Relations of Partners to Third Parties
Section 18. Partner to be agent of the firm.
Each partner acts as an agent of the firm.
This agency exists only for the purposes of the firm’s business.
The partner’s authority is subject to the provisions of the Act.
Section 19. Implied authority of partner as agent of the firm.
19(1).
Subject to section 22, any act of a partner done to carry on the business of the firm binds the firm.
The act must be done in the usual way of conducting business of the kind carried on by the firm.
If these conditions are met, the firm is legally bound by the partner’s act.
The authority of a partner to bind the firm in such cases is known as Implied Authority.
19(2).
Even though a partner is an agent of the firm and can bind the firm while carrying on its business in the usual way:
Certain acts are considered too serious or exceptional to be done without express authority from the other partners.
Unless there is a trade custom or usage allowing it, a partner cannot, by implied authority alone:
(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 give up any claim, or any part of a claim, belonging to the firm.
(d). Withdraw a suit or legal proceeding filed on behalf of the firm.
(e). Admit liability in any suit or legal proceeding against the firm.
(f). Acquire immovable property on behalf of the firm.
(g). Enter into partnership on behalf of the firm with another person.
(h). Transfer immovable property belonging to the firm.
Section 20. Extension and restriction of partner’s implied authority.
The partners of a firm can modify a partner’s implied authority by mutual agreement.
By contract, they may extend the implied authority, allowing a partner to do acts beyond the usual scope.
They may also restrict the implied authority, limiting acts that a partner would otherwise be entitled to do.
Such extension or restriction is binding among the partners as per the terms of their agreement.
Even if the partners have restricted a partner’s implied authority by agreement, that restriction does not automatically protect the firm.
If a partner does an act within his implied authority, the act will bind the firm.
This is so unless the third person dealing with the partner knows about the restriction.
The firm is also not bound if the third person does not know or does not believe that the person acting is a partner.
Section 21. Partner’s authority in an emergency.
In an emergency, a partner has authority to act on behalf of the firm.
The acts must be done to protect the firm from loss.
The partner’s conduct must match what a person of ordinary prudence would do in his own case.
The circumstances must be similar to justify the action taken.
If these conditions are satisfied, the acts bind the firm, even without prior consent of the other partners.
Section 22. Mode of doing act to bind firm.
In an emergency, a partner has authority to act on behalf of the firm.
The acts must be done to protect the firm from loss.
The partner’s conduct must match what a person of ordinary prudence would do in his own case.
The circumstances must be similar to justify the action taken.
If these conditions are satisfied, the acts bind the firm, even without prior consent of the other partners.
Section 23. Effect of admissions by a partner.
A partner may make an admission or representation regarding the affairs of the firm.
Such admission or representation must relate to the business or affairs of the firm.
It must be made in the ordinary course of business.
When these conditions are met, the admission or representation is evidence against the firm.
Section 24. Effect of notice to acting partner.
A partner who habitually acts in the business of the firm may receive notice relating to the firm’s affairs.
Any such notice given to that partner is treated as notice to the firm itself.
This rule applies only when the matter relates to the affairs of the firm.
Exception:
The notice will not bind the firm if it relates to a fraud on the firm.
This exception applies when the fraud is committed by that partner or with his consent.
Meaning of Habitually Acts in the Business in the Firm:
A partner who regularly and consistently takes part in the conduct of the firm’s business.
He is normally involved in day-to-day operations, management, or dealings with third parties.
Acting is not occasional or casual, but forms part of his usual role in the firm.
Third parties generally recognise or deal with him as a partner who represents the firm.
Section 25. Liability of a partner for acts of the firm.
Every partner is liable for the acts of the firm done while he is a partner.
The liability is joint, so all partners are responsible together.
The liability can also be several, so each partner is individually responsible.
A third party may recover the entire amount from any one partner, at their choice.
This liability applies only to acts done during the period of partnership.
