Partners are jointly and severally liable for the debts and obligations of the partnership. This means that all of the partners are liable for the full amount of the debt, even if only one partner is responsible for it.
In the case of fraud, the partners are also liable to indemnify the partnership for any losses that are caused by the fraud. This means that the partners must pay back the partnership for any money that is lost due to the fraud.
The duty to indemnify the partnership for losses caused by fraud is based on the principle of unjust enrichment. The partners are unjustly enriched if they are not required to pay back the partnership for the losses that are caused by their fraud.
Here are some MCQs on the relations of partners to one another: duty to indemnify the loss caused by fraud in banking:
- A partner in a bank commits fraud and the bank loses money. Are the other partners liable to the bank for the losses?
- Yes, the other partners are liable to the bank.
- No, the other partners are not liable to the bank.
- The answer is (a). The other partners are liable to the bank for the full amount of the losses.
- Can a partner avoid liability for losses caused by fraud by proving that they did not know about the fraud?
- Yes, the partner can avoid liability if they did not know about the fraud.
- No, the partner is still liable for the losses even if they did not know about the fraud.
- The answer is (b). The partner is still liable for the losses even if they did not know about the fraud.
- Can a partner avoid liability for losses caused by fraud by proving that they tried to stop the fraud?
- Yes, the partner can avoid liability if they tried to stop the fraud.
- No, the partner is still liable for the losses even if they tried to stop the fraud.
- The answer is (a). The partner can avoid liability if they tried to stop the fraud, but only if their efforts were reasonable.