Relations of Partners Amongst Themselves

The rights and obligations of partners may be governed by express agreement among themselves.  In the absence of any agreement, the rights and duties of partners are such as may be defined in the Partnership Act.  However, no matter what the terms of the agreement may be or even  in the absence of any agreement, there is one element which the law implies in every partnership.  This is the element of ‘UTMOST GOOD FAITH’.
Every partner is under a duty to observe utmost fairness and good faith towards his co-partners.  The fundamental basis of partnerships is that they are founded on mutual trust and confidence and where a person reposes trust and confidence in another, equity insists that such trust and confidence shall not be unused.  It is not clear whether it is open to the partners to exclude this principle but it will appear that the principle is too fundamental to be dispensed with.  If a partnership agreement provides that a partner may be expelled for breach of certain stated articles, the other partners cannot use that provision to expel a fellow partner otherwise than in good faith.  They cannot for example expel a partner if their real intention is to force the sale of that partner’s interest on an unfavourable terms.  But if there  is a blatant breach of the Articles, such a provision would justify the expulsion of the offending partner even without preliminary warning.  Refer to Clifford V. Timms [1907] 2 Ch. 236 in this case the partners carried on business as dentists.  The Articles of Partnership contained a provision that if any partner should be guilty of professional misconduct, the other partner should be at liberty to give notice in writing, terminating the partnership.  The Plaintiff as a director in an American Company of some other dental surgeons was party to publications by that company which amounted to self-puffing advertisement and which were a disparagement of other Dentists and their mode of operations.  Among other things they alleged that only their instruments were always sterilised before being used and that they had engaged a trained lady nurse to be present at all dental operations so as to prevent any scandal arising between an operator and a lady patient.  The other partners issued a notice to the Plaintiff to terminate the partnership. The Plaintiff filed this action for a declaration that the notice was ineffective.  The court held that these publications contained elements of disgraceful connotations in a professional respect.  Therefore the notice was effective and the partnership duly terminated and there was no evidence of bad faith on the part of the Defendants.

A partner is also precluded from making a secret profit at the expense of the firm.  Thus a partner is duty bound to account to the firm for any commission on any sale or even purchase of the firm’s property.  If a partner sells his own property to the firm, he should not make any profit out of that sale without full disclosure to the other partners.  However, unless expressly restricted by the partnership agreement a partner may carry on another business so long as it does not compete with and is not connected with the business of the firm and as long as he does not represent it to be the business of the firm.  He must account if he competes.  Section 33 -34 of the PA.

Section 28 PA lays down rules for determining the interest of partners in the partnership property and in relation to management, every partner is entitled to take part in the management of the business but no partner is entitled to any remuneration for acting in the partnership business.  But Section 28 applies subject to any agreement express or implied between the partners.

In many partnerships it is common practice to find an article authorising each working partner to take a salary as a manager in addition to his own share of the profits.  Since such a salary must be paid before profits are shared, it follows that the working partner or partners end up receiving more than the sleeping partners.  As an incident of management it is only proper that each partner should have access to the books of account.  Under Section 28 therefore the partnership books are required to be kept at the place of business of the partnership or at the principal place if there are more than one and every partner has a right to have access to those books to inspect them and even copy any of them.

As regards capital and profits all partners are entitled to share equally in the capital or profits of the business.  They must also share equally the losses sustained by the firm.   This rule however applies in the absence of an agreement to the contrary between the partners.  If a partner makes any actual payment or advance for the purposes of the partnership business he is entitled to interest at the rate of 6% per annum because such an advance is treated as a loan in respect of which interest is payable.  Where a partner makes any payment or incurs personal liability in the ordinary and proper conduct of the business of the firm or if he makes any such payments or incurs liability in connection with anything necessarily done for the preservation of the business or property of the firm, then such a partner is entitled to indemnity from the firm. 

It is sometimes necessary to distinguish between the partnership property and the private property of every partner.  This may be important particularly as between the partners themselves or between the creditors of the firm and the creditors of individual partners or persons taking a deceased partner’s real estate and those taking personal estate.  For example partnership business may be carried on in a building owned by one of the partners.  Is the building part of the partnership property?  The principle of law is that whether property is or is not partnership property depends on the agreement expressed or implied between the partners.


Like Us on Facebook

Contact Form


Email *

Message *