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Scottish Law Commission (Reports)
You are here: BAILII >> Databases >> Scottish Law Commission >> Scottish Law Commission (Reports) >> Partnership Law [2003] SLC 192(9) (Report) (November 2003)
URL: http://www.bailii.org/scot/other/SLC/Report/2003/192(9).html
Cite as: [2003] SLC 192(9) (Report)

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    PART IX

    PARTNERSHIP PROPERTY AND THE EXECUTION OF DEEDS
    Introduction
    9.1     In this Part we deal with our proposals to allow a partnership to hold property, including land, in its own name and to be the beneficiary of trusts by which property is held on its behalf. These should simplify the rules relating to the holding of property by partnerships. It is a benefit which flows from the introduction of separate legal personality into the English law of partnership.

    9.2         We also discuss our recommendations on a related topic which is relevant to the conveyance of property, namely the manner in which documents may be signed by or on behalf of a partnership and, in English law, the execution of deeds.

    Partnership property
    Existing law
    9.3         Sections 20 and 21 of the 1890 Act deal with partnership property. Section 22 was repealed in England and Wales by section 25(2) of and Schedule 4 to the Trusts of Land and Appointment of Trustees Act 1996. Section 22 still applies in Scotland.

    What is partnership property?
    9.4         Section 20 of the 1890 Act defines what is partnership property: it is all property and rights and interests in property (a) originally brought into the partnership stock or (b) acquired on account of the partnership or (c) acquired for the purposes and in the course of the partnership business.[1] The section also specifies the uses to which partnership property may be put: such property must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement. It also lays down default rules for the devolution of the legal estate or interest in land belonging to the partnership and for the ownership of land which is acquired out of the profits from co-owned land which is not partnership property. Section 21 provides as a default rule that property bought with money belonging to the partnership is deemed to have been bought on account of the partnership and is thus partnership property.

    9.5     Section 22 applies only in Scotland and provides as a default rule that land or any heritable interest in land is treated as between the partners or their personal representatives as moveable property.

    How partnerships hold partnership property
    9.6         In English law title to land held by a partnership can be vested in no more than four partners.[2] Where a partnership consists of five or more partners, the legal estate in partnership land must therefore be held by some of the partners on trust for themselves and their fellow partners according to their respective beneficial interests. As a consequence landlords, who wish to obtain a direct right against all partners in large partnerships, often insist that the non-trustee partners are sureties for the trustee partners' obligations or are contractual parties to the lease.[3]

    9.7     Complications arise when an additional partner joins the partnership or a partner retires. It may be that the partnership is content that the land should continue to be held by those partners who hold as trustees. There is no necessity for a new partner to become one of the trustees, and it will not even be possible if there are already four persons vested with the title. The new partner would nevertheless become entitled beneficially as tenant in common. If a retiring partner is a trustee, that partner can retire as trustee as well. The retiring partner would normally cease to be beneficially entitled on retirement. In some circumstances, it may be desirable, where there have been significant changes in the membership of the firm, for the land to be transferred to new trustees.

    9.8         If a partnership sets up a company to hold land, it avoids the problems of transfer on a change in membership of the partnership and any landlord's consent to such changes. Conferring legal personality on English partnerships would avoid such complications.

    9.9         In Scotland a partnership is capable of owning moveable property such as cars, furniture, office equipment and intellectual property rights. Historically, a Scottish partnership has been able to hold title to a lease of heritable property[4] but it cannot own land. When recent legislation is brought into force there will be nothing to stop a partnership with legal personality from owning land in Scotland.[5] There are several statutory provisions which allow a Scottish partnership to own property in its own name while not allowing an English partnership to do so, because the latter has no separate legal personality.[6]

    Identifying property as partnership property
    9.10     Section 20 treats as partnership property assets which have been brought into the partnership at its commencement. This will usually consist of the contributions of capital made by the partners. Such property need not be held in the name of all of the partners, or in Scotland in the partnership name, but an individual partner may hold title to the property. Not all assets which are made available to and used by a partnership for partnership purposes are partnership property.[7] The court looks at all the circumstances to ascertain if the partners have agreed that such assets were to become partnership property. The law applies no presumptions of fact to this question.[8]

    9.11     Section 20 also deals with property acquired during the continuance of the partnership. It provides that property acquired on account of the partnership or for the purposes and in the course of the partnership business is partnership property. It creates no presumptions that property is acquired on account of the partnership.[9] Section 21 creates a rebuttable presumption of fact by providing that:

    Unless the contrary intention appears, property bought with money belonging to the firm is deemed to have been bought on account of the firm.
    9.12     Thus, for example, where a partnership took out a life assurance policy on its youngest partner in support of a bank loan to the partnership and paid the premiums on the policy, the court concluded that the policy was partnership property.[10]

    9.13     Where individual partners use their own funds to purchase property there is no such presumption. Similarly the 1890 Act does not deal expressly with property acquired by an exchange or as a gift. It has been suggested that section 21 would be applied by analogy to property acquired in exchange for partnership property.[11] Where a partner acquires property by gift, it is necessary to have regard to all the circumstances to determine whether the partner or the partnership is the intended donee.

    Our provisional proposals
    A partnership may own property
    9.14     In the Joint Consultation Paper we proposed that a partnership with separate legal personality should be able to own property of any kind in its own name and that property could be held in trust for such a partnership.

    Property which is not held in the name of the partnership
    9.15         We also proposed the following rules in relation to property which was not held in the name of the partnership.[12] First, we proposed that property contributed to the stock of the partnership but held in the name of one or more of the partners should be deemed to be held in trust for the partnership. Secondly, we proposed that property which was acquired by one or more of the partners, or by an agent of the partnership, for the partnership should be deemed to be held in trust for the partnership. These two rules, which would adapt the rules of section 20(1) of the 1890 Act to a partnership with legal personality, would be rules of law and not rebuttable presumptions. Our third proposal was to have a rebuttable presumption which would have similar effect to section 21 of the 1890 Act. We proposed that property acquired by a person (other than the partnership itself) with partnership money should, subject to proof of a contrary agreement, be deemed to have been acquired for the partnership and to be held in trust for the partnership.

    Protection of purchasers of partnership property
    9.16     Where a partnership takes title to land in its own name and holds the land for many years, it is likely that there will be changes in the composition of the partnership. A purchaser of that land will wish to be satisfied that the partnership selling the land is the same legal person as the partnership which is registered as the owner. We suggested that the problem whether the seller is the same person as the person who appears from the title to be the owner arises in the case of any sale but took the view that this was rarely a practical problem.[13] We therefore proposed that there should not be a provision to protect the title of purchasers but invited views on whether there should be rules, on the lines of those in section 36 of the 1890 Act, enabling third parties dealing with a partnership to treat the partnership as continuing until they had notice of a change.[14]

    A voluntary register of authority
    9.17     We also recognised that in drafting legislation to give effect to our proposals it would be necessary to consider whether the Land Registry in England and Wales and the Registers of Scotland would require extra protection to guard against fraud.[15] We also asked consultees whether there should be a voluntary register of authority to transact in land.[16]

    Consultation
    A partnership may own property
    9.18     A majority of consultees in England and Wales who responded on this issue supported the proposal that partnerships with separate legal personality should be able to own property of any kind in their own name and that property can be held in trust for them. Consultees suggested that this would simplify the holding of land, facilitate the use of partnership property for borrowing and reduce the administrative work involved on every change in membership of a partnership. Some consultees suggested that a partnership should own property only if it were a registered partnership.[17] Unsurprisingly, in Scotland there was a general consensus in favour of the proposal that partnerships with separate personality should be able to own property in their own name as that in large measure is already the position in Scots law.

