BUSINESS LAW II

LAW OF PARTNERSHIPS
It is contained in the Partnership Act CAP 29 Laws of Kenya 1962 section 3 (1) which defines a partnership as
the relation that substitutes between persons carrying on business in common view of making profits. This
definition shows that a partnership exists only if:
a. There is a business carried on. Section 2 provides that business include every trade, occupation or
profession.
b. Business is carried on in common i.e. that the partners participate in joint running of the business and
for this purpose each partner is regarded as the agent of the firm and these other partners for the
purpose of business.
Baylors Case
James L.J stated that, Between partners and the outside world whatever may be their private arrangement
between themselves each partner is the unlimited agent of each other in every matter connected with the
partnership business or which he represents as a partner are not being in its nature beyond the scope of the
partnership business.
c. Business is carried on with the view of making profit, however it is not necessary that the business has
to generate some profit. Although, at the point of formation that is the intention of the partners.
Rules of Determining the Existence of Partnership
Where there is a dispute over the existence of a partnership the main test is the application of the definition.
Participation in sharing of the profits of the business may be treated as Prima Facie evidence of the existence of
the partnership. Because of this rule Section 4 of the Act has laid down a number of special scrimptions which
of themselves do not constitute a partnership. They include:
i. That ownership of property does not of itself create a partnership, whether or not the co-owner
share any profit made by the use of the property.
ii. Where a servant or agent receives part of the remuneration from the profits of the business that in
itself does not constitute a partnership.
iii. Where a person receives a debt by installment or other out of profits of the business that in itself
does not qualify him as a partner in the business.
iv. Where a widow or a child of a deceased partner receives an authority (annual payment) out of the
profits of the business that in itself doesnt constitute partnership.
v. Where the goodwill of the business has been sold and the seller receives payment for the goodwill
from the buyer out of his profits that in itself does not constitute partnership.
vi. Where a person receives payment by way of interest on a loan advance for use in the business that
in itself doesnt constitute partnership.
NB: It follows from the above exposition that where persons engaged in a business share both loss and profits
there is a greater likelihood of the existence of a partnership or if sharing of the profit is unexplained the court
would hold that there is a partnership.
A partnership does not describe rules for the formation of the partnership. Consequently a partnership may be
formed in any way. It is however prudent to reduce the agreement into writing.
Capacity


Section 12 provides that a person who is under the age of majority may be admitted to the benefits of a
partnership but cannot be made personally liable for any obligations of the firm. The share of the minor in the
property is however liable for obligation of the firm.
Illegal Partnership
a. If it is formed for an illegal purpose which is contrary to the public policy
b. If it consist of more than 20 partners
c. When it is an association forbidden by law e.g. a professional partnership between a layman and a
lawyer
d. When one or more of the partner reside and trades in a foreign country which war has been declared
against.
Effects of Illegal Partnerships
The members of an illegal partnership are not under rule to enforce any right or an obligation
An illegal partnership is also unable to enforce any contractual right against third parties but the third
party can exercise rights against the partnership provided the action they are seeking to enforce is not
tied with illegality to the third party.

NOTE: Partnerships may be formed by any kind of arrangement; simple or under deed or it may even be by the
contact of the parties concerned. Although partnership agreements do not have to be formal they are usually in
writings and the document containing such an agreement is the deed of the partnership drafted by a lawyer.
Contents of the Deed of Partnership
1. Name of the persons and partners
2. Nature and place of the business and the name of the firm
3. Rate at which the partnership is to commence and the period of its duration if any
4. Amount of the firms capital and the amount of interest to be paid on loans
5. The bank account and who is to sign cheques
6. How profit and losses are to be shared
7. How to share the management
8. Details of the manner in which account will be kept and provision for audit of the accounts
9. A provision as to whether the firm will continue its business after the retirement, death or insolvency of
a partner. In the absence of any express provision in the deed, if a partner dies or retires or becomes
insolvent the general law is that the partnership will wind up.
10. Arbitration laws is usually in the partnership agreement to provide for dispute resolution under which
partners are bound to submit their disputes to arbitrators other than institute this in a court of law.
Choice of Name
Legally the firm name is merely a convenient way of alluding the partners as individuals. This is because the
partnership doesnt exist as a body cooperate. However, copyright can be registered in the firm name. Partners
can sue or be sued in the firm name but they must appear in court in person. Every firm having a name which
does not disclose the true surnames of the partners, must have the name registered under the registration of
business names act cap 499 Laws of Kenya. In the case of such firms the full names of partners must be printed
on every document issued by the firm. If any partner is not a Kenyan his nationality must be shown and if he has
been naturalized his original nationality must be shown.
Under the registration of business names act, the registrar must be furnished with the following particulars when
seeking to register a partnership firm with a neutral name that doesnt have the initials of the partners. They
Include:


Business names
General nature of the business
Principle name of the business
The present Christian name and Surname
And any former name and surname of each partner and their usual residence
Nationality of each partner
Any other business/occupation of a partner
Date of commencement of the business
Relationship Between Partners Inter-see (amongst themselves)
The relationship between partners Inter-see will depend on the partnership deed or articles of the partnership if
any.
Articles of the partnership will generally contain the following clauses
a) Nature of the business
b) Capital of property of the firm and capital contribution of each partner
c) Sharing of profits and losses
d) Rules as to interests on capital and drawings
e) Accounts and audits
f) The powers of each partner
g) The grounds for dissolution
h) The method of determining the value of goodwill on retirement and death
i) Method of computing the amount payable to outgoing or deceased partner
j) Power of expulsion
k) The arbitration laws
Statutory Provisions
S.23 of the partnership act subject to any agreement between the partners states the interest of the partners in the
partnership property and their rights and duties in relation to their partnership will be as follows:
i) All partners are entitled to share equally in the profits and capital of the business and must contribute equally
towards the losses whether of capital or otherwise sustained by the firm.
ii) Every partner must be indemnified by the firm in respect of payment made and personal liability incurred by
him in the ordinary cause of the firms business or in respect of anything done in the representation of the
business or property of the firm. These are a partners rights as an agent of the firm.
iii) Where a partner advances money to the firm over business purpose over and above the amount of his agreed
capital he is entitled to interest on capital at the rate of 6% p.a. from the date of payment or advance.
iv) A partner is not entitled before the ascertainment of profits interest on capital subscribed by him.
v) Every partner may take part in the management of the partnership business.
vi) No partner is entitled to remuneration for acting on the partnership business.
vii) No person may be introduced as a partner without consent of the existing partners. The reason for this rule
was given by James L.J in the Bairds Case.
The Relationship of Partners with Third Parties


Every partner is an agent of the firm and each purpose of the business of the firm and every act done by partner
occurring on the usual way of business and of the kind carried out by the firm is binding on the firm unless; the
partner has no authority to act on behalf of the firm on that particular matter.
Implied authority of a partner
As we have seen above that every partner is an agent of the firm so that if he enters into a transaction within the
scope of the partnership business he will bind the firm, but this implied authority extends only to what is
necessary for the usual conduct of the partnership business.
In case of a trading partnership the following acts if committed in the course of the firms business will be
binding to the firm and other partners:
1. That a partner may pledge or sell the partnership goods.
2. That a partner may purchase goods on credit for the firm provided the goods are of the kind normally
employed in the firms business.
3. That a partner may accept money in payment of debts due to the firm and issue receipts for them.
4. That a partner may engage or discharge servants.
5. That every partner may borrow money, enter into contract and pay debts on behalf of the firm.
6. That any partner may make, sign, endorse or accept a negotiable instrument in the name and on account
of the firm.
7. That a partner may employ an advocate in an action against the firm from a trade debt.
NB: Where a partner pledges the credit of firm for a purpose apparently not connected with the firms ordinary
course of business, the firm is not liable unless such a partner is specially authorized by other partners or this act
is ratified by the firm. Similarly where the business is not of a commercial nature (buying and selling of goods),
a partner has no implied authority to bind his partners or the firm by drawing or accepting a bill of exchange or a
cheque.
There is no implied authority for a partner to undertake the following in the ordinary course of the partnership
business:
1. To execute a deed.
2. That no partner has authority to submit a dispute relating to the business of the firm for arbitration.
3. That no partner has authority to give a guarantee in the firms name unless the giving of guarantee is
within the usual business of the firm.
Duties of Partners
The relationship of partners is one of utmost good faith. This means that each partner must make full disclosure
of all his activities within the partnership. Every partner must use his knowledge and skill for the benefit of the
firm. The fundamental duties of the partners are contained in section 32, 33 & 34 of the act (partnership):
1. To render true accounts. Every partner is under duty to his fellow partners to keep and render true
accounts of the partnership. He must permit other partners to inspect such accounts, and he must also
provide full information of all other things affecting the partnership (section 32).
2. Secret profits. Every partner must account to the firm for any benefit derived by him within the
ordinary course of the partnerships business.

