Partnership Act 1890

1. Introduction

Partnership Act 1890 governs individuals and entities involved in a partnership form of business. Partnership Act 1890 S1, defines partnership as the relationship which subsists between persons in common with a view of profit. Ben and Ann are partners engaged in a printing business. The partnership has conflicts with Shady Deals, Printing Press vendor and XYZ Ltd, regarding their legal liability towards each of them. These issues deal with aspects such as authority, legal liability and fiduciary duty.

1. Shady Deals v Partnership 

S5 of Partnership Act states, ‘Every partner is an agent of the……… or does not know or believe him to be a partner.’

 If Ann is unauthorized to take the loan; then the loan being binding on the partnership primarily depends on Shady Deals being aware of the apparent authority Ann holds when obtaining the loan. Moreover, taking a loan with a high rate of interest is not in usual scope of a printing business. Hence, Shady Deals may be held negligent as it takes no steps to look into Ann’s authority, nor does it try to find out the true nature of the transaction.

If Shady Deals was aware of Ann’s authority then S8 applies, stating,” If it has been agreed between partners that any restriction ………..to persons having notice of the agreement.” This section reinforces that the firm will not be bound by the actions of an unauthorized partner.

JJ Coughlan Ltd v Ruparelia [2003] EWCA 1057 (Court of Appeal (Civil Division).

R, a partner of a solicitor firm T, approached C stating that he would create good investment opportunities for C without incurring any risk. As a result of which C was required to deposit monies into T’s account held in escrow against bank verification advice. An escrow agreement was signed between T and C. Subsequently the money disappeared after the transfer. The judge found that C did not honestly believe that R had the authority to act as he did. Thus under S5 PA 1890 the escrow agreement was not binding on T.

S6 of PA 1890 is applicable here, it states, “An act or instrument relating …….. Binding on the firm and all partners.

However, if Ben has approved of Ann taking such a loan from Shady Deals, then she has express actual authority. A partnership will be bound by the actions of a partner acting in the scope of their authority. The outsider, i.e., Shady Deals would have to prove that Ann was acting with actual authority. In this case the partnership would be bound by Shady Deals for repayment of the loan. (Slorach and Ellis, 2016).

1. Shady Deals v Ben

S6 of Partnership Act states,’ An act or instrument relating to the business of the ………..is binding on the firm and all the partners.

As the partnership itself is not held liable to repay Shady Deals when Ann holds apparent authority, Ben being a partner cannot be held liable for the same.

In the case that Ann does hold actual authority, then the firm is bound and in turn Ben is bound by the loan too.

S9, “Every partner in a firm is liable jointly …….. prior payment of his separate debts “

Ben will be liable jointly with Ann for the repayment of loan from Shady Deals.

1. Shady Deals v Ann

S7 states, “Where one partner pledges the credit ………an individual partner.” As a result she may not be held liable for the repayment of the loan.

But, if she did hold actual authority then she will be jointly, by S9 as explained in Ben’s case.

1. Shady Deals v Mary

According to S17 (1) A person who is admitted as a partner into an existing firm ……….anything done before he became as a partner

Mary was admitted into the partnership upon agreement by existing partners on 1 March 2016, whereas the agreement with Shady Deals had been entered into on 1 February 2016. Mary was not a partner then and hence holds no liability to repay Shady Deals

1. Printing Press vendor v Partnership

As per mentioned in S5 of PA 1890 (stated in Partnership v Shady Deals) every partner has the ability to bind his copartners and the firm, in his capacity as an agent of the firm. Actions of a partner done in the ordinary course of business are binding on the firm, unless the third party is aware of the partner’s lack of authority or doubts his position as a partner. If the third part sincerely believes the partner has authority to act, it will most probably be bound unless the transaction is outside the ordinary course of business (Jones, 2011).

Clearly Ann is acting in usual course of business when buying a printing press on credit, presumably for the printing business. The liability falling on the partnership depends on the vendor’s awareness, of the authority of the partner.

Case law: Mercantile Credit Co v Garrod

Mercantile Credit Co sued a partner for fraudulent sale of a car to which he had no title. The car had been sold by a copartner who had no authority to carry out the sale. It is to be noted, that the sale constituted of an act in the usual way of business. Moreover Mercantile Credit Co Ltd. genuinely believed that the copartner had authority to sell the car. The partner was held liable to pay due to the binding actions of his copartner.

1. Printing Press vendor v Ben

As stated in Printing Press vendor v Partnership, Ben will be jointly liable to pay for the printing press, by S9, a result of being bound by the partnership and the actions of Ann, in accordance with S5.

As stated in 17 (2) PA 1890, “A partner who retires from a firm ……… obligations incurred before his retirement “

Ben was still a partner on 1 February 2016, i.e., the date when the printing press was bought on credit and thus remains liable.

1. Printing Press vendor v Ann

As explained in Ben v Printing Press vendor, Ann will be bound by the printing press due to application of S5. She will be jointly liable along with Ben as per S9.

Ann has breached fiduciary duty as stated in S28,” Partners are bound to render true accounts ………….partner or his legal representatives”; she did not inform Ben of her decision to buy the new printing press on credit which reasonably impact the firm.

Law v Law [1904]CH 1 (Court of Appeal), p.140.

A partner agreed to the offer for purchase of his share in the partnership. He later discovered the share was worth more as the partnership assets had to been disclosed to him. The court stated that the copartner had breached fiduciary duty and the agreement could be set aside.