A partner is an agent of the firm and it specifies that a partner is an agent for the purpose of business of the firm. Under section 18, a partner of the partnership firm acts as both the principle and agent. As principle when he acts for himself and his interest and as agent when he acts on the behalf of his partners and their interest, provided that he acts as an agent only for the purpose of business and its transactions and not all the deals related to its partners.
Authority of a partner can be implied or expressed, when there is a mutual agreement between the partners the conferred authority is known as expressed, but when there is no agreement present and the partnership is silent, it is known as implied authority. According to section 19 of the act, when a partner does an act which is the usual course of the business, his acts binds the firm and this authority is implied authority. However, implied authority does not empowers the partners to – [section 19(2)] – if there’s no usage or custom of trade to the contrary, the implied authority of the partners doesn’t empower them to-
1. Submit a dispute relating to the business of the firm to arbitration as it is not the ordinary business of partnership to enter into submission for arbitration,
2. Open a bank account on behalf of the firm in his own names,
3. Compromise or relinquish any claim or portion of a claim by the firm against a 3rd party (ie an outsider),
4. Withdraw a suit or proceeding filed on behalf of the firm,
5. Admit any liability in a suit or proceedings against a firm:
6. Acquire immovable property on behalf of the firm; Transfer immovable property belonging to the firm, and
7. Enter into a partnership on behalf on behalf of the firm,
Extension and Restriction of Partner’s implied authority: (Section 20):
However the implied authority of a partner could also be extended or restricted by contract between the parties. The partner can undertake the above-mentioned matters where:
• He has the precise or express authority of a partner by agreement, or
• The usage or custom of trade permits him to try to to so Under the subsequent conditions, the restrictions imposed on the implied authority of a partner by agreement shall be effective against a third party (1). The third party knows about the restrictions and (2). The third-party doesn’t know that he’s handling a partner during a firm
Rights in an Emergency (Section 21):
In an emergency a partner has the authority to try to to all such acts for the aim of protecting the firm from loss as would be done by an individual of ordinary prudence acting under the similar circumstances s in his own case and such acts bind the firm.
A, a partner borrows from B Rs. 1,500 within the name of the firm but in more than his authority, and utilizes an equivalent in paying off debts of the firm. Here the very fact that the firm has contracted debts suggests that it’s a trading firm, and intrinsically it’s within the implied authority of A to borrow money for the business of the firm. This implied authority, as you’ve got noticed, could also be restricted by an agreement between him and other partners. Now if B, the lender is unaware of the restrictions imposed on A, the firm are going to be susceptible to repay the cash to B. On the contrary, B’s awareness on this restriction will absolve the firm of its liability to repay the number to B. You should further note that the above-mentioned extension or restriction is merely possible with the consent of all the partners. Anyone partner, or maybe a majority of the partners, cannot restrict or extend the implied authority.
Acts in Emergency (Section 21):
Over and above the implied authority which each partner wields subject to the supply of Section 20, the Act further recognizes that every partner can bind the firm by all of his acts wiped out an emergency, with a view to protecting the firm from any loss, provided he has acted within the same manner a person of ordinary prudence would have acted in the like circumstances.
Case law –
Prembhai hemabhai v T. H Brown stated that the partner can bind the firm could bind the firm within the bounds of the firm’s implied authority that has been extended. Similarly, within the case of Motilal Manucha v Unnao full service bank Ltd., it had been opined that even upon cancellation of the implied authority by the partner, the liability of the firm could still be determined as far because it was unknown to the notice of the third party who acted under the impression of the extended implied authority.
However, in Dali Chand v Mathura Das, it had been ruled that the partner lacked the implied authority to urge the credit of the firm to line off against his personal debts and provides a discharge on behalf of the firm. In the 2005 case of Dali Chand v Mathura Das it had been ruled that unless contrary intention was proved, the implied authority of every partner is traced to be inherent. A partner who contests otherwise also has got to prove that there’s no inherent power of implied authority as per the contract or the partnership deed.
Within the Sphere of a Partner’s Implied Authority
When a contract is entered into by one among the firm’s partners, it’s usually binding on the firm and therefore the other partners when it’s subsequently rectified by them or when the validity of such a contract isn’t denied by either of the partners. The acts done by a partner in excess to the implied authority granted to them are often ratified by the opposite partners, as long as the acts so done are legal.
Joint venture has been generally accepted that the partner’s implied authority isn’t extended so far so on allow him to enter into a partnership with other persons in another business. There was a transparent distinction drawn between engaging during a partnership and getting involved during a single transaction. The arrangement of mere buying and selling on behalf of the firm is thus allowed although getting into a separate partnership for an additional business doesn’t fall within the sphere of this authority.
It is within the sphere of the implied authority of a partner to defend an action that has been brought against the firm. He is also empowered to assign a lawyer for an equivalent . There are often situations where there’s a clause during a deed of partnership that specifies the extent to which the partner is allowed to act on behalf of the firm and also enumerates the actions that the consent of the opposite partners is required so on bind the firm.
Admission of Liability to Tax
In the case of Darpan Cinema v State of Gujarat, (see here) where the firm was facing the threat of getting its cinema licence cancelled, an admission made by one of the partners of the liability of the firm to pay an amount due under the entertainment tax was held to be binding on the firm.
Partner Acting in Self-interest
The act done by a partner within the scope of his implied authority doesn’t bind the firm if it’s been done by him, for his own purposes and not for the firm, to the knowledge of the third party. Therefore, when a partner uses the funds of the firm to clear his personal debts and makes a payment therein regard, the firm isn’t bound and may recover back the money.
In this case, one member of the firm of bankers, ordinarily, draws, accepts or indorses a bill of exchange on behalf of the firm, and in requiring each member of the firm to sign that might not be viable practically. However, the drawing and acceptance of bills isn’t within the usual course of business of a solicitor and hence, the firm should be bound in no way whatsoever.
The above article talks about the rules laid down for the implied authority. However , there is no rule of exhaustive nature and the extent or restriction for implied authority differs from case to case independent of its nature , however , precedents do help in determining the result for the same.