DUTIES OF THE PARTNER
1. Duty to carry on the business to the greatest common advantage
Read with Section 16(a) – If a partner derives any profit for himself from any transaction of the firm, or from the use of property or business connection of the firm or from the firm name, he
shall account for that profit and pay it to the firm.
In case Bentley v. Craven – Supplying sugar on his own instead of purchasing from the market and concealing this fact. and in Gardner v. Mecutcheon it was held defendant not entitled to use partnership property (joint ownership of a ship) for private benefit.
2. Duty to be just and faithful
– Partners must perform their function with utmost fairness. Thus, Section 33 provides that even if the contract between the partners authorised the expulsion of the partners the fellow
partner must exercise this power in good faith.
– In case a partner is guilty of conduct which destroys mutual confidence e.g. one partner
commits adultery with another partner’s wife that can be the ground on which the court may
order dissolution of the firm. (Abbott v. Crump)
3. Duty to render true accounts
4. Duty to render full information of all things affecting the firm.
– Concealment of facts by a partner renders him liable to the other. Thus, if a partner having
full knowledge of the fact with regard to partnership assets purchases the share of a co-partner without making full disclosure of the fact to the other, the contract is voidable.
– However in Law v. Law, it has been held that if a partner who is entitled to repudiate the
contract does not repudiate it and does not insist on full disclosure of the fact but rather
agrees to modification of original bargain, cannot subsequently repudiate the contract.
5. Duty to indemnify for fraud – Section 10
Every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of
the business of the firm.
Campbell v. Campbell – One of the partners of a distillery, who did not take part in the conduct of business, had to pay penalties which were levied upon the firm in consequence of the purchase of illicit whisky. The purchases were affected by the managing partners and the plaintiff partner had no knowledge of them. They were held liable jointly and severally to indemnify him against the amount so paid and interest on it. It was immaterial that the loss
was caused by acts of illegal nature, for the plaintiff had not taken any part in them, nor had
done anything which could be regarded as acquiescence, knowledge or consent.
6. Duty to be diligent – Section 12(b) and Section 13(f)
According to Section 12(b) every partner is bound to attend diligently to his duties in conduct
of the business of the firm if the partner is negligent in the performance of his duty this may
cause loss not only to the partner but to the firm as a whole. Thus, Section 13(f) provides that if a firm suffers loss by a wilful neglect of the partner he shall indemnify the firm for the same.
The expression ‘wilful neglect’ means an act done intentionally and deliberately rather than
by in-advertence or an accident.
– An act done in good faith and bonafide cannot be termed wilful neglect.
Cragg v. Ford – Delay in disposing of bales of cotton, led to loss, on account of steep fall in price cannot be termed as wilful neglect.
– The partners are free to make a contract that they will not be liable for wilful neglect.
6. Duty to properly use the firm’s property – Section 15 and 14
Section 14: Defines property of the firm
The property of the firm includes all property and rights and interest in property originally brought into the stock of the firm or acquired by purchase or otherwise by or for the firm or for the purpose and in course of business of the firm and includes also the goodwill of the business.
Unless the contrary intention appears, property and rights and interest in property acquired
with money belonging to the firm are deemed to be acquired for the firm.
– The property of the firm not only includes what is originally brought into the stock of the firm but also whatever is subsequently acquired by purchase or otherwise. Partners may bring in immovable property also into the common stock and that becomes the property of the firm.
– Property of the firm also includes goodwill. Goodwill is an advantage which a business acquires by its reputation. It is acquired by a business in consequence of general public patronage and encouragement which is receives from constant or habitual customers.
– Goodwill being a property of the firm, it may be sold either separately or with other property
of the firm.
