Implied Authority of a Partner by Pranav K @LEXCLIQ

IMPLIED AUTHORITY OF A PARTNER

Types of Authority of a Partner: – The authority of a Partner means the capacity of a partner to bind the firm by his acts. Such authority is divided into two types namely:

  1. Express Authority: – When the partnership agreement expressly (in writing) gives a partner the authority to act in a partnership business, then it is called express authority.
  2. Implied Authority: – If there is no partnership agreement or if the partnership agreement is silent as to the authority of a partner to act, then implied authority is inferred by the act of the partner done to carry on the business in the usual way.

Conditions for Valid Implied Authority- If the following conclusions are satisfied then the implied authority of a partner binds the firm:

  1. The act must have been within the Scope of Partnership and it must relate to the normal business of the firm.
  2. The act must be such as is done within the scope of the business of the firm in the usual way.
  3. The act must be done in the name of the firm or in any other manner expressing or implying an intention to bind the firm.

Acts done within Implied Authority: – Decided case laws have repeatedly held that the following acts are within the scope of implied authority and hence bind the firm

  1. Purchasing and selling goods in the usual course of business.
  2. Recovering payments from customers and dealers and payment to the suppliers in the usual course of business.
  3. Drawing, accepting, endorsing bills and other negotiable instruments in the name of the firm.
  4. Engaging a lawyer to defend an action against the firm.
  5. Buying or hiring to credit the kind of goods that are used in the firm’s business.

Acts outside Implied Authority: – In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to do the following acts. These acts are otherwise called ultra vires acts and they do not bind the firm.

  1. Submit a dispute relating to the business of the firm to arbitration.
  2. Open a bank account on behalf of the firm in his own name.
  3. Compromise or relinquish any claim.
  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 belonging to the firm.
  7. Transfer immovable property belonging to the firm.
  8. Enter into partnership on behalf of firm.

Partners Implied Authority in an emergency: – In an emergency, a partner has authority to do certain acts provided

  1. They are done to protect the firm from loss
  2. The partner acts as a prudent person who would act under similar circumstances in his own case.

Implied Authority with Third Party: – Any third party while dealing with a partner believes that he is dealing with the firm. A partner may act beyond his authority but if the third party acts in good faith thinking that the partner is acting within his ostensible or apparent authority then the firm is liable for such partner’s act. The following acts bind the firm as against the claim by third parties.

  1. Extension and restriction of a partner’s implied authority.
  2. An admission on representation made by a partner concerning the affairs of the firm is evidence against the firm.
  3. Notice to a partner who habitually acts in the business of the firm of any matter relating to the affairs of the firm.
  4. Every partner is jointly liable with all the other partners and also severally for all acts of the firm
  5. Liability of the firm for wrongful acts of partnership.
  6. Liability of firm for misappropriation.

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