    9.19     The Chancery Bar Association stated that their objection to separate personality was partly based on the suggestion that the entity should own property and in particular land. They suggested that it would be much simpler to let land which was partnership property remain vested in trustees.

    A voluntary register of authority
    9.20         While there was some support for our proposal of a voluntary register of authority to transact in land, the majority of consultees opposed it. Some consultees doubted whether partnerships would use the register. Several, including H M Land Registry, while seeing advantages of separate personality, thought that there would be too much uncertainty for unregistered partnerships to transact in land in their own names.[18] The APP on the other hand saw no need for a voluntary register and suggested that it was sufficient that any partner should be able to sign documents on behalf of the partnership and that deeds should require the signature of two partners. One consultee opposed the idea of a voluntary register as cumbersome and open to abuse. H M Land Registry did not support the proposal for a voluntary register as (a) it did not provide sufficient protection for partners who could be bound by registrations without their knowledge and (b) there would be insufficient protection of third parties if the register was not conclusive of the authority of the registered persons.

    Identifying property as partnership property
    9.21     Several consultees commented on the efficacy of sections 20 and 21 of the 1890 Act. While most thought that they were effective for partnerships without legal personality, one[19] thought that they did not give adequate assistance in determining whether property was partnership property. She called for a definition which was more susceptible of objective proof and referred to accounting practice. She suggested that there should be a presumption that property paid for with partnership money, credited to a partner's capital account, or regularly used by more than one partner is partnership property in the absence of proof of contrary intent. She suggested that this would be useful in order to take full advantage of the benefits of separate personality.

    Section 20(3) of the 1890 Act
    9.22     Our consultant, Roderick Banks, suggested that there was a need to preserve section 20(3) of the 1890 Act as well as the other rules in sections 20 and 21 for partnerships with separate personality.[20] The Faculty of Advocates also favoured the retention of the provisions of sections 20 and 21.

    Reform recommendations
    9.23     We have developed our proposals with the help of interested parties since the end of the consultation. In particular, we have had useful discussions with H M Land Registry and the Registers of Scotland on the practicability of enabling partnerships to own and transact in land. We have also discussed the issue with the APP and with Roderick Banks, our consultant. We have been persuaded by those discussions that our proposals are both feasible and beneficial.

    9.24         In considering the consequences of allowing unregistered partnerships to own property, including land, in their own name, we have had regard to the interests of the partners, of third parties transacting with the partnership (including creditors) and also of officials responsible for registers of property such as H M Land Registry. While we have addressed the issue of land ownership in particular, other forms of property, including intellectual property, may be equally or more valuable to the partnership and to others. The protection which we recommend is designed to apply to transactions in different types of property and is not confined to land.

    Ownership of property generally
    9.25         We think that a partnership with separate legal personality should be able to own all types of property except where legislative rules relating to particular forms of property prevent it. Such ownership may involve vesting title to the property in the name of the partnership or holding the property on behalf of the partnership through trustees or nominees. We are not aware of any restrictions on partnerships holding property through trustees or nominees.

    Ownership of land
    9.26         Our discussions with H M Land Registry and the Registers of Scotland have shown us that it is feasible to allow unregistered partnerships to own and transact in land without creating significant problems. At the outset of our discussions it was perceived that the informal nature of the partnership entity would create problems which would militate against land ownership. In particular we had to address concerns that third parties transacting with a partnership would not be able to rely on the register.

    9.27         For example, a partnership called Smith & Co registered title to land in its own name and many years later partners in a partnership called Smith & Co sought to convey the land to a third party. The register would show that Smith & Co were the owners of the land but it would not show that the Smith & Co purporting to convey the land was the same partnership as the registered owner. The Smith & Co seeking to convey the land could be a partnership with no historical connection with the original Smith & Co or it could be a successor partnership where continuity of partnership had not been preserved and thus a separate entity.[21]

    9.28     Even if it were the same partnership there would be a need to establish that the partners signing the conveyance had authority to do so. It might be the case that none of Smith & Co's partners had been partners at the time the title to the land was registered. Without a register of partners there would be no public record of the dates when partners joined and left a partnership. Even if the partners were partners when the title to the land was registered, it would still be necessary to establish the authority of the partners signing the conveyance by the partnership.[22]

    9.29     To address these issues we have considered a number of expedients with H M Land Registry and the Registers of Scotland.

    9.30         One expedient which we considered was for the land registers to give each partnership which sought to take title to land in its own name a unique registration number which would be recorded on the register. This would reduce the risk of an inadvertent transfer of property by a partnership which had the same name as the registered title holder. Another expedient was to impose on partnerships which took title to land a duty to keep a list of partners authorised to transact in land in the partnership's name or on its behalf. This would enable the land registers to preserve a record of those who had power to bind the title-holding partnership.

    9.31         After discussions between H M Land Registry and the Registers of Scotland, the two land registers have advised us that they doubt that they will require these expedients. They think that problems may arise only in a small number of cases. They have expressed the view that they have sufficient powers in their own legislative rules to ask for evidence if they are in doubt about the authority of a person to bind a partnership.[23] In England, partners may be able to protect themselves by the use of restrictions or cautions[24] at the Land Registry. The land registers will also benefit from our recommendation, which we discuss below,[25] to protect the bona fide third party acquirer of partnership property as that protection will avoid claims for indemnity from such acquirers.

    9.32     Officials of the Land Registry and the Registers of Scotland have advised us that there is no need to include in the draft Bill any provision to protect their interests. We agree. As we stated in the Joint Consultation Paper,[26] to some extent the problem whether the seller is the same person as the person who appears from the title to be the owner arises in any sale. The fact that the name is the same is not conclusive. In a sale by a company the use of the company's registered number in the conveyances to and by the company can achieve certainty but that is not available in a sale by an individual. When an individual has title to property, there is a risk that another person with the same name may convey the property and there is the risk of impersonation and fraud. In the case of a sale by a trustee or trustees, there could have been several changes of trustee of the same trust since the original title was acquired. In practice, there is not usually a problem. Only the owner is usually in a position to authorise inspections of the property and to attend, in a way which does not arouse suspicion, to the other practical details surrounding a sale. An attempted fraudulent sale by a non-owner using the owner's name would usually be detectable. The real owner has an interest in preventing such frauds.

    9.33     We recognise that circumstances could arise where, without fraud, partners in a successor partnership sought to convey land which they thought was the property of their partnership but which, unknown to them, belonged to another earlier partnership. This could occur if a discontinuity of partnership had occurred.[27] This issue is not confined to land but could arise in relation to other types of property. We discuss it in the context of our recommendation to protect the bona fide acquirer of partnership property.[28]

    9.34     We see no need for specific provisions in the draft Bill relating to land.[29]

    Ownership of other types of property
    9.35     The introduction of separate personality to partnerships governed by English law will allow such partnerships to hold in their own names other forms of property.

    9.36         For most forms of personal or moveable property there is no complication. Ownership of certain types of property is recorded in registers. There are often statutory provisions which govern the entitlement of persons to own such property. We have reviewed a wide range of such provisions. In some cases, the statute allows a Scottish partnership (which has separate personality) to own the property in its name while not allowing an English partnership to do so. In others the statute speaks of "persons" being entitled to hold the property. In the absence of a provision to the contrary, the reference to persons would include a partnership with separate personality.[30]

    9.37 We recommend that a partnership with separate personality should be entitled to hold in its own name all types of property unless there is a specific statutory provision which prevents it from doing so. We also recommend that a partnership with separate personality should be able to hold in its own name the following types of property: patents, copyright, registered designs and design rights, UK trade marks, Community
     
    9.38     trade marks, shares in registered companies, interests in ships, hovercraft and aircraft. We consider each in turn.

