RELATIONSHIP OF PARTNERS

TO PERSONS DEALING WITH

THEM
INTRODUCTION
s. 7 to s. 20 of the Partnerships Act covers
the relations of partners with third party
2. The issue here is what is the laibility of the
Partners due to an act of a partner to third
party.
3. There basically two types of liabilities i.e.
contractual and tortious liabilities. There are
some important points to consider here:
(i !ow and to what e"tend the partners are
liable
(ii #or how lon$ they are liable
i.e. if partners retires %is heliable for debt
incured after his retirement.
AGENCY PRINCIPLE
&. At common law the law of Partnerships are
considered to be merely a$ent and principal
relationships. !e is an a$ent to the
Partnership as well as the principal.An a$ent
owes a fudiciary duties (mutual trust '
confidence to his principal.
Baird`s Case
Constr!tion En"ineerin" #Ast$ Pt%& Ltd '
He(%) Pt%&Ltd&
(. The partners may collectively authorise a
partner to enter into a transaction on their
behalf.This will bind the firm and it is
immaterial whether the transaction falls within
the scope of the partnership business and it
has bindin$ effect.
). s& * PA provides that
*every partner is an a$ent of the firm and that
his other partners for the purpose of the
business of the partnership.
C+an Yin Tee ' Wi))ia, -a!. Co&
LIABILITIES OF PARTNERS FOR
CONTRACTS
+n order to bind the principal an a$ent must have re,uisite
authority.There three types of authorities.
ACTUAL AUTHORITY
-. .hereby an a$ent may bind his principal
to any act which is e"pressly authorised by
his principal can be implied throu$h
conduct or circumstances.
(e$ A % / % and 0 are Partners.A is
authorised by / and 0 to buy -00 tons of
wheat from 1. +f A fails to pay% then 1 can
recover from the principal (/ and 0.
Free,an and Lo!.%er ' B!.+rst Par.
Pro/erties
2ord 1iploc3:
Actual authority is a le$al relationship
between principal and a$ent created by a
consensual a$reement to which they alone
are parties.This authority can be construed
from the e"press word used in the usa$e of
the trade or in the course of business
between parties.
He)%0Ht!+inson ' Bra%+ead Ltd
2ord 1ennin$:
Actual authority may be e"press or
implied .+t is e"press when it is $iven by
e"press word and it is implied when it is
inferred from the conduct of the party or
the circumstances of the case.
2. The onus of proof lies on the Plaintiff
(third party to proof.
3. +t is a ,uestion of facts.
USUAL OR IMPLIED AUTHORITY
-. +t is an authority which arises from the status of the
partner involved. !ere it $ives rise to the presumption
that he has the authority to carry out the transaction. +f
a partner does an act% that the third party would
re$ard as a normal thin$ to do by the partner then the
firm will be liable for the act.
2. +t is a ,uestion of 2aw.
C+an 1in" Ye ' Lee 2 Won"
Rose,3a, ' Be)son
3. /y virtue of second limb of s. 7 PA :
*4and the acts of every partner who does any act for
carryin$ on in the usual business of the 3ind carried
on by the firm of which he is a member bind the firm
and his partners% unless the partner so actin$ has in
fact no authority to act for the firm in the particular
matter% and the person with whom he is dealin$ either
3nows that he has no authoirty% or does not 3now or
believe him to be a partner5
&. There are & elements to be proved if the third party
wants to bind the firm under +mplied Authority:
i& Does t+e a!t re)ate to t+e .ind o4 3siness
!arried on 3% t+e 4ir,&
(e$ A and / carry on a business as butchers.A
contract si$ned by A in the frims name to suplly
furniture would not bind / unless A has actual
authority of apparent authority.
.hether a particular activity is or not related to the
business is a ,uestion of facts.
Mer!+anti)e Credit Co& Ltd& 5 Garrod
Po).in"+orne ' Ho))and
There are two sections which must be read to$ether
with the above element.
(a s. 6 PA acts or instrument to the business of the
firm and in a manner showin$ an intention to bind the
firm.
