Impled Authority of Partners

Implied authority of partner
In Agricultural Insurance Co, In re,1 JAMES LJ stated the principle as:

[A]s between the partners and the outside world (whatever be their private
relations between themselves) every partner is the unlimited agent of every other
in everything connected with the partnership business...
Thus, the act of a partner done by him as an agent in the usual course of business
is an act of the firm. This is the implied authority of a partner.
The scope of implied authority is determined in accordance with the provisions of
Section 19, which states that:
19. Implied authority of partner as agent of the firm-
(1) subject to the provisions of Sec. 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"
(2) In the absence of any usage or custom of trade to the contract, 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
The scope of authority is thus, linked with the nature of the business and the
usual manner of carrying it on.
1
(1870) 23 LT 424
Whether a given act was done by a partner in carrying on the business in the
usual way is a question to be determined by the nature of business, and by the
practices of persons engaged in it. Since the requirements of one business may be
wholly different from those of another business, the nature of the business and
the practices, customs and usages of businessmen engaged in that kind of
business, must be known before it can be said by what acts a partner can bind the
firm.
TRADING AND PROFESSIONAL FIRMS AND BORROWING POWER
For this purpose, the courts have been distinguishing trading from non-trading or
professional business, because it is notoriously needful or useful for traders to
borrow money and issue negotiable instruments, but not for professionals.
Authority implied in the nature of the business of the firm
In Higgins v Beaucamp2, B and M were carrying on business of cinematographic
theatre proprietors in partnership. B was a sleeping partner and M managing
partner. Their deed provided that no partner would borrow money except with
the consent of the other or in the usual course of business. M borrowed two sums
of money from the plaintiff H upon the representation that the money was to be
used for the partnership business. But he misappropriated it. The lender sued the
other partner. He was held not liable. There was no actual authority to borrow
money for the business. It had, therefore, to be proved that an authority was
implied from the nature of the business. Since the court found that it was a
non-trading business, there was no implied authority either.
In Wheatley v Smithers3, an effort was made to define trading business. Here a
partner of a firm of auctioneers had borrowed money by accepting a bill of
exchange in the firm name. Holding that the firm was not liable, the court said
that an auctioneer is not a trader. While it is not possible to say exhaustively what
constitutes trading, an important element is that a trading business is one which
involves the purchase and sale of goods. An auctioneer does not buy goods. He
only sells those belonging to others.
2
(1914) 3 KB 1192
3
(1907) 2 KB 684 (CA)
In Punamchand v Kapoorchand4, a firm constituted for buying and selling of
copper and brass utensils was held to be a trading firm so that the firm was liable
for a single partner’s act of loan.
In Keshari Engg Works v Bank of India5, loan documents were signed by all the
partners, all the partners were held liable to repay the loan and it was immaterial
that one of them was acknowledging that it was his personal loan.
Joint Venture Issue

A partner has no implied authority from other partner to enter into a partnership
with other persons in another business. It would require very clear powers to
enable a man’s partner to make him a partner with any other person. But
engaging the firm in a single transaction with another person with a view to
sharing its profits is something different from entering into a partnership.
✔ In Mann v D’Arcy6, the defendants were doing the business of buying and
selling potatoes.
✔ The active partner entered into an arrangement with the plaintiff to enter into
a joint venture of a part of cargo of potatoes for sharing the profits of the
venture.
✔ This was held to fall within the authority. The arrangement was merely one
mode of buying and selling what he was authorised to buy and sell on behalf
of the partnership.
Conflict of Interest or act done in self-interst

Where the act of a partner is within the scope of his implied authority but it has been done by him, to
the knowledge of the third party, not for the firm, but for his own purposes, the firm is not liable. Thus,
4
AIR 1924 Bom 260
5
AIR 1991 Pat 194
6
(1968) 1 WLR 893
payment by a partner of a personal debt from the funds of the firm does not bind the firm and the firm
can recover back the money.
✔ In S.N. Soni v Taufiq Farooki7, the Delhi High Court held that the act of a partner in
assigning a promissory note for lesser value was beyond his authority but became binding
on the firm when the other partners subsequently ratified it.
✔ In Sanganer Daal and Flour Mill v FCI8, the court held that it would be for the partners
to assert that one of them who contracted had no authority in the matter or that he did not
contract for and on behalf of the firm. Where no such objection was raised and also the
forfeiture of security deposit by the other party was not protested, it was held that the
firm was bound by the transaction.
1. RESTRICTIONS BY AGREEMENT
The second kind of restrictions is those which may be imposed by the partnership deed or any
agreement between the partners. Section 20 states that:
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.
In other words, if the act in question is within the scope of the partner’s implied authority, the firm is
bound unless it can be shown:
1. That the person contracting with the partner had knowledge of the restriction, or
2. That he did not know or believe the partner to be a partner.
Mercantile Credit Co Ltd. v Garrod9,

✔ P and G were partners in a business of letting lock-up garages and repairing cars. G was
a sleeping partner.
7
AIR (1976) Del 63
8
(1992) 1 SCC 145
9
(1962) 3 All ER 1103
✔ A clause in the deed prohibited the partners from buying and selling cars on behalf of the
firm.
✔ P, the active partner, sold a car to which the firm had no title and obtained £700.
✔ When the buyer found that the seller had no title to sell, he claimed £700 from G, the
sleeping partner. G was held liable.
✔ Garage owners usually sell second hand cars. The act was, therefore, within the scope of
the implied authority, the plaintiff did not know of any restriction in the deed but he did
know that he was dealing with a partner within the scope of his usual authority.
Moti Lal v Unnao Commercial Bank10,

✔ A trading firm was held liable when one of its partners borrowed money by accepting a
bill of exchange despite the restrictions on borrowing contained in the partnership deed,
the other party being unaware of such a provision in the deed.
10
(1930) 32 Bom LR 1571

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Implied authority of partner

In Agricultural Insurance Co, In re,1 JAMES LJ stated the principle as:

Joint Venture Issue

Conflict of Interest or act done in self-interst

on the firm when the other partners subsequently ratified it.

firm was bound by the transaction.

2. That he did not know or believe the partner to be a partner.

Mercantile Credit Co Ltd. v Garrod9,

sleeping partner. G was held liable.

Moti Lal v Unnao Commercial Bank10,

the other party being unaware of such a provision in the deed.

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