    UK Patents
    9.39         Any person may apply for a patent and "person" includes a body of persons corporate or unincorporate.[31] A Scottish partnership may own a patent. An English partnership may not do so because it lacks personality. Without continuity of partnership it would not be practicable for a partnership to hold patents in its own name as changes of membership would result in the creation of new partnerships. As we recommend a default rule of continuity of partnership, it will be more practicable for partnerships to hold property in their own names. There is no need for any amendment of the Patents Act 1977 to implement our policy that partnerships should be able to hold patents in their own name.

    European Patents
    9.40     Under the European Patent Convention any natural or legal person, or any body equivalent to a legal person by virtue of the law governing it, may file an application for a European patent.[32] Accordingly, a Scottish partnership, but not an English partnership, may currently own a European patent. We recommend that an English partnership with separate personality should be entitled to hold such a patent directly. No amendment of the Convention is necessary to achieve this.

    Copyright
    9.41     There is no register of owners of copyright. The first owner of copyright is the "author" or in some cases the employer of the "author".[33] It appears that a partnership cannot be the author of copyright.[34] Under our recommendations if a partner in the course of the partnership business created a work which attracted copyright, the partner as author would hold the copyright in trust for the partnership.[35] This involves a procedural complication: as the partnership would not be the author, the partnership would require to join the partner as a party to an action if it became involved in litigation in relation to the copyright.[36] However an attempt to make a partnership an "author" would create further complications.[37] Under our recommendations for property ownership, a partnership will be able to acquire copyright from a third party author and thus be a second or subsequent owner of copyright.[38] We do not recommend any legislative change in relation to copyright.

    UK registered trademarks
    9.42     Any person, natural or legal, who intends in good faith to use a mark for the goods and services specified in the application for registration may apply to register the trade mark.[39] No legislative provision is required to enable a partnership with legal personality to apply to register a trademark in its name. A consequence of our recommendation in relation to separate personality is that partnerships will be able to register trademarks in their own names.[40]

    Community trademarks
    9.43     The protection of trademarks throughout the European Union is governed by the Community Trademark Regulation.[41] Article 5 of the Regulation provides that, among others, natural or legal persons who are nationals of Member States can be proprietors of Community Trademarks. We think that a partnership with separate legal personality would be entitled to register a Community Trademark as the Treaty of Rome, in the context of the right of establishment, treats a partnership (with legal personality) formed in accordance with the law of a Member State and having its principal place of business within the Community in the same way as natural persons who are nationals of Member States.[42]

    Registered designs and design rights
    9.44     Registered Designs are governed by the Registered Designs Act 1949. We think that a partnership with separate personality could be the original proprietor of a registered design where it commissions the design or where the design is created by its employee in the course of his employment.[43] Such a partnership could also be a second or subsequent proprietor of the design.[44]

    9.45     Design rights are created and governed by the Copyright, Designs and Patents Act 1988. A partnership with separate personality could be the first owner of an unregistered design right in a design, for example where it commissions the design or the design is created by its employee in the course of his employment.[45] Such a partnership could also be a second or subsequent owner of the design right.[46]

    9.46     We see no need to amend the 1949 and 1988 Acts in relation to partnerships with separate personality.

    Shares in UK registered companies
    9.47         Under existing English law partners may be registered as shareholders in the firm name.[47] A Scottish partnership may be a member of a company.[48] By introducing separate personality, our recommendations will enable an English partnership to become a member of a company. No amendment of the Companies Act 1985 is required to effect this change. The partnership would require to give its name and address to the company for inclusion in its register of members.[49] Those details would be registered in Companies House.[50] A consequence of the introduction of separate personality is that the use of a firm name in a register of members and in a company's annual return would have a different meaning in English law. At present, it is shorthand for the partners of the partnership. On a future registration by a partnership with separate personality it would signify that the partnership as an entity was a member of the company.

    UK registered ships
    9.48     Regulations govern who may be registered as owner of a British ship.[51] The regulations are complex and detailed and require that the ship must have a British connection before it may be registered. Under the current law, a partnership, including a Scottish partnership, may not be the registered owner of a ship. It is thought that a Scottish partnership could be one of the owners of the ship provided it did not have a majority interest.[52] Individual partners may become registered owners of ships and, under our recommendations, may hold the ships in trust for the partnership. Under the Merchant Shipping Regulations 1993 (as amended)[53] a partnership is not qualified to be an owner of a British fishing vessel.[54] We see no reason why a partnership with legal personality should not own a British ship or a British fishing vessel. We have discussed this issue with the DTI who agree.

    Hovercraft
    9.49     The Registrar General of Shipping and Seamen keeps a separate registry of hovercraft. In contrast with the rules relating to British ships, a partnership carrying on business in Scotland under the 1890 Act is a person qualified to own a hovercraft.[55] There are a small number of hovercraft in commercial operation. Although the commercial significance of hovercraft is limited, we recommend that, if separate personality is introduced into English partnership law, the Hovercraft (General) Order 1972 be amended to allow English partnerships to own hovercraft.

    Aircraft
    9.50     The Civil Aviation Authority maintains the UK register of aircraft. The list of persons authorised to hold an interest in an aircraft includes partnerships carrying on business in Scotland under the 1890 Act.[56] The list of authorised persons also includes:

    Undertakings formed in accordance with the law of an EEA State and having their registered office, central administration or principal place of business within the European Economic Area.[57]
    Aircraft operated by partnerships in England and Wales are registered in the name of the partners and it is noted in the register that they are trading as a partnership. On the introduction of separate legal personality into English law, an English partnership will be able to become a registered owner of UK registered aircraft provided that the partnership has the necessary link with the EEA.[58]
    Joint Tenancy in English Law
    9.51     Under English common law, a natural person and a corporation cannot hold property, whether real or personal, in joint tenancy.[59] This is because the right of survivorship cannot operate in relation to a company, as a company cannot die.[60] This common law rule led to the enactment of the Bodies Corporate (Joint Tenancy) Act 1899, which gives corporations power to hold property as joint tenants. The rule would, we think, apply equally to a partnership entity created by the draft Bill. We think therefore that we should extend the 1899 Act to partnerships.[61]

    9.52     We therefore recommend:

    (1) That partnerships (with separate legal personality) can own property of any kind in their own name unless statutory rules exclude them from doing so; (Draft Bill, cls 7(1) and 18(1))
    (2) That property of any kind may be held in trust for such partnerships; (Draft Bill, cls 7(1) and 18(2))
    (3) That partnerships should be allowed to own British ships and British fishing vessels;
    (4) That the Hovercraft (General) Order 1972 be amended to allow English partnerships (with separate legal personality) to own hovercraft;
    (5) That Art 4(3)(g) of the Air Navigation Order 2000 should be revoked; and
    (6) That the Bodies Corporate (Joint Tenancy) Act 1899 should be extended to partnerships. (Draft Bill, cl 17(2))
    Protection of bona fide acquirers of partnership property
    9.53         Since we received the responses to the Joint Consultation Paper we have reconsidered our policy on the protection of third parties who acquire partnership property or interests in partnership property in good faith and for value.[62]

    9.54     Discontinuity of partnership occurs where a partnership ceases to exist and another partnership continues the partnership business. The mischief which we seek to address, and which we call "latent discontinuity", is the purported transfer of property belonging to a partnership ("partnership A") by partners in another partnership ("partnership B") where it is not apparent to the transferee that partnership B is a different entity from partnership A.

