SPECIAL CONTRACTS

LIST OF CASES FOR MID-SEMESTER 2

●​ Tower cabinet company limited v. ingrand (liability for holding out ) (knowingly
representation)
●​ Scarf v. jardine ( liability for holding out ) (retirement without public notice)
●​ Cox v. hickman (mode of determining partnership, essentials of partnership) (creditor
debtor) (s4 and s6)
●​ Kd kamath and co. v. cit (s4) (essentials of partnership carrying out business for all)
●​ Bentley v. craven (undisclosed sale of personal goods to the firm)
●​ Dunne v. english (sale of partnership property at higher profit than what was decided)
(s16) (personal profits in a partnership)
●​ Trimble v. goldberg (sale of shares and land, stands found to be outside the scope of
partnership )
●​ Miles v. clarke (s14) Iproperty of the firm) (real intention) (mere use of personal property
not makes it partnership property)
●​ Mallow march and co. v. court of wards mode of determining partnership, essentials of
partnership) (creditor debtor) (s4 and s6)
TOPIC 1- LIABILITY FOR HOLDING OUT
Introduction
Section 28 of the Partnership Act, 1932 lays down the principle of holding out. It states that if
any person represents themselves as a partner in a firm by conduct, words or speech or a person
knowingly allows themselves to be represented as a partner in a firm then such person is liable to
the firm as a partner provided that the person to whom representation was made acted on it and
provided credit to the firm. It is immaterial whether the defendant in this case knows if the
representation reached the plaintiff or not. This can be further explained in detail as follows:
1)REPRESENTATION
To hold a person liable as a partner in the firm, the person should represent themselves by
conduct, words or speech as a partner.
Illustrations:
(i) Sam and Pam work in a business under the name of Pam Productions Pvt Ltd. Here, by
consenting his name in the title of the business, Pam can be held out to be liable as a partner in
this firm.
(ii) A and B are partners in a firm where C is always present in important meetings and decision
making gatherings. D, a person with whom A and B deals is often present in those meetings.
Here, C by his conduct represents himself to be a partner in that firm.
The person can also be held liable if they knowingly allow their representation as a partner in a
firm.
Illustration:
A and B are friends sitting in a cafe where C comes to visit them. A calls B his partner in front of
C and B by not objecting to it, silently adheres to this representation as a partner. Hence, A can
be held liable.
However, in the case where a person does not allow himself to be knowingly represented then
the person can not be held liable as observed in the case of Town Cabinet Company Ltd v.
Ingram, where the mere use of the name in letterhead after partner’s retirement without his
knowledge did not constitute any kind of representation.
2)KNOWLEDGE OF REPRESENTATION
The second essential element is that the person to whom representation was made, acting on the
faith of it and upon which they provided credit to the firm.
However, the knowledge of the defendant on whether such representation has reached the
plaintiff or not is immaterial.
In case of retirement without public notice, an old partner can be made liable to his old
customers and business dealers. The public notice can be issued by the old partner or any of the
partners acting in the firm. However, the old partner can not be made liable if the old dealer has
the notice of the newly constituted firm. This can be observed in the case of Scarf v. Jardine
where Scarf was a retired partner of Rogers, who continued to work in the firm with the new
partner Reach. However, the new partners got bankrupt and failed to make payment to their old
dealer Jardine. The initial suit by Jardine to the firm made him aware of the newly constituted
firm but on knowing the bankrupt status, he sued the old partner to which court held that suing
the firm was a notice in itself that made him aware of the new firm and hence Scarf was not
made liable.
3) CASE OF DEATH
In cases of death, the person is not held to be liable since the death of the person is a notice in
itself and a dead person can not be made liable for any acts of the firm after his death despite the
firm continuing to work in the old name.
TOPIC2 - MINOR’S LIABILITY IN PARTNERSHIP
A minor admitted to the benefits of partnership is dealt under Section 30 of the Partnership Act
which can be stated in detail as below:
1)​ MINOR’S CAPACITY
A minor can not become a partner in the firm but for the time being with the consent of
all the partners, minors can be admitted to the benefits of partnership.
2)​ MINOR’S BENEFITS
A minor has following rights when admitted to the benefits of partnership:
(i) Right to profits of the firm
(ii) Right to share of property of the firm
(iii) Right to access, inspect and copy only account books of the firm
3)​ MINOR’S LIABILITY
A minor admitted to the benefits of partnership is not personally liable for any acts of the
firm to the third party but his share of property is held liable.
