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Question

Difficulty: MediumPartnership: Types, Deed, Rights, and Dissolution

Chief Kalu permitted a newly established commercial firm to use his name on its signboards and business stationery as a senior partner, despite contributing no capital and receiving no share of profits. When the firm defaults on a debt owed to a supplier who extended credit relying on this representation, what is Chief Kalu's legal liability to the supplier?

  1. He is fully liable for the debt as a partner by holding out.Answer
  2. B
    He has no legal liability because he contributed no capital to the enterprise.
  3. C
    His liability is limited because he takes no active part in daily business operations.
  4. D
    He is only liable if all other partners are formally declared bankrupt.

Answer

Chief Kalu is fully liable for the debt to the supplier as a partner by holding out (estoppel).
Under Nigerian commercial law and the Partnership Act, a person who holds himself out (or allows himself to be held out) as a partner is liable as a partner to anyone who has given credit to the firm on the faith of any such representation. Therefore, Chief Kalu is liable to the supplier as a partner by holding out.

Step-by-Step Solution

1
Identify the type of partner representation described in the scenario.
Chief Kalu is acting as a nominal partner / partner by estoppel (holding out) because he allowed his name to be used to induce confidence in the firm.
Under partnership law, allowing one's name to be published as a partner creates legal reliance for third parties.
2
Evaluate legal liability to third parties who acted on that reliance.
Any person who holds themselves out as a partner is held personally liable for debts incurred by third parties relying on that representation.
The doctrine of estoppel prevents him from denying partnership status to defeat the creditor's claim.

Key Concept

Partner by Holding Out (Estoppel) and Liability to Third Parties
Estimated Time:1m 0s
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Topics

Partnership: Types, Deed, Rights, and Dissolution

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