    9.55         If our recommendations for continuity of partnership and the winding up of partnerships[63] are implemented, we think that it will be a relatively rare occurrence that partners in one partnership transact with third parties on the erroneous representation that they are a continuing partnership. We can think of two circumstances, however, where it is not unlikely that a problem of latent discontinuity might occur. One is where a majority[64] of partners resolve to break up a partnership and either the majority or a minority continue the business in the same firm name after buying the assets in a winding up. While one might expect the partners in the new partnership to recognise that in such circumstances they had created a new firm and that they should transfer the old firm's property to the new partnership, there is a risk that they may overlook to do so. The second circumstance is where a partnership breaks up when there is only one surviving member, that person takes on a new partner and he and the new partner continue in business unaware that they have created a new partnership.[65]

    9.56     To cater for these circumstances and any other circumstance in which discontinuity of partnership would prevent the successor partnership from giving good title to the acquirer of partnership property, which belonged to the former partnership which had broken up, we think that there should be a provision to protect the third party who acquires partnership property or an interest in that property in good faith and for value.

    9.57         We recognise that the problem of whether the transferor of property, or the creator of a right in property, is the same person as the person who appears from the titles or registers arises in many transactions. There is an argument that we should not make a special rule for partnerships. But we have changed our policy on this matter for two reasons.

    9.58         First, we think that the protection afforded to the third party will assist partnerships, and in particular small partnerships, to deal with their property more cheaply and speedily. A "think small first" approach means we must cater for the informal and perhaps ill-informed partnership where partners do not have regular access to legal advice. If the partners in, say, a corner shop business are able to give a third party purchaser a good title which is secure from a latent discontinuity of partnership, that should simplify the sale process by reducing the inquiries which the prudent third party has to make.

    9.59         Secondly, we think that the protection can be framed in a way which protects the third party acquirer against the most likely risk of discontinuity of partnership but which is sufficiently focussed that it does not expose the partners or former partners of the partnership which is the true owner to an unacceptable risk of loss.

    9.60         Our policy is to provide protection where a partnership ("the former partnership") has broken up, but a partner of the former partnership or a partner who has entered into partnership with that partner transfers, or creates an interest in, property belonging to the former partnership and apparently on its behalf or in its name.[66] The problem which needs to be addressed is that the person who acts apparently on behalf of the holder of the title to the property (the former partnership) may not have authority[67] to bind the former partnership. The partner in the former partnership may believe that the successor partnership which he has entered into is the same partnership as the former partnership and that he is transacting in the ordinary course of business of that partnership. He may be aware of the discontinuity of partnership but choose to ignore it in the hope that it will not matter. In either event he may have no authority (actual or apparent) to transact. Alternatively, if it is the new partner who effects the transaction he will have no power to bind the titleholder, as he was never a partner in the former partnership. Where those circumstances exist our policy is that the title of the recipient of that property, or interest in property, who receives it in good faith[68] and for value[69] should not be challengeable on the ground that the person or persons making the transfer or creating the interest in property did not have authority (actual or apparent) to bind the former partnership in this transaction.

    9.61     We do not think that it would be appropriate to give the partner in the former partnership or the person who enters into partnership with him authority to bind the former partnership in the circumstances envisaged as that would deprive a person interested in the assets of the former partnership, such as an outgoing partner, of a remedy against those who alienated the property of the former partnership. We have therefore framed the protection as a protection of the title of the recipient.

    9.62         The protection would be available in, for example, the following circumstance. A and B have been in partnership operating a corner shop and A retires, leaving B in control of the business.[70] B thereafter takes on C as a partner and B and C, unaware that their partnership is not the former partnership and ostensibly acting in the name of the continuing partnership, later sell the shop to D who purchases in good faith. D would receive a good title and A, if his share in the former partnership had not already been bought out, could claim an account against B on the basis that the shop was an asset which should have been available in the winding up of the former partnership.

    9.63     The protection would not be available unless (i) the person effecting the transfer did so apparently in the name of or on behalf of the former partnership[71] and (ii) that person was someone who had been a partner in the former partnership (ie B) or someone who had entered into partnership with such a person (ie C). Therefore the risk which a partner would run in allowing title to property to be taken in the name of the partnership would be limited by the restricted scope of the protection given to the third party.

    9.64     The protection would also assist the land registers[72] by avoiding any question of the land registers having to indemnify the former partnership on registration of the third party's title as there would be no error in the register which would give rise to a claim for indemnity through a refusal to rectify the register.[73]

    9.65     While useful particularly in the context of transactions in land the protection would be available in transactions in all types of partnership property.

    9.66         We therefore recommend that where a partnership ("the former partnership") has broken up, but a partner of the former partnership or a partner who has entered into partnership with that partner in a successor partnership transfers property, or creates an interest in property, belonging to the former partnership and apparently on its behalf or in its name, the title of the recipient of that property, or interest in property, who receives it in good faith and for value shall not be challengeable on the ground that the property was in fact partnership property of the former partnership. (Draft Bill, cl 42)

    The nature of a partner's interest
    9.67         In existing English law partners are collectively entitled to, and each partner has an undivided share in, all the assets of the partnership. At the same time, no partner is entitled, without the agreement of his co-partners, to insist that a particular asset is vested in him, either during the continuance of the partnership or following its dissolution.[74] Lord Lindley gave the classic definition of the partner's share in a partnership:

    What is meant by the share of a partner is his proportion of the partnership assets after they have been all realised and converted into money, and all the debts and liabilities have been paid and discharged.[75]
    While, as the editor of Lindley & Banks points out, it would be more accurate to speak of a partner's entitlement to the net proceeds of sale of the assets, the definition reflects the application of the default rules in sections 39 and 44 of the 1890 Act.[76] Where a partnership agreement departs from these provisions of the 1890 Act, the nature of a partner's share will be determined by that agreement.
    9.68     In English law, because of the aggregate approach to partnership, it is necessary to distinguish between the external perspective of a partner's share, which looks to each partner's undivided share in every partnership asset, and the internal perspective, which looks to the contractual restrictions which the partnership agreement imposes on the partners' ownership of the partnership assets. As Hoffmann LJ stated:

    As between themselves, partners are not entitled individually to exercise proprietary rights over any of the partnership assets. This is because they have subjected their proprietary interests to the terms of the partnership deed which provides that the assets shall be employed in the partnership business, and on dissolution realised for the purposes of paying debts and distributing any surplus. As regards the outside world, however, the partnership deed is irrelevant. The partners are collectively entitled to each and every asset of the partnership, in which each of them therefore has an undivided share.[77]
    9.69     In Scotland, where partnership property[78] may be vested in or held in trust for the partnership as an entity, the partners do not have any direct proprietary interest in any of the partnership assets. The partners own a share of the partnership, which is an incorporeal moveable right or ius crediti.[79] As Bell put it:

    The share of each partner is a portion of the universitas: it forms a debt or demand against the [partnership], so as to be arrestable in the hands of the [partnership].[80]
    Thus the distinction between the internal and external perspectives which exists in English law is not part of Scots law. A partner's share under the existing default regime is ultimately his entitlement to claim from the partnership his portion of the net proceeds of sale of partnership assets on a winding up. As long as the partnership continues, however, the partner is entitled, under the existing default regime, to require that the partnership's assets be applied for partnership purposes[81] and to his equal share of the profits of the partnership business.[82]
    9.70     The introduction into the English law of partnership of separate legal personality will allow us to dispense with the complexity of the two perspectives. The distinction between the rights which exist under the default rules and the rights which arise under a partnership agreement which departs from those rules will however remain. Thus any definition of a partnership share would have to distinguish between the default regime on the one hand and another contractual regime on the other.

    9.71         In our recommendations in Part VIII on the financial rights of the outgoing partner we refer to the partner's share in the partnership.[83] We think that the outgoing partner's share in the partnership under the default code which we recommend in this report comprises the following elements:

    (1) a right to an equal share of the profits of the partnership; and either
    (2) a right to be bought out at the default valuation on withdrawal; or
    (3) a right to an equal share of the net proceeds of sale of the assets of the partnership on a winding up.
    Where partners contract out of the default code the partner's share will be such rights as the partner has in terms of the partnership contract.
    9.72     We recognise, however, as Lindley & Banks state:

    Although it is convenient to refer to a partner's interest in the firm as his "share" that expression is notoriously difficult to define, not least because its meaning differs according to the context in which it is used. … Thus, whilst the "share" of an outgoing partner may quite properly be viewed solely in financial terms, reference to the "share" of a continuing partner must include the totality of the rights which he enjoys under the partnership agreement and under the general law.
    9.73         We do not, therefore, propose to attempt a comprehensive definition of a partner's share.