 4)​ MINOR’S POWER TO SUE
A minor can not sue the partners in the firm unless the minor is severing his connection
with the firm and the partner chooses to dissolve the firm. In such a case, the court elects
to dissolve the firm and the determination of shares of each partner is done in accordance
with the Section 48 of the Indian Partnership Act.
5)​ MINOR’S STATUS ON ATTAINING MAJORITY
A minor has to produce a public notice choosing to be elected as a partner or not a partner
in the firm within six months after attaining the age of majority or getting in knowledge
of being admitted to the benefits of partnership.
In case a minor fails to produce a public notice, then the minor is seen as to be admitted
as a partner in the firm.
6)​ MINOR’S BURDEN OF PROOF
The burden of proof of the fact that the minor was unaware of being admitted to the
benefits of partnership after the expiry of six months up to a particular date has to be
made by the person asserting that fact.
7)​ EFFECTS OF MINOR BECOMING A PARTNER
If a minor elects to become a partner in the firm, then his rights and liabilities as a minor
continue up to the date of notice, is made personally liable to the third parties for all acts
of the firm since admitted to the benefits of the partnership and his share in profits and
property remains same as that of a minor.
8)​ EFFECTS OF MINOR NOT BECOMING A PARTNER
If a minor choses to not become a partner in a firm, then his rights and liabilities as a
minor continue up to the date of notice, his share of property is not liable for any acts of
the firm and can sue the partners of the firm in accordance with subsection 4 of section
30 of the act.
TOPIC3-PARTNERSHIP PROPERTY
Introduction
Partnership is not a legal entity. Thus, there is no ownership of the property. It is the joint estate
of the partnership. Section 14 of the partnership act deals with what all constitutes the
partnership property. According to this section, subject to the contract between the partners; the
property, rights and interests of the property and the goodwill of the business, which is originally
brought in the partnership, later brought in the due course of the business or acquired by any
other means is the partnership property unless any contrary intention appears.
The section also does not allow any partner to individually hold any personal rights and interests
in the property of the firm.
It can be further explained in detail as follows:
1)PROPERTY ORIGINALLY BROUGHT IN
All the property and rights and interests in the property that is originally brought in the
partnership of a firm is a partnership property subject to the contract between partners unless any
contrary intention appears.
Illustration:
A and B start a business together for a bakery for which they buy land. This piece of land was
originally brought in the partnership and hence is a partnership property.
2) PROPERTY ACQUIRED IN THE DUE COURSE OF BUSINESS
All the property and rights and interest in the property that is later brought into the partnership in
due course of the business to acquire profits in the firm is the partnership property. Property
bought with the firm's money in the name of the firm is a partnership property but also a property
bought with the firm's money in the name of partner is a partnership property.
Further, any property acquired by the partner by breach in good faith for all partners, is also a
partnership property.
Illustration: A bought shares in a firm in his name with firm’s money. These shares will be called
a partnership property.
3) GOODWILL AND OTHER PROPERTIES
Goodwill of the business originally brought in and later established in the due course of business
is called property of the firm along with other properties such as trademark, logo, etc.
4) PERSONAL PROPERTY IN PARTNERSHIP
The mere use of personal property in a partnership can not be called a partnership property. The
focus in these cases has to be done on the real intention of the parties while getting into
partnership and using such property.
This was observed in the case of Miles v. Clarke where one partner bought all the connections
related to photography business and the other partner bought the land premises and other
equipment related to the business. The court observed in this case there was no clear intention on
deciding the property to be of the firm. The only objective was to share the profits and mere use
of the property can not constitute it as a partnership property.
5) APPLICATION OF THE PARTNERSHIP PROPERTY
Section 15 of the Partnership Act delves into the use of partnership property which prescribes
that subject to the contract between the partners, the property and rights and interests of the
property should be solely used for the purpose of the business by the partners unless any contrary
intention appears.
TOPIC4-BASIC DEFINITIONS AND ESSENTIALS OF PARTNERSHIP
Section 2 defines following terms in the chronological order:
(a)act of the firm- an act or omission by partners of the firm or by any partner or agent of the
firm that makes a right enforceable or against the firm is known as act of the firm.
(b) business- business of the firm includes of any trade, profession or occupation
( c) prescribed- everything mentioned in this act
(d) third party - used in relation to the partnership or firm who is not a member of the firm
Section 4 defines following terms:
Partners- persons individually involved in the partnership business are known as partners
Firm- all individual partners are collectively known as partners
Firm name- the name under which the firm operates is known as the firm name.