Section 26. Liability of the firm for wrongful acts of a partner.
A partner may commit a wrongful act or omission.
The act or omission must be done in the ordinary course of the firm’s business, or with the authority of the other partners.
If such act or omission causes loss or injury to a third party, the rule applies.
It also applies if, because of such act or omission, a penalty is incurred.
In these situations, the firm is liable.
The firm’s liability is to the same extent as the partner who committed the wrongful act or omission.
Section 27. Liability of firm for misapplication by partners.
The firm is liable to make good of the loss in the following situations:
(a).
A partner may receive money or property from a third party.
The partner must be acting within his apparent authority while receiving it.
If the partner misapplies (misuses or wrongly applies) such money or property then the firm is liable for the partner’s misconduct.
(b).
The firm receives money or property from a third party in the course of its business.
The money or property comes into the custody or control of the firm.
While it is in the firm’s custody, any partner misapplies (misuses) it.
In such a case, the firm is liable for the misapplication.
Meaning of Apparent Authority
Authority that a partner appears to have in the eyes of a third party.
It arises from the position or conduct of the partner, not necessarily from actual permission.
If the firm, by its actions or usual practice, leads others to believe that the partner has authority, that belief is protected.
A third party acting in good faith can rely on this authority.
Even if the partner exceeds actual authority, the firm may still be bound by his acts due to this appearance of authority.
Section 28. Holding out.
28(1).
A person may represent himself as a partner by words or by conduct.
A person may also knowingly allow others to represent him as a partner.
Such representation creates liability as a partner, even if he is not actually a partner.
This liability arises towards any person who gives credit to the firm.
The credit must be given on the faith of that representation.
It is irrelevant whether the person making or permitting the representation knows that it has reached the creditor.
Principle of Holding Out
If a person represents himself as a partner, or knowingly allows others to represent him as a partner then:
He creates a belief in the minds of third parties that he is a partner of the firm.
When a third party relies on this belief and gives credit or enters into dealings with the firm,
The law prevents that person from denying partnership liability.
As a result, he is treated as a partner for that transaction and is liable as a partner,
Even though no actual partnership exists between him and the firm.
28(2).
A partner may die, but the business of the firm may still be continued.
The business may be carried on in the old firm name, even if it includes the deceased partner’s name.
The continued use of the firm name or the deceased partner’s name does not by itself create liability.
The legal representative of the deceased partner is not liable for acts of the firm done after the partner’s death.
Similarly, the estate of the deceased partner is not liable for such acts.
Section 29. Rights of transferee of a partner’s interest.
29(1).
The person who transfers his interest is called the transferor.
The person to whom the interest is being transferred to is called the transferee.
A partner may transfer his interest in the firm by:
Absolutely (Sale).
Mortgage.
Creating a charge on that interest.
Such transfer does not make the transferee a partner in the firm.
During the continuance of the firm, the transferee has no right to interfere in the conduct of the business.
The transferee cannot demand accounts of the firm.
The transferee cannot inspect the books of the firm.
The transferee is entitled only to receive the share of profits that would have gone to the transferring partner.
The transferee must accept the profit accounts as agreed upon by the existing partners.
29(2).
The transferee’s position changes if the firm is dissolved or if the transferring partner ceases to be a partner.
In such cases:
The transferee becomes entitled to the share of the firm’s assets that the transferring partner would have received.
This right is enforceable against the remaining partners.
To determine that share, the transferee is entitled to an account of the firm.
The account is to be taken from the date of dissolution.
Meaning of Entitled to an Account in the Firm:
It essentially means the transferee gets the right to demand preparation of accounts of the firm.
The accounts show the assets, liabilities, profits, and losses of the firm.
This is done to ascertain the exact share of a partner (or transferee) in the firm.
The person entitled can verify how the firm’s property is valued and distributed.
It does not automatically give a right to participate in management, only a right to financial determination.