    Identifying property as partnership property
    9.74         We do not propose to alter the substance of the rules of the 1890 Act[84] which either determine what is partnership property or which create a rebuttable presumption that property is partnership property. We seek merely to adapt those rules to the other reforms which we recommend.

    9.75     Partnerships with separate personality will be able to hold property in their own names. In some circumstances partnerships will continue to allow partners and others to hold property on their behalf. The rules for ascertaining whether property is partnership property (which are currently sections 20 and 21 of the 1890 Act[85]) will remain relevant in such circumstances.

    9.76     We do not propose to change the law which creates no presumption that property made available to and used by a partnership in its business is partnership property.[86] Where property is brought into a partnership at its commencement as a capital contribution, that property should be partnership property, even if title remains in the hands of another person. Again we propose no change of substance. Similarly property which is acquired on behalf of a partnership during the continuance of the partnership should be partnership property, whether or not the partnership holds the title to it. Where a partner or third party holds the title to such property the title-holder will hold the property in trust for the partnership.

    9.77     Section 21 of the 1890 Act creates a rebuttable presumption that property bought with money belonging to the partnership is partnership property. We wish to preserve this presumption but to extend it to cover property acquired out of partnership property. While the norm may be a purchase using partnership money, it is not apparent to us why the presumption should not apply where property is acquired in exchange for partnership property.

    9.78         Thus we think that there should be a rebuttable presumption that property acquired out of partnership property has been acquired on behalf of the partnership. This presumption deals both with the situation where there is no documentary title to the property and where the acquirer takes title to the property. Where the acquirer (to whom this presumption applies) holds the property in his name and is a partner, the acquirer will hold the property in trust for the partnership. This is because we propose that there should be a statutory rule that property held in the name of one or more of the partners, which has been acquired on behalf of the partnership or contributed to the partnership as capital, is held by the partner or partners in trust for the partnership.

    9.79         We are aware that a case can be made for further presumptions arising from entries in partnership accounting records or the regular use of property by partners in carrying on the business of the partnership.[87] However we are not persuaded that it is desirable to introduce further presumptions as (a) entries in a partnership's accounts will carry great weight in most circumstances, avoiding the need for a presumption and (b) regular use of an asset does not of itself indicate that the asset is partnership property.[88]

    9.80     As partners may continue to use land which they co-own but which is not partnership property to carry on a partnership business we think that section 20(3) of the 1890 Act, which creates a default rule as to the ownership of further land purchased with the profits of the partnership business, should be preserved. We have received representations that the provision is still valuable.

    9.81         We therefore recommend:

    (1) That there should be a rule that property which is held in the name of one or more of the partners and which has been acquired on behalf of the partnership or contributed as capital to the partnership is partnership property and is held on trust for the partnership; (Draft Bill, cl 18(2))
    (2) That there should be a rebuttable presumption that property which is acquired with money or other assets belonging to the partnership is partnership property; (Draft Bill, cl 18(1)) but
    (3) The existing rule in section 20(3) of the 1890 Act, which creates a presumption that additional land bought out of the profits of a partnership involving the use of co-owned land is not partnership property, should be re-enacted. (Draft Bill, cl 19)
    The definition of partnership property
    9.82         As a partnership will have separate personality and can own property or have property held in trust for it, it is possible to adopt a straightforward definition of "partnership property" to identify the property which makes up the assets of the partnership which are taken into account in valuing a partner's share in the partnership. This is property to which the partnership is beneficially entitled in English law. Where the partnership holds property in trust for another person or persons, the partnership has by definition no beneficial interest in such property.

    9.83         The formulation in Scots law, which achieves the same practical result, requires to be different as Scots law does not recognise a split between legal ownership and beneficial ownership. In Scotland partnership property will include (a) property which is owned by the partnership which is not held in trust either for another person or for a purpose other than the partnership business and (b) property which is held by another person in trust for the partnership.

    9.84         We therefore recommend:

    (1) That, in English law, "partnership property" should be defined as property to which the partnership is beneficially entitled, whether or not the property is held in the partnership name; (Draft Bill cl 17(1)(a)) and
    (2) That, in Scots law, "partnership property" should be defined negatively as not including property held by the partnership in trust. (Draft Bill, cl 17(1)(b))
    The execution of documents and deeds
    Existing law
    9.85         In English law there are three difficulties for the execution of deeds by partnerships:

    (1) a partner has no implied authority to bind co-partners by deed;[89]
    (2) authority to execute a deed on behalf of another person must be conferred by deed;[90] and
    (3) even if a partner acts with express authority, the form of the deed determines whether the partnership is bound.[91]
    9.86     The combination of (1) and (2) in the immediately preceding paragraph means that for a deed to be validly executed by a partnership, it must either be executed by all the partners, or on their behalf by an attorney, authorised by a deed executed by them all.[92] This can be inconvenient for large partnerships. The rule that any deed conveying a legal estate in land to a partnership vests it in no more than four partners is a further complication for large partnerships.[93]

    9.87     In Scotland one partner can execute a document on behalf of the partnership.[94]

    Our provisional proposals
    9.88     In the Joint Consultation Paper we proposed that if partnerships with separate legal personality were to be introduced in English law the rules on the execution of deeds by partnerships should be as follows:

    (1) a document would be executed by the partnership if signed by a partner and expressed to be executed by the partnership;
    (2) there should be a presumption of due execution in favour of an acquirer in good faith and for valuable consideration; and
    (3) there should be a rebuttable presumption that a deed executed in accordance with (1) above was delivered upon execution.[95]
    9.89     We also invited views on our suggestion that the provisions governing the execution of documents and deeds in both jurisdictions[96] should make clear that a partner should be able to execute deeds or documents only if he has authority to bind the partnership. Otherwise the provisions might circumvent the rules in sections 5 and 6 of the 1890 Act.

    Consultation
    9.90     The response from English consultees who addressed the issues was divided. While a majority supported all or at least some of the three proposals set out in paragraph 9.87 above there was strong opposition in particular to our proposal that a document would be executed by the partnership if signed by one partner and expressed to be executed by the partnership.

    9.91         The Law Society opposed this proposal arguing that it would be a recipe for disputes. They requested that the rules for partnership be made analogous to companies, so that the signature of two partners would be required. The APP expressed a preference for execution by two partners so as to give Trustee Act protection to purchasers for value. The Chancery Bar Association and the Country Land and Business Association also supported the signature of two partners.

    9.92         H M Land Registry expressed concern about the second proposal set out in paragraph 9.87 above. They suggested that the formulation in the Joint Consultation Paper was too restrictive and that a purchaser in good faith should be protected where the person signing expresses himself to be a partner even though he is not. This would, they suggested, bring partnerships into line with the provisions relating to companies.[97]

    9.93     There was general support for the proposition that the rules on the execution of deeds which we proposed would be subject to rules about the actual or apparent authority of a partner which are currently sections 5 and 6 of the 1890 Act. The Chancery Bar Association however opposed the proposition, arguing that it put further difficulties in the path of a purchaser who tried to accept a deed from a partnership entity.

