Question

Wil, Dave and Corinne are in a partnership as window repairers. Their business is called “Windows R Us”. Consider the following:

a. The business is run from an industrial shed which Dave owns. Dave pays for the upkeep of his shed, and the shed has remained basically unaltered since the business starting using it. However, due to rezoning of the area, the premises have substantially increased in value.

Explain the nature of the property in relation to the partnership and, if the premises is sold, whether profits must be shared.

b. Corinne purchases some expensive tinted glass on credit from a glass wholesaler –“Glass House”. Although Corinne actually wants the expensive tinted glass for her own private use (for a home she is building with her boyfriend Rove), she gives the impression to the salesperson at the Glass House that the purchase is on behalf of Windows R Us. Corinne has entered into this transaction on behalf of the partnership even though there was no express authority in the partnership agreement for Corinne to do so. Who will be liable for the debt incurred by Corinne?

c. (i) Dave and Corinne want to continue the business, but Wil is feeling like he wants to do something else with his life now, and thinks he would like to retire from the partnership. Advise Wil in relation to what action he should take regarding his liability for debts incurred by the partnership after he ceases to be a partner.

(ii) Unfortunately, before Wil makes up his mind as to whether he wants to retire, he dies suddenly. The partnership agreement does not include any provisions relating to the death of a partner.

Discuss the impact of Wil’s death on the partnership, and what happens with his share of the partnership.

Answer 1

a. Partnership property consists of all the property contributed by the partners or acquired for the partnership with its funds. A partnership may own real property as well as personal property. Partners hold title to partnership property by tenancy in partnership or tenants in common. This means that each partner has an equal right to use the partnership property for partnership purposes unless there is an agreement to the contrary. Also, a partner possesses no interest in any specific item of partnership property.

Therefore it is in the natue of BUSINESS PROPERTY and thus the profits will be divided among all partners if property is sold.

b. Where, by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm, or with the authority of his partners, loss or injury is caused to any third party, or any penalty is incurred, the firm is liable therefor to the same extent as the partner.

Where—

(a) a partner acting within his apparent authority receives money or property from a third party and misapplies it, or

(b) a firm in the course of its business receives money or property from a third party, and the money or property is misapplied by any of the partners while it is in the custody of the firm the firm is liable to make good the loss.

Therefore , the firm will be liable for the act.

c. (i) Retirement of a partner.—

(1) A partner may retire,—

(a) with the consent of all the other partners,

(b) in accordance with an express agreement by the partners, or

(c) where the partnership is at will, by giving notice in writing to all the other partners of his intention to retire.

(2) A retiring partner may be discharged from any liability to any third party for acts of the firm done before his retirement by an agreement made by him with such third party and the partners of the reconstituted firm, and such agreement may be implied by a course of dealing between such third party and the reconstituted firm after he had knowledge of the retirement.

(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.

(4) Notices under sub-section (3) may be given by the retired partner or by any partner of the reconstituted firm.

c. (ii) When a partner dies, subject to any contract to the contrary, partnership is dissolved. Section 42 of the Indian Partnership Act, 1932 (“Act”) provides for dissolution of partnership on occurrence of certain contingencies which includes ‘death of the partner’ as one of those contingencies. Plain reading of the Section 42 would show that, subject to the contract between the partners, a firm stands dissolved by death of a partner. However, in cases where the terms of the partnership deed are silent on continuation of partnership’s business, a contract to continue the partnership after the death of a partner may be implied from the conduct of the parties. This means that where it is evident that such an intention was present, the nominee or legal representative of the deceased partner can take the place of deceased partner and business of the firm can be continued with the presumption that the partnership was never dissolved on the death of that partner. The above legal position is based on two assumptions- (a) there are more than two partners in the firm, and (b) the legal representatives are interested in taking forward the business of the firm.