THE CONTRACT ACT
(IX OF 1872)
(Ss. 239- 266)
239. “Partnership defined”: “Partnership” is the relation which subsists between persons who have agreed to combine their property, labour or skill in some business, and to share the profits thereof between them.
“Firms defined”: Persons who have entered into partnership with one another are called collectively a “firm”.
(a) A and B buy 100 bales of cotton, which they agree to sell for their joint account; A and B are partners in respect of such cotton.
(b) A and B buy 100 bales of cotton, agreeing to share it between them. A and H are not partners.
(c) A agrees with B, a goldsmith, to buy and furnish gold to B, to be worked up by him and sold, and that they shall share in the resulting profit or loss. A and B are partners.
(d) A and B agree to work together as carpenters, but that A shall receive all profits and shall pay wages to B. A and B are not partners.
(e) A and B are joint owners of a ship. This circumstances does not make them partners.
240. Lender not a partner by advancing money for share of profit: A loan to a person engaged or about to engage in any trade or undertaking upon a contract with such person that the lender shall receive interest at a rate varying with the profits or that he shall receive a share of the profits, does not, of itself, constitute the lender a partner, or render him responsible as such.
241. Property left in business by retiring partner, or deceased partner’s representative: In the absence of any contract to the contrary, property left by a retiring partner, or the representative of a deceased partner, to be used in the business is to be considered a loan within the meaning of the last preceding section.
242. Servant or agent remunerated by share of profits not a partner: No contract for the remuneration of a servant or agent of any person, engaged in any trade or undertaking, by a share of the profits of such trade or undertaking shall, or itself, render such servant or agent responsible as a partner therein, nor give him the rights of a partner.
243. Widow or child of deceased partner receiving annuity out of profits not a partner: No person, being a widow or child of a deceased partner of a trader and receiving by way of annuity a proportion of the profits made by such trader in his business, shall, by reason only of such receipt, be deemed to be partner of such trader, or be subject to any liabilities incurred by him.
244. Person receiving portion of profits for sale of goodwill not a partner: No person receiving, by way of annuity or otherwise, a portion of the profits of any business, in consideration of the sale by him of the goodwill of such business, shall by reason only of such receipt, be deemed to be a partner of the person carrying on such business, or be subject to his liabilities.
245. Responsibility of person leading another to believe him a partner: A person who has, by words spoken or written or by his conduct, led another to believe that he is a partner in a particular firm is responsible to him as partner in such firm.
246. Liability of person permitting himself to be represented as a partner: Any one consenting to allow himself to be represented as a partner is liable, as such, to third persons who, on the faith thereof, give credit to the partnership.
247. Minor partner not personally liable but his share is: A person who is under the age of majority according to the law to which he is subject may be admitted to the benefits of the partnership, but cannot be made personally liable for any obligation of the firm; but the share of such minor in the property of the firm is liable for the obligations of the firm.
248. Liability of minor partner on attaining majority: A person who has been admitted to the benefits of partnership under the age of majority becomes, on attaining that age, liable for all obligations incurred by the partnership since he was so admitted, unless he gives public notice within a reasonable time, of his repudiation of the partnership.
249. Partner’s liability for debts of partnership: Every partner is liable for all debts and obligations incurred while he is a partner in the usual course of business by or on behalf of the partnership; but a person who is admitted as a partner into an existing firm does not thereby become liable to the creditors of such firm for anything done before he became a partner.
250. Partner’s liability to third person for neglect or fraud of co-partner: Every partner is liable to make compensation to third persons in respect of loss or damage arising from the neglect or fraud of any partner in the management of the business of the firm.
251. Partner’s power to bind co-partners: Each partner who does any act necessary for, or usually done in, carrying on the business of such a partnership as that of which he is a member binds his co-partners to the same extent as if he were their agent duly appointed for that purpose.
Exception: If it has been agreed between the partners that any restriction shall be placed upon the power of any one of them, no act done in contravention of such agreement shall bind the firm with respect to persons having notice of such agreement.
(a) A and B trade in partnership, A residing in England, and B in Pakistan. A draws a bill of exchange in the name of the firm. B has no notice of the bill, nor, is he at all interested in the transaction. The firm is liable on the bill, provided the holder did not know of the circumstances under which the bill was drawn.
(b) A, being one of a firm of solicitors and attorneys, draws a bill of exchange in the name of the firm without authority. The other partners are not liable on the bill.
(c) A and B carry on business in partnership as bankers. A sum of money is received by A on behalf of the firm. A does not inform B of
such receipt, and afterwards A appropriates the money to his own use. The partnership is liable to make good the money.
(d) A and B are partners. A with the intention of cheating B, goes to a shop and purchases articles on behalf of the firm, such as might be used in the ordinary course of the partnership business and converts them to his own separate use, there being no collusion between him and the seller. The firm is liable for the price of the goods.
252. Annulment of contract defining partners, rights and obligations: Where partners have by contract regulated and defined, as between themselves, their rights and obligations, such contract can be annulled or altered only by consent of all of them, which consent must either be expressed, or be implied from a uniform course of dealing.
A, B and C, intending to enter into partnership, execute written articles of agreement, by which it is stipulated that the net profits arising from the partnership business shall be equally divided between them. Afterwards they carry on the partnership business for many years. A receiving one-half of the net profits and the other half being divided equally between B and C. All parties know of and acquiesce in this arrangement. This course of dealing supersedes the provision in the articles as to the division of profits.