Section 30. Minors admitted to the benefits of partnership
30(1).
A minor cannot become a partner in a firm under law.
However, with the consent of all existing partners, a minor may be admitted to the benefits of partnership.
Such admission gives the minor rights to benefits like share of profits but not full partnership status.
The minor does not incur personal liability for the acts of the firm.
30(2).
A minor admitted to the benefits of partnership is entitled to a share of the firm’s property.
He is also entitled to a share of the profits of the firm.
The extent of such share depends on what is agreed upon by the partners.
The minor has the right to access the firm’s accounts.
He may inspect and copy any of the firm’s accounts.
30(3).
A minor’s share in the firm is liable for the acts of the firm.
This means the firm’s creditors can proceed against the minor’s share in the partnership property.
However, the minor is not personally liable for any act of the firm.
His personal property cannot be used to satisfy the firm’s liabilities.
30(4).
A minor admitted to the benefits of partnership cannot sue the partners for:
An account of the firm.
Payment of his share of property or profits.
This restriction applies while he continues to be connected with the firm.
Exception:
The minor may sue when he is severing his connection with the firm.
In such a case, the value of his share must be ascertained by valuation.
The valuation should be done as far as possible in accordance with Section 48 of the Partnership Act.
Option of Partners to Dissolve the Firm on Minor’s Suit
When a minor files a suit while severing his connection with the firm, the partners are given an option.
All the partners acting together, or any partner who has the right to dissolve the firm by giving notice to the other partners:
May elect to dissolve the firm instead of merely settling the minor’s claim.
Once such an election is made, the Court treats the suit as one for dissolution of the firm.
The Court will then settle the accounts between all the partners.
The minor’s share will be determined along with the shares of the partners, not separately.
30(5).
When a minor attains majority, a choice arises regarding the partnership.
Within six-month period which starts from:
The date of attaining majority, or
The date when he comes to know that he was admitted to the benefits of partnership, whichever is later.
He must give public notice of his decision.
He may elect to become a partner, or not to become a partner.
The public notice finally determines his legal position in relation to the firm.
If no public notice is given within six months, then he is deemed to have become a partner in the firm after the expiry of that period.
30(6).
A person may have been admitted as a minor to the benefits of partnership.
After attaining majority, a question may arise about when he gained knowledge of such admission.
If it is claimed that he had no knowledge of his admission until a certain date after six months of attaining majority,
The burden of proof lies on the person making that claim.
They must prove that the minor actually lacked knowledge until that later date.
30(7).
When a minor becomes a partner then:
(a).
The person’s rights and liabilities as a minor continue up to the date he becomes a partner.
Once he becomes a partner, his legal status changes from minor to full partner.
He then becomes personally liable to third parties.
This personal liability covers all acts of the firm.
Such liability relates back to acts done when he was a minor as well.
The liability now falls because he is admitted to the benefits of partnership.
(b).
When a minor becomes a partner, his share in the firm’s property and profits does not automatically change.
He continues to have the same share that was agreed for him when he was a minor.
This share remains the same unless the partners mutually agree to alter it after he becomes a partner.
30(8).
When a minor decides to not become a partner then:
(a).
Until the person gives public notice of his decision,
His rights and liabilities remain the same as those of a minor.
This position continues up to the date on which the public notice is given.
The change in rights and liabilities takes effect only from the date of such notice, not earlier.
(b).
Once public notice is given, the person’s share in the firm is affected.
His share will not be liable for any acts of the firm.
This protection applies only to acts done after the date of the notice.
So , the minor’s share is still liable for acts of the firm done during his minority;
(c).
The minor has the right to sue the partners.
The suit may be for his share of the property of the firm.
It may also be for his share of the profits of the firm.
This right must be exercised in accordance with Section 30(4).
30(9).
The provisions of 30(7) and 30(8)shall affect the provisions of Section 28.
Section 28 deals with the Principle of Holding Out.
