liability = can sue many times with
the same cause of action.
o Guiness Anchor Marketing Sdn Bhd v Chellam Joe Vetha Singh
o Krishnan v Abdul Razak
 Section 12: Any wrongful act done by a partner, in ordinary course of
business/authority, causes hurt/injury to any person, the firm is liable.
o Cricklewood Holdings Ltd v CV Quigley: Partners (legal firm) acted dishonestly
and stole a client’s mortgage money. The fraud meant that the other partners
were liable for plaintiff’s loss since the dishonest act was committed in the
ordinary course of firm’s business. Other partners are liable.
o Estate Realties Ltd v Wignall: A partner breached his fiduciary duties (trust and
confidence) regarding the company’s shares. Other partners were away and
innocent. Section 12 does not apply, they did not knowingly assist in the breach.
o National Commercial case: One partner committed fraudulent conversion of
cheques for his own use. The act of depositing the cheques into the company’s
bank account – the partner has no authority and not in the ordinary course of
business.
o Korz v St Pierre: Partner did not make full disclosure and used the client’s
special knowledge for his own purpose. Other partners had no knowledge – it
doesn’t matter, as long as other partners had taken profit, they are all liable.
 Section 13 (a): A partner takes a client’s money and misappropriated the money. The
other partners are liable. Taken by his ‘apparent authority’ and ‘within the scope of his
apparent authority’. The partners/entire firm must make good the loss.
 Section 13 (b): in ordinary course of business from 3rd party, money/property received
is misapplied by one/more of the partners while it is in the custody of the firm – includes
the clerk and the agent. The partners/entire firm must make good the loss.
 o Rhodes case: A partner of a firm of solicitors informed client (to make loan)
that the security was not enough. The client handed over share warrants. The
solicitor misappropriated and sued by the client. It was held that the warrants
received within the scope of the partner’s apparent authority. The firm liable to
make good the loss suffered by the client.
o Tendering Hundred Waterworks v Jones: Company employed firm G and J to
buy a piece of land. G used the title to raise a mortgage and the company wants
to sue J for G’s misappropriation. The deeds were not given to G in his capacity
as a company secretary/partner but as a private individual. The deeds were not
in firm’s custody, but in G’s private custody. The company must convey the
purpose of giving the deeds. Section 13(a) and (b) do not apply.
o British Homes case: Plaintiff engaged Atkinson as his lawyer for his mortgage.
Atkinson has taken a new partner (Paterson). The client sent a cheque to the old
partnership and the cheque were misappropriated by Atkinson. The new partner
(Paterson) is not liable as the client dealt with Atkinson as an individual. Section
13(a): client dealt with him individually, used Atkinson’s apparent authority.
 Section 14: To share liabilities, every partner is liable jointly and severally for
everything under Section 12 and 13.
 Section 21: Section 26 can be contracted out from the partnership agreement (with
consent of all parties). If the agreement is silent on the matter, Section 26 applies.
 Section 26 (a): All partners share equally in capital, profits and losses.
o Kilpatrick v Mackay: Partners bought a hotel with K contributing a larger
proportion. The hotel was used as a joint business venture. When the hotel was
sold, the profit was shared equally and not according to contributions.
 Section 26 (b)(ii): acts necessary for the preservation of firm’s business.
o Prager v Blatspiel: agent acts in good faith for what was necessary to protect
the principal’s interest but acting without authority is covered only if he cannot
communicate to get instructions from the principal. There must be at least
attempts to get instructions.
 Section 26 (f): No partner is entitled to remuneration (salary) for acting in the business
– not under contract of service.
 o Re Noonam: Partner who does extra work is entitled to claim more remuneration
(in contrast with f) if the partnership agreement stated that they are allowed to
do so and all partners agreed that extra work = extra pay.
 Section 26 (g): no person shall be introduced as a partner without the consent of all
existing partners
o Byrne v Reid: Partnership agreement gave partners the right to nominate any
person to the partnership. P nominated his son, but other partners refused. Other
partners must follow the partnership agreement.
o Martin/Thompson v Thompson: Mere assignment of shares upon dissolution of
partnership. No intention to admit as partner, only profit sharing.
 Section 26 (h): any difference arising as to ordinary matters connected with the
partnership business may be decided by a majority of the partners, but no change may
be made in the nature of the partnership business without the consent of all existing
partners.
o Highley v Walker: Admission of partner’s son as a worker was an ordinary
matter that can be voted for. No need to get consent of all partners.
o Const v Harris: When there’s bad faith in voting, the decision is not binding on
the minority who lost the vote. Partnership agreement in writing can be changed
by conduct. Voting must be done in good faith, full and frank disclosure.
 Section 30: Full-frank disclosure of everything related to the partnership.
o Hogar Estate v Sheborn Holding: Partner went behind other partners’ back to
get approval. It is against the spirit of partnership – fiduciary duty. Court set
aside the transaction.
o Law v Law: Partner sought to sell his problematic partnership share without full
disclosure. Court set aside the transaction.
 Section 31: If a person wants to utilise property of partnership, inform the other
partners. If failed to inform, must pay back to the partnership. Cannot use partnership
money for his own use. To account to the firm – basis of partnership is profit sharing.
o Russel v Austwick: One partner obtained a new contract for an old contract and
used part of his firm’s services to carry out the contract.
 Section 32: Business of the same nature competing with the partnership firm must
account for the profits made to the partnership, unless with the consent of other partners.
o Aas v Benham: Business of ship broking is not similar to ship building. Partner
used info from partnership for personal use. Court held that he did not have to
account for the profits made.
o Gibson v Tyree: The business of wholesale leather merchants were not of the
same class as boot leather business.
o Bentley v Craven: A partner sold sugar on his own accounts without knowledge
of other partners to gain personal benefits. Partners can set aside the agreement
or account for the profits. Bought sugar 20% below market price. Competition
with the partnership.
o Glassington v Thwaites: Evening newspapers and morning newspapers are of
the same nature.