Relations of Partners to third Parties

Corporate Law

Prepared by Assist. Professor Rekha Khandelwal

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Partnership Act

Chapter – IV of Partnership Act, 1932-

Relations of Partners to third Parties

18. Partner to be agent of the firm. –

 Subject to the provisions of this Act,

•  A partner is the agent of the firm for the purpose of the business of the firm.

19. Implied authority of partner as agent of the firm. –

 (1) Subject to the provisions of section 22( if any act is done by any partner then it must be done in the name of the firm or in such manner which binds the firm.)

• The partner’s act that is normally carried on by the firm to carry on the business binds the firm.
• The authority of a partner to bind a firm conferred by this section is called his implied right.

In other words- any act which is performed by the partners in the usual course of its business binds the firm itself. The authority to bind the firm is implied authority.

(2) Conversely, in the absence of any usage or trade custom, the implied authority of the partner does not empower him to –

• (a) submit a dispute to arbitration relating to the business of the firm,
• (b) open a banking account in his own name on behalf of the firm,
• (c) settlement or renounce any claim or portion of a claim by the firm,
• (d) to withdraw a claim or action filed on behalf of the firm,
• (e) accept any liability in a suit or proceeding against the firm,
• (f) acquire real estate on behalf of the firm,
• (g) transfer real estate belonging to the firm, or
• (h) enter into partnership on behalf of the firm.

20. “Extension and restriction of partners implied authority”. –

• Partners can make a contract to restrict or expand the implied authority of any partner.

Notwithstanding any such restriction, any act committed 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.

21. Partners authority in an emergency. –

• In an emergency, a partner has authority to do all such acts to protect the firm from loss as would be done by a person of ordinary prudence in his own case under similar circumstances, and such acts bind the firm.

22. Mode of doing act to bind firm. –

• In order to bind a firm, an act or instrument done by a partner or other person on behalf of the firm then it shall be done in the name of the firm in such manner expressing or implying an intention to bind the firm.

23. Effect of admissions by a partner. –

• An admission or representation made by a partner in relation to the affairs of the firm is evidence against the firm, if it is done in the normal course of business.

24. Effect of notice to acting partner. –

• Notice to a partner, who habitually acts in the business of the firm of any matter relating to the affairs of the firm works as notice to the firm except In case of fraud on the part of the firm committed by that partner or with his consent.

25. Liability of a partner for acts of the firm. –

•  Each partner is liable jointly with all the other partners and also severally, for all acts of the firm done while he is a partner.

26. Liability of the firm for wrongful acts of a partner. –

• The firm is liable therefor to the same extent as the partner where, by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm, or with the authority of his partners, loss or injury is caused to any third party, or any penalty is incurred,

27. Liability of firm for misapplication by partners. –

• (a) A firm is liable where a partner acting within his apparent authority receives money or property from a third party and misapplies it, or
• (b) A firm is liable to make good the loss where the firm receives money or property from a third party in the course of its business, and the money or property is misapplied by any of the partners while it is in the custody of the firm.

28. Holding out. –

 (1) Anyone who represents himself or herself through spoken or written words or conduct or knowingly presents himself or herself as a partner in a firm,is liable as a partner in that firm to any one who has given credit to the firm on the faith of any such representation, whether the person representing himself or is represented as a partner or does not know that the representation has reached the person in order to be given credit.

 (2) Where the business is continued in the old firm name after a partners death, the continued use of that name or of the deceased partners name as a part thereof shall not make itself his legal representative or his estate liable for any act of the firm done after his death.

29. Rights of transferee of a partners interest. –

• A transfer by a partner of his interest in the firm does not entitle the transferee
• either absolute or by mortgage, or by the creation by him of a charge on such interest, during the continuance of the firm,
• to interfere in the conduct of the business, or to require accounts, or  to inspect the books of the firm,

but entitles the transferee only to receive the share of profits of the transferring partner, and the transferee shall accept the account of profits agreed to by the partners. 

• If the firm is dissolved or
• if the transferring partner ceases to be a partner,
• the transferee is entitled as against the remaining partners to receive the share of the assets of the firm to which the transferring partner is entitled, and,
• for the purpose of ascertaining that share, to an account as from the date of the dissolution.

Section 30. – Minors admitted to the benefits of partnership.

Plz. click the link to read about Minors admitted to the benefits of partnership.

Sales of Goods Act,

Negotiable Instruments Act