9/8/23, 7:38 AM Week 2 notes LPC Business law
Liability of partners to outsiders:
Nature of liability:
partners are liable for debts and obligations of the partnership without limit (s9
Partnership Act 1890)
Partners liability is joint in case of contractual obligations and joint and several in
the case of tortious obligations
Significance of this distinction reduced by Civil liability (contribution) Act 1978 –
allows proceedings to be brought successively against persons jointly liable
despite an earlier judgement against others
Where a partnership is unable to pay its debts out of partnership property, crediot
is entitled to obtain payment from the private estates of the partners.
Special rules apply in these cases to do justice to crediotrs of the firm and
creditors of the individual partners:
First instance – partnership property is used to pay partnership crediots in
priority to private creditors, and the private property of each partner is used to
pay his private creditors in priority to partnership creditors
If private creditors of a particular partner are paid in full from private property
then partnership creditors may resort to the balance of that partners privaete
property
If partnership creditors are paid in full from partnership property then the
private creditors of a partner may resort to the balance of his share of the
partnership assets
Partnership and agency:
Types of authority of a partner:
Partnership is bound by a partner acting within the scope of his authority
Authority may arise in 3 ways:
‘express actual authority’ – where authority of the partners/or of a particular
partner specifically agreed upon by the partners
‘Implied actual authority’ – implied either from a course of dealings between
the partners which amount to an actual agreement or is a natural
consequence of an authrotity actually given to the partner
‘Apparent’/’ostensible’ authority – arise from the fact that a person dealing with
a partner, is in certain circumstances entitled to assume that the partner has
authority to bind the firm
A partnership is bound by decisions/actions of its employees within the scope of
their authority.
An outsider seeking to rely on a decision/action of an employee would have to
show:
That the employee had actual authority
had been held out (by the partners) as having actual authority
had been held out (by the partners) to be a partner
An individual partner can’t delegate authority to the employees
about:blank 1/21
,9/8/23, 7:38 AM Week 2 notes LPC Business law
S6 PA 1890 – a firm is bound by the ‘acts or instruments’ entered into with the
authority of the firm.
Apparent authority:
Said to result from a type of estoppel whereby (in this case the partnership as a
whole) represents by words/conduct that the agent has authority to bind the firm.
Once this representation is acted upon by the outsider the partnership can’t deny
the authority of the individual partner to bind the firm
Alternatively may be said to arise from the fact the partner whos negottaing
appears to have authority to bind the firm, therefore reasonable for outsider to
assume such authority
S5 PA 1890:
Come back to this mariam
Examples of apparent authority:
What apparent authority a partner has in a particular case is determined by the
application of s5 to that particular case
But, courts have decided upon examples of powers which will be assumed to be
covered by apparent authority in the case of all partners in absence of special
circumstance:
Examples of powers assumed to be available to partners generally include:
Power to buy and sell goods (not just stock) used in the business;
Power to hire employees;
Power to receive payment of debts due to the partnership;
Power to pay debts owed by the partnership, including a power to draw
cheques for this purpose; and
Power to engage a solicitor to represent the firm.
A partner in a trading partnership will be assumed to have all the above
powers and also:
Power to grant security for borrowings (this does not, however, include a
power to create a legal mortgage); and
A wider power than is given to a non-trading partner to deal with cheques
and bills of exchange.
Persons held out as partners:
A person who holds himself out as a partner or who ‘suffers himself to be
represented as a partner’ is liable to anyone who ‘on the faith of such
representation’ gives credit to the firm as if he were a partner – s14 PA 1890
Commonest example – where a person allows his name to be used by the
partnership after he has ceased to be a partner
A person can’t be held liable under s14 unless he’s in some way contributed to
the mistake made by the person giving credit to the firm. But, necessary that he
himself should have done anything to inform the person giving credit
S14 only applies where credit is given to the firm. Construed widely so, the
apparent partner is liable where goods are delivered, as well as where cash is
lent to the firm
about:blank 2/21
, 9/8/23, 7:38 AM Week 2 notes LPC Business law
Liability of new partners:
S17 (1) PA 1890 – ‘a person who is admitted as a partner into a existing firm
doesn’t thereby become liable to the creditors of the firm for anything done before
he became a partner’
The incoming partner may agree between himself and existing partners to pay
share of debts owed to existing creditors, but this doesn’t make liable to the
existing creditors, as they aren’t privy to the contract
Remember- partners liabilities to the outside world are legally pre-determined.
