Relationship between Partners and Third Parties Notes

Law (Universiti Teknologi MARA)

StuDocu is not sponsored or endorsed by any college or university

Downloaded by Lizawati Khamis (missliza_83@yahoo.com.my)
Rela%onship between partners and third par%es

-To determine whether an act of a partner towards a third party is binding upon the 7rm:

-Sec 7: There are 4 elements to be met in order for an act of a partner to be binding upon the 7rm.

1. The act done 1) Union Bank of Australia v Fisher: The test—An act is usual way of business if it is
must be of the necessary and not merely convenient for the carrying of such business.
type of business
that is carried 2) Mercan7le Credit Co. Ltd v Garrod: The business carried out was renBng out
out by the <rm garages and repair of cars. Garrod and Parkin (partners) expressly agreed not to be
involved in the business of buying and selling cars. Nevertheless, Parkin sold a
customer’s car and the PlainBK sued Garrod (a sleeping partner) aLer knowing that
the car had no Btle. IrrespecBve of the provision restricBng such dealing in their
partnership agreement, the court found that the act of dealing in motor vehicles
was within the type of business carried out by motor garage companies.

2. The act must 1) Chan King Yue v Lee & Wong: The act of a partner done in the usual course of the
be carried on in business is binding on the 7rm and the other partners. Since the loan taken was
the usual way in necessary for the 7rm to carry on business, the borrowing was in the usual and
order for it to ordinary manner. (//)
bind the <rm
2) Goldberg v Jenkins & Law: The borrowing of money by a partner was held not to
amount to the “usual way” due to the excessive rate of interest charged by the
lender on the loan. (XX)

3. The third party 1) Sithambaram CheGy v Hop Hing & Ors: The court held the 7rm liable for failing to
must know or inform those who had business with the 7rm of the manager’s lack of authority. It
believe the has caused the plainBK to think that the manager who had borrowed the money
person with was a partner.
whom he
entered into the 2) William Jack & Co (Malaya) Ltd. v Chan Yong Trading Co: The acts of a person
transac%on with who had been introduced as a partner, even though an infant, was binding on the
is a partner other partners.

4. The third party 1) Sec 8:

must not know -Actual authority: authority given to a partner to do an act or execute a funcBon in
that the person the 7rm’s name and as such would bind the 7rm.
with whom he -Apparent authority: Where an agent is represented by the principal as having
has entered into authority to do an act and the third party relies on such representaBon.
the transac%on -Sithambaram CheGy: The partners were made liable for borrowings made by the
has no authority manager of the 7rm.
or the
permission of 2) Sec 9:
the other -Where an act is not related to the 7rm’s business, the act will be binding on the
partners to act 7rm only where a partner has expressly been given authority to act.
on behalf of the
<rm 3) Sec 10:
-If a partner does an act which is within his apparent authority, his act will bind the
7rm. The 7rm would not be liable if the third party knew that what the partner is
doing is beyond his authority.

Downloaded by Lizawati Khamis (missliza_83@yahoo.com.my)