Implied authority of partner as agent of the firm
Implied authority of a partner as an agent of the firm in detail.
🔹 Implied Authority of a Partner
A partner is both a co-owner of the firm and an agent of the firm. This means a partner can act on behalf of the firm, and the firm is legally bound by such acts, whether the partner has express permission or not, if the acts are within the scope of implied authority.
Relevant Law:
Section 19(1) of the Indian Partnership Act, 1932 –
“Every partner is an agent of the firm for the purpose of the business of the firm.”
🔹 Definition
Implied authority means the authority that a partner has to do all acts which are reasonably necessary for carrying on the usual business of the firm, even if not expressly mentioned in the partnership agreement.
Acts must be for the purpose of business.
Third parties can rely on this authority.
🔹 Key Features of Implied Authority
| Feature | Explanation |
|---|---|
| Nature | Derived from being a partner (agency relationship) |
| Scope | Acts necessary or usual for carrying on business |
| Binding on Firm | Firm is bound to third parties acting in good faith |
| Limit | Acts outside usual business or fraudulent acts are not binding on the firm |
| Dependence on Agreement | Partnership agreement may limit authority, but restrictions are not binding on outsiders in good faith (Section 19(2)) |
🔹 Examples of Implied Authority
Purchasing goods required for the firm’s trade.
Selling goods in the ordinary course of business.
Hiring employees or servants for business purposes.
Borrowing money for ordinary business operations.
Paying debts incurred for business.
Note: Acts not necessary for business (like donating firm property for personal reasons) do not fall under implied authority.
🔹 Legal Principles
A partner’s implied authority is limited to the type of business carried on by the firm.
Third parties dealing with the partner in good faith can rely on implied authority.
Restriction in partnership agreement does not bind third parties unless they have actual knowledge of it.
🔹 Case Laws
Mercantile Credit v. Garrod (UK Case, 1962)
Partner had implied authority to enter contracts usual for business, even if not expressly authorized.
Sukumar v. K.K. Paul (AIR 1962 Cal 183)
Partner’s acts in ordinary business bind the firm, showing the principle of implied authority.
Ingram v. IRC (1876)
Restriction on partner’s authority in internal agreement does not affect third parties acting in good faith.
Barnes v. Addy (1874)
Acts outside the business or fraudulent acts are not binding on the firm.
🔹 Summary Table
| Feature | Implied Authority |
|---|---|
| Definition | Authority necessary for carrying on usual business of the firm |
| Source | Section 19(1), Indian Partnership Act, 1932 |
| Scope | Acts usual, necessary, or incidental to the business |
| Limits | Acts outside business, illegal or fraudulent acts |
| Effect on Firm | Firm is bound to third parties acting in good faith |
| Examples | Buying/selling goods, hiring staff, paying debts, borrowing for business |
✅ Conclusion:
Every partner is an agent of the firm.
Implied authority ensures smooth functioning of the firm by letting partners act without always seeking consent.
Third parties can rely on implied authority, but acts beyond business or fraudulent acts do not bind the firm.
RELATED Blog
0 comments