Discuss the meaning, nature and Scope of the Doctrine of implied authority of the partner as agent of the firm.

Ans. Meaning of Doctrine of Implied Authority— According to S. 19 (1) subject to the provisions of S. 12, 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”. S.19 (2) says that in the absence of any usage or custom of trade to the contrary, 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 the Implied Authority According to Pollock-“The acts of a partner done in the name of a firm will not bind the firm merely because they are convenient, or prudent, or even necessary for the, particular occasion. The question is what is necessary for the usual conduct of the partnership business; that is the limit of each partner’s general authority; he is the general agent of the firm, but he is no more.” According to Lindley, whether a given act was done by a partner in carrying of the business in the usual way is a question to “be determined by the nature of the 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 hence 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 a 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.

In Higgins Vs. Becaucamp, 1914. B and M were carrying on the business of cinematographic theatre proprietors in partnership. B was sleeping 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 not actual authority to borrow 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. It must, however, be noted that where money borrowed by a partner without authority has been applied for the purposes of the firm, the firm becomes liable.

Joint Venture – It may be noted that S. 19(2) (h) expressly says that, “A partner has no implied authority from other partners 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. For Example; in Mann Vs. D’arcy 1968, 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 with in the sphere of his authority. “The arrangement was merely one mode of buying and selling what he was authorised to buy and sell on behalf of the partnership.” Legal Proceedings-It is within the scope of a partner’s authority to defend an action brought against the firm and to engage lawyer for the purpose.

Some Examples of Implied Authority On the basis of the case law it can be said—“If the partnership be of a general commerual nature, he may pledge or sell the partnership property; he may buy good on account of the partnership; he may borrow money, contract debts, and pay debts, he may make, draw or accept” or otherwise deal with negotiable instruments on account of the firm. A partner of a trading or non-trading firm may buy or hire on credit the kind of goods that are used in the firm’s business. Thus, where A partner hired an elephant for the purpose of trapping wild elephants which was the business of the firm and the hired elephant died in the course of the operations, the firm was held liable. A partner may receive payments due to the firm and discharge the debtor even if the partner receiving payment misappropriates the money. A partner may engage servants for the purposes of business etc. are the examples of implied authority.

Partner Acting in Self-interest—It may be noted that 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, 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.

Restrictions on Implied Authority—Where a partner is prohibited from doing an act which would otherwise be within the scope of his implied authority, it is said that the implied authority of the partner has been restricted in the following ways-

1. By Statutory Restrictions—Statutory restrictions are imposed by It may be noted that these restrictions are effective against all the world whether a particular person contracting with the firm has knowledge of them or not.

2. By Restrictions of Partnership Deed-S. 20 provides that, the .partners in a firm may, by contract between the partners, extend or restrict the implied authority of any partner. What is the effect of such restrictions upon persons dealing with the firm ? S. 20 provides that, no twith standing 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 —

(a) That the person contracting with the partner had knowledge of the restriction, or

(b) That he did not know or believe the partner to be a partner. In Moti Lal Vs. Unnao Commercial Bank, (1930), a trading firm was held liable when one of its partners borrowed money by accepting a bill of exchange despite restrictions on borrowing contained in the partnership deed, the other party knowing nothing of the restriction.

Mode of Exercising Authority –S. 22 says that, in order to bind a firm, an act or instrument done or executed by a partner or other person on behalf of the firm shall be dyne or executed in the firm name, or in any other manner expressing or implying an intention to bind the firm, Thus, the partner acting for the firm must expressly or impliedly let the other party know that he acts for the firm. The other party must know his representative character as an agent of the firm. Where the partner foilst on the contract and the firm may no be liable.