Partnership and Corporation Law - Essay Example

Part I This case is an appeal which arises from an order by the Full Court based on a declaration that a certain sum of money were paid and actually received by Richardson who at that time carried on a practice as solicitor in partnership with the appellant, although it was not contended by the plaintiff that the appellant had knowledge of the dealings. E.R. Mann and Company, a partnership practice known to the respondent’s years before 1953. Sometime in December 1953 at the request of Mr. Hulme who at that time was gravely ill, Richardson visited the former at his house where the latter obtained instructions and forthwith prepared the will in his own handwriting and had it executed. When Richardson made enquiries Mr. Hulme ascertained that he held several War Savings Certificates which had matured. Richardson commented that since the capital sum does not earned interest and he knew a lot of avenues for investing money at substantial rates of interest the couple might want to grab the opportunity presented. In January 1954, Mrs. Hulme went to the firm to have her will prepared and there she saw Richardson who also prepared her will and had it executed in the firm’s office. When Mr. Hulme had partially recovered later in May 1954 and together with his wife they went to the firm’s office to discuss with Richardson for possible investments. The investment scheme that Richardson presented has got to do with the building trade where clients want to borrow money on second mortgage from time to time and further contended that the building trade is booming hence their investments will be quite safe and as an added security Richardson is prepared to give his own promissory notes. Since the couple trusted the firm they left the matter to Richardson believing that their investment is in good hands. A few days after their meeting Richardson started to ask money from the Hulme’s with the aggregate amount totaling to 2,565 pounds with little amount paid back to the Hulme’s through checks drawn on the firm’s trust account. It is now the contention of the Hulme’s that the money was misappropriated by Richardson who acted within the scope of apparent authority as partner of the firm. The appellant argued that he has no knowledge of Richardson’s actions on the matter and whether or not the money in question was appropriated by Richardson for his personal use. As a result the plaintiff failed to secure relief against Richardson but when appealed to the Full Court of the Supreme Court a declaration was made that Richardson and the appellant were jointly and severally liable to pay Mr. and Mrs. Hulme in the amount of 2,565 pounds together with interest. On appeal the learned trial judge held that: “it is not within the ordinary scope of a solicitor’s business to accept money to be lent on mortgage on the condition that the solicitor shall make himself personally responsible for repayment of his promissory notes making him a principal debtor to his client.”1 Therefore, it was concluded that the dealings were personal to Richardson and the argument that he acted within the scope of his authority as partner of the firm has no basis. The case at bar has contributed so much when it comes to the interpretation of the law on partnership. The decision of the Full Court of the Supreme Court provides a comprehensive jurisprudence on partnership. The case gives a clear line between an agent and a partner and what determines if they have acted within or outside the scope of their authority. The case pointed out the essential requisites in order to have a partnership and that the relationship of partners also determines their liabilities as to joint, several, or solidary. It was held in this case that tenancy in common or part ownership does not necessarily create partnership provided that they did not share in the profits. The Partnership Act 1892 (NSW) best focuses on partnership and interprets matters pertaining to and in connection with partnership. However, some provisions of the Act which are quite vague may be construed liberally and strict interpretation may be given by case laws such as in the case of Mann v Hulme. Part II Partnership as defined in section 1 of the Partnership Act 1892 (NSW): “the relation which exists between persons carrying on a business in common with a view of profit and includes an incorporated limited partnership.”2 The three elements to establish the existence of partnership must be present the absence of at least one element does not create a partnership. From the definition it can be inferred that Maria, Stella, and Diana are into a partnership relationship. However, the actual agreement or express intention of the parties must be known in order to determine the existence of a partnership for the reason that it is one of a contractual relationship. Like on the part of Diana, she may have brought in the money but expressed no further involvement in the business. As provided in the Partnership Act s 2 (3): “the receipt by a person of a share of the profits of a business is prima facie evidence that the person is a partner in the business, but the receipt of such a share, or of a payment contingent on, or varying with the profits of a business does not of itself make a person a partner in the business.”3 Provided further in section 2 (3) (d): “the advance of money by way of loan to a person engaged or about to engage in any business on a contract with that person, that the lender shall receive a rate of interest varying with the profits, or shall receive a share of the profits arising from carrying on the business, does not make of itself make the lender a partner with the person or persons carrying on the business or liable as such: Provided that the contract is in writing and signed by or on behalf of all the parties thereto.”4 Absence of a recital or declaration that Diana brought in the money as creditor makes her a partner. Such contention is the significant point that reversed the decision of the Full Court in Mann v Hulme [1961] HCA 45; (1961) 106 CLR 136 (2 August 1961): “. . .that Richardson told the respondent and her husband that he was prepared to give his own promissory note as added security for the safety of their investments of which the former did on occasion prepared and delivered to the Hulme’s his promissory note. It is now suggested that the Hulme’s made personal loans to Richardson.”5 Each partner is an agent and principal of the others and owes fiduciary obligations to the others. Partners can bind each other and be bound by the actions of their partners. It is clearly provided in section 5 of the aforementioned Act: “every partner is an agent of the firm and of the other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which the partner is a member, binds the firm and the other partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom the partner is dealing either knows that the partner has no authority, or does not know or believe the partner to be partner.”6 In Re Ruddock (1879) 5 VLR (IP & M) 51: “to constitute a partnership the business must be carried by, or on behalf of all the partners.”7 In addition, section 11 (1) (a) of the Partnership Act states that: “where one partner acting within the scope of the partner’s apparent authority receives the money or property of a third person and misapplies it the firm is liable to make good the loss.”8 In Phillips-Higgins v Harper [1954] 1 QB 411 it was held: “one significant difference with partnership law is that partners are both principal and agent and therefore there are two-way fiduciary duties. Because partners owe each other fiduciary duties, when one partner acts as the firm’s agent he or she will owe duties to his or her partners and the other partners will owe similar duties back to that partner.”9 According to Bank of Australasia v Breillat (1847) 6 Moo PC 152; 13 ER 642: “Every partner is, in contemplation of law, the general and accredited agent of the partnership. . . if the partnership is of general commercial nature, a partner may pledge or sell the partnership property; buy goods on account of the partnership; borrow money, contract debts, and pay debts on account of the partnership. . .”10 Therefore, it is concluded that Maria, Stella, and Diana are partners in Muranissimo and are bound by the actions of one another. Stella who acted within the scope of her apparent authority received the money from Paris on the premise that it will be used to purchase for the necessary glass stones in Venice but on the contrary absconded the money to Venezuela and cannot be found. Consequently, Maria and Diana as partners are jointly and severally liable for the misapplication of money received by Stella from Paris. Thus, Paris may recoup the $60,000 from the other partners. References: Cases Bank of Australasia v Breillat (1847) 6 Moo PC 152; 13 ER 642. Mann v Hulme [1961] HCA 45; (1961) 106 CLR 136 (2 August 1961). Phillips-Higgins v Harper [1954] 1 QB 411. Re Ruddock (1879) 5 VLR (IP & M) 51. Statutory Partnership Act 1892 (NSW) s 1. Partnership Act 1892 (NSW) s 2 (3). Partnership Act 1892 (NSW) s 2 (3) (d). Partnership Act 1892 (NSW) s 5. Partnership Act 1892 (NSW) s 11 (1) (a). Website Partnership. Retrieved September 8, 2009 from http://www.usyd.edu.au/lecs/subjects/associations/notes Read More