    9.94         In Scotland there was general support for our proposal that it should be made clear that a partner in a Scottish partnership should be able to execute documents as the partnership only if he has authority to bind the partnership in the particular transaction. But the Faculty of Advocates doubted whether the reform was necessary.[98] The Committee of Scottish Clearing Bankers supported the proposal on the understanding that a signature was binding unless the other party knows that the partner has no authority in that particular transaction or does not know or believe him to be a partner.[99]

    Reform recommendations
    9.95     We have reviewed our policy in the light of the consultation responses and are persuaded that in English law the signature of at least two partners should be required for execution of a deed. This will be consistent with the position for companies and limited liability partnerships in English law.[100] Agents of a partnership who are not partners may not execute deeds as the partnership.[101] We recommend that the method by which a partnership can execute a deed is through the signature of two partners who have the requisite authority to do so. It is not enough that a partner has authority to bind the partnership. All partners have authority to bind the partnership under clause 16 of the draft Bill, if the transaction entered into is "for carrying on in the usual way business of the kind carried on by the partners". The requisite authority required here is actual authority (whether express or implied) to enter into the transaction as a deed. This authority may be expressly provided in the partnership agreement, or the partnership agreement may exclude certain partners from executing deeds.

    9.96     In relation to our policy on the presumptions which we proposed in paragraph 9.87 (2) and (3) above, we have not encountered any strong reason for disapplying these presumptions. The presumption in paragraph 9.87(2) is important where it is a requirement that the partners have the requisite authority to sign the deed. It is very difficult for a third party purchaser to know whether the partners that are signing the deed have this authority. Thus, this presumption (or more accurately the deeming) provides an important protection for the third party purchaser. Our intention is to provide protection for a purchaser who is acting in good faith and for valuable consideration against a lack of authority of partners (or persons held out by the partnership to the purchaser as partners) to execute a deed on the partnership's behalf; but not against a forgery perpetrated by imposters falsely assuming the identity of partners, which would be a nullity.[102] We have also retained the (rebuttable) presumption of delivery of a deed upon execution.[103] We note that retaining these two presumptions would make the draft Bill consistent with the analogous provision of the Companies Act 1985 (section 36A(5) and (6)) and would also be consistent with the Law Commission's recommendations in its report on Execution of Deeds and Documents by or on behalf of Bodies Corporate.[104]

    9.97     Where a partner is not a natural person it is necessary to provide for what amounts to that partner's signature. In its Deeds report (mentioned above),[105] the Law Commission recommended that where a company director or company secretary was itself a company the signature of someone "authorised by the director or secretary to sign on its behalf" was sufficient. We think that a similar approach would be appropriate where a company or a partnership is a partner in a partnership: a document should be treated as signed by the partner if it is signed by an individual who has authority to sign on behalf of the partner.

    9.98     In Scotland, we propose to clarify the relationship between the rules for the formal validity of documents in the Requirements of Writing (Scotland) Act 1995 and the rules as to the agency of a partner in clause 16 of the draft Bill and in the general law. We recommend that in Scotland if a document is signed on its behalf by a partner (whether or not that partner has any authority, actual or apparent) the document is valid and the partnership is bound. However the partnership or another interested party can raise proceedings to reduce the document if the partner who signed it had no authority or apparent authority to do so on behalf of the partnership.

    9.99         We therefore recommend:

    (1) That, in English law, a document is validly executed by the partnership as a deed if and only if (a) it is signed by at least two partners, each of whom has authority to execute the document as a deed on behalf of the partnership and (b) it is expressed to be executed by the partnership and (c) it is delivered as a deed; (Draft Bill, cl 20(1) and (2))
    (2) The document referred to in (1) above is presumed to be delivered upon its being executed in accordance with (1) above, unless a contrary intention is shown; (Draft Bill, cl 20(3))
    (3) If a partnership is being wound up by the partners and there is only one partner remaining, the rule in paragraph (1)(a) above should be taken as satisfied if the document is signed by the partner, whether or not he had authority to execute the document; (Draft Bill, cl 20(4))
    (4) If a limited partnership has only one general partner, the rule in (a) in paragraph (1) above should be taken as satisfied if the general partner signs the document and he has authority to execute the document as a deed on behalf of the partnership; (Draft Bill, cl 20(5))
    (5) If the partner is not an individual a document should be treated (for the purposes of this provision) as signed by that partner if it is signed by an individual who has authority to sign on behalf of the partner; (Draft Bill, cl 20(6))
    (6) In favour of a purchaser in good faith and for valuable consideration there is a presumption of due execution; (Draft Bill, cl 20(7) and (8)) and
    (7) In Scots law, the formal validity of a document signed by a partnership in accordance with the Requirements of Writing (Scotland) Act 1995 is not affected by a partner's lack of authority to sign the document, but the partnership or another interested party should be able to seek the reduction of such a document if the partner had no authority or apparent authority to sign the document on behalf of the partnership. (Draft Bill, cl 21)

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Note 1    The definition of partnership property covers property which is the subject of an express trust as well as property which is not.    [Back]

Note 2    Trustee Act 1925, s 34(2); Law of Property Act 1925, s 34(2): no more than four persons can hold the legal title to land.    [Back]

Note 3    Lindley & Banks, para 18-63.     [Back]

Note 4    Dennistoun, Macnayr and Co v Macfarlane February 16, 1808 FC, Mor App “Tack” No 15.    [Back]

Note 5    See the Abolition of Feudal Tenure etc (Scotland) Act 2000, s 70.    [Back]

Note 6    The statutory provisions cover, among others, aircraft, shares in a registered company, patents, UK registered trademarks, and Community trademarks. A Scottish partnership may own a minority interest in a ship but may not be the sole owner. We refer to the statutory provisions in paras 9.35 – 9.51 below.     [Back]

Note 7    See for example Miles v Clarke [1953] 1 WLR 537 (a photographer’s studio and equipment) and Harvey v Harvey [1970] ALR 931 (a farm).    [Back]

Note 8    Miles v Clarke [1953] 1 WLR 537, 540.    [Back]

Note 9    But see the 1890 Act, s 20(3) which creates a rebuttable presumption that where co-owners of land, which is not partnership property, are in partnership in the use of the land and use the profits of the partnership to purchase further land, they hold that further land as co-owners and not as partnership property. See also Davis v Davis [1894] 1 Ch 393, in which North J took a similar approach in analogous circumstances.    [Back]

Note 10    Forrester v Robson’s Trustees (1875) 2R 755 (a pre-1890 Act case);Carter Bros. v Renouf and Another [1962-3] 36 ALJR 67.     [Back]

Note 11    Prime & Scanlan, The Law of Partnership (1st ed 1995) p 200.    [Back]

Note 12    Joint Consultation Paper, para 11.20.    [Back]

Note 13    Joint Consultation Paper, para 4.40.    [Back]

Note 14    Joint Consultation Paper, paras 4.44 – 4.45.    [Back]

Note 15    Joint Consultation Paper, para 4.39 and especially footnote 32.    [Back]

Note 16    Joint Consultation Paper, paras 11.22 - 11.23.     [Back]

Note 17    We are not taking forward the proposal to introduce a registered partnership. See Part XIII below.    [Back]

Note 18    Later discussions with H M Land Registry and the Keeper of the Registers of Scotland have altered their views and our views on this issue. See para 9.23ff below.    [Back]

Note 19    Elspeth Deards.    [Back]

Note 20    For the effect of the 1890 Act s 20(3) see footnote 9 above.     [Back]

Note 21    In developing our recommendations we have attempted to restrict the circumstances in which changes in membership could result in discontinuity of partnership under the default code. We recommend that a partnership will not dissolve so long as it owns any assets and so long as any liabilities exist or may exist: only once all assets have been disposed of and all liabilities discharged or extinguished through the passage of time will the partnership be dissolved. See paras 12.13 – 12.23 below. The most likely occurrence of a discontinuity of partnership is where a partnership breaks up when a partner dies or withdraws and leaves only one surviving partner. The partnership continues but solely for the purpose of winding up (see para 12.20 below). That partner then takes on another partner and continues the business in the same name, unaware that the first partnership has broken up and cannot be reconstituted by taking on a new partner. The new partners will have created a new partnership but may be unaware that they have done so. A similar situation could occur where A and B agree to break up a partnership but during its winding up A takes on C as a partner and continues the partnership business.     [Back]

