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Implied authority of partners
- 1. Implied authority of Partners By Dr. Sridevi Krishna Asst. Proferssor VVLC
- 2. Section 19 • Implied authority of partner as agent of the firm.—(1) Subject to the provisions of section 22, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm. The authority of a partner to bind the firm conferred by this section is called his “implied authority”.
- 3. Restrictions on Implied Authority • S 19 (2) In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to—(a) submit a dispute relating to the business of the firm to arbitration, • (b) open a banking account on behalf of the firm in his own name, • (c) compromise or relinquish any claim or portion of a claim by the firm, • (d) withdraw a suit or proceeding filed on behalf of the firm, • (e) admit any liability in a suit or proceeding against the firm, • (f) acquire immovable property on behalf of the firm, • (g) transfer immovable property belonging to the firm, or (h) enter into partnership on behalf of the firm.
- 4. S 20 Extension and restriction of partner’s implied authority. • The partners in a firm may, by contract between the partners, extend or restrict the implied authority of any partner. • Notwithstanding any such restriction, any act done by a partner on behalf of the firm which falls within his implied authority binds the firm, unless the person with whom he is dealing knows of the restriction or does not know or believe that partner to be a partner.
- 5. S 22 Mode of doing act to bind firm • In order to bind a firm, an act or instrument done or executed by a partner or other person on behalf of the firm shall be done or executed in the firm name, or in any other manner expressing or implying an intention to bind the firm. • In the name of the firm • In a manner expressing or implying an intention to bind the firm
- 6. Johnstone v Jan bibi • One of the two partners signed a promissory note paper on which the name of the firm Lahore cotton bailing press was printed, without indicating that he was signing as a partner or on behalf of the firm. • It was held that he alone was liable on the note and the other partner could not be made liable for the same.
- 7. Chisulal v Hazi Mohammed • A partner of the firm executed a promissory note describing himself as a proprietor of the firm but without clearly indicating that the promissory note was really executed by him as a partner of the firm for and on behalf of the firm. The other partner of the firm could not be made liable on the note.
- 8. Doctrine of Holding Out • Section 28 • (1) Any one who by words spoken or written or by conduct represents himself or knowingly permits himself to be represented, to be a partner in a firm, is liable as a partner in that firm to any one 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. • (2) Where after a partner’s death the business is continued in the old firm name, the continued use of that name or of the deceased partner’s name as a part thereof shall not of itself make his legal representative or his estate liable for any act of the firm done after his death.
- 9. Essentials • The person sought to be made liable under the doctrine of holding out either has himself represented or knowingly permitted somebody else to represent that he is a partner in the firm • The third party who wants to bring an action must have acted on the faith of the representation and given credit to the firm
- 10. Snow white Food Products Ltd v Sohan Lal Bagla • This is a suit for recovery of Rs. 13,031.87. • The office worker of firm , Sohan Lal entered into negotiation on behalf of the firm with Snow White Ltd for transferring their goods. Goods were not delivered but were unjustifiably discarded and turned to their own use . In a suit filed against the firm Sohan Lal repudiated that he had ever been a partner of the firm.
- 11. Continued.. • It was held that Sohan Lal portrayed himself out as a partner of the firm during transaction with Snow White Ltd. He acted as a partner having authority and showed so before the Snow White Ltd. • Furthermore the fact that he pretended to be authorized partner of the firm was also acknowledged by him. Also in many conversation held with Snow White Ltd in course of transaction he signed the letters as if a partner of the firm. • Therefore Sohan Lal was held liable to pay Snow White Ltd on the basis of holding out.
- 12. Munton v Rutherford • One Backwith published a statement in a newspaper that he and Mrs. Rutherford had formed a partnership. The statement was false and Mrs. Rutherford did not know about the same. • Held: Mrs. Rutherford was not liable as a partner by estoppel or holding out. • Observation- if she had seen the article and assented to it, the rule of estoppel would have applied. There being no evidence that she authorized or assented to it, there is no room for the application of the rule.
- 13. Position of a minor in a partnership • S 30 (1) A person who is a minor according to the law to which he is subject may not be a partner in a firm, but, with the consent of all the partners for the time being, he may be admitted to the benefits of partnership. • (2) Such minor has a right to such share of the property and of the profits of the firm as may be agreed upon, and he may have access to and inspect and copy any of the accounts of the firm. • (3) Such minor’s share is liable for the acts of the firm, but the minor is not personally liable for any such act. • (4) Such minor may not sue the partners for an account or payment of his share of the property or profits of the firm, save when severing his connection with the firm, and in such case the amount of his share shall be determined by a valuation made as far as possible in accordance with the rules contained in section 48: Provided that all the partners acting together or any partner entitled to dissolve the firm upon notice to other partners may elect in such suit to dissolve the firm, and thereupon the court shall proceed with the suit as one for dissolution and for settling accounts between the partners, and the amount of the share of the minor shall be determined along with the shares of the partners.
- 14. • 5) At any time within six months of his attaining majority, or of his obtaining knowledge that he had been admitted to the benefits of partnership, whichever date is later, such person may give public notice that he has elected to become or that he has elected not to become a partner in the firm, and such notice shall determine his position as regards the firm: Provided that, if he fails to give such notice, he shall become a partner in the firm on the expiry of the said six months. • (6) Where any person has been admitted as a minor to the benefits of partnership in a firm, the burden of proving the fact that such person had no knowledge of such admission until a particular date after the expiry of six months of his attaining majority shall lie on the persons asserting that fact. • (7) where such person becomes a partner,— • (a) his rights and liabilities as a minor continue up to the date on which he becomes a partner, but he also becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of partnership, and • (b) his share in the property and profits of the firm shall be the share to which he was entitled as a minor.
- 15. • 8)Where such person elects not to become a partner,— (a) his rights and liabilities shall continue to be those of a minor under this section up to the date on which he gives public notice, • (b) his share shall not be liable for any acts of the firm done after the date of the notice, and • (c) he shall be entitled to sue the partners for his share of the property and profits in accordance with sub- section (4). • (9)Nothing in sub-sections (7) and (8) shall affect the provisions of section 28.