Dissolution of a Partnership
A partnership may be dissolved by a court order or without a court order.
Dissolution without a court order


A partnership may be dissolved without a court order under section 36-38 of the partnership act and these
circumstances through:
a. If it entered into for a fixed term, by the expiration of that term the partnership will come to an end.
b. If it entered for a single adventure of undertaking by the termination of that adventure or undertaking
the partnership will come to an end.
c. If it entered into for an undefined time by any partner giving notice to the other or others of his
intention to dissolve the partnership, in which case the partnership is dissolved as from the date
mentioned in the notice as the date of dissolution, or if no date is so mentioned as from the date of
communication of the notice.
d. That if a partner dies or becomes bankrupt (unless the agreement between the partners provides
otherwise).
e. That if a partner permits his share of the partnership to be charged under the partnership act from his
separate date and other partners opt for the dissolution of the firm, then the partnership comes to an
end.
f. If an event happens which makes it unlawful for the business of the firm to be carried on or for the
members of the firm to be carried on in partnership.
Dissolution by the court
A partnership may be dissolved by a court order made under section 39 of the partnership act in any of the
following cases:
a. When the partner is adjudged a lunatic, or is shown to the satisfaction of the court to be of permanently
unsound mind, the application to the court may be made by any other partner or on behalf of the
affected partner by his guardian and litern or next friend or any person having title to intervene.
b. When a partner, other than the partner suing becomes in any other way permanently incapable of
preforming his part of the partnership contract.
c. When a partner, other than the partner suing has been guilty of any such conduct in the opinion of the
court, regard being heard in the nature of the business is calculated to affect the prejudicially the
carrying on of business.
d. When a partner other than the partner suing willfully and assisted commits a breach of the partnership
agreement or otherwise so conducts himself in matters relating to the partnership business that it is not
reasonably practical for the other partner or partners to carry on business in partnership with him.
e. When the business of the partnership can only be run on a loss.
f. Whenever in case circumstances have risen which in the opinion of the court, render it just and
equitable that the partnership be dissolved. This was the case in Yenidje vs Tobacco co. in which the
court made the order because the partnership between the two partners became so strained that they had
stopped talking to each other and the court stated that a state of mutual hostility is incompatible with a
partnership.
SALE OF GOODS
The Kenyan law relating to sale of goods is contained in the sale of goods act cap 31 Laws of Kenya. The act is
substantially an introduction of the English sale of goods act of 1893 made a part of Kenyan law by the colonial
administration in 1
st
October 1961.
Definition: Section 3 (1) defines a sale of goods as A contract where by a seller transfers or agrees to transfer
the property in goods to the buyer for a money consideration called price.
Analysis: The legal consequences of the above definition are as follows:
a. That a sale of goods is a contract. Though part 2 of the act bears the heading information of the contract
theres nothing in it which relates to the actual information of the sale of goods. It therefore appears to
assume reasonably that the contract envisaged by the act is to be formed according to the rules which


govern the formation of contracts in general, namely; The rules of Common Law. Consequently before
a sale of goods can take place:
1. There must be an offer to buy or sell followed by a corresponding acceptance.
2. All the other legal requirements for the validity of a contract must be met.
However section 6 (1) of the act provides that a contract for the sale of goods worth shs. 200 or upwards must be
entered into for evidence in writing otherwise the contract is unenforceable.
b. The consideration for transfer of ownership must be a money consideration. This means that a barter is
not a sale of goods it is an exchange of goods since no money (cash or cheque) is paid by either party
c. The provision that the property in the goods means that there must be two parties to the programme and
that consequently a person cannot sell goods to himself.
Goods
Although goods in common language have an obvious meaning, the act has given the word a technical meaning.
The act provides that goods include all chattels person other than things in action and money. This covers
anything that can be touched, moved or taken away but does not cover land and other species of commercial
property such as shares, debts, etc. which cannot be moved or taken away. Money may be in exceptional cases
be goods. An example is where money is bought as curio by a person who collects coins. However money
which is used as currency or legal tender cannot be sold as goods and thus if a person goes to the bank and buys
sterling pounds to take his sons studying in the UK, the pounds will have been transferred as part of currency
transaction and it legally does not constitute a sale.
Types of Goods
The act classifies goods into specific goods and uncertained goods.