Page 161 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes Free consent. All partners must consent to the partnership agreement. Otherwise, they obviously
lack the intent necessary to form the partnership. Alleged partners may assert all the flaws
which mar free consent, such as fraud, coercion and undue influence.
Legal purpose. A partnership agreement must have a legal purpose. No court will enforce a
partnership agreement for an illegal object. Suppose X and Y run a shop dealing in smuggled
goods. No court will enforce their partnership agreement against one another or a debt owed to
them by one of their clients.

Capacity. Section 11 of the Indian Contract Act, 1872, provides, inter alia, that every person “is
competent to contract who is of the age of majority….” Thus a minor is not competent to
contract. But a contract with a minor is void as against him but not as against the other party.
Also we have noted in Chapter 7 on Agency that a minor may be appointed as an agent. Also s.
30(1) provides that with the consent of all the partners for the time being, a minor may be
admitted to the benefits of partnership. Further, where a court declares a partner insane or a
partner is shown to be of unsound mind, another partner may seek dissolution of the partnership.
Because partnership requires mutual agency, a lunatic may not be a partner, since he cannot act
as an agent.
Writing. A contract need not be in writing. Accordingly, a partnership agreement need not be in
writing. It may be oral, written or implied from the parties’ conduct. However, because disputes
easily develop over oral agreements, parties should have a written agreement. No particular
form need be used. As most partnership agreements are complex, so the help of a lawyer is
advisable.
Right to select one’s partner. No one can become a member of a partnership that is being
formed, or join an already existing partnership without the consent of all the members of the
firm. This is in accordance with the concept of delectus personae (latin for “choice of persons”).
Each partner has been given the right to choose each of the other partners whose torts or other
possible wrongdoings could cause great personal financial loss. Unless the partners have expressly
agreed otherwise, the composition of the firm cannot be changed without the consent of the
partners.

Self Assessment

Fill in the blanks:

5. The ……………………….is required to be stamped according to the provisions of the
stamp act, 1899.
6. In England, USA and India, …………………...agreement of partnership is not compulsory.

6.4 Relations of Partners to One Another

The relation of the partners of a firm to one another arises through an agreement between them.
Such an agreement may be express or may be implied from the course of dealings between
them. It may be varied by their consent and such consent may be expressed or may be implied
by a course of dealings [s.11(1)]. Where there is no specific agreement or where the agreement is
silent an a certain point, or where no agreement exists, the relations of partners to one another
as regard their rights and duties are governed by Ss.9-17 of the Act.

6.4.1 Rights of Partners

Subject to the contract between the partners, every partner has the following rights:

(i) To take part in the conduct of the firm’s business [s.12(a)].

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