Page 165 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes credit to customers, in a particular business, the giving of credit by a partner to a customer will
bind the firm. But if a usual act is done in an unusual manner, this must raise a suspicion as to the
authority of a partner and the protection on the ground of implied authority may not be available.
In connection with a partner’s implied authority, judicial decisions have made a distinction
between a trading and a non-trading partnership. In the case of a trading firm a partner can
borrow money on behalf of the firm [Saremal v. Kapurchand, 48 Bom. 176]; but in the case of a
non-trading firm, unless the power to borrow is given expressly by the partnership deed, a
partner cannot borrow money or pledge property of the firm, on behalf of the firm, so as to bind
the firm. In case of trading firms, however, the implied authority of a partner extends also to
drawing and accepting bills of exchange and making and endorsing promissory notes.

6.5.2 Matters in which there is no Implied Authority

Clause 2 of s.19 gives the negative rule. It enlists what does not fall within the implied authority
of a partner. That is to say that the authority of a partner to bind the firm, which is implied by
law, does not extend unless expressly provided by the partnership deed, to the following matters:
(i) The submitting of a dispute, relating the business of the firm for arbitration. (ii) Opening of
a bank account on behalf of the firm in the personal name of a partner. A partner can open a bank
account in the name of the firm, but not in his own name unless so authorised by the other
partners. (iii) Compromising or relinquishing any claim or portion of a claim which the firm
may have against a third party. (iv) Withdrawal of a suit or proceeding filed on behalf of the
firm. (v) Admission of any liability in a suit or proceeding against the firm. (vi) The acquisition
of immovable property belonging of the firm. (vii) Transfer of any immovable property
belonging to the firm. (viii) Entering into partnership on behalf of the firm.
Besides the above restrictions, the partners in a firm may, by contract between the partners,
restrict the implied authority of any partner. But unless the outsider otherwise knows, he is not
bound of the restriction by any such private contracts between the partners (s.20).

6.5.3 Liabilities of a Partner

Liability of a partner stems from not complying with his duties under the Partnership Act. Thus,
in view of s.9, a partner shall be liable for (i) not carrying on the business of the firm to the
greatest common advantage; (ii) not being just and faithful to other partners and (iii) failure to
render true accounts and full information of all things affecting the firm to any partner or his
legal representative.

Section 10 provides that every partner shall be liable to indemnify the firm for any loss caused to
it by his fraud in the conduct of the business of the firm. Also, every partner has (i) To account for
and pay to the firm all profits made by him in any business competing with that of the firm
[s.16(b)]. (ii) To account for any profit, including secret profit, derived by a partner from any
transaction of the firm, or from the use of the property or business connection of the firm or the
firm’s name [s.16 (a)]. (iii) To contribute equally towards the losses of the firm, in the absence of an
agreement to the contrary. (iv) To indemnify the firm for any loss caused to it by his wilful neglect
in the conduct of the business of the firm (s.13). Section 25 makes every partner liable jointly with
all other partners and also severally for all the acts of the firm done while he is a partner.
An ‘act of the firm’ is defined by s.2 (a) as “any act or omission by all the partners, or by any
partner or agent of the firm, which gives rise to a right enforceable by or against the firm”.
Where a partner’s implied authority is curtailed by an agreement between himself and other
partners, an act of the partner within his implied authority, but beyond his actual authority
would be binding on the firm, unless the third party knows of the curtailment of the implied
authority.

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