(this sect. Also deal with 7deeds5. Any transaction
dealin$ with *deed7 under Partnership must be carried
out by all partners or by a person authorised by all
partners
(b s. 8 where one partner pled$e the credit of the
firm for the purpose apparently not connected with the
firm7s ordinary course of business% the firm is not
bound unless he is in fact specially authorised..
ii& In T+e sa) Wa%
9ometime an act may falls w:thin the scope of the 3ind
of business carried on by the partnership but it is carried
out in an *unusual manner5.
.hether it is usual or not depends on the whether it is a
Tradin$ or ;on Tradin$ Partnership.
#a$ Tradin" Partners+i/
+n the absent of e"press prov.the usual authority of a
partner inn a tradin$ partnership has:
-./uyin$ sellin$
(W+eat)e% ' S,it+ers$
2. /orrowin$ money on accounts of firm (Hi""ins '
Bea!+a,/
3. <n$a$e employees for the firm
Mer!+anti)e Credit Co& Ltd ' Garrod( even clause
restrict buyin$:sellin$ still liable
C+an 1in" Ye6 ' Lee 2 Won"(even not usual but if
neccesary for the firm still liable..depart from <2
3&Non Tradin" Partners+i/
Partners don5t have implied authority to buy:sell:borrow
money
Hi""ins ' Bea!+a,/
!& A!ts Ne'er Wit+in Usa) At+orit%
There are no implied authority in
-. =ivin$ $uarantee in the firms name unless a trade
custom to that effect is proved
2. <nters into arbitration on behalf of the firm
3. >a3e his partners into partners with other person from
another business (e$( +f A / and 0 are partners % 0
don5t have implied authority to ma3e 1 a partner
&. Act authorisin$ a third person to ma3e use of the
firm7s name in le$al or other proceedin$.
s. -7 an admissim or representation made by any
partner concernin$ the partnership affairs and in the
ordinary courseof its business% is evidence a$ainst the
firm.( this shows partner has implied authority and it is
only admissible and not conclusive
s. -6 notice to any partner who habitually acts in the
partnership business of any matter relatin$ to
partnership affairs operates as a notice to the firm
e"cept in the case of fraud on the firm committed by or
with consent of that partner.
APPARENT7OSTENSIBLE AUTHORITY
+t arises when the principal has held out the a$ent as havin$
authority to do a particular thin$ that the third party relies on
the representation.
2. The representation can be e"press: or by conduct and it is
a ,uestion of facts.
3. s. -7 tal3s about representation.
Sit+a,3ara, C+ett% 2 Ors ' Ho/ Hin" 2 Ors
Os,an 3 H8& Mo+a,ed ' C+an 1on" S6i
iii& Mst A!t Under T+e Ca/asit% As A Partner
The partner must enter into the transaction on behalf of the
firm . +f he enter under his own capasity then it is not bindin$
the firm.
5as De'an 2 Anor ' U&A& Nair
Re Bri""s 2 Co&
i'& 1no6)ed"e 2 Be)ie4
1id the Third Party either 3now that the Partner had no actual
authority or believe that he was not a partner
There are two situation to be considered here:
(a where the partner has no actual authority and the third
party 3nows that he has no such authority. ?nowled$e of lac3
of authority destroys the essence of implied authority since
the third party cannot then be said to be relyin$ on
appearance.
(b where the partner has no actual authority and the third
party 7does not 3now or believe him to be a partner5
Do!trine o4 Undis!)ose Prin!i/a)
This is a doctrine in 2aw of A$ency i.e. where an a$ent has
authority to act for a principal but does not tell the third party
that he is actin$ as an a$ent% the third party may sue either
the a$ent or principal.
/y virtue of s. 7 PA this principal is not applicable in 2aw of
Partnership beco" .. if the third party does not 3now or believe
that he has the actual authority or is a partner..
Rati4i!ation
This is another common law principle of 2aw of A$ency
@nder this principle% where a person has purpotedly to act as
an a$ent% but in fact has no authority to act% and the principal
subse,uently adopts the transaction. Then it will bind the
firm . Adoption can by e"press or implied by conduct.
<$. A ' / are sleepin$ partners to the firm
+f they adopts the transaction then binds them.