If the majority of the partners decide to admit them then there is no reason why they would not be accepted in the firm. Every partner has the right to nominate someone as long as the nomination is valid and unconditional, since partnership is based on mutual trust the introduction of a new partner must be decided by all existing partners.
Max Walls has retired a year ago but the two letters he just received shows that both creditors, Arthur Ray and “White Gallery”, believe that he is still a partner. Where a person deals with a firm after a change in its constitution he is entitled to treat all apparent members of the old firm as still being members of the firm until he has notice of the change s36 (1). The law requires a retiring partner to notify his retirement. For existing customers, actual notice of the retirement must be given either by a letter from the firm or by placing an advertisement in the London Gazette. The advertisement in the London Gazette serves as a general notice to costumers who have not previously dealt with the firm but knew about the firm’s existence and the partners involved. Since Max has not given any notice of his retirement the two creditors treat him as still being a member of “Art Partnership”. His name appears on the documents in connection with both agreements and under s14 everyone who by words, spoken or written, or by conduct, represents himself, or knowingly allows himself to be represented as a partner in a particular firm, is liable as a partner to anyone who has because of that given credit to the firm or advanced money to it. Although Max is not a partner any more he is still liable for debts made by the firm. If he was aware of the fact that his name appeared on documents of the firm then he is a partner by holding out. But if he had not known about it then he must prove it since for a person to become a partner by holding out must know that he is being held out as a partner and also it must be shown that he consents. In Tower Cabinet Co Ltd v Ingram after the dissolution of a firm called “Merry’s”, one of the two partners, Christmas, carried on as a sole trader under the firm’s name but with new note papers without Ingram’s name on. When the plaintiffs received an order on old note paper with Ingram’s name included they sought to enforce a judgment against Ingram. It was held that he was not liable as a partner by holding out since he had not represented himself as being a partner. Also under s17 s person by retiring does not cease to be liable for the debts and obligations of the firm incurred before his retirement. The date of any contract determines responsibility and if the person was a partner when the contract was agreed then that person is responsible even if the goods under the contract are delivered after the person has left the firm. Max therefore is liable for the debts with both creditors, Arthur Ray and “White Gallery”.
Now as far as John’s concern section 25 clarifies that “no majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the partners”. Therefore no expulsion can take place without an express clause to that effect. A court to decide whether an expulsion clause has not been abused will seek to find:
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If the expulsion clause covers the complaint under which the majority expels a partner and whether the partners have complied with the procedural requirements set out in the agreement. In Snow v Milford the court decided that the “adultery of a banker all over Exeter” was not a ground for his expulsion because it was not within the wording of the expulsion clause. In a most recent case, Russell v Clarke, the court held that a clause authorizing the “other partners” to expel a partner in certain circumstances could not apply where eight of ten partners signed expulsion notices against each of the other two. All the other partners had to sign each notice for it to be valid.
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If the rules of natural justice apply for the expulsion reason. For example in the case of Barnes v Youngs, Barnes was living with a woman to whom he was not married prior and after he became a partner. His partners expelled him without telling him why they were doing so. The court held that his expulsion was unlawful and ineffective since the majority had not informed him as to the cause of his expulsion and allows him to answer the allegation. Thus it is required that the expelled partner should be given the precise cause of the complaint against him and be given the chance to defend himself.
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If the expelling partners acted in good faith for the benefit of the firm and not their own. The case of Blisset v Daniel is a classic example in partnership law. A partner was expelled so that the other partners would get a bigger share of the property and profits. The court decided that the expulsion was done it bad faith and clearly the power was been used only for the majority partners’ exclusive benefit and such an abuse of power would not be allowed.
If the entire above are satisfied then the court will support an expulsion. Thus in Greenway v Greenway a clause in the partnership agreement provided that any partner acted contrary to the good faith required of partners or prejudicial to their general interest would be expelled. The offender assaulted another partner and made disapproving remarks about another partner and he was given notice of expulsion. The court held that the expulsion was valid under the good faith rule.