But it’s possible for partners to agree between themselves how they may choose
to discharge those liabilities
Partners’ liability in tort:
A partner who commits a tort is liable according to general principles of the law of
tort
Liability of the firm as a whole governed by s10 PA 1890:
Where by any wrongful act/omission of any partner acting in the ordinary
course of the business of the firm, or with authority of his co-partners, loss orr
injury is caused to any person….the firm is liable….to the same extent as the
partner so acting or omitting to act
Note – the firm (as opposed to the actual totfeasor) is only liable if the
commission of the tort was either authrorised by the partners or committed ‘in the
ordinary course of business’.
A partnership is also liable to the same extent as other employees (under
common law principles of vicarious liability) for torts committed by its employees
Suing/being sued:
Partnership is not a separate legal entity, still partners should usually be sue/sued
In the firms name – para 5A.3 of Practice Direction 7A to the civil procedure rules
All partners at the date when the cause of action accrued are then parties to the
action
Where an actions brought against a partnership in the firm’s name, the write may
be served on any partner/on any person having control or management of the
business as the principal of business – (r.6.4(5) Civil Procedure Rules)
Charging order (s.23(2) PA 1890) - A person who has a judgment against a
partner for the partners’ personal liability may enforce that judgement against the
partners’ share of partnership property
S.23(1) – he may not enforce such a judgement against the partnership property
by means of an execution or garnishee proceedings
Where a charging order’s made, the other partners may discharge it by paying off
the judgement debt; if sale of the property is ordered they may purchase it
S.33(2) - Charging order gives the other partners a right to dissolved the
partnership if they wish
Retirement of a partner:
‘retirement’ in partnership context – leaving the partnership voluntarily
irrespective of the age of the partner in question
about:blank 3/21
Liability of partners to outsiders:
Nature of liability:
partners are liable for debts and obligations of the partnership without limit (s9
Partnership Act 1890)
Partners liability is joint in case of contractual obligations and joint and several in
the case of tortious obligations
Significance of this distinction reduced by Civil liability (contribution) Act 1978 –
allows proceedings to be brought successively against persons jointly liable
despite an earlier judgement against others
Where a partnership is unable to pay its debts out of partnership property, crediot
is entitled to obtain payment from the private estates of the partners.
Special rules apply in these cases to do justice to crediotrs of the firm and
creditors of the individual partners:
First instance – partnership property is used to pay partnership crediots in
priority to private creditors, and the private property of each partner is used to
pay his private creditors in priority to partnership creditors
If private creditors of a particular partner are paid in full from private property
then partnership creditors may resort to the balance of that partners privaete
property
If partnership creditors are paid in full from partnership property then the
private creditors of a partner may resort to the balance of his share of the
partnership assets
Partnership and agency:
Types of authority of a partner:
Partnership is bound by a partner acting within the scope of his authority
Authority may arise in 3 ways:
‘express actual authority’ – where authority of the partners/or of a particular
partner specifically agreed upon by the partners
‘Implied actual authority’ – implied either from a course of dealings between
the partners which amount to an actual agreement or is a natural
consequence of an authrotity actually given to the partner
‘Apparent’/’ostensible’ authority – arise from the fact that a person dealing with
a partner, is in certain circumstances entitled to assume that the partner has
authority to bind the firm
A partnership is bound by decisions/actions of its employees within the scope of
their authority.
An outsider seeking to rely on a decision/action of an employee would have to
show:
That the employee had actual authority
had been held out (by the partners) as having actual authority
had been held out (by the partners) to be a partner
An individual partner can’t delegate authority to the employees
about:blank 1/21
,9/8/23, 7:38 AM Week 2 notes LPC Business law
S6 PA 1890 – a firm is bound by the ‘acts or instruments’ entered into with the
authority of the firm.
