Q. ‘A’ and ‘B’ carried on partnership business under the name of ‘Z & Co.’ ‘A’ retried but gave no notice of his retirement. ‘C’, a new partner, joined and the firm continued in the old name. A creditor deals with the firm without having notice of the retirement as well as joining of new partner. He brings a suit against ‘A’, ‘B’ and ‘C’, all partners of the firm. Is the suit maintainable as it stands?
Civil Services (I.A.S.) Exam. 1963
U.P. Civil Services Exam. 1995 (Similar Problem)
Civil Services/I.A.S. (Main) Exam. 1993 (Similar problem)
Ans: No, suit is not maintainable as it stands—Scarf v. Jardine, (1882) 7 AC 345.
Reasons: Facts of this problem have been taken from the famous case of Scarf v. Jardine referred above. In this case:
A firm consisted of two partners namely Scarf and Rodgers. Scarf retires from the firm and another person namely Beach joins the firm in place of Scarf. The business was being carried on under the same name of the firm and no notice of change was given to the customers of the firm. Jardine was an old supplier of the firm. Some order of goods were placed to him by firm and he supplied the goods not knowing anything about the change. The firm failed to make payment of goods supplied by Jardine. Jardine sued Rodgers and Beach (new partner) for price. He failed in suit against Rodgers and Beach. He then sued Scarf.
It was held that when Jardine was ignorant of the retirement of Scarf as well as introduction of Beach, he had an option to sue Rodgers and Scarf on the basis of ‘Holding Out’ or to sue Rodgers and Beach on the strength of existing facts and since Rodgers never held himself out as a partner along with Beach and Scarf both, Jardine cannot make all of them namely Rodgers, Scarf and Beach liable. Thus, once he elected to sue Rodgers and Beach, now he cannot sue Scarf.
On the basis of above discussions it can be said that in the given problem the creditor cannot sue ‘A’, ‘B’ as well as ‘C’ and suit filed by the creditor against ‘A’, ‘B’ and ‘C’ is not maintainable as it stands.
Note: It is notable that in this problem position would have been different if creditor were aware of the introduction of ‘C’ but not aware of the retirement of ‘A’. In such a case creditor could presume that ‘C’ had joined the firm which already consisted of ‘A’ and ‘B’ and in this circumstance he could sue all the three persons namely ‘A’, ‘B’ and ‘C’.
Source: Kishor Prasad