PARTNERSHIPS. When a partnership account is being opened it is advisable, as far as possible, to obtain information regarding the assets and liabilities of the firm and the amount of capital introduced into the firm by each partner. If the firm requires an overdraft, it is particularly desirable to know to what extent the firm is already trading upon borrowed capital, and whether the money has been lent to the firm or simply to one of the partners in his private capacity. If the money has been borrowed by a partner himself, it will not, of course, be a debt due by the firm, but by the partner.
When a firm's account is opened, the bank's . usual partnership form should be signed by all the partners. Although a partner may have power to draw cheques in the name of the firm, it is customary to have a clear arrangement made as to the manner in which cheques are to be signed, and there fore the form should state distinctly what is • the arrangement.
In many cases a partner merely signs the firm's name, " J. Brown Sc Coy.," but a not uncommon form is, " For J. Brown & Coy., J. Brown." In some cases the authority is for the banker to honour cheques only when signed by all the partners, but most commonly authority is given for cheques to be paid when signed by any one partner, and occasionally the authority is limited to one particular partner. A specimen of the firm's signature in the writing of each partner authorised to sign should be given at the foot of the form.
When a firm wishes a banker to honour cheques upon the partnership account when signed by some person who is not a partner, the form of mandate should be signed by all the partners, and particular instructions should be taken as to whether the authority is to extend to the account if overdrawn.
If there is only one partner in a firm a form should be signed by him to the effect that " I, the undersigned John Brown, being the sole partner trading under the title of Thomas Brown & Coy., will sign cheques as below." A specimen of the way in which he will sign should be appended.
An authority from all the partners in a firm for one of their number to sign should specifically state that he has power to over draw the account, for although one partner in a trading firm has implied power to borrow for the purposes of the business, and bind the firm, it is better to be on the safe side and include that power in the mandate. A partner has power to pledge partnership property, but when securities are deposited by a firm it is customary for the memoran dum of deposit to be signed by all the partners when the securities are in their names, or the firm's name. If a legal mort gage is taken all the interested parties must sign it, as one partner cannot bind the other partners by deed.
A notice from one partner to cancel the authority as to signing cheques, or to stop payment of a cheque signed by any partner in the firm's name, is sufficient for a banker to act upon.
A banker cannot set off any credit balance on the private account of a partner for a debt owing by the firm, nor a credit balance on the firm's account for an overdraft on a partner's private account.
A person signing a promissory note as partner in a firm binds his co-partners jointly but not severally, but if he signs a joint and several note he may bind himself severally and the firm jointly.
Where a guarantee is to be signed by a firm, each partner should sign. If only one partner signs on behalf of the firm, it might be held that the signing of a guarantee was not an act for carrying on the business in the usual way. See Section 5, Partnership Act, below.
If a guarantee, signed by each partner personally, is taken as security for the firm's account the banker will thereby have a claim upon the private estate of each partner as well as upon the partnership estate.
If a partner deposits his own private property as security for the firm. and the firm becomes bankrupt, the banker may claim upon the firm's estate for the full amount of the debt.