Apparent authority:
Said to result from a type of estoppel whereby (in this case the partnership as a
whole) represents by words/conduct that the agent has authority to bind the firm.
Once this representation is acted upon by the outsider the partnership can’t deny
the authority of the individual partner to bind the firm
Alternatively may be said to arise from the fact the partner whos negottaing
appears to have authority to bind the firm, therefore reasonable for outsider to
assume such authority
S5 PA 1890:
Come back to this mariam
Examples of apparent authority:
What apparent authority a partner has in a particular case is determined by the
application of s5 to that particular case
But, courts have decided upon examples of powers which will be assumed to be
covered by apparent authority in the case of all partners in absence of special
circumstance:
Examples of powers assumed to be available to partners generally include:
Power to buy and sell goods (not just stock) used in the business;
Power to hire employees;
Power to receive payment of debts due to the partnership;
Power to pay debts owed by the partnership, including a power to draw
cheques for this purpose; and
Power to engage a solicitor to represent the firm.
A partner in a trading partnership will be assumed to have all the above
powers and also:
Power to grant security for borrowings (this does not, however, include a
power to create a legal mortgage); and
A wider power than is given to a non-trading partner to deal with cheques
and bills of exchange.
Persons held out as partners:
A person who holds himself out as a partner or who ‘suffers himself to be
represented as a partner’ is liable to anyone who ‘on the faith of such
representation’ gives credit to the firm as if he were a partner – s14 PA 1890
Commonest example – where a person allows his name to be used by the
partnership after he has ceased to be a partner
A person can’t be held liable under s14 unless he’s in some way contributed to
the mistake made by the person giving credit to the firm. But, necessary that he
himself should have done anything to inform the person giving credit
S14 only applies where credit is given to the firm. Construed widely so, the
apparent partner is liable where goods are delivered, as well as where cash is
lent to the firm
about:blank 2/21
, 9/8/23, 7:38 AM Week 2 notes LPC Business law
Liability of new partners:
S17 (1) PA 1890 – ‘a person who is admitted as a partner into a existing firm
doesn’t thereby become liable to the creditors of the firm for anything done before
he became a partner’
The incoming partner may agree between himself and existing partners to pay
share of debts owed to existing creditors, but this doesn’t make liable to the
existing creditors, as they aren’t privy to the contract
Remember- partners liabilities to the outside world are legally pre-determined.
But it’s possible for partners to agree between themselves how they may choose
to discharge those liabilities
Partners’ liability in tort:
A partner who commits a tort is liable according to general principles of the law of
tort
Liability of the firm as a whole governed by s10 PA 1890:
Where by any wrongful act/omission of any partner acting in the ordinary
course of the business of the firm, or with authority of his co-partners, loss orr
injury is caused to any person….the firm is liable….to the same extent as the
partner so acting or omitting to act
Note – the firm (as opposed to the actual totfeasor) is only liable if the
commission of the tort was either authrorised by the partners or committed ‘in the
ordinary course of business’.
A partnership is also liable to the same extent as other employees (under
common law principles of vicarious liability) for torts committed by its employees
Suing/being sued:
Partnership is not a separate legal entity, still partners should usually be sue/sued
In the firms name – para 5A.3 of Practice Direction 7A to the civil procedure rules
All partners at the date when the cause of action accrued are then parties to the
action
Where an actions brought against a partnership in the firm’s name, the write may
be served on any partner/on any person having control or management of the
business as the principal of business – (r.6.4(5) Civil Procedure Rules)
Charging order (s.23(2) PA 1890) - A person who has a judgment against a
partner for the partners’ personal liability may enforce that judgement against the
partners’ share of partnership property
S.23(1) – he may not enforce such a judgement against the partnership property
by means of an execution or garnishee proceedings
Where a charging order’s made, the other partners may discharge it by paying off
the judgement debt; if sale of the property is ordered they may purchase it
S.33(2) - Charging order gives the other partners a right to dissolved the
partnership if they wish
Retirement of a partner:
‘retirement’ in partnership context – leaving the partnership voluntarily
irrespective of the age of the partner in question
about:blank 3/21