Note 22    RUPA, s 303 addresses the issue by providing for a voluntary register of statements of partnership authority.    [Back]

Note 23    In England and Wales, the Land Registration Rules 2003 (SI 2003 No 1417) made pursuant to s 127 of the Land Registration Act 2002 confer upon the Land Registrar the power, if an application is not in order, to “raise such requisitions as he considers necessary” for the application (Rule 16(1)). The registrar may refuse to complete an application if the necessary documents and evidence have not been supplied (Rule 17). Both the Rules and the Act came into force on 13 October 2003. In Scotland the Keeper of the Registers has power under section 4(1) of the Land Registration (Scotland) Act 1979 (“the 1979 Act”) to require production of documents and evidence in support of applications for registration. In addition under section 27 of the 1979 Act the Scottish Ministers, after consultation with the Lord President of the Court of Session, have power to make rules inter alia to regulate the procedure on application for any registration. The current rules are the Land Registration (Scotland) Rules 1980 (as amended). We therefore do not propose a voluntary register of authority on the lines of RUPA, s 303.    [Back]

Note 24    Cautions ceased to exist when the Land Registration Act 2002 was brought into force on 13 October 2003. Cautions against first registration are however preserved.    [Back]

Note 25    See para 9.65 below.    [Back]

Note 26    Joint Consultation Paper, para 4.40.    [Back]

Note 27    See para 9.27 and footnote 21 above.    [Back]

Note 28    See paras 9.52 – 9.65 below.    [Back]

Note 29    There is nothing to stop the continued use of trustees in the holding of land in those cases where it seems desirable.    [Back]

Note 30    Interpretation Act 1978, s 5 and Sched 1: Unless the contrary intention appears, “person” includes a body of persons corporate or unincorporate.    [Back]

Note 31    Patents Act 1977, s 7(1) and Interpretation Act 1978, ss 5, 22(1), Sched 1, Sched 2 para 4(1)(a).    [Back]

Note 32    Convention on the Grant of European Patents (1973), Art 58.    [Back]

Note 33    Copyright, Designs and Patents Act 1988, s 9(1), s 11 and s 154.    [Back]

Note 34    Because it is not an individual or body corporate as required by s 154 of the 1988 Act.    [Back]

Note 35    See draft Bill, cl 18(2).    [Back]

Note 36    “A person with a purely equitable title (under a trust or a specifically enforceable contract) is permitted to bring a motion for interlocutory relief, but he may not proceed further without joining the legal owner” – Cornish Intellectual Property (4th ed, 1999), para 2.06. In Scotland the trustee and not the beneficiary would have title to sue whether for interim relief or otherwise. See Inland Revenue v Clark’s Trustees 1939 SC 11; Parker v Lord Advocate 1960 SC (HL) 29, 41 and Wilson & Duncan, Trusts, Trustees and Executors (2nd ed 1995), para 1.44.    [Back]

Note 37    Copyright, Designs and Patents Act 1988, s 154 requires the author to have a specified connection with the UK which might be difficult to apply to a partnership. In particular, we recommend that a partnership while a legal person should not be a body corporate and thus s 154(1)(c) would not apply.    [Back]

Note 38    A partner who is author of a copyright work and who holds it on trust for the partnership could assign it to the partnership and thus give the partnership legal title.    [Back]

Note 39    Cornish Intellectual Property (4th ed, 1999), para 17.03.    [Back]

Note 40    It appears that in Scotland a partnership can already be the proprietor of a registered trademark.     [Back]

Note 41    E C Council Regulation 40/1994 (OJ L 11, 14.1.94).    [Back]

Note 42    Treaty of Rome, Art 48 (ex Art 58) provides: “Companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community shall, for the purposes of this Chapter, be treated in the same way as natural persons who are nationals of Member States. “Companies or firms” means companies or firms constituted under civil or commercial law … and other legal persons governed by public or private law, save for those which are non-profit-making.”    [Back]

Note 43    Registered Designs Act 1949, s 2(1A) and (1B).    [Back]

Note 44    Registered Designs Act 1949, s 2(2).    [Back]

Note 45    Copyright, Designs and Patents Act 1988, ss 215(2) and (3), 217(1) and 219(1). Under s 215(4) and s 220 a partnership with separate personality may obtain ownership of a design right by being the first to market the article made to the design if it is exclusively authorised to do so in the United Kingdom and the marketing takes place in a Member State of the EEC or other specified country.    [Back]

Note 46    Copyright, Designs and Patents Act 1988, s 222.    [Back]

Note 47    Lindley & Banks, para 3-07; Weikersheim’s Case (1873) LR 8 Ch App 831.    [Back]

Note 48    Companies House in Scotland has informed us that there are a number of companies which have partnerships as shareholders. Companies House in London have also confirmed that they would accept a return which gave the name and address of a Scottish partnership as a member.    [Back]

Note 49    Companies Act 1985, s 352.    [Back]

Note 50    Companies Act 1985, s 364A.     [Back]

Note 51    Merchant Shipping Act 1995, s 9(2)(a). The current regulations are the Merchant Shipping (Registration of Ships) Regulations 1993 (SI 1993/3138) as amended.     [Back]

Note 52    Merchant Shipping Regulations 1993 (SI 1993/3138), regulation 7.    [Back]

Note 53    SI 1993/3138.    [Back]

Note 54    Regulations 12 and 13.    [Back]

Note 55    Hovercraft (General) Order 1972 (SI 1972/674) as amended, Art 5(3).    [Back]

Note 56    Air Navigation Order 2000 (SI 2000/1562), Art 4(3)(g).     [Back]

Note 57    Air Navigation Order 2000, Art 4(3)(f).    [Back]

Note 58    Nonetheless it would be appropriate to revoke the Air Navigation Order Art 4(3)(g) which refers to firms carrying on business in Scotland. With the introduction of separate personality firms carrying on business in Great Britain should be qualified and are covered by Art 4(3)(f).    [Back]

Note 59    See Law Guarantee & Trust Society Ltd v The Governor and Company of the Bank of England (1890) 24 QBD 406, 411 per Mathew J.    [Back]

Note 60    SeeMegarry & Wade, para 9-003.    [Back]

Note 61    While joint tenancy is not a method of holding property in Scots law, a Scottish partnership could hold property by that means in England or Wales. The draft Bill therefore extends the 1899 Act to all partnerships which it governs.    [Back]

Note 62    See paras 9.16, 9.26 – 9.34 above.    [Back]

Note 63    Parts VIII and XII of this report.    [Back]

Note 64    We provide (draft Bill, cl 38(3)) that at least one half of the partners can decide to break up a partnership to cater for the circumstances of a tied vote in a small partnership. But in many circumstances there will be a majority vote one way or the other.     [Back]

Note 65    The problem would also occur where the partners were aware of the discontinuity and chose to ignore it in the hope that the transferee would not identify the problem and put them to the bother of transferring the title from the old partnership to the new.    [Back]

Note 66    It may be the case that neither of the parties to the transaction realises that there are two partnerships. The mutual assumption may be that the partner making the transfer is acting on behalf of the partnership which holds title to the property. Therefore when we speak of the transfer being apparently in the name of the former partnership, we are referring to the transferee’s perception that the transferor is the title holder, whether or not a party is aware of the two partnerships.     [Back]

Note 67    The authority may be actual (express or implied) or apparent (arising out of estoppel or personal bar).    [Back]