For instance, a,b and c are partners who collectively will be known as abc, abc is the firm. They
work under the name of henden, henden is the firm name.
Section 7 defines partnership at will as the partnership which has been entered into by both the
partners without any specifications of time.
Section 8 of defines particular partnership as a partnership a person enters into with another
person to carry out particular adventures in particular undertakings.
Section 4 also defines partnership as the relationship between two or more persons who agree to
carry out a business together or one partner acting for all with the objective of sharing its profits.
Its essentials can be listed as below:
1)​ Relationship between two or more persons
Competent, not insolvent, sound mind
2)​ Business
Long term not necessary, can be done for short term, construction of a road.
3)​ Mutual agency
Action of one partner binds the other partners in the partnership. As agreed, one partner
can act or all partners can act. (kd kamath co v. cit, rejection of application but kd kamath
as per section 4 was acting for all )
4)​ Sharing of profits
Essential , decided in the contract, sharing of losses is implied
Does not guarantee a relationship of partnership , creditor- debtor relationship as
observed in the case of Cox v. Hickman and Mallwo March and Co v. Court of Wards
TOPIC5- PARTNERSHIP NOT CREATED BY STATUS
Section 5 states that a partnership is constituted by the status of parties but by the written
contract between the two parties. It states that members of the Hindu Undivided Family carrying
out a business can not get into partnership with each other. The individual members of two
different joint families can get into a partnership with each other.
It can be further explained as below:
1)​ Agreement ( not an essential part, conduct can also play a role)
2)​ Business ( 2b defines, charity acts and voluntary groups not partnership , short term
objectives achieved firm is dissolved)
3)​ Mutual agency (agent and principal of each other, action of one partner binds the duties
and actions of the other )
4)​ Sharing of profits (losses is implied)
TOPIC6-MODE OF DETERMINING PARTNERSHIP
As per Section 6, partnership is determined by following grounds:
1)​ Real intention
It states that the first focus should be on the real intention of the parties that is what is
their intended objective in the contract for carrying out the business together.
2)​ Sharing of profits on joint ownership of property
 The sharing of profits or gross returns from property owned jointly or property in which
common interests are present does not make the person a partner in the partnership.
Sharing of profits and joint ownership of property are two different types of concepts in
relation to partnership.
3)​ Lender- debtor relationship
A payment of receipt of profits or payment contingent upon profits of business by debtor
to lender does not make them partners in the partnership.
Illustration :
A gives money to b and b in return promises to pay in installments from profits of the
business. As a security, b gives a the right to inspect accounts of the firm. This right does
not make him a partner in the firm.
4)​ Servant holding shares
A servant holding shares in the company and receiving remuneration in exchange does
not make them partners in the business.
5)​ Payment of annuity
A payment of annuity to widow or their children after the death of the partner does not
provide them the powers to be in a partnership. Their relationship is only that of the
creditor-debtor.
6)​ Sale of goodwill
A person selling the goodwill of the business or part of the business for consideration of
others does not make them partners in a firm.
Illustration:
A is a known surgeon and promises newcomer B to establish his image by using his
connections and past experience. Here , a and b are not to be in a partnership.
TOPIC7-PERSONAL PROFITS IN A PARTNERSHIP
Section 16 delves into the personal profits earned in a partnership as follows:
1)​ Profits earned in the firm
If any person secretly earns personal profit by using the firm’s name, firm property or its
accounts then the person is liable to pay these profits to the firm.
As observed in the case of Bentley v. craven and dunne v. english where the profits
earned by selling sugar and land were observed to be personally earned and made to be
paid to the firm.
2)​ Personal profits carrying out a business
Any personal profits earned by a partner by carrying on business of similar nature on
competitive grounds, then the partner is liable to pay such profits to the firm.
However, if the business is of other nature then the partner is not liable to pay such
profits since it is outside the scope of partnership. As observed in the case of trimble v.
goldberg where profits earned by selling stands were seen to be outside the scope of
partnership hence held valid as personal profits.
TOPIC8-GENERAL DUTIES AND RIGHTS OF PARTNER WITH RELATIONS OF
PARTNER WITH ONE ANOTHER
As per Section 11, the determination of rights and duties of partners in a partnership may be
made by a contract express or implied in the course of dealings. Such a contract may vary by
consent of all partners that may vary expressly or impliedly in the course of dealings. Such
contracts also may have a provision to prevent a partner from carrying out any other business
than that of the partnership one for the time being they are in the partnership.
