Estoppel And Business Relationship

Definition and Clear Identification of the Requirements of a Partnership by Estoppel/Holding Out

Discuss about the Estoppel and Business Relationship.

In the statement provided by Ashhurst J in Lickbarrow v Mason (1787) 2 Term Rep 63, HL at 70 it states that when two people who are guiltless when affected by the activities of the third person. Then the person who had helped the third person would be held liable. This has been explained in Section 14 of the Partnership act 1982. Partnership is defined as the relation that is found to exists between persons in a business environment. They have a common view of attaining profits. In partnership firms the partner will be held liable if they their partners are not aware of the creditors of the firms. The liability has been applied in this case

The purpose of this analysis is to look into the nuances of estoppel that has been defined in the Section 14 of the Partnership Acts 1892 (NSW).There will be critical analysis of the validity of the claim that has been made by the Partnership act of 1982. The nuances of the definition and the advantages and disadvantages of the partnership by estoppel have been probed in this analysis.

According to this concept when party A has been considered as a partner by party B when witnesses are present and in this case if party A did not deny the claim made by the party B then in the eyes of the law party A will be considered as liable to pay the creditors. In the eyes of the law A will be considered as a partner. In these situation estoppel arises owing to the transactions that has been involved in verbal communication. The creditor need not be aware of the actual situation. Estoppel arises whenever one party involved in the contract makes an assertion or representation that is considered as fact. In this situation the other party acts on the factor that proves others. In this the original party who had made the claim is estopped from denying the truth in the statement. They only can operate on the paradigm of the situation that has been presented to them. The requirement of partnership by the concept of estoppel is that there should be a witnessing third part present when there has been a partnership agreement that has been formed. The witness must assume that the partner is a member of the partnership firms. There should be some form of agreement either by verbal or written agreement that considers a person to be a partner of the firm.  This is not limited to the agreement even if some of the activities of a party can consider them to be a partner. In these conditions the law would declare the other person as a partner by the concept of estopped. They would all be responsible for the liabilities incurred. If a particular partner is making false claims or misrepresentation and the related parties are not really doing anything then they would still be considered liable for the claims that has been made. To summarize the most important requirement for a particular partnership is that there should be a firm where the creditor has performed the transactions.

Critical examination of the requirements of a partnership by estoppel/holding out demonstrating their justifications

Section 14 of the Partnership act states that everyone, who chooses to make an ascertain either by verbal, written or conduct makes a representation. They knowingly make an assumption and is represented as a part of the company who enters into a contractual agreement. They are liable to the original claims or assertion that has been made. The parties who make a certain claim must stick to the representation of the original choice they had made. The Section 14 details that a person who is represented as a partner or an outside agent who take part in the contract gives a representation of the firms. Their representation provides credit to the form. This person becomes a ‘partner by estoppel’. In the case of case of partnership there is a fiduciary responsibility that exists between the partners. Birtchnell v Equity Trustees Executors and Agency Co Ltd explains the duty of the partnership with each other. A partnership is based on the mutual trust and confidence. This is explained in the case of Cameron v Murdoch

In this case there are certain benefits as well as disadvantages. The benefit is that the creditor should be paid back irrespective of the partnership agreement. The people start to form better choices as a represent themselves. Leonard v. Brewer, No. 01-12-01057-CV, 2013 WL 6199572. In this case Brewer was made liable to pay back the creditor on the behalf o the BW office. In this case Brewer action as considered as an act of the partner. The law ensures that the creditors are protected. There are also certain limitations of this agreement. In some cases the partner by estoppel is made liable to pay the dues of the other person even if they were not really involved. In the case of Chavers v. Epsco, Inc.98 S.W.3d 421 (Ark. 2003) The sone and daughter were considered as partners of the firm merely of their relationship to Chavers. In this there was no real action by the son or the daughter in relation to the case. The issue with the partnership by estoppel is that it does not really consider the various angles invole din the partnership agreement. It merely makes as assumptions and acts on it.

There are three conditions where the partnership by estoppel is considered. In this context estoppel means that is the person expressed or acted in a certain situation the other person can act to their own detriment. Then the person who made the original representation will not be able to deny the truth. This was elucidated clearly in the case of Re Buchanan & Co. In this case it was held that the section places liability upon the person who represent themselves of allows themselves to be represented as a partner but in reality are not actual partners. In order to incur liability three tests must be fulfilled. The first condition is that the representation that was made that the person is a partner. This can be done either by the individual account or the partners. It is the question of how the representation has been made. In the case of Martyn v Gray (1863) this was established. In this case assuming defendant informs X company that he is the original partner of a commercial firm and the X company them informs the plaintiff the same information then it was said that the plaintiff assumed the defendant to be the members of the firms. In this case the defendant is considered to be liable for the price. The second condition is that the credit should be provided by a 3^rd party who assumes the representation to be true. The credit would involve receiving the property or incurring the obligation that has been made. The 3^rd party should rely on the representation this is the third condition. The case of Tower Cabinet Co LTD v Ingram establishes this clause.  In this case the issue of the parties knowledge of representation of the defendant will be considered. In this particular case Ingram was not aware of Christmas. Ingram and Christmas were previously partners and they had agreed to dissolution. However, Christmas continued to use the previous letterhead of the company when they were partners with Ingram. This act by Christmas was not known to Ingram. There was no written proof or conduct that pointed towards the knowledge of Christmas action and the involvement of Ingram. In this case owing to this fact Ingram was held no liable for the damages incurred by Tower Cabinet company. Hence the factor of knowledge is an important aspect in the determination of the case.

According to the terms of the law, the partnership by estoppel allows the court to provide some form of remuneration for the plaintiff. Essentially for this to occur the plaintiff should prove that the actions of the defendant were detrimental to the original terms of the contractual agreement. In this case the plaintiff has the burden of proving that the partnership was indeed based on the partnership of estopped. Plaintiff must prove to the courts that they relied on the partnership, the defendant help himself in the place of the partnership and the liability incurred by the plaintiff. If the plaintiff is able to prove this fact then they judge will order some form of remediation or recovery of the damages for the plaintiff.

Conclusion

Section 14 of the Partnership Act 1982, clearly explains the concept behind estoppel by holding out. According to this a person is considered to be a partner of a firm if they are represented as a partner of the firm in presence of witness and they do not deny the partnership. In this case the courts will deem the person to be a partnership. All the partners of the firms is liable to pay back their creditors. There are many benefits and issues. Benefit of this system is that the creditors interest is protected. It adopts a homogenous approach and does not factor in the nuances of each case. This is the limitation of this law.

Reference

Andrews, Neil. Contract law. (Cambridge University Press, 2015).

Cooke, Elizabeth. “Working Together-Contract, Estoppel and the Business Relationship.” (2002) 1J. Obligations & Remedies 5.

Ewart, John S. “Negotiability and Estoppel.” (1900) 16 LQ Rev. 135.

Ewart, John Skirving. An exposition of the principles of estoppel by misrepresentation. (Carswell, 1900).

Gregory, William. Law of Agency and Partnership, 3d Hornbook Series. (West Academic, 2007).

Robertson, Andrew. “Reliance and expectation in estoppel remedies.” (1998) 18 (3) Legal Studies 360-368.

Yan, Wang “On the Historical Development and Trend of Estoppel System.” (2007) 4 Journal of Hubei Radio & Televison University  034.