Doctrine of holding out Exception-
Doctrine of holding out-
The term ‘holding out’ means ‘to represent’. thus, where a person who, in fact is not a partner, holds himself out as or the represents himself to be a partner he incurs liability for his act in certain conditions.
The point to be noted here is that, in spite of the fact that although in reality he is not a partner he becomes liable for his acts as a partner.
Waugh v. Graver is first case in which this principle was laid down.
Subsequently it was followed and more elaborated in Lake v. Duke of Argyll (1844). And this liability is based on principle of holding out i.e., it is not lawful for a person to misrepresent himself and once he has done so he must bear the consequences. Section 28 of the Act explains the doctrine in the following words:
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 to 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 partners name as a part thereof shall not itself make his legal representative or his state liable for any acts of the firm done after his death.
Doctrine of holding out Exception –
1. Torts –
The principle of holding a person liable for acts of a firm on the ground of holding out cannot be extended to include liability arising out of torts
2. Liability of retired partner-
The rule of holding out in this section is also applicable to a former partner who retires from the firm without giving proper public notice of his retirement.
In such a case persons who even subsequent to the retirement give credit to the firm on the belief that he was a partner he will be entitled to hold him liable. [Scarf v. Jardine (1882) AC 345 ].
Section 32(3) of the partnership act to provides- “Notwithstanding the retirement of a partner from a firm, he and of 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 if until public notice is given on the retirement :
Provided that a retired partner is not liable to any third party who deals with the firm without knowing that he was a partner”.
The position of the legal representatives of deceased to partner is different from that of retiring partner, because they will not be bound by the subsequent acts of the firm though know public notice on the partner’s death was given to the customers of the firm.
The fact that the business of the firm subsequently continued in the same name will not by itself be sufficient render the legal representatives of the deceased partner liable for the same on the ground of holding out.
3. Insolvency of partner
Insolvency of the partner extinguishes as the liability of a partner and he cannot be held liable even upon this doctrine.
4. Dormant partner
His retirement does not require a public notice for bringing end to his liability. According to proviso to section 45 (1) of Partnership Act, a dorment partner is not liable for acts done after the date on which he ceases to be a partner.
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