Chapter 5Non-corporate organisations – sole traders and partnerships4 Death of a partner.Under s 33(1) the death of a part-
ner (but not a limited partner) dissolves the firm. The
share of the partner who has died goes to his personal
representatives who are usually appointed by his will.
They have the rights of a partner in a dissolution. Partner-
ship agreements usually provide that the firm shall con-
tinue after the death of a partner so that the dissolution
is only a technical one. A deceased partner’s share is paid
out to his personal representatives, although partnership
agreements do sometimes provide for repayment of cap-
ital by instalments, or by annuities, e.g. to a spouse or
other dependant. Of course, there is bound to be a true
dissolution of a two-partner firm when one partner dies
since if the other carries on business, it is as a sole trader.
5 Bankruptcy of a partner.By reason of s 33(1) the
bankruptcy of a partner (not a limited partner) dissolves
the firm. The partnership agreement usually provides
that the business shall continue under the non-bankrupt
partners, which means that the dissolution is again only
a technical one, and the bankrupt partner’s share is paid
out to his trustee in bankruptcy. The agreement to con-
tinue the business must be made before the partner
becomes bankrupt. (Whitmore v Mason(1861).)
6 Illegality.Under s 34 a partnership is in every case
dissolved by illegality. There can be no contracting-out
in the partnership agreement.
There are two types of illegality:
(a)Where the business is unlawful; for example, where
the objects are unlawful because, as in Stevenson & Sons
Ltd v AG für Cartonnagen Industrie(1918) the English
company, Stevenson, was in partnership with a German
company as a sole agent to sell the German company’s
goods. This would obviously involve day-to-day trading
with an enemy in wartime and the partnership was
therefore dissolved on the grounds of illegality. The clas-
sic case is Everet v Williams(1725). This was a claim by
one highwayman against another to recover his share
of profits derived from a partnership covering activities
as a highwayman. The claim was dismissed because the
partnership was illegal, being to commit crime, and the
‘partners’ were sentenced to be hanged!
(b)Where the partners cannot legally form a partnership
to carry on what is otherwise a legal business, as in Hudgell,
Yeates & Co v Watson(1978) where a firm of solicitors
was regarded as dissolved when one partner had made
himself unqualified to practise as a solicitor by mis-
takenly failing to renew his annual practising certificate.
Judicial dissolution
Dissolution by the court (normally the Chancery Division
of the High Court) is necessary if there is a partnership
for a fixed time or purpose and a partner wants to dis-
solve a firm before the time has expired or the purpose
has been achieved and there is nothing in the partner-
ship agreement which allows this to be done.
There must be grounds for dissolution. These are set
out below.
1 Partner’s mental incapability.This is a ground under
the Mental Capacity Act 2005. The petition for dissolu-
tion is in this case heard by the Court of Protection
which sits to look after the property of people who lack
mental capacity. The partner concerned must be incap-
able, because of mental incapacity, of managing his
property and affairs.
A petition may be presented on behalf of the partner
who is incapacitated or by any of the other partners.
2 Partner’s physical incapacity.This is a ground under
s 35(b). The incapacity must be permanent. In Whitwell
v Arthur(1865) a partner was paralysed for some months.
He had recovered when the court heard the petition and
it would not grant a dissolution.
Partnership agreements often contain express clauses
which allow dissolution after a stated period of incapac-
ity. In Peyton v Mindham(1971) a clause allowing a fixed-
term partnership to be dissolved after nine months’
incapacity was enforced. (See the model partnership deed,
clause 16(g) on p 139.)
Section 35(b) states that the incapacitated partner can-
not petition. It is up to his co-partners to do so, other-
wise he continues as a partner.
3 Conduct prejudicial to the business.Section 35(c)
provides for this. The conduct may relate to the business,
as in Essell v Hayward(1860), where a solicitor/partner
misappropriated £8,000 of trust money in the course of
his duties as a partner. This was a ground for dissolving
a partnership for a fixed term, i.e. the joint lives of the
partners.
It may, of course, be outside conduct. This will usually
justify a dissolution if it results in a criminal conviction
for fraud or dishonesty.
Moral misconduct is not enough unless, in the view
of the court, it is likely to affect the business. In Snow v
Milford(1868) where the matter of dissolution was also
considered, as well as the matter of expulsion, ‘massive129