This question can be divided into three distinct sections.
The fi rst element of this question requires a consideration of Fi’s situation with respect to her potential liability. Partnerships do not normally provide their members with limited liability, unless the partnership has been registered as a limited partnership under the Limited Partnerships Act 1907 or registered as a limited liability partnership under the Limited Liability Partnerships Act 2000.
The situation in the problem scenario indicates that the partners have not gone through the appropriate procedure for the establishment of a limited partnership or a limited liability partnership. As a result, as far as outsiders are concerned, Fi is fully liable for any debts of the partnership and could be required to pay more than her agreed maximum payment of £100,000. Fi would, however, be entitled to rely on the internal partnership agreement to limit her liability within the partnership. This would mean that although she could be liable to outsiders beyond the £100,000, she would be able to claim reimbursement of any payments made above that limit from the other two partners, always assuming that they were in a position to make such a payment.
Chi has clearly used her powers for an unauthorised purpose. Unfortunately for the other partners, they cannot repudiate her transaction with the bank, even although it was outside her actual authority. The reason being, that it is within his implied authority as a partner to enter into such a transaction. As a trading partnership, all the members have the implied authority to borrow money on the credit of the fi rm and the bank would be under no duty to investigate the purpose to which the loan was to be put. As a result the partnership cannot repudiate the debt to the bank and each of the partners will be liable for its payment. It has to be stated, however, that Chi will be personally liable to the other partners for the £10,000 and as a further consequence of her breach of his duty not to act in any way prejudicial to the partnership business, the partnership could be wound up.
Di’s purchase of the books was also clearly outside of the express provision of the partnership agreement. However, nonetheless the partnership would be liable as the transaction would be likely to be held to be within the implied authority of a partner in a gallery business (Mercantile Credit v Garrod (1962)). Once again, Di, the partner in default of the agreement, would be liable to the other members for any loss sustained in the transaction.
As regards any partnership debt owing, that is clearly within the ambit of the partnership and the members are all liable for non-payment.
If the partnership cannot pay the outstanding debts then the individual partners will become personally liable for any outstanding debt. Although under s.9 of the Partnership Act 1890 partnership debts are said to be joint, the Civil Liability Act 1978 provides that a judgement against one partner does not bar a subsequent action against the other partners. Once the debts owed to outsiders have been dealt with, only then the internal fi nancial relationships of the partners amongst themselves will be dealt with according to the partnership agreement. |
