Relation of partners to third parties under partnership act
1. Being a partner of the firm (Section 18): Subject to the provisions of this Act, a partner is an agent of the firm for the purposes of the business of the firm.
Analysis of Section 18:
You may recall that a partnership is a relationship between partners who have agreed to share the profits of the business carried on by all or any of them (Section 4). This definition states that any participant can be an agent of others.
Section 18 clarifies the position that subjects to the provisions of the Act, a partner is an agent of the firm for the purposes of the business of the firm. The partner virtually embraces the character of both a principal and an agent. In so far as he acts in his own interest and in the general interest of the partnership, he may rightly be regarded as a principal and, in so far as he acts for his partners, may reasonably be regarded as an agent. can be understood as
The main difference between him and a sole agent is that he has a community of interest with other partners in his entire assets and liabilities of the business and partnership, whereas as an agent there is no interest in both.
The rule that a partner is an agent of the firm for the purpose of the business of the firm cannot be applied to all transactions and dealings between the partners themselves. It is applicable only to the work done by the partners for the purpose of the business of the firm.
2. Vested authority of the partner as an agent of the firm (section 19):
Subject to the provisions of section 22, the act of a partner, which, in the ordinary course, is done in carrying on the business carried on by the firm, binds the firm.
The right of a partner to bind the firm as provided for by this section is called his "implied right".
(2) In the absence of any use or practice of business to the contrary, the vested right of a partner does not entitle him to—
(a) submit a dispute relating to the business of the firm to arbitration;
(b) open a banking account in his name on behalf of the firm;
(c) the settlement or relinquishment of any claim or part of the claim by the firm;
(d) withdraw a suit or proceeding filed on behalf of the firm;
(e) accepts any liability in any suit or proceeding against the firm;
(f) to acquire immovable property on behalf of the firm;
(g) transfer of immovable property belonging to the firm; And
(h) enter into partnership on behalf of the firm.
Mode of the act to bind a firm (Section 22):
An act or instrument has been done or performed by any partner or other person on behalf of the firm, in the name of the firm, or in any other manner, in order to bind a firm will be done or executed. The other way of expressing or enforcing the intention to bind the firm.
Analysis of Sections 19 and 22:
First, you must understand what "implicit rights" mean. You have just read that each partner is an agent of the firm for the purpose of its business.
Consequently, between the partners and the outside world (whatever the private arrangement between them maybe), each partner is an agent of the other in every matter connected with the partnership business; His actions bind the firm. Sections 19(1) and 22 deal with the vested rights of the partner. The effect of these sections is that the act of a partner which is ordinarily done in carrying on the business carried on by the firm, binds the firm, provided the act is done in the name of the firm, or by any other person. manner of imposing intend to bind the firm. Such right of the partner to bind the firm is called his implied right.
However, it is subject to the following restrictions:
1. The work done should be related to the ordinary business of the firm, i.e. the act done by the partner should be within the scope of his authority and should be related to the ordinary business of the firm.
2. Act as if carried on for the normal course of business of the firm. The ordinary course of doing business shall depend upon the nature and circumstances of each particular case [Section 19(1)].
3. Act to be done in the name of the firm or in any other manner expressing or enforcing the intention to bind the firm (Section 22).
Thus, a partner is vested with the right to bind the firm by all acts done by him in all matters connected with the partnership business and which are done in an ordinary manner and not in their nature outside the scope of the partnership. You must remember that an implied right of a partner may differ in different types of business.
If the partnership is of a general commercial nature,
(i) he may pledge or sell the property of the partnership;
(ii) he can buy goods on account of the partnership;
(iii) he can borrow money, contract a loan and pay the loan on account of the partnership;
(iv) he can draw, make, sign, endorse, transfer, negotiate and buy to get discount, promissory
Notes, bills of exchange, checks, and other negotiable papers in the name and account participation.
Section 19(2) includes acts that are beyond the vested rights of the partners.
3. Extension and Restriction of Vested Authority of Partners (Section 20):
As per section 20, the partners in a firm may, by contract between the partners, extend or restrict the implied right of any partner.
Notwithstanding any such restriction, any act done by a partner on behalf of the firm which falls within his vested authority, binds the firm, unless the person with whom he is acting is bound by the restriction. Knows about or does not know or believe that partner to be a partner.