253. Rule determining partners’ mutual relations, where no contract to contrary: In the absence of any contract to the contrary the relations of partners to each other are determined by the following rules:-
(1) all partners are joint owners of all property originally brought into the partnership stock, or bought with money belonging to the partnership, or acquired for the purposes of the partnership business. All such property is called partnership property. The share of each partner in the partnership property is the value of his original contribution, increased or diminished by his share of profits or loss;
(2) all partners are entitled to share equally in the profits of the partnership business, and must contribute equally towards the losses sustained by the partnership;
(3) each partner has a right to take part in the management of the partnership business;
(4) each partner is bound to attend diligently to the business of the partnership, and is not entitled to any remuneration for acting in such business;
(5) when differences arise as to ordinary matters connected with the partnership business, the decision shall be according to the opinion of the majority of the partners; but no change in the nature of the business of the partnership can be made, except with the consent of all the partners;
(6) no person can introduce a new partner into a firm without the consent of all the partners;
(7) if from any cause whatsoever any member of a partnership ceases to be so, the partnership is dissolved as between all the other members;
(8) unless the partnership has been entered into for a fixed term, any partner may retire from it at any time;
(9) where a partnership has been entered into for a fixed term, no partner can, during such term, retire except with the consent of all the partners, nor can he be expelled by his partners for any cause whatever, except by order of Court;
(10) partnerships, whether entered into for a fixed term or not, are dissolved by the death of any partner.
254. When Court may dissolve partnership: At the suit of a partner the Court may dissolve the partnership in the following cases:-
(1) when a partner becomes of unsound mind;
(2) when a partner, other than the partner suing, has been adjudicated an insolvent under any law relating to insolvent debtors;
(3) when a partner, other than the partner suing, has done any act by which the whole interest of such partner is legally transferred to a third person;
(4) when any partner becomes incapable of performing his part of the partnership contract;
(5) when a partner, other than the partner suing, is guilty of gross misconduct in the affairs of the partnership or towards his partners;
(6) when the business of the partnership can only be carried on at a loss.
255. Dissolution of partnership by prohibition of business: A partnership is in all cases dissolved by its business being prohibited by law.
256. Rights and Obligations of partners in partnership continued after expiry of term for which it was entered into: If a partnership entered into for a fixed term be continued after such term has expired, the rights and obligations of the partners will, in the absence of any agreement to the contrary, remain the same as they were at the expiration of the term, so far as such rights and obligations can be applied to a partnership dissolvable at the will of any partner.
257. General duties of partners: Partners are bound to carry on the business of the partnership for the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the partnership to any partner or his legal representatives.
258. Account to firm of benefit derived from transaction affecting partnership: A partner must account to the firm for any benefit derived from a transaction affecting the partnership.
(a) A, B and C are partners in trade. C, without the knowledge of A and B, obtains for his own sole benefit a lease of the house in which the partnership business is carried on. A and B are entitled to participate if they please, in the benefit of the lease.
(b) A, B and C carrying on business together in partnership as merchants trading between Bombay and London D, a merchant in London, to whom they make their consignments, secretly allows C a share of the commission which he receives upon such consignments, in consideration of C’s using his influence to obtain the consignments for him. C is liable to account to the firm for the money so received by him.
259. Obligations, to firm, of partner carrying on competing business: If a partner, without the knowledge and consent of the other partners carries on any business competing or interfering with that of the firm, he must account to the firm for all profits made in such business, and must make compensation to the firm for any loss occasioned thereby.
260. Revocation of continuing guarantee by change in firm: A continuing guarantee, given either to a firm or to a third person, in respect of the transactions of a firm, is, in the absence of agreement to the contrary, revoked as to future transactions by any change in the constitution of the firm to which, or in respect of the transactions of which, such guarantee was given.
261. Non-liability of deceased partner’s estate for subsequent obligation: The estate of a partner who has died is not, in the absence of an express agreement, liable in respect of any obligation incurred by the firm after his death.
262. Payment of partnership debts and of separate debts: Where there are joint debts due from the partnership, and also separate debts due from any partner, the partnership property must be applied in the first instance in payment of the debts of the firm, and, if there is any surplus, then the share of each partner must be applied in payment of his separate debts or paid to him. The separate property debts, and the surplus (if any) in the payment of the debts of the firm.
263. Continuance of partners’ rights and obligations after dissolution: After a dissolution of partnership, the rights and obligations of the partners continue in all things necessary for winding up the business of the partnership.
264. Notice of dissolution: Persons dealing with a firm will not be affected by a dissolution of which no public notice has been given, unless they themselves had notice of such dissolution.
265. Winding up by Court on dissolution or after termination: Where a partner is entitled to claim a dissolution of partnership, or where a partnership has terminated, the Court may, in the absence of any contract to the contrary, wind up the business of the partnership, provide for the payment of its debts and distribute the surplus according to the shares of the partners respectively.
266. Limited liability partnerships, incorporated partnerships and joint-stock companies: Extraordinary partnerships, such as partnerships with limited liability, incorporated partnerships and joint stock companies, shall be regulated by the law for the time being in force relating thereto.