– The property belonging to any partner does not become the property of the firm by merely its use in partnership business; it will become the property of the firm if there is an indication of an intention to treat such property as the property of the firm. (Jayalakshmi v. Shangmugham)
– Property purchased with the partnership money is deemed to be property of the firm. Thus,
land purchased with the partnership money but in the name of partner. (Forester v. Hole),
shares purchased by the partner with the firms money in partner’s name (Exp. Connell),
insurance policies taken on lives of partners the premium for which is paid by the firm (In Re
Adarji) are deemed to be the property of the firm.
Conversion of joint in to separate property:- Where certain property is purchased with
partnership money but in the name and for the sole benefit of a partner, he becoming debtor to the firm for the purchase money. It becomes the personal property of the partner. Similarly where on the dissolution of a firm a part of the joint properties is allotted to a partner it becomes his separate property.
(N.Khadervali Saheb v. N.Gudu Saheb 2003 SC)
Section 15 Proper use of property:-The section makes it a duty of the partners that the property of the firm shall be held and used by them exclusively for the purpose of the business of firm. Even if the section had not so provided, a joint property being the nature of a trust, has
always to be used for the purposes of the trust. No partners should, therefore, use the assets of the firm for any of his personal purposes. Any such exploitation will render the partner
accountable to the firm for any private advantage obtained by him. He shall also be responsible to indemnify the firm for damage, if any thereby caused to its assets.
The failure of a partner to submit an account of his doings in reference to the property of the
firm may make him liable to an action but not to a charge of criminal misappropriation of
property.
8. Duty not to earn personal profits – Section 16
a) If a partner derives any profit for himself from any transaction of the firm, or from the use of the property or business connection of the firm or the firm name, he shall account for that
profit and pay it to the firm.
b) If a partner carries on any business of same nature as and competing with that of the firm he shall account for and pay to the firm all profits made by him in that business.
– A partner is the agent of the firm for the purpose of the business of the firm if an agent without the consent of his principal deals in the business of the agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.
Cases:
i) Bentley v. Craven (Supply of sugar)
Similarly, if a partner, without the knowledge of the other co-partners himself purchases the property of the firm and thereby gains some benefits, he has to account for that benefit to
the firm.
ii) Gordan v. Holland – A partner sold the firm’s land and then repurchased it.
– Information received as partner – The duty of partner as to the exploitation of information received by him as a partner was thus stated in Aas v. Benham: If a member of a partnership firm avails himself of information obtained by him in the course of the transaction of partnership business, or by reason of his connection with the firm, for any purpose within the scope of the partnership business, or for any purpose which would compete with the partnership business, he is liable to account to the firm for any benefit he may obtain from the use of such information; but if he uses the information for purposes which are wholly without the scope of the partnership business, and not competing with it, the firm is not entitled to an account of such profit.
On the facts of the case the partner in question was held to be not liable to account because the business of the company into which he jumped was that of ship-building whereas his firm was that of ship-brokers.
Profits earned in competing business – Section 16(b)
– If a partner carries on any business of same nature as a competing with that of the firm, he shall account for and pay to the firm all profits made in competing business.
– Section 11(2) lays down that partners can lawfully make a contract that a partner shall not carry on any business other than that of the firm while he is a partner. Such a contract protects the interests of the partners and has been declared to be valid inspite of rule contained in Section 27 of ICA. If such an agreement has been entered into then the question of any partner carrying on any other business competing or non-competing does not arise injunction can be obtained against such a partner.
– However, if there is no such agreement between the partners, it is expected that a partner shall not carry on competing business otherwise he will have to account for the profits of that business to the firm.
– If the business carried on by the partner is not of the same nature and is not in competition with the firm the partner concerned may retain the profit.
– The above stated rule is subject to contract between the partners and therefore it is possible that a partner may be permitted by a contract to carry on competing business and also to retain profits of that business to himself.
Pulin v. Mahendra – A partnership was founded between certain persons for importing salt from foreign countries and to resell the same in Chittagong. One of the partners, while operating to buy salt for the firm, bought some quantity for himself and resold on his personal account.
He was held liable to account for this profit to his co-partners, as the opportunity to make it came his way while he was on the business of the firm.