Analysis of Section 20:
A partner's implied right may be extended or restricted by a contract between the partners. The restrictions imposed by the Agreement on the implied right of a partner shall have an effect against third parties, subject to the following conditions:
1. the third party is aware of the sanctions, and
2. The third party does not know that he is dealing with a partner in a firm.
It may be noted that the above extension or restriction is possible only with the consent of all the partners. No one partner, or even most of the partners, may restrict or extend the implied right.
4. Right of Partner in Emergency (Section 21)
As per section 21, a partner has the right to do all such acts in an emergency, with a view to protecting the firm from damage, which would be done by a person of common discretion in his case acting under similar circumstances, and such Actions bind the firm.
Effect of admission by a participant (Section 23)
As per section 23, an admission or representation made by a partner in relation to the affairs of the firm is evidence against the firm, if it has been made in the ordinary course of business.
Analysis of Section 23:
The partners, as agents of each other, may enter into a binding but only in relation to partnership transactions and in the ordinary course of business. An admission or representation by a partner, however, shall not bind the firm if his right to the point is limited and the other party is aware of the restriction. This section deals with the evidence of the admission and representations against the firm. That is to say, they will affect the firm if the tender is placed by third parties; They may not have the same effect in case of disputes between the partners.
Effect of notice to acting partner (Section 24)
As per section 24, a notice of any matter relating to the affairs of the firm to a partner habitually acting in the business of the firm, serves as a notice to the firm, except in the case of fraud committed by or with the firm. that partner's consent.
Analysis of Section 24:
Notice to a partner who habitually acts in the business of the firm on matters relating to the affairs of the firm, except in the case of fraud on the firm committed by or with his consent, serves as a notice to the firm. Fellow. Thus, a notice to one is equivalent to a notice to the rest of the partners of the firm, just as a notice to an agent is a notice to his principal. This notice should be genuine and not constructive. This should be received by the working partner and not the sleeping partner. It should further be related to the business of the firm. Only then will it constitute a notice to the firm.
Liability to third parties (Sections 25 to 27)
The question of liability of partners to third parties can be considered under various heads. These are as follows:
1. Liability of a Partner for the Acts of the Firm (Section 25): Every partner is jointly and severally liable with all other partners for all the acts of the firm while he is a partner.
Analysis of Section 25:
The partners are jointly and severally responsible to third parties for all acts that fall within the scope of their express or implied authority. This is because all the work done within the purview of the authority is the work done in the direction of the business of the firm.
The expression 'act of the firm' denotes any act or omission by all the partners or any partner or agent of the firm, which gives rise to an enforceable right by or against the firm. To bring a case under section 25 again, it is necessary that the act of the firm, in respect of which the liability has been brought against a party to enforce it, must have been done when he was a partner.
2. Liability of the firm for wrongful acts of a partner (section 26): Where, in the ordinary course of business of a firm, loss or injury is caused by the wrongful act or omission of a partner, or with the right of his partners, to a third party or if any penalty is imposed, the firm is liable to the same extent as the partner.
Analysis of Section 26:
The firm is liable to the extent of damages or injury caused to any third party by the wrongful acts of the partner if they have been committed by the partner at the time of the act:
(a) in the ordinary course of business of the firm
(b) with the right of the partners.
If the act in question can be considered authoritative and falls under any of the categories mentioned in section 26, then the fact that the method employed by the participant in doing it was unauthorized or incorrect would not affect the question. Further, all partners in a firm are liable to third parties for loss or injury caused by the negligent act of a partner acting in the normal course of business.
3. Liability of the Firm for Wrong Application by Partners (Section 27):
where— (a) a partner acting within his express authority receives and misappropriates money or property from any third party, or
(b) A firm receives money or property from third parties in the course of its business, and the money or property is wrongly used by any partner, while in the custody of the firm, the firm is liable to make a good loss.
Analysis of Section 27:
It can be seen that the working of the two clauses of section 27 are designed to clearly bring out a significant distinction between the two categories of cases of misappropriation of money by the partners.
Clause (a) covers a case where a partner acts within his authority and by reason of his right as a partner, he obtains money or property belonging to a third party and misuses that money or property . For this provision to attract, it is not necessary that the money has actually come into the custody of the firm.
On the other hand, the provision of clause (b) shall be attracted when such money or property has come into the custody of the firm and has been misused by any of the partners.
In both the cases the firm will be responsible.
If the receipt of money by a partner is not within the scope of his express right, the receipt thereof cannot be treated as a receipt by the firm and the other partners will not be liable unless the money received is in his possession or Don't get under control.
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