AS assessment Relation partner between outsiders and liability PDF

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RELATIONSHIP BETWEEN PARTNERS AND OUTSIDERS/LIABILITY OF PARTNERS Question 1 (June 2018) Briefly explain the circumstances in which a firm is made liable for the wrongful acts done by a partner based on section 12 of the Partnership Act 1961. Answer: Section 12 Partnership Act provides that the firms and the other partner is liable for any loss or injury caused to any 3rd party provided that: 1) if the partners done or committing the act in the ordinary cause of the partnership business OR 2) if it was not done in the ordinary course of the partnership business, the act must be done with the authority of their co-partners Question 2 (Dec 2018) State THREE elements that need to be fulfilled for an act committed by a partner to bind the rest of the partners under Section 7 of the Partnership Act 1961. Answer: 1) The act of a partner must be within his actual or apparent authority. 2) One must show that the partners enter into the transaction for the purpose of the business. 3) The act must be done in the usual way the business is carried on. 4) An act of the partner must also be committed as partner to the firm and not as an individual. Question 3 State 9 liabilities of partners. For every type of liability, please state whether the partner is liable or not. If the partner liable or not liable, please justify your answer (State why the partner liable or not liable). Answer: 1. LIABILITY OF PARTNERS IN CONTRACTS - By virtue of Section 11 of the Partnership Act 1961 provides that the liability of partners in contract is divided into 2. a) Every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner. b) Upon death of the partner, his estate is severally liable for the debt incurred during his lifetime as a partner but subject to the prior payment of his separate debts. 2). LIABILITY OF PARTNERS IN TORTS - Section 12 Partnership Act provides that the firms and the other partner is liable for any loss or injury caused to any 3rd party provided that:

a) if the partners done or committing the act in the ordinary cause of the partnership business OR b) if it was not done in the ordinary course of the partnership business, the act must be done with the authority of their co-partners 3). LIABILITY OF PARTNERS IN CRIMES - It is an individual & personal liability of partners who committed it. The partners are not jointly liable. 4). LIABILITY OF PARTNERS FOR MISAPPLICATION OF MONEY OR PROPERTY RECEIVED FOR OR IN CUSTODY OF FIRM. - Section 14 of the Partnership Act 1961 provides that every partner is liable jointly with his co-partners and also severally for everything for which the firm while he is a partner therein becomes liable under Section 12 and 13. - Section 13 of the Partnership Act provides that every partner is liable jointly and severally for misapplication of money or property received for or in custody of the firm. 5). LIABILITY OF PARTNERS FOR IMPROPER EMPLOYMENT OF TRUST PROPERTY FOR PARTNERSHIP PURPOSES - If a partner, acting in his individual capacity, improperly makes use of trust property in the business of the firm, the other partners are not liable to the beneficiaries UNLESS they have knowledge of the breach of trust property. 6). LIABILITY OF INCOMING PARTNERS - Section 19(1) of the Partnership Act 1961– this section provides that a new partner is not liable for the debts incurred prior to his admission. - However, if they expressly or by conduct accept the obligation for the debts incurred before they were admitted as a partner, then they will be held responsible similar like the existing partner. 7). LIABILITY OF RETIRED PARTNERS - Section 19(2) of the partnership Act 1961 provides that – a partner who retires from a firm does not cease to be liable for partnership debts or obligations incurred before his retirement. - Section 19(3) of the same Act further provides that – A retiring partner may be discharged from any existing liabilities by an agreement to that effect between himself and the members of the firm and also to the creditors. This agreement may be either express or implied. - S. 38(1) PA - After retirement, a partner is still liable to persons who deal with the firm. Unless notice is given to all client of the business regarding the change in the firm. If the third party who had previously dealings with the firm, a special notice is required. 8). LIABILITY OF PERSON FOR HOLDING OUT - Section 16 of the Partnership Act 1961 provides that a person who by words spoken or written or by conduct represents himself to be a partner or knowingly suffers himself to be represented in a particular firm is liable as a partner. 9). LIABILITY OF A DECEASED PARTNER - Proviso of Section 16 of the Partnership Act 1961 provides that – where, after a

partner’s death, the partnership business is continued in the old firm-name, the continued use of that name or of the deceased partner’s name shall not of itself make his executor’s or administrator’s estate liable for any partnership debt contracted after his death. - The estate of the deceased partner is only liable for contracts under which liability has occurred and due before the date of his death. Question 4 (Dec 2018) What is the principle that makes the other partners of a firm liable for the acts of one partner? a) Agency b) Separate legal personality c) Holding out d) Fiduciary duty Answer: A Question 5 (June 2018) The principle of..... makes a person who by words or by conduct represents himself as a partner, liable as a partner when in fact he is not partner of the firm. a) agency b) holding out c) fiduciary duty d) separate legal personality. Answer: B Question 6 (Dec 2019) By virtue of section 13, where one partner within the scope of his..... receives the money or property of a third person and misapplies it, then the firm is liable to make good the loss. a) Actual authority b) express authority c) apparent authority d) direct authority Answer: C...