Question: What is Doctrine of Holding out?

 

Note: this post is a part of our important question answer series on Partnership act. You can read other questions by clicking here.

 

Answer

In general parlance, doctrine of holding out is confused with estoppel, but they both are not exactly the same.

The doctrine of Holding out is recognized in section 28 of partnership act, 1932. The section reads as:

“Anyone who by words spoken or written or by conduct represent 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”.

 

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Ingredients of Partnership by Holding Out

1.    There must be a representation

If someone either voluntarily depict himself, or allows any other person to depict, partner of such firm, it shall be considered an appropriate representation. In this way, it can be said that the representation can be either implied or express.

 

2.    The other party should have knowledge of such representation

The plaintiff who is making the defendant liable must have knowledge of the representation and has acted on it, believing on the fact so represented.

 

3.    He should have acted on it in good faith

If the plaintiff has believed on the representation and fact and has acted on it in good faith, it is immaterial whether the defendant knows it or not, he can be charged and is liable to the plaintiff by holding out as a partner.

 

Exceptions of this rule:

1.       Section 28(2) of Partnership act provides that the death of a partner constitutes sufficient notice by itself, hence his legal heirs are not held liable under this doctrine.

2.       Insolvency of a partner is also sufficient notice and attracts Section 42 of the Indian Partnership Act.

3.       If one has been a dormant or sleeping from beginning to end, notice can be dispensed with as neither the customers nor the clients know of his participation in the firm.

 

Case: Scarf vs. Jardin

In this case, it was held that the retiring partner must give notice of his retirement from a firm in the same manner as a notice of appointment is given, so that the people can know about his status. Or else, he might be treated as a partner by holding out no matter how long back he retired from the firm without notice.

 

 

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