Note 68    The requirement of good faith means among other things that the acquirer would take the property subject to any registered security interest as the acquirer would have notice of that interest when acquiring the property.     [Back]

Note 69    We confine the protection to the transferee in good faith who has given value for the property or interest in property and do not protect a gratuitous donee. Under the doctrine of the bona fide purchaser without notice the giving of valuable consideration in good faith confers on the purchaser a legal right which prevails over a prior equitable right. See Snell’s Equity (30th ed 1999), para 4-09ff. In our proposals the former partnership would lose its property to the transferee in good faith and would have to seek a personal remedy against those who granted the conveyance. To deprive the former partnership of its property we think that the transferee would require to have given value.    [Back]

Note 70    A’s retirement would cause the break up of the partnership and commence the winding up, but if B paid out A or if A left on the basis that his drawings equalled his entitlement there would be no actual winding up of the business.    [Back]

Note 71    The fact that the membership of the partnership may have changed since the date when the old partnership took title and that the (new) partnership’s stationery lists the names of the current partners in accordance with the Business Names Act 1985 would not prevent the bona fide third party from relying on the protection as the change in membership would not of itself indicate the creation of a new partnership where there is a default rule of continuity of partnership.     [Back]

Note 72    That is, in England and Wales the Land Registry and in Scotland the Land Register.    [Back]

Note 73    In England and Wales, the relevant provisions are s 103 of and Sched 8 to the Land Registration Act 2002. Para 1(1)(b) of Sched 8 provides that a person is entitled to be indemnified by the registrar if he suffers loss by reason of a mistake whose correction would involve rectification of the register. In Scotland the relevant provision is s 12 of the Land Registration (Scotland) Act 1979 which requires the Keeper of the Registers to indemnify a person who suffers loss as a result inter alia of a refusal or omission of the Keeper to rectify the Land Register.    [Back]

Note 74    Lindley & Banks, para 19-04. See more generally, Lindley & Banks, ch 19.    [Back]

Note 75    Lindley on Partnership (5th ed 1888), p 339, quoted inLindley & Banks, para 19-05.    [Back]

Note 76    Lindley & Banks, para 19-06.    [Back]

Note 77    IRC v Gray [1994] STC 360, 377c-e.     [Back]

Note 78    Until the Abolition of Feudal Tenure etc (Scotland) Act 2000, s 70 is brought into force a Scottish partnership cannot own land. See para 9.9 above.     [Back]

Note 79    Clark, I, 178; Bell, Comm. II, 536.     [Back]

Note 80    Bell, Comm. II, 536.    [Back]

Note 81    1890 Act, s 20(1).    [Back]

Note 82    1890 Act, s 24(1).    [Back]

Note 83    See inter alia para 8.75 above.    [Back]

Note 84    1890 Act, ss 20 and 21; see paras 9.10 – 9.13 above. Capital contributions at the start of the partnership and assets acquired on account of the partnership are partnership property (s 20(1)); property bought with partnership money is partnership property unless the contrary intention appears (s 21).    [Back]

Note 85    See paras 9.10 – 9.13 above.    [Back]

Note 86    See para 9.10 above: where assets are made available to the partnership the court looks at all the circumstances to ascertain if the partners have agreed that the assets were to become partnership property.     [Back]

Note 87    See the response of Elspeth Deards, para 9.21 above.    [Back]

Note 88    See eg Miles v Clarke [1953] 1 WLR 537.    [Back]

Note 89    Harrison v Jackson (1797) 7 TR 207; 101 ER 935; Steiglitz v Egginton (1815) Holt 141; 171 ER 193; Marchant v Morton, Down & Co [1901] 2 KB 829.    [Back]

Note 90    Schack v Anthony (1813) 1 M & S 573; 105 ER 214; Harrison v Jackson (1797) 7 TR 207; 101 ER 935. The requirement for authority to deliver a deed to be given by deed has been abolished: Law of Property (Miscellaneous Provisions) Act 1989, s 1(1)(c). See generally: The Execution of Deeds and Documents by or on behalf of Bodies Corporate, Consultation Paper No 143, para 8.3; (1998) Law Com No 253, para 7.3.    [Back]

Note 91    Marchant v Morton, Down & Co [1901] 2 KB 829;Lindley & Banks, para 12-178.    [Back]

Note 92    A deed may also be executed by one partner in the name and in the presence of the co-partners, which is treated as due execution by them: see Ball v Dunsterville (1791) 4 TR 313; 100 ER 1038; Burn v Burn (1798) 3 Ves Jr 573; 30 ER 1162; Orr v Chase (1812) 1 Mer 729; 35 ER 839; Brutton v Brutton (1819) 1 Chitty 707.    [Back]

Note 93    Trustee Act 1925, s 34(2); Law of Property Act 1925, s 34(2). The problem can be avoided if the partnership incorporates a company to hold land but that may not be a satisfactory solution for small partnerships.     [Back]

Note 94    Requirements of Writing (Scotland) Act 1995, Sched 2, para 2(1).    [Back]

Note 95    Joint Consultation Paper, para 19.11.    [Back]

Note 96    That is, the proposed provision in English law in para 9.87 above and in Scotland the Requirements of Writing (Scotland) Act 1995, (“the 1995 Act”) Sched 2, para 2(1) which provides: “Except where an enactment expressly provides otherwise, where a granter of a document is a partnership, the document is signed by the partnership if it is signed on its behalf by a partner or by a person authorised to sign the document on its behalf”.     [Back]

Note 97    In favour of a purchaser a document is deemed to have been duly executed by a company if, inter alia, the document purports to be signed by the appropriate person: Companies Act 1985 (as amended), ss 36A(4), 36A(6).     [Back]

Note 98    The Faculty thought that the correct interpretation of para 2(1) of Sched 2 to the 1995 Act was that the partner must have authority under ss 5 and 6 of the 1890 Act for the document to be validly executed. They expressed concern that the reference in our proposal to authority to bind in the particular transaction should not undermine the doctrines of general and implied authority. As our proposal is to require that the partner has actual (express or implied) or apparent authority to bind the partnership in the transaction, we do not think that this should be a problem.    [Back]

Note 99    This is consistent with the 1890 Act, s 5 which gives a partner apparent authority to bind the partnership when he carries on the partnership business in the usual way. As s 5 states, there is no apparent authority when the person with whom the partner is dealing either knows that he does not have authority or does not know or believe him to be a partner. Our proposal seeks to preserve this rule.    [Back]

Note 100    In Scotland one director or secretary may sign a document on behalf of a company: The 1995 Act, Sched 2, para 3(1). The Scottish rule for partnerships is thus consistent with the rule for companies.    [Back]

Note 101    But a partnership could be bound by a person who acted on behalf of the partnership under a power of attorney. The power of attorney would ultimately have to be conferred by a deed executed by the partnership: Powers of Attorney Act 1971, s 1.    [Back]

Note 102    Draft Bill, cl 20(7). The rule that a deed executed by an impersonator has no legal effect is well established and the clause would therefore not apply to such a document. (See, for example, Re Cooper (1880) 20 Ch D 611, per Kay J at p 623: “If A personating B executes a deed in the name of B purporting to convey B’s property, no right or interest can possibly pass by such an instrument. It is not a deed.” Kay J’s judgement was approved by the Court of Appeal.)    [Back]

Note 103    See Law Commission report on Execution of Deeds and Documents by or on behalf of Bodies Corporate, (1998) Law Com No 253, paras 6.31-6.36.    [Back]

Note 104    (1998) Law Com No 253, Part 5. The Government has accepted this report and plans to legislate in 2003 under the Regulatory Reform Act 2001.     [Back]

Note 105    (1998) Law Com No 253, see appendix A (draft Bill), Sched 1, para 3(3).    [Back]

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