Duty to account for secret profits

Every partner must account to the firm for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership property name or business connection. In Bentley v. Craven (1853), the plaintiff was in partnership with the defendants as sugar refiners. Craven, the firm’s buyer, bought sugar cheaply and sold it to the firm at the market price. The court held the firm was entitled to the profit made by Craven.

The section also applies to transactions undertaken after the partnership has been dissolved by the death of a partner and before the affairs thereof have been wound up. In Thompson’s Trustee in Bankruptcy v. Heaton [1974], T and H were partners and as such held the lease of a farm. The firm was dissolved by mutual consent and the farm was occupied by H and later by a limited company controled by H and his wife. On H’s death, T claimed a half-share of the lease, and in the same year, H’s executors acquired the freehold reversion and later sold the farm. T’s trustee in bankruptcy succesfully sought a declaration that the executors held the reversion as trustees for themselves and T.

In Boardman v. Phipps [1966] the appellants acted as agents for a trust which held shares in a private company. As a result of information gained as trustees, the agents purchased nearly all the other issued shares in the company without the prior consent of the trustees and, as a result of their management skills, the shares increased in value to the benefit of the trust and themselves. In an action brought by one of the beneficiaries of the trust, the House of Lords held that the agents were accountable to the trust for the profit made by them since their opportunity for making a profit arose because of their agency on behalf of the trustees of the trust.

Duty not to compete with the firm

If a partner, without the consent of the other partners, carries on any business of the same nature as and competing with that of the firm, he must account for and pay over to the firm all profits made by him in that business. The partnership agreement would usually prohibit the carrying on of such a business.

The relations of Partners to Persons dealing with Them

Powers of partners 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; and the acts of every partner bind the firm and his partners, unless the partner has in fact no authority for the firm in the particular matter.

Liability for Debts and Contractual Obligations

Every partner in a firm is jointly liable with the other partners for all debts and obligations of the firm incurred while he is a partner; and after his death his estate is also severally liable for such debts and obligations, so far as they remain unsatisfied.

Joint liability means liability interdependently with the other partners to the joint creditors of the firm but not independent (or several) liability.

It is still normal for persons dealing with a firm to provide that partners shall be jointly and severally liable, however, since this means that, in the event of the bankruptcy of the firm, they would have an equal claim with other separate creditors against the estate of the individual partner, as well as against the joint assets of the firm.