Indian Partnership Act - Authority of partner (Implied, expressed and why ??)

 Introduction

In previous articles we have seen relationship of partner among themselves, their rights and duties. How is relationship with third parties are determined ?

We know act of partner is binding on the firm from it's definition as their is relationship of mutual agency among partners. But is this true ? Do all acts of partner bind the firm ? If not, then what kind of act bind the entire firm ? How do we determine which acts bind and which don't ? These all question will be answered in Game of thrones, Season 8!

Chapter 4 of partnership act, from section 18 to 30 deals with relations of partners to third parties.

It includes below things

1. Authority of Partners-Implied,expressed
2. Liability of firms towards third parties for act of partners
3. Doctrine of holding out (Section 28)
4.  Position of Minor (Section 30)

Each of the above will be discussed separately for sake of focus, brevity and better understanding. In this part we will cover authority of partners.

What exactly is authority  of partner mean ?

Simple. What exactly is the authority of police ? To control, search ,seize, arrest. Authority here means power, functions of police.

On similar lines there are certain acts which partner is capable of, empowered with and conferred upon! Sorry for too many words, but it simply means what all things partner can do in relation to partnership.

And why we need to study this ?

Exam! 

Apart from exam, this is very important. We all know act of partners binds the firm. What if one of the partner do stupid thing ? What if one partner orders ikea(expensive) furniture for home using firm's name and don't pay to furniture company?  Will such acts be binding on firm ? This questions will be answered by section 19-22. We will see the detail but before it, it is important to understand the nature of liability for act of partner on firm or other partners.

What will be the nature of liability of firms for act of partner

Say there is trading firm with 3 people, Suresh, Ramesh and Ganesh into electronics trading business. Suresh orders 100 Samsung TVs and don't pay for them. Now Samsung can sue whole firm, it can sue Ramesh alone, it can sue Ramesh and Ganesh alone, it can sue Suresh alone. It means liability of firm is joint as well as several.

Joint and several mean, third party can sue any particular partner or entire firm. If in above example, suit is filed against Ramesh, then Ramesh cannot take a plea that why suit is not filed against Suresh or Ganesh.

The logic is simple. We know from Contract of agency that Principle is liable for act of his agent. We also know that relationship of mutual agency exists between partners and hence other become liable.

Now let's delve into authority!

Express authority

It's very easy. It's an authority mentioned in the contract or expressed. For example there is partnership firm of A, B and C which is into software business. In partnership deed, if it is mention that all the purchase of software is to be done by C, then C had been conferred expressed authority to decide all matters related to purchase of software and licenses. If C does some Zol zapata in buying, then firm will be liable because it had granted expressed authority to C to deal with the purchase.

Implied authority

It means authority which is not expressed!  :)

It mean, there is no specific mention of the acts what partner can do, but it can be identified based on the type of business and the act carried out by particular partner. It also mean when such authority to be inferred from the circumstances.

For example, If Mr Ramesh and Suresh are into chocolate trading business, in this business Ramesh orders Truck full of chocolates, then here it can be said that Ramesh had implied authority to order the chocolates. It would not be possible in general to expressly mention every possible act of each partner what one should do and not do.

Section 19 provides more technical meaning of this. It says act done in below two circumstance would be deemed to be exercised using implied authority.

First, the act should be done in relation to the partnership business. Its very obvious. If Ramesh and Suresh are into chocolate business, can any partner have a authority to order 1000 Adibas Shoes ? Of course not. Implied authority should be related to the partnership business.

Second, the act should be done in usual way, in relation to the business of the kind carried on by the firm. It mean act done by partner should be done in usual way. If partner secure a contract by doing some unusual things, and then liabilities arises then firm will not be liable. 

In above two circumstances, act of partner can bind the other partners as well as firm.However there are certain things which cannot be done by partner unless there is expressed authority.

Restriction on Implied authority

 Section 19(2) impose some restriction on the exercise of implied authority. Below are these restriction.

1. Submit a dispute relating to the business of the firm to arbitration
2. Open a banking account on behalf of the firm in his own name
3. Compromise or relinquish any claim or portion of a claim by the firm
4. withdraw a suit or proceeding filed on behalf of the firm
5. Admit any liability in a suit or proceeding against the firm
6. Acquire immovable property on behalf of the firm
7. Transfer immovable property belonging to the firm
8. Enter into partnership on behalf of the firm

 Is there any way to overcome this restriction ?  

Yes, but not as an implied authority. Let's see Section 20.

Section 20 provides that there can be extension or restriction of the implied authority. Meaning we can restricts implied authority of partner in partnership deed. 

For example Mr Ramesh/Suresh/ Chocolate trading example, Ramesh have implied authority to order chocolates.Such authority can be restricted by agreement that Ramesh himself eats chocolates and hence he is barred from doing any kind of purchase of chocolates. 

However Ramesh still orders chocolates and don't pay the suppliers and supplier brings a suit against firm, then such suit will stand if Supplier didn't know restriction, otherwise firm will not be liable. Meaning if third party already know the restriction and still it proceed then remaining partners will not be liable. 

When exactly partner's act will make firm liable ?

Now say partner have implied authority, say Ramesh can order chocolates. But what if Ramesh orders chocolate in personal capacity for his birthday ? Will firm be still liable ?

Section 22 deals with this. The act of partner will bind the firm in two cases when 

First,  when act done in firm's name. When act done using personal name, then firm's liability doesn't arises.

Second, In a manner expressing or implying an intention to bind the firm. It mean from act of partner it appears that he is acting on behalf of the firm.

Authority in case of emergency

Section 21 confers an authority to act a partner in case of emergency to save losses to the firm. For example partners are into cotton business, small fire catches up in godown and he call fire brigade, then firm has to pay for fire brigade, though calling a brigade was not under authority of partner.

But such acts would be done by a person of ordinary prudence. For example,crude example, if electricity department people came for a bill, partner should pay the bill. Not to invite them to have beer and chicken and then pay the bill, the firm will not be liable for beer and chicken!

Conclusion

When partner acts using his implied or expressed authority then his acts bind the firm. Sometimes he may admit something, he may misuse money, he may commit tort etc. All this will be discussed in next article.

Thanks

Legalfundaa