Chapter 5Non-corporate organisations – sole traders and partnerships5 As we have seen, a partner has no apparent authority
to convey or enter into a contract for the sale of partner-
ship land.
A partner’s liability for debt and breach
of contract by the firm
If, because of actual or apparent authority, a partner (or
for that matter another agent such as an employee)
makes the firm liable to pay a debt or carry out a con-
tract, as where goods are ordered and the firm refuses to
take delivery, the usual procedure will be to sue the firm
in the firm name. If the court gives the claimant a judg-
ment and the firm does not have sufficient assets to meet
it, the partners are liable to pay it from their private
assets. Under s 3 of the Civil Liability (Contribution) Act
1978 each partner is liable to pay the amount of the
judgment in full. He will then have a right to what is
called a contribution from his co-partners.
Before the 1978 Act contribution was equal. Thus, if
A paid a partnership debt of £300, he could ask his part-
ners, B and C, for a contribution of £100 each.
This rule of equal contribution was taken away by s 2
of the 1978 Act, which provides that the amount of any
contribution which the court may give is to be what it
thinks is ‘just and equitable’ so that it need not in all
cases be equal, but most often will be.
The effect of the above rules is that a partner can be
required to pay the firm’s debts from his private assets.
From this we can see that only if allthe partners are
unable to pay the firm’s debts will the firm be truly
insolvent (decided most recently in Secretary of State for
Trade and Industry v Forde(1997)).
Under s 9 the estate of a deceased partner is also liable
but onlyfor the debts of the firm which were incurred
while the deceased was a partner.
Torts
Under s 10 the firm is liable for the torts of partners
which they commit in the ordinary course of business,
but not where the partner acts outside the scope of the
firm’s usual activities.
Therefore, a partner in an accountancy practice who
prepares the financial statements of a company negli-
gently in the course of the firm’s business will not only
be liable to the client and possibly to others who he
knows will rely on those statements, say, to invest in the
company, but will also make his fellow partners liable.
This is not the case in a limited liability partnership
under the Act of the same name passed in 2000. In such
a case only the firm’s assets and the private assets of the
negligent partner are at risk. The Act of 2000 is further
considered at the end of this chapter.
At common law the firm is also liable for the torts
of its employees committed in the course of their
employment. So, if the firm’s van driver injures a pedes-
trian by negligent driving, both he and the firm would
be liable under the common law rule of vicarious
liability.
The words of s 10 make it clear that there is no action
by one partner against the firm’s assets for injuries
caused by torts in the course of business. Thus, in Mair
v Wood(1948) fishermen operated a trawler in partner-
ship. One partner was injured when he fell because
another partner had failed to replace an engine hatch
properly. The court held that the injured partner had no
claim in negligence against the firm and its assets but
only against the negligent partner in his personal capac-
ity, a successful claim resulting in the payment of dam-
ages from the negligent partner’s personal assets and not
from those of the firm.
In a claim under s 10 the House of Lords has ruled
that the firm and the other partners can be vicariously
liable for the fraud of a partner(see Dubai Aluminium
Co Ltd v Salaam(2003)). In that case a partner in a firm
of solicitors was involved, while acting in the ordinary
business of the firm, in the receipt of some £50 million
for provision of consultancy services to Dubai that were
in fact bogus. The House of Lords decided that the firm
and the other partners, though personally blameless,
were liable vicariously for the partner’s fraud. It was per-
petrated in the ordinary course of the business of the
firm and closely connected with his authorised work for
clients.Misappropriation of property
Under s 11 the firm and partners are liable to make good
loss incurred if a partner misapplies money or property
received from a third person, such as a client. However,
the partner receiving the money or property must have
been acting within the scope of his or her actual or
apparent authority, i.e. held out as being authorised to
receive money or property at the time of receipt. Addi-
tionally, the firm is liable for the misapplication of the
money or property of third persons which is already in
its possession.121