Further, the general duties of partner in a partnership are mentioned in Section 9 which can be
stated as below:
(i) Duty to carry out the business of the firm to the greatest common advantage
(ii) Duty to act in good faith of all partners
(iii) Render true accounts and information of all things affecting firm to everyone in the
partnership
The duty of the partner to indemnify the firm for the loss incurred to it caused by the fault of the
partner in the conduct of the business is stated in Section 10 of the act.
In addition to this, the rights and duties of partners with respect to the conduct of the business​
are stated in the Section 12 which can be stated as below:
Subject to the contract between the parties, the partners have following rights and duties with
respect to the conduct of the business:
(i)right to take part in conduct of the business
(ii) duty to attend all the duties in the partnership diligently
(iii) in case of differences arising out of the ordinary course of business, the matter is decided by
the majority and then every partner has a right to be consulted or being heard before the final
decision comes out. However, in case of a dispute about the nature of business, the decision has
to be consented by all the partners.
(iv) right to have access, inspect and copy all books of the firm
Further mutual rights and duties of the partners are stated in the Section 13 as follows:
Subject to the contract between the partners,
(i) every partner can not receive any kind of remuneration for participating in the conduct of the
business
(ii) every partner is entitled to receive equal profits from the business of firm and contribute to
the losses of the firm accordingly
(iii)where a partner is entitled to receive interests on the capital subscribed by him, such interests
shall be payable out of the profits. In case where the capital subscribed by the partner is beyond
what he stated to provide, then he is entitled to the interests of that capital at six percent per
annum
(iv) every partner has a right to be indemnified by the firm for the payments made and liabilities
incurred in the ordinary course of business and in an emergency where the partner acts
reasonably to protect the accounts of the firm.
(v) every partner also has a duty to indemnify the firm for the loss incurred by the wilful neglect
of the partner in the conduct of the business
TOPIC9-DIFFERENTIATE BETWEEN PARTNERSHIP, COMPANY AND LLP
The difference between partnership, company and liability can be made on the following basis:
1)​ Prevailing law
Partnership is administered by Indian Partnership Act, 1932.
Company is administered by Companies Act, 2013.
Limited Liability Partnership is administered by Limited Liability Partnership Act, 2008.
2)​ Creation
Partnership is created by contract whereas on the other hand company and llp are formed
by law.
3)​ Registration
It is optional for the partnership to register but it is mandatory for the company and llp to
be registered under the registrar.
4)​ Distinct legal entity
Partnership does not exist as a distinct legal entity but company and llp does exist as a
distinct legal entity.
5)​ Name
It is optional for partnership to keep their own name.
In the case of a company , it is compulsory to put limited as a suffix in public companies
while private limited as suffix in private companies.
In the case of llp, it is compulsory for the llp to put the suffix limited liability partnership
or llp.
6)​ Number of members
The minimum number of members in a private company is 2 and maximum 50 in case of
private company while minimum number of members in case of public company is 7.
Partnership has minimum 2 and maximum 20 members.
Limited liability partnerships have minimum members as 2 and there is no limit on the
maximum number of members.
7)​ Common seal
Common seal denotes signature.
It is not required in case of partnership , is mandatory to have in case of company and is
optional in the case of limited liability partnership.
8)​ Ownership of assets
Partners are joint owners of all the assets in a partnership.
Company and limited liability partnership owns the property independently of the
members.
9)​ Legal proceedings
Only registered partnerships can sue the third party.
 Company and limited liability partnerships can sue or be sued independently of its
members.
10)​perpetual succession
It is not possible in the case of partnership as it depends on the will of the partners
however it is possible in the case of company and limited liability partnership.
11)​Liability of partners
Partners in a partnership are jointly or severely liable to the extent of their own personal
assets while partners in company and limited liability partnership are only liable till the
extent of the contributions made.
12)​Principal-agent relationship
Partners act as agents of the firm and also of the partners but partners in the case of
company and limited liability partnership act as agents only of the company and limited
liability partnership.
13)​Admission as partners
A partner can get admitted in the partnership by partnership deed.
A person can become the member of company by buying its shares.
A person can become a partner in limited liability partnership by llp deed.
14)​dissolution
Partnership can be dissolved by mutual consent, insolvency , court order and many more.
Company and limited liability partnership can either dissolve themselves by voluntary
consent or order of National Company Law Tribunal.