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Answer Posted / ganesh singh bhandari
Rule in Garner Vs Murray belongs to the leading case of 1904. According to the leading case, in 1900, three partners named Garner, Murray and Wikkins started a partnership business of trading clothes in England with agreement of sharing profits and losses equally. In 1903, Wikkins became insolvent and the conflict started among those all partners regarding their share of loss proportionately. In this scenario, on the one hand, the major difficulty arose as insolvent partner Wikkins was unable to continue his equal share of loss of capitals. And the other hand, the solvent partners Garner and Murray were not bound to continue for Wikkins and such dispute continued between them regarding the distribution of deficiency of capital amounts.The Chancery Division of England and Wales ruled that the deficiency would be shared between the partners in the rate of their capital contribution but not equally and also not per agreement of proportion of sharing the profits and losses.
When the firm was dissolved in 30 June ,1900 due to being insolvent of a partner, Garner and Murray sued the case in court in 1903. The Chief Justice Mr. Joes gave an very important decision in this regard is known as the RULE in Garner and Murray. This rule highlights the following main points:-
1.The sum not recoverable from the insolvent partner is considered as capital loss to the firm.
2. such capital losses should be borne by the remaining partners in their capital sharing ratio, who are solvent and they have credit balance on their capital accounts on the date of insolvency.
3.Those solvent partner will bring in cash equal to their respective shares of loss on realization.
4. While dissolution of the partnership due to being insolvent of one or more partner, its other procedures for closing the books of accounts is almost the same as under simple dissolution.
Finally, the crux of the rule is: If one partner is unable to make good a deficit on his capital account, the remaining partners will share the loss in proportion to their last agreed capitals, not in the profit/loss sharing ratio.
3.
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