5.

2 RELATIONS OF PARTNERS

1) X, Y and Z enter into a partnership to execute contract works. X secures for the partnership work estimated to cost Rs 1 lakh. He obtains the said order only on payment of a sum of Rs 5000 to a person in authority and debits the sum in the account books as an item of expense. The other partners object to the item. How would you decide? Solution: In this case the payment is illegal and it cannot be said to be an act at all in the normal course of business. In this case the total amount of Rs 5000 should have to be borne by X itself. 2) A and B are partners. A applies for insolvency and then indorses in the name of the firm a bill belonging to the partnership firm. Thereafter A is adjudged insolvent. Does the indorsee acquire a good title to the bill? Give reason for your answer? Solution: According to section 34, a partner in the firm is ceased to be the partner on the date on which the order of adjudication is made. Therefore the indorse acquires a good title to the bill since A does not cease to be a partner till the order if adjudication is made. 3) A,B and C carried on a business for profit but under very special conditions as to C, that C was to contribute neither labor nor money, and was not to receive any profits but was to lend his name to the firm. Is C liable for the debts of the firm? Solution: By section 28(1) anyone who by words spoken or written or by conduct represents himself, or knowingly permits himself to be represented, to be a partner in a firm, is liable as a partner in that firm to anyone who has on the faith of any such representation given credit to the firm, whether the person representing himself or representedto be a partner does or does not know that the representation has reached the person so giving credit. Hence C as a partner is liable for the debts of the firm.

4) A partner of the firm borrows money on his own credit by giving his own promissory note for the same but he subsequently uses the proceeds of the note in the partnership concern of his own free will without any reference to the lender to do so. A) is the firm liable for the loan? Would it make any difference if A borrowed money in the name of the firm but in excess of his authority? Solution: By section 18 every partner is the agent of the firm for the purposes of the business of the firm. He has rights to act on behalf of the firm and bind the firm provided he does the act for carrying on in the usual way, business if the kind carried on by the firm and the act is done in the name of the firm. Hence the firm is not liable for the loan. But when the money is borrowed by exceeding the authority of A or by not knowing the limit of A then the firm is liable for the amount. Hence the firm is liable (section 19). 5) M a partner in a firm of architects borrowed Rs 1000 on behalf of the firm from P. P knew that M had no express authority from the partners to borrow any money but he lent the money on an assurance from M that the money would be applied for the payment of a debt of the firm. The money borrowed from P was, in fact so applied. Can P recover the amount from the firm? Solution: By section 19 and 22 a lender can lend a money to a partner in a business on behalf of the firm only if all the other partners knows about it or bind by the firm. Hence P cannot claim the money from the firm. 6) A,B and C are partners in a firm. C retires and D is admitted as a new partner. No public notice of the change is given but the firm continues its business in its old name. M a customer of the firm deals with the firm after change and the firm becomes indebted to M. M sues A, B, C and D to recover his dues. Will he succeed? Solution: By section32 (3) Notwithstanding the retirement of a partner from a firm, he and the partners continue to be liable as partners to third parties for any act done by any of them which would have been an act of the firm if done before the retirement, until public notice is given of the retirement: Provided that a retired partner is not liable to any third party who deals with the firm without knowing that he was a partner. Hence all the four are not liable , any three either A, B and C or A, B and D are liable.

7) A is a partner with other persons in a bank. A dies and the survivors continue the business in the firms name. afterwards the firm becomes insolvent. Is As estate liable to the customers of the bank? Solution: By section 35, Liability is an estate of deceased partner. Where under a contract between the partners the firm is not dissolved by the death of a partner, the estate of a deceased partner is not liable for any act of the firm done after his death. Hence As estate is not liable to the customers of the bank. 8) A, B and C are partners. C is a sleeping partner. He retires without giving a public notice. Is he liable for the subsequent debts incurred by A and B? Solution: By section 28(1) of Indian Partnership act, a person is not liable when he is a sleeping partner for the debt incurred by other partners after he retires wither publically or personally. Hence in this case c is not liable for A and B. 9) S is a partner in a firm. He gives notice of hid retirement to the other partners but does not give public notice of it. Thereafter the firm borrows Rs 5000 from a banker and the banker is able to recover only Rs 3000 from the other partners. Can the banker hold S liable for the balance of Rs 2000 due to him if he is (1) an active partner or (2) a dormant partner? Solution: By section 32(3), a person is liable for the debt caused by other partners even after his retirement only if he is an active partner and he is not liable when he is a sleeping partner. Hence S is liable when he is an active partner and not liable when is a dormant partner.