S.28. HOLDING OUT

1. Anyone who by words spoken or written or by conduct represents himself, or knowingly permits himself to be represented, to be a partner in a firm, is liable as a partner in that firm to anyone who has on the faith of any such representation given credit to the firm, whether the person representing himself or represented to be a partner does or does not know that the representation has reached the person so giving credit.

2. Where after a partner's death, the business is continued in the old firm name, the continued use of that name or of the deceased partner's name as a part thereof shall not of itself make his legal representative or his estate liable for any act of the firm done after his death.

According to doctrine of holding out, a person who is not the partner in a partnership firm is held out or deemed to be a partner for the purpose of his liability towards a third party on the basis of application of law of estoppels if such person by his representation, creates an impression in the mind of the third party that he is a partner, on the basis of which the third party gives credit to the firm.

For example, a partnership firm consists of A, B and C. D, A person as who is not a partner, makes a representation to X that he is also a partner and on the faith of this representation X gives credit to the firm.

In this case X can make D liable on the basis of holding out and D is estopped from denying that he is a partner.

Section 28(1) of the Partnership Act provides for the doctrine of holding out. According to section 28(1) a person may be held out to be a partner of a partnership firm if following conditions are satisfied:

1. Such person has either himself represented, or knowingly permitted somebody else to represent, that he is a partner in the firm. Such representation may be in any form i.e by words spoken or written or by his conduct.

2. The third party, who wants to bring an action, must have acted on the faith of the representation and given credit to the firm.

ORIENTAL BANK OF COMMERCE V. M/S. S.R. KISHORE & CO.,

In Oriental Bank of Commerce v. M/s. S.R. Kishore & Co., a person, who was not a partner not only represented himself to be a partner, but he signed the partnership deed, actively participated in various transactions of the firm and signed various partnership document from time to time. It was held that he was liable for the acts of the firm on the basis of the principle of ‘holding out’.

Liability of the person held out as partner does not depend upon his motive behind representation but on the fact of giving credit by the third party on belief of such representation.

Fraudulent intention to mislead another person is not required.

Even the knowledge of the person representing or represented as partner that third person has given credit on the basis of such representation is immaterial.

However, for the liability to arise under section it is necessary that person to be held as partner on the basis of representation by someone else should have knowledge that he was being so represented.

If someone represents him as partner of firm without his knowledge, such person can’t be held as partner under this section as the phrase used in section 28 is “knowingly permitted such a representation to be made by someone else.”

MUNTON V. RUTHERFORD

The position can be explained by referring to the case of Munton v. Rutherford.

In that case one Beckwith published a statement in a newspaper that he and Mrs. Rutherford had formed a partnership. The statement was false, and Mrs. Rutherford did not know about the same. It was held that Mrs. Rutherford was not liable as a partner by estoppel or holding out.

Mere carelessness in allowing oneself to be represented may not necessarily mean that he has knowingly permitted himself to be represented as a partner. It is necessary that the person entitled to bring action on the basis of “doctrine of holding out” must have given credit on the faith of representation and not otherwise .

M/S. GLORIOUS PLASTICS LTD. V. LAGHATE ENTERPRISES

In M/s. Glorious Plastics Ltd. v. Laghate Enterprises, a partner had retired from the firm on 1.4.1982, and the question arose whether he could be liable towards a third party for an act of the firm done on 1.3.1985.

It was found that such a partner had neither represented nor permitted himself to be represented that he was a partner on 1.3.1985.

It was held that he could not he held liable for such act as the third party had not given credit to the firm on the representation that he was a partner in the firm.

If the basis of the action is the tort committed by one of the partners, the doctrine of holding out does not apply in such a case.

POSITION OF A RETIRED PARTNER

If a third party, who knew of the existence of the partnership firm, out of which one partner gets retired, but such third person does not know that the relationship has come to an end, and gives credit to the firm, he can make the retiring partner also liable.

Similarly, if he gives credit to the retiring partner thinking him to be still a partner, he can make the continuing partners liable.

In this regard Sec. 32(3) provides that Notwithstanding the retirement of a partner from a firm, he and the partners continue to be liable as partners to third parties for any act done by any of them which would have been an act of the firm if done before the retirement, until public notice is given of the retirement:

Thus public notice is must to avoid any such liability.

DORMANT PARTNER

However, no public notice is needed on the retirement of a dormant partner, i.e., a partner who is not known as such to third parties

SCARF V. JARDINE

An important point came for consideration in Scarf v. Jardine, where a third party was ignorant of either the retirement of a partner or the introduction of a new partner, when both the changes had taken place simultaneously.

In that case a firm consisted of two partners, A and B. A retired and C joined the partnership in his place. No notice of the change was given.

A customer of the old firm, who was not aware of the above stated change, supplied goods to the reconstituted firm.

To recover the price of the goods he brought an action against. B and C. Having failed to recover the price from them he brought another action against A.

The question before the court was, whether the third party who had supplied goods to the firm, could successfully bring action against A, B and C.

It was held that when the customer is ignorant of the retirement of A as well as the introduction of C, he has an option to sue either A and B on the ground of estoppel or B and C on the basis of actual facts.

Since A never held himself out as a partner alongwith B and C both, he cannot make A, B and C all of them liable. Therefore, after having elected to sue B and C he cannot bring an action against A.

DEATH OF A PARTNER

On the death of a partner, there is automatic dissolution of a firm unless there is a contract to the contrary between the partners (Sec. 42(c).

Even if business of partnership firm is continued after the death of a partner due to any contract to that effect, legal representative of the estate of the deceased partner does not become liable for the acts of the partnership firm even though no public notice of partner's death is given.