Position of lenders and sellers in consideration of a share in one vvho lends money or sells a goorh ill upon a contract to receive a share in the returns or profits of a business, or a share in the property of the business, should have regard to the prejudicial (to him) provisions of section 3 of the Act. This section, which cannot be noted too carefully, runs as follows: "In the event of any person to whom money has been advanced by way of loan upon such a contract . . . or of any buyer of a goodwill in consideration of a share of the profits of the business, being adjudged a bankrupt, entering into an arrangement to pay his creditors less than twenty shillings in the pound, or dying in insolvent circumstances, the lender of the loan shall not be entitled to recover anything in respect of his loan, and the seller of the goodwill shall not be entitled to recover anything in respect of the share of profits contracted for, until the claims of the other creditors of the borrower or buyer for valuable consideration in money or money's worth have been satisfied." Meaning of is the name by which persons are collectively called who have entered into partnership with one another ; the name under which their business is carried on is called the " firm name." In Scotland a firm is a legal person distinct from the partners of whom it is composed ; but an individual partner may be charged on a decree or diligence directed against the firm, and on payment of the debts is entitled to relief pro rata from the firm and its other members.
A limited partnership exists where one or more of the partners has only a limited liability. This form of partnership, which was introduced into English law by the Limited Partnerships Act, 1907, is not dealt with in this article, but is the subject of the article on LIMITED PARTNERSHIPS (q.v.) in the Appendix.
Relations of partners to persons dealing with them.—Power of partner to bind the firm.—Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership. Though the acts of a partner in the course of carrying on in the usual way the ordinary business of his firm bind the firm and his co-partners, yet the firm will not be bound if 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. Great care should be taken in bills of exchange or promissory note transactions with partnership firms, for only trading firms, strictly so-called, are of such a character as impliedly to authorise their partners to draw and accept bills and make promissory notes (Halley v. Bainbridge ; Garland v. Jacomb). And even this implied authority may be rebutted by express previous notice to the party taking the security from a partner that the others would not be liable for it (Lord Gallwey v. Mathew). A partner in a firm of solicitors is not impliedly authorised to negotiate bills (Hedley v. Bainbridge); nor, according to Mr. Justice Littledale in Dickinson v. Valpy, would a partner in a mining firm or a firm engaged in farming. It may therefore be stated generally, following the words of the Act, that only 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 authorised, whether a partner or not, is binding on the firm and all the partners. But this rule does not affect any general rule of law relating to the execution of deeds or negotiable instruments. Where one partner pledges the credit of the firm for a purpose apparently not connected with the firm's ordinary course of business, so that the firm is not bound unless he is in fact specially authorised by the other partners, yet that partner by so acting may incur a personal liability. Partners may agree between themselves to restrict the power of any one or more of them to bind the firm ; but the restriction will only save the firm from liability, in respect of an act done in con travention thereof, in case the person with whom the liability is incurred has received previous notice of the restriction. A firm cannot, therefore, secretly restrict the powers of its partners to the prejudice of innocent third parties with whom it may deal.
Liability of partners.—In England and Ireland 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 this is so whether the property and profits of the firm belong to the partners in equal shares, or whether the interests of the partners are not equal. After the death of a partner his estate is also severally liable in a due course of administration for the debts and obligations of his firm, so far as they remain unsatisfied, this liability of his estate being subject, however, to the prior payment thereout of his private debts. In Scotland a partner is also severally liable during his lifetime for the debts and obligations of his firm. For wrongs and misappropriation.— Where, by a wrongful act or omission of a partner acting in the ordinary course of the business of the firm, or with the authority of his co-partners, a loss or damage is caused to sonic person who is not a partner in the firm, or any penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act. And the firm is liable to make good any loss caused by one of the partners who, when acting within the scope of his apparent authority, receives the money or property of a third person and misapplies it ; and also where a firm in the course of its business receives money or property of a third person, and the money or property so received is misapplied by one or more of the partners while it is in the custody of the firm. And not only is the firm liable in such cases, but every one of its partners is liable jointly with his co-partners, and also severally, for everything for which the firm while he is a partner therein becomes so liable. If a partner who is also a trustee improperly employs trust property in the business, or on the account of the partnership, no other person as a rule is liable for the trust property to the persons beneficially interested therein. But if any of the partners in the firm have had notice of the breach of trust, and yet permitted and enjoyed the benefit of it, he may become personally liable in respect thereof. Misapplied trust money, if it is still in the possession and under the control of a firm, may be followed and recovered from the firm. Holding out.—A person is said to be " holding out" who, by words spoken or written, or by conduct represents himself, or who knowingly suffers himself to be represented, as a partner in a particular firm. As a consequence of holding out he becomes liable as a partner. The liability is only to any one who has on the faith of his representation given credit to the firm ; but it attaches whether the representation has or has not been made or communicated to the person giving credit by or with the knowledge of the apparent partner making the representation or allowing it to be made. Where, after a partner's death, however, the partnership business is continued in the old firm-name, the continued use of that name, or of the deceased partner's name as part thereof, does not of itself make his executors' or administrators' estate or effects liable for any partnership debts contracted after his death. Incoming and outgoing partners.—Merely by being admitted as a partner in an existing firm a man does not become liable to the creditors of the firm for anything done before he became a partner; and, on the other hand, a partner who retires from a firm does not thereby cease to be liable for partnership debts or obligations incurred before his retirement. A retiring partner may be discharged from any existing lia bilities, by an agreement to that effect between himself and the members of the firm as newly constituted and the creditors [see NOVATION]; and this agreement may be either express, or inferred as a fact from the course of dealing between the creditors and the firm as newly constituted. A con tinuing guaranty, or cautionary obligation, given either to a firm or to a third person, in respect of the transactions of a firm is, in the absence of an agreement to the contrary, revoked as to future transactions by any change in the constitution of the firm to which, or of the firm in respect of the transactions of which the guaranty or obligation was given.