Chapter 5Non-corporate organisations – sole traders and partnershipsThe ability to change the partnership
agreement
Section 19 states that partners can change the business
of the firm but because of the provisions of s 24 allthe
partners must be in agreement about this.
Partners can also change the provisions of the 1890
Act which the Act puts into partnership agreements
unless the partners have dealt with the matter in the
agreement themselves. For example, the Act provides
in s 24 that profits and losses are to be shared equally
but the partners may provide for a different share, e.g.
one-third/two-thirds, in their agreement.
The provisions of the Act which deal with the rela-
tionship of the partners and outsiders cannot be
changed in this way. Section 8 says that internal restric-
tions on the authority of partners, for example in the
partnership agreement, have no effect on an outsider
unless he has actualnotice of the restriction.
This was illustrated by the case of Mercantile Credit
Co Ltd v Garrod(1962) where the partnership agree-
ment said that there was to be no buying or selling of
cars. This did not prevent the sale of a car to Mercantile
by a partner being good, since Mercantile had no know-
ledge of the restriction.
A written partnership agreement may be varied by
attaching a written and signed indorsement to the original
agreement. However, even where the original agreement
is written (and obviously if it is oral) the partners may,
either orally or by the way they deal with one another, vary
the agreement. This is not surprising since the original
agreement of partners does not have to be in writing.
The case which follows is an example of partners
agreeing to one thing but sliding into a different way
of going on. The books of the firm were kept and the
accounts prepared from them in a way which was differ-
ent from the original agreement.123
London Gazette (see below), but only if he actually reads
the Gazette.
2 Creditors who have not had previous dealings with
the firm but who knew or believed X to be a partner
before he retired.As far as these people go, X will not be
liable for post-retirement debts:
■if they had for some reason actual knowledge of X’s
retirement; or
■X’s retirement was published in The London Gazette,
whether it was seen or not.
The London Gazetteis published daily by the Stationery
Office and contains all sorts of public announcements:
for example, bankruptcies, company liquidations and
partnership dissolutions.
3 Creditors who have not had previous dealings with
the firm and do not know that X was ever a partner.
These people cannot hold X liable for post-retirement
debts even if no notice has been received by them and
even though no notice has been put in the Gazette. X
could only be liable to these people if he was knowingly
held out as a partner under s 14.
In Tower Cabinet Co Ltd v Ingram(1949), which was
dealt with earlier in this chapter (see p 116 ), no notice
of Mr Ingram’s retirement was put in the Gazette, but he
was not liable to Tower Cabinet under s 36 because they
did not know or believe him to be a partner prior to his
retirement. He was not liable either under s 14 (holding
out) for reasons already given.
Section 36 states that the estate of a deceased or
bankrupt partner is not liable for debts incurred after
death or bankruptcy, as the case may be, even if no
advertisement or notice of any kind has been given.
Just as a written partnership agreement is to be recom-
mended at the beginning of the relationship, so it is
very sensible to address the matters that arise when a
partner leaves by retirement and record them in a bind-
ing deed of retirement.
Relationship of partners within
the partnershipWe shall now deal with the relation of partners to one
another. It is governed by ss 19 –31 of the 1890 Act, the
provisions of which are set out below.
Pillingv Pilling (1887)A father took his two sons into partnership with him. The
partnership agreement provided that the assets of the
business were to remain the father’s and that he and
his sons should share profits and losses in thirds. Each
son was to have, in addition to a one-third share of the
profits, £150 a year out of the father’s share of profit,
and repairs and expenses were to be paid out of profits.
It was also agreed that the father only should have 4 per
cent on his capital per annum and that the depreciation