Liability of Partnership and False Advertisement: Legal Analysis

2018

Question 1
I: Issue
Key issues:
 Whether the partnership is liable under the contract formed between Lance and
Lynton?
 What legal remedies available for the partnership?
R: Rule
A partnership is formed between two or more individuals who agreed to run a business in
common and share its earnings or losses with each other. It is governed by the provisions
given under the Partnership Act 1892. The relationship between partners is a key part of the
partnership which provides their rights and liabilities. It is a general rule that all partners are
liable for the actions of other partners which are taken by them while performing the
partnership business. Moreover, the liability is unlimited in case of a partnership which
provides that all the partners are personally liable for the debts of the partnership. Section 10
provides the provision regarding liabilities of partnership (Austlii, 2018a). It provides that all
partners are liable for the wrongful actions of a partner which are taken by him while acting
within the ordinary course of business and with the appropriate authority. In Polkinghorne v
Holland (1934) 40 ALR 353 case, the court provided in its judgement that all the partners are
jointly or severally liable for the action of one partner which are done under the ordinary
course of business. Furthermore, in Birtchnell v Equity Trustees (1929) 35 ALR 273 case, a
judgement was given by Dixon J who provided that partners owed a fiduciary duty towards
each other breach of which leads to legal consequences (Shankar, 2014).
A: Application
Facts of the case:
 A contract was constructed between Lance and Lynton regarding the purchase of a car
worth $25,000.
 Lance was instructed by other partners to purchase the car for business purposes. The
budget for the car was set to $20,000 by other partners.
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 Lynton knew that Lance is a partner, and he is purchasing the car for the partnership.
He did not know that Lance’s budget is for $20,000.
All partners took the decision for purchasing a new car, and they wanted to use it for
partnership purposes. Thus, the decision of Lance to purchase the car comes under the
definition of the ordinary course of business based on which other partners are also liable to
pay the car salesman (Polkinghorne v Holland). Since Lance acted against the instructions of
other partners, he breached his fiduciary duty based on which other partners can hold him
personally liable for purchasing a car by going over budget (Birtchnell v Equity Trustees).
C: Conclusion
Thus, the partnership is liable under the contract formed between Lance and Lynton.
Moreover, other partners can file a legal suit against Lance to recover extra money which he
spent on purchasing the car by violating his fiduciary duties.
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