LAW 346 WRITTEN ASSIGNMENT - PARTNERSHIP PDF

Preview

Summary

Download LAW 346 WRITTEN ASSIGNMENT - PARTNERSHIP PDF

Description

LAW 346 - INTRODUCTION TO PARTNERSHIP AND COMPANY LAW -

WRITTEN ASSIGNMENT 1 - PARTNERSHIP

LECTURER:

SUBMISSION DATE: 25 MAY 2020

QUESTION Sherry, Berry and Kerry are partners of a cafe called The Cherry’s focusing on hipsters menu and very much well known around Kota Kinabalu. A clause in the partnership agreement clearly stated that ‘No partner shall enter into contracts worth more than RM500, 000 without the consent of all other partner’. On 12 May 2020, Berry enter into contract with Deco Sdn Bhd to renovate the café into gothic themed cafe which worth RM800, 000. He did not inform the other partner of this contract. On 25 January 2020, Kerry purchased a car in the firm’s name. He gave the car to his son as a birthday gift. Deco Sdn Bhd and the car seller are now demanding payment from The Cherry’s. Sherry wants to know if The Cherry’s is liable to the contracts made by the partners. Advise Sherry. (25 marks)

ISSUE The issue of this situation is under xx, whether the contracts made by Berry and Kerry will be liable to The Cherry’s.

LAW As stipulated in Section 3(1) of the Partnership Act 1961, the definition of partnership is the relation subsists between the people carrying on a business in common with a view of profit. Section 7 of the Partnership Act 1961 states that every partner is an agent to the firm and his other partners for the purpose of the business of the partnership; 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. Section 9 of the Partnership Act 1961 provides that 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 authorised by the other partners; but this section does not affect any personal liability incurred by an individual partner. As set forth in Section 10 of the Partnership Act 1961, if it has been agreed between the partners that any restriction shall be placed on the power of any 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. The case of Chan King Yue v Lee & Wong demonstrates a partnership firm that ran the business of electrical engineers. Two issues were brought up; whether a partner has the authority to borrow money and whether a borrowing done by a partner, L, was an act usually done in carrying on the business of the firm. It was held that the partners

had no implied authority to borrow for the firm because it was not a trading partnership. It had not been established that L had express authority to raise the loan. Mercantile Credit Co. Ltd v Garrod. In this case, an innocent partner was found liable for a deal involving a motor vehicle, effected by his partner in contravention of the partnership agreement. Parkin was the active partner and Garrod the dormant partner in a firm. The business was mainly concerned with the letting of lock-up garages and the repairing of cars. The partnership agreement prohibited the buying and selling of cars. Parkin, without any express authority, sold a car to a credit company so that it could be let on a hire purchase contract to a customer. It then appeared that Parkin did not own the car and the company claimed the 700 pounds paid from Garrod. The court held that Parkin did have implied authority to sell the car and that dealing in motor vehicles was usual for motor garage companies. Illustrated in the case of Union Bank of Australia v Fisher, a member of a solicitor’s firm handed over original documents of title of land to another solicitor in order to enable the preparation of an abstract of a title. It was contended that it was in the usual course of a solicitor’s business. The court rejected this contention on the ground that although solicitors might find that practice convenient, the usual method was for the solicitor to provide copies or to supply an abstract of the documents on payment of the proper fee. It was held that for an act to be usual in a particular kind of business, it must be reasonably necessary and not merely convenient for the carrying on of that type of business. In this case In the case of London Chartered Bank of Australia v Kerr, the court held that a third party could not rely on the prima facie authority of a partner to draw bills for partnership purposes, when possessed of knowledge that the bill was for private purpose, unless the other partners by words or conduct represented that the partner was entitled to draw partnership bills for those purposes. Section 30 of the Partnership Act 1961 states that partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representatives.

APPLICATION In this situation, Berry had made a contract with Deco Sdn Bhd to renovate The Cherry’s cafe into a gothic themed cafe amounting to RM800,000 to which he did not inform the other partners regarding this. With reference of Section 31 of the Partnership Act 1961, Berry did not tell his other partners regarding the contract and has breached his contract. The partnership contract between Sherry, Berry and Kerry clearly states that no partner shall enter into contracts worth more than RM500,000 without the consent of all the other partners, so it is apparent that Berry does not have the actual or express authority to make the contract with Deco Sdn Bhd with the proof of the express agreement. This is supported with Section 7 of the Partnership Act 1961. But even if a partner does not have the actual authority, the fact that he is a partner confers a prima facie authority on him to bind the firm given that three conditions are fulfilled; the transaction must be within the scope of the kind of business carried on by the firm, the transaction must be carried on in the usual way and the third party must know or believe that he is acting as a partner and must not know that he does not have the authority. So, even if Berry does not have the actual authority, he can make the firm to be liable of the contract made with Deco Sdn Bhd if he fulfils the three conditions. First off, Deco Sdn Bhd seems to have the belief that Berry has the authority to make such contract with them. Next, The Cherry’s is a café, so the contract made by Berry is within the scope of the kind of business carried on by the firm because the contract is to renovate the café. In the case of Mercantile Credit Co. Ltd v Garrod, the firm is liable for the transaction made by the partner who did not have the express authority because he did have implied authority as the transaction that he made, selling a car, was within the scope of business of the firm, letting of lock-up garages and repairing cars. Thirdly, the contract made must be carried on in the usual way. In reference of the case Union Bank of Australia v Fisher and case Chan King Yue v Lee & Wong, for an act to be usual in a particular kind of business, it must be reasonably necessary and not merely convenient for the carrying on of that type of business. The Cherry’s is a café that focuses on hipsters menu and is well known around Kota Kinabalu, for Berry

to make a contract to renovate the café to a gothic themed café seems to be unusual and unnecessary for the business because it might not be suitable with the hipsters menu theme. An act usual for a café business would be such as purchasing materials for selling food and beverages but renovating a café seems to not fit into the usual act category in my opinion, so this condition is not fulfilled. With reference of Section 10 of the Partnership Act 1961, a situation where the partner has in fact no authority to act on behalf of the firm and the person with whom he deals knows of his lack of authority, the firm is not bound. While in this situation, Deco Sdn Bhd seems to have no knowledge of Berry’s lack of authority to which can make The Cherry’s bound to the contract made by him. In Kerry’s situation, he purchased a car in the firm’s name and gave the car to his son as a birthday gift. With respect of Section 9 of the Partnership Act 1961, Kerry purchased the car for his personal purpose in which it does not have any connection with the ordinary course of business of the partnership and hence does not bind the firm to the contract made by him. The case London Chartered Bank of Australia v Kerr can showcase that if the car seller knows of the purchase made for personal reason by Kerry, the firm will not be bound.

CONCLUSION To conclude, the contract made by Berry and Kerry will not be liable to The Cherry’s as justifications are provided in Section 7 and 9 of the Partnership Act 1961....