THE DOCTRINE OF HOLDING OUT – SECTION 28
The doctrine of holding out is a branch of law of Estoppel. According to law of estoppel, if a person by his representation induces another to do some acts which he would not have done otherwise, then the person making the representation is not allowed to deny what he asserted
earlier.
Section 28:
i) Any one who by words spoken or written or by conduct represents himself, or knowingly permits himself to be represented, to be a partner in a firm is liable as a partner in that firm to
any one who has on faith of any such representation given credit to the firm, whether the person representing himself or represented to be a partner does or does not know that the
representation has reached the person so giving credit.
ii) “Where after a partner’s death the business is continued in the old firm’s name, the continued use of that name or of the deceased partner’s name as a part thereof shall not of itself make his legal representatives, or his estate liable for any act of the firm after his death.”
As stated in Section 28(1) for the application of doctrine following two essentials is required:
a) The person has himself represented or knowingly permitted himself to be represented by
somebody as a partner of the firm.
b) The third party must have acted on the faith of representation and given credit to the firm.
Representation
Representation in any form indicating that a person is a partner in a firm will create liability.
– Fraudulent intention to mislead another person is not required.
– The liability of holding out depends not on the motive of person making the representation but on the fact that third party has given credit on faith of that representation. Thus, if a person while giving credit to the firm did not know about the representation he cannot take advantage of this doctrine and make such person liable as partner (Tower Cabinet Co. v. Ingram and Re Fraser). The estoppel can be relied upon only by person to whom the representation has been made and who has acted upon the faith of it.
Thus, the presence of two essentials i.e. the representation by one person about the fact of his being a partner and the acting by a third party on the faith of representation are enough to create liability under the doctrine.
Case:
Snow White Food Products Pvt. Ltd. v. Sohan Lal Dagua – It was held that by his verbal negotiations and subsequent correspondence, Sohan Lal represented himself as partner of the firm and therefore, if was partner by holding out. Knowingly permitted such a representation to be made by some one else.
Case 1: In a case, it is being represented that a person A is a partner but A is not aware of
such representation, the question of ‘A’ liability under doctrine of holding out does not arise.
Munton v. Rutherford – In that case, one Beckwith published a statement in newspaper that he and Mrs. Rutherford had famed a partnership which was false and of which Mrs. Rutherford was not aware it was held that she was not liable as a partner by estoppel or holding out it was observed “if she had been shown the article and assented to it and credit have been given on strength of such assent the rule of estoppel would have applied. Their being no evidence that she authorised or assented to it, there is no room for application of it.”
Case 2: Mere careless in allowing oneself to be represented may not necessarily mean that
he has knowingly permitted himself to be a partner.
Tower Cabinet Co. v. Ingram – A partnership consisted of Christmas and Ingram. The partnership was dissolved and thereafter business was caused on by Christmas alone Christmas used an old note paper of the firm bearing the names of 100th Christmas and
Ingram and ordered some furniture from Tower Cabinet Co. The Co. sued Ingram to make him liable on the basis of holding out it was held that merely because Ingram was negligent in not getting old papers destroyed when he left the firm it cannot be inferred that he permitted himself to be represented as a partner.
Tort
The doctrine of holding out does not apply in case of torts and old case Stables v. Eley (wherever a retired partner was held liable for negligence of the cart driver of the firm on the
ground that his name still continued to be there on the cart) has been subsequently disapproved by court of approval in Smith v. Bailey.
Position of a retired partner
When a partner retires the relation of partnership between the retiring partner and the other partners come to an end. But to escape the doctrine of holding out the public notice of such a retirement is a must. Such notice may be given either by retired partner or by any other partner of the reconstituted firm.
Section 32(3) provides that “notwithstanding the retirement of a partner from a firm, he
and the partners continue to be liable to the third parties for any act done by any of them until
public notice is given of the retirement.”
Thus, if a third party who knew of the existence of the relationship does not know that relationship has come to an end and gives credit to the firm he can make retiring partner also
liable. Similarly, if he gives credit to the retiring partner thinking him still to be a partner he can make the continuing firm liable. Thus, from the point of view of third parties, the mutual
agency which earlier existed is still presumed to be continuing until public notice of retirement
is given.
Lord Blockburn referring to liability in such cases stated – “I do not think that the liability is upon the ground that the authority actually continues. I think it is upon the ground that there
is duty upon the person who has given that authority, if he revokes it, to take care that notice
of that revocation is given to those who might otherwise act on supposition that it continued.”
– No public notice is given on retirement of dormant partners. The object of public notice being to remove the impression from the mind of the third parties that a certain person was a partner, no public notice is given when third parties had no such impression.
Case:
i) Scarf v. Jardine – Where a third party was ignorant of either the retirement of a partner or introduction of a new partner, when both the changes have taken place simultaneously.
– A and B were partners. A retired and C joined without being giving the notice of such
a change. A customer brought an action against B and C to recover the price of
goods supplied to the firm. Having failed to recover the price from B and C he brought
an action against A.
– The question before the court was whether third party could successfully bring action
against A, B and C.
– It was held that when the customer is ignorant of retirement of A and introduction of
C, he has option to sue either A and B on grounds of estoppel or B and C on grounds
of actual fact. Since A never held himself out as a partner along with B and C, both he
cannot make A, B and C all of them liable. Therefore, after having elected to sue B
and C he cannot bring action against A.
– The position would have been different if he was aware of introduction of C to the firm
but was not aware of the retirement of A. Then, he could presume that C had joined
the firm which already consisted of A and B and in that situation could make all three
partners liable.
– The position of expelled partner is same that of a retired partner and in his case also,
public notice of expulsion has to be given.
Death of a Partner – Section 28(2)
– On the death of a partner there is automatic dissolution of firm unless there is contract to
the contrary between the partners.
– Where there is contract between the partners by virtue of which a firm is not dissolved the
fact that the business of the firm is carried in old firm name does not make the legal representative or the estate of the deceased partner liable for an act of firm done after his
death.
– The position of legal representatives of a deceased partner is different from that of a
retired partner as the former will not be liable for the acts of the firm done after the death
of the partner even though no public notice of partners death is given where as a retiring
partner will continue to be liable for acts of another partners until public notice of
retirement is given.