Conduct of the business and Mutual rights and liabilities  

Section 12 of Partnership act states:

The conduct of the business.

Subject to contract between the partners,

(a) each partner has a right to take part in the conduct of the business;

(b)each partner is bound to attend diligently to his duties in the conduct of the business;

(c) any difference arising as to ordinary matters connected with the business may be decided by a majority of the partners, and every partner shall have the right to express his opinion, before the matter is decided, but no change may be made in the nature of the business without the consent of all the partners; and

(d) each partner has a right to have access to and to inspect and copy any of the books of the firm. State Amendment

Section 12 provides that every partner is liable for the tortious or criminal act of his co-partners provided the act complained of either:

• occurred in the ordinary course of the firm’s business or the act was authorised by the co-partners.

• In Hamlyn v Houston, a partner was engaged by the firm to obtain information by legitimate means about the business contracts etc of its competitors. He bribed the clerk of the rival firm to divulge confidential information about that firm to him and thus committed the tort of inducing a breach of contract. The bribe came out of the firm’s money and the resulting profits went into its assets. The rival firm who had lost money as a result sued the other partners in tort. The C/A allowed the action to succeed. The court was of the view that it was within the ordinary scope of the partner’s business to obtain the information, so that his object was lawful, and the fact that it was obtained by unlawful means did not take it outside the ordinary course of the firm’s business.

In Walker v European Electronics, (1990) 23 NSWLR 1Mahoney J.A. explained the phrase “ordinary course of the business of the ordinary firm”. In this case, the receiver and manager of the company misappropriated the company’s fund. The receiver was appointed personally and had maintained separate receivership accounts but was a partner in a firm of accountants, whose other principals engaged in insolvency and taxation practises and had no significant involvement with receivership. The court held that the parties practiced together as accountants. The inference is that their business included the acceptances of appointment as receiver or receiver and manager and the doing of acts done to carry out such appointment.

Section 13 of Partnership Act provides with:

Mutual rights and liabilities.

Subject to contract between the partners,

(a) a partner is not entitled to receive remuneration for taking part in the conduct of the business;

(b) the partners are entitled to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm;

(c) where a partner is entitled to interest on the capital subscribed by him such interest shall be payable only out of profits;

(d) a partner making, for the purposes of the business, any payment or advance beyond the amount of capital he has agreed to subscribe, is entitled to interest thereon at the rate of six per cent. per annum;

(e) the firm shall indemnify a partner in respect of payments made and liabilities incurred by him

     (1) in the ordinary and proper conduct of the business, and

     (2) in doing such act, in an emergency, for the purpose of protecting the firm from loss, as would be done by a person of ordinary prudence, in his own case, under similar circumstances; and

(f) a partner shall indemnify the firm for any loss caused to it by his willful neglect in the conduct of the business of the firm.


• British Homes corp v Patterson, the pltfs engaged Atkinson to act as its solicitor vis-a vis a mortgage and Atkinson later informed them that he had taken patterson into partnership. The pltfs nevertheless sent a cheque ignoring the new firm name, which was then misappropriated by Atkinson, and sought to recover the amount from Patterson under s 11 (ours 13). Held that patterson could not be liable because at all times the pltfs had dealt with Atkinson as an individual and had elected to continue the contract as one with an individual even after the notification of the existence of the firm.

Section 13 (b) I) states that the firm receives the money

 ii) a partner or more partners misappropriate it while it is in the custody of the firm. I.e. any other partners or agent of the partner misappropriate the money received by the partner.

In Rhodes v Moules the pltf sought to raise money by way of a mortgage on his property. He met a solicitor in a firm who told him that the lenders wanted additional security and so he handed the solicitor some share warrants. The solicitor misappropriates, them and the pltf sued the firm under s 11 (ours 13). C/A held that the firm was liable under both heads. On the evidence the certificates were received in the ordinary course of the firm’s business and also within the apparent authority of the partner.

Section 13(b) states that the receipt must be by the firm in the course of its ordinary business and the misapplication must have been done whilst the property was still in the firm’s custody. since it concern misappropriation of property while in the custody of the firm, if it is not in the custody, the firm will not be liable.

Tendring Hundred waterworks co v Jones, the company employed a firm of solicitors, Garrard and Jones, to negotiate a purchase of land. Garrad was the company secretary and his fees as such were regarded as partnership income. The company stupidly arranged for the land to be conveyed into Garrard’s name and the vendors gave him the title Deeds. Garrard used the deeds to raise money by way of a mortgage. The company now sought to make Jones liable for Garrad’s misapplication.

• Farwell J held that this did not fall within s 13(b) since the deed was given to Garrad not in his capacity as company secretary or partner but as a private individual who was named in the conveyance as the legal owner. Thus the deed was not in the custody of the firm.

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