Can Sven and Costas rely on the expulsion clause in their partnership agreement to expel John? In Carmichael v Evans a junior partner in a draper’s firm was convicted of traveling on a train without a valid ticket and therefore defrauding the railway company. The court held that he was validly expelled under a clause in the agreement which allowed expulsion for any “flagrant breach of the duties of a partner”. Even though the offence was not committed within the partnership business it was conflicting with his practice as a partner and would badly affect the firm’s business. Generally was considered as a duty on behalf of a partner inside and outside the firm. But depends upon the offence as to whether a criminal conviction amounts to a flagrant breach of the duties of a partner.
The similarities between Carmichael v Evans and our case are too clear to see. Is John’s conviction by the Magistrate Court a flagrant breach of his duties as a partner? Recklessly driving and drunk and disorderly behavior can be considered an unashamed way of behavior on John’s behalf. His partners may claim that his behavior and conviction is adversely affecting the firm and they acted in good faith not thinking their own benefit but the business interest. They must give John the opportunity to defend himself as good faith requires that. But in Green v Howell the court rejected this approach. A partner was expelled for admittedly flagrant breaches of the agreement under the allowance of a clause. The expelled partner protested that he had not been given the opportunity to defend himself. The court held that in such cases there was no need to examine the rules of natural justice since the expelling partner had acted in good faith since the clause provided reference to arbitration in the case of dispute. But as said above for a valid expulsion the partners must also complied the procedural requirements set out in the agreement. Costas and Sven must give John a writing notice either in personal or by leaving it at the office of the partnership since the clause provides that. The courts however will not always apply the letter of an expulsion clause if that create an illogical situation as in Hitchman v Crouch Butler Savage Associates. An expulsion clause required the signature of the senior partner in order to be valid so that would not apply if the person to be expelled was the senior partner himself. It was impossible for a partner to expel himself since expulsion was against the will of the expelled person and therefore the clause had to be interpreted so as to hand out with the requirement of the signature. But since the case here is not such and the clause in the agreement creates a most logical situation Costas and Sven by illustrating all the above they can validly expel John.
So as we have seen above the Partnership Act 1890 provides for partners their liabilities to each other inside the partnership and to persons dealing with them. There are rules to govern incoming partners, outgoing ones, retirements, debts, expulsions and dissolutions of a partnership. There are no specific legal requirements governing the formation of a partnership. A partnership arises from the agreement between the persons involved and it is governed by the general rules of contract law. Partners share equally the capital and profits, the liabilities incurred in the firm’s business, the management, they all have access to the firm’s books and they cannot make any change in the nature of the partnership business.
Words: 2408
Bibliography
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Geoffrey Morse, Partnership Law, 6th Edition Oxford University Press 2006
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David Kelly, Ann Holmes, Ruth Hayward Business Law, 5th Edition Cavendish publishing 2005
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David Keenan and Sara Riches, Business Law, 7th Edition Pearson Longman 2005
Websites
- www.law com.gov uk
- www.lexis nexis
Legislations
List of Cases
- Byrne v Reid [1902] 2 Ch 735 CA
- Page v Cox (1852) 10 Hare 163
- Re Franklin v Swaythlings Arbitration (1929) 1 Ch 238
- Cabinet Co Ltd v Ingram [1949] 2 KB 397
- Snow v Milford (1868) 18 LT 142
- Russel v Clarke [1995] 2 QdR 310
- Barnes v Youngs [1898] 1 Ch 414
- Blisset v Daniel (1853) 10 Hare 493
- Greenway v Greenway (1940) 44 Sol Jo 43
- Carmichael v Evans [1940] 1 Ch 486
- Green v Howell [1910] 1 Ch 495
- Hitchman v Crouch Butler Savage Associates (1983) 127 SJ 441
