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Hi, Mike,
I have a question about partnership law (I would like to see your view first and then I will post the model answer to you.)A,B and C were partners in a partnership name ABC & Co. C retired from the partnership in May this year.
One month after C’s retirement, under the name of the partnership ans without informing or consulting C, B and A entered into a loan agreement with a bank, which was the first time the partnership had done business with the Bank. Pursuant to the Loan agreement, the bank lent to the partnership the sum of GBP 3 million.
The partnership has been unable to reply the Loan and the bank has decided to commence legal action against C for repayment.
Advise C as to whether she would be liable for the repayment of the Loan.
Thank you.
Note : you may assume that the partners had authority to enter into the the Loan agreement.
Thank you.
Gloria
When an innocent third party enters into a transaction with a partnership, they are entitled to believe that the persons named as partners are genuinely partners.
When C retired from the firm, she should have notified DIRECT all those people with whom the partnership had previously dealt and she should have notified by notice published in a locally circulating newspaper the fact that she was no longer a partner.
If she has failed to do that then anyone now dealing with the firm is entitled to sue the firm and / or any individual partner from within the firm
But now we have a difficult bit! If the bank had previously known that C was a partner, and the bank has not been told that C has retired, then C is in trouble.
However, if the bank had not known that C had previously been a partner and has only discovered this after A and B have defaulted on the loan and the bank has now started legal recovery action, it’s questionable that the bank will be successful against C.
If, when she retired, C did take steps to separate herself from the firm but overlooked a (for example) letterhead that still bore her name and that letterhead had been used in correspondence with the bank, you may think that the bank would be successful.
But there is a case (Tower Cabinet Company v Ingram) where Ingram is in the same situation as C and retired but gave notice. However, he had overlooked a letterhead that his then former partner had used to buy some goods from a new supplier (TCC)
Ingram successfully defended the claim by proving that he had taken all reasonable steps to separate himself from the partnership.
If our C has given notice, then she may be ok. If not, she could well be in trouble
Does that tally with the answer?
Hi, Mike,
Actually this is a question of ACCA Past paper(Dec 11/Q.9) (HKG), as I know the HKG version of partnership ordinance is same as Eng version. This is a really tricky and the model answer is as follows :Since both A and B had not consulted or informed of the use of the name of the partnership for the purpose of entering into the Loan Agreement, therefore C cannot be said to hold herself for the purpose of the Loan Agreement deliberately.
While the Bank may argue that the name of C as appears in the Partnership name by itself had already been a representation, given that C has already retired by the time the Loan Agreement was formed, at most, C was just negligent in allowing her name to remain in the partnership name. As such, C is probably not liable under the doctrine : see the Ingram case.
In addition, Carol may also raise the argument that the Bank had not relied on the name of the partnership before the Bank decided to enter into the Loan Agreement when it was only A and B who entered into the Agreement. Hence, the Bank cannot establish reliance on the representation by C, if any, for the purpose of the Loan Agreement.
By reason of what have been said it is probable that C will not be liable for the repayment of the Loan.
Tutorial Note : the candidates should note that, in practice, it is normal for retired partners to allow their name to remain in the name of partnership by agreement with those partners who have not retired at the same time.end
My answer :
When I first attempted this question, in simple, my answer is C does not remove her name from the partnership when she retired and there is no mention that she had advertised of her retirement in the Gov’t Gazette, moreover, the question states that A & B have authority to enter a loan agreement for partnership. As such, C is still liable for repayment of loan even she retired.
(If I answer in this way, it is totally failed !, By the way, I take HKG version and I must attempt to answer the long question, Too bad!)Gloria
Thanks for this Gloria – although I hate to admit it, I don’t think mine was too different from the answer. At least, that’s what I think!
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