Q.
a) Ali and Bidin are partners in a construction company. Bidin entered into a contract to buy building materials from Chong. If Bidin dies before payment is made, is Ali liable to make payment to Chong. Explain. (10 marks)
b) Explain how the principal-agent relationship may be created. (10 marks)
(20 marks, 2013 Q7)
A.
a)
Definition of partnership (Partnership Act, 1961)
Section 3. (1) Partnership is the relation which subsists between persons carrying on business in common with a view of profit.
RELATIONS OF PARTNERS TO PERSONS DEALING WITH THEM
Power of partner to bind firm
Section 7. Every partner is an agent of the firm and his 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 he is a member bind the firm and his 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 he is dealing either knows that he has no authority or does not know or believe him to be a partner.
Partners bound by acts on behalf of firm
Section 8. An act or instrument relating to the business of the firm and done or executed in the firm-name, or in any other manner showing an intention to bind the firm, by any person thereto authorized, whether a partner or not, is binding on the firm and all the partners:
Liability of partners
Section 11. Every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner; and after his death his estate is also severally liable in a due course of administration for such debts and obligations, so far as they remain unsatisfied but subject to the prior payment of his separate debts.
Two other forms which have developed in most countries are the limited partnership (LP), in which certain limited partners relinquish their ability to manage the business in exchange for limited liability for the partnership's debts, and the limited liability partnership (LLP), in which all partners have some degree of limited liability.
There are two types of partners. General partners have an obligation of strict liability to third parties injured by the Partnership. General partners may have joint liability or joint and several liability depending upon circumstances. The liability of limited partners is limited to their investment in the partnership.
[In the case of Ali and Bidin, we assume that the partnership is general. There is no distinction between the partnership and its partners, who are individually liable to the partnership and that of its partners. The key words are "binding on the firm and all the partners".
Hence, Bidin and Ali are both bound to the liability of the partnership. Unlike Sendirian Berhad (Sdn Bhd) or Private Limited (Pvt Ltd), where the company is a separate legal entity from its members, partnership has no such legal position. The landmark case Salomon v Salomon & Co. Ltd is the leading authority in this matter, where doctrine of separate legal entity was recognized.
Therefore, Ali is no difference to Bidin in a partnership above. There is no separate legal entity between Ali, Bidin and the partnership. Ali is responsible to the partnership firm as like Bidin. So, if Bidin dies, bis estate or Ali are bound to the liability of the partnership in totality. In this context, Ali has to pay Chong if Bidin dies without estate left to pay the debts. Ali is liable to the firm and its creditors, and like he himself is liable to Chong.]
b)
Principal-agent relationship - creation.
Refer ealier poster on Law of Agency in Malaysia.
Ref:
Partnership Act, 1961, available at
http://www.agc.gov.my/Akta/Vol.%203/Act%20135.pdf
Wikipedia search 'partnership legal position', available at
http://en.wikipedia.org/wiki/Partnership
[Own account]