Essay: Law problem question – partnership

Firstly, is the partnership liable for the £100,000 loan from Shady Deals? Section 5, Partnership Act (PA) 1890 stated that partners are agents for one another making them fiduciary and liable to one another. The acts of a partner carrying the business in its usual way bind the firm and his partners. In this case, Ann negotiated a loan at the interest rate of 50% which is unusual. This shows a contradiction towards the act, hence the firm is not bound to the partners.

Secondly, is Ann the only person liable for the £100,000 loan from Shady Deals?  As provided in section 9, all partners are liable jointly and severally with one another for the debts and obligations incurred while they are partners. In this case, Ann has made a loan with Shady Deals without Ben’s approval. Therefore, the loan agreement only occurred between Ann and Shady Deals and not Ben. Shady Deals can call Ann to account for the debt owed. Hence, Ann is the only person liable.

Thirdly, is Ben liable for the loan that was taken without his agreement as a partner? Referring to section 5, Ann did not carry the business in its usual way because of the high interest put on the loan. Therefore, Ben is not bound to the firm. Ann, on the other hand, has damaged her fiduciary duty towards Ben, making him not tied to her. In a case of Paterson Brothers v Gladstone (1881), it was held that Paterson Brothers was not liable to pay the promissory notes – not because of an agreement, but since Gladstone had known that a partner in such a firm would has no authority to take the cash. The partnership agreement provided one of the partners ought to be completely responsible for the money related issues to be the only one to sign budgetary archives. One of the partners marked the firm name on some promissory notes for a moneylender (Gladstone), reduced them, and took the cash for his own utilization. The act is unusual for the business. The partner who marked the firm name was liable. In contrast, the case of Mercantile Credit Co Ltd v Garrod (1962) held that Garrod was liable to the act of Parkin, his partner. The partnership was formed with the purpose of letting lock-up carports and repairing cars only. Parkin, without Garrod’s knowledge has sold a car to Mercantile Credit and because this act is considered as a usual way of business in the partnership, Garrod became liable too.  As stated in Section 6, an act carried out by partners for the business of the firm or under the firm’s name is bound to the firm and all partners. However, due to the agreement violation by Ann, Ben is not responsible for the loan procured by Ann from Shady Deals. Section 6 applies to partners who do not breach any obligations in the partnership. Thus, Ben is not liable for the loan.

Lastly, is Mary liable for the loan since she was not yet a partner when the loan was obtained? The provision in section 17 (1) stated that a person who just entered the partnership does not have any liabilities to the creditors of the firm for anything done before he becomes a partner. This can be clearly seen in the case that the loan negotiated from Shady Deals was done before Mary becomes a partner which was on the 1st February 2016. Mary became a partner on the 1st March 2016. Hence, Mary is not liable for the loan from Shady Deals.

The next issue to address is whether the partnership – Ann, Ben and Mary are liable to the new printing press bought by Ann without Ben’s knowledge.

Firstly, is the partnership liable for the printing press? Ann bought a printing press for the partnership in its usual business. According to section 5, this causes the firm to be bounded to the act of buying the printing press. Furthermore, according to section 6, Ann, Ben, and the firm is bound to the act of Ann buying the printing press for the purpose of the business. So, the partnership is liable for the printer.

Next, is Ann liable for the printing press? By referring to section 4(2), the firm is a legal person distinct from the partner. However, an individual partner might be charged on a pronouncement or diligence against the firm, likewise for all obligations and commitments of the firm. Also, on payment of the debts, other partner must be prorated on it. Since Ann bought the printing press for the firm, she is indeed liable to the debts owed. In relation to section 9, Ann is liable for the debts related to the printing press because she has only paid for its deposit.

Then, is Ben liable to the printing press? In relation to section 4(2), stated that other partners must also prorate on the payments of debt. Other than that, section 9, provides that all partners are liable to one another for the debts incurred while they are partners. This section could be applied because there was no agreement made that needed both partners to approve purchases. Therefore, it is clearly shown in these sections that Ben is liable for the printing press.

Lastly, is Mary liable for the printing press? According to section 17(1), new partners are not liable to the debts incurred before he became a partner. Since the purchasing of the printing press was done before Mary became a partner, Mary is not liable for the printing press.

The last issue will be whether the partnership – Ann, Ben, and Mary are liable to the contract made with XYZ Ltd. The contract was made on 1st February 2016 for the deliveries of goods to the firm until 1st January 2020.

Is the partnership liable for the contract? According to section 5, the act carried out by a partner in its usual way of business will bind the firm and his partners. Furthermore, in section 6, provides that an act carried out under the firm’s name is binding to the firm and the partners. So, since the partnership has contracted with XYZ Ltd with respect to the deliveries, the partnership is indeed liable to the contract.

Next, is Ann liable for the contract? As provided in section 6 stated above, Ann, Ben, and the firm are bounded to the firm, and therefore, to the contract. So, Ann is indeed, liable for the contract.

Thirdly, is Ben liable for the contract? According to section 9, a partner is liable to all the debts incurred while he is a partner, making Ben liable to the contract with respect to deliveries until the day he retired. Upon retiring, according to section 36(2), provides that a partner who has retired has to advertise his retirement in Edinburgh Gazette. Ben has given notice to Ann and Mary about his retirement on 1st May 2016. However, XYZ Ltd was not given any notice about it. Hence, the deliveries of goods that were made after he retired until 1st January 2020 is liable on him as referred to the section mentioned. In the preceding case of Tower Cabinet Co Ltd v Ingram (1949) where Ingram and Christmas were partners in a firm called ‘Merry’s’. When Ingram retired, his retirement was not advertised in London Gazette. When Merry ordered goods from Tower Cabinet after his retirement, Ingram name was included on the notepaper which was signed by Christmas. However, Ingram was held to be not liable to Tower Cabinet Co because he was an apparent member according to section 36(1).

Lastly, is Mary liable for the contract? With reference to section 17(1), Mary is not liable to the contract made until she became a partner on the 1st March 2016. However, Mary is liable to the rest of the contract with respect to deliveries until 1st January 2020. This is because, according to section 24(1), all partners are entitled to contribute equally to the losses sustained by the firm. Since Mary has already become a partner, she is liable to the contract at this point. In the preceding case of Bagel v Miller (1903), Bagel provided merchandise to a partnership in which Miller was a partner. Later, Miller died. After Miller died, the deliveries were still on going. It was held that Miller’s estate is liable to the deliveries before he died, but not liable for the deliveries after he died.

Reference

• Partnership Act 1890 (1889). Retrieved February 27, 2017 from http://www.legislation.gov.uk/
• Black, G. (2015).Business Law in Scotland. (3rd ed.)Thomson Reuters.