Implied Authority of a Partner
Introduction
In a partnership firm, each partner acts as an agent of the firm. This means a partner can bind (legally commit) the firm by his acts. The Indian Partnership Act, 1932 explains the concept of implied authority, which allows partners to act without express permission in usual business matters.
Meaning / Definition
Implied authority means the authority given to a partner by law to act on behalf of the firm in the ordinary course of business. It arises automatically from the relationship of partnership.
Modes or Types
Conditions for Implied Authority (Sections 19 and 22)
An act falls within implied authority if:
- It relates to the usual business of the firm
- It is done in the usual manner of business
- It is done in the name of the firm or with intention to bind the firm
Acts within Implied Authority
A partner can:
- Buy and sell goods of the firm
- Receive payments and issue receipts
- Settle accounts
- Employ staff
- Borrow money for business
- Pledge firm goods as security
- Engage lawyers
- Draw or endorse negotiable instruments
Statutory Restrictions (Section 19(2))
A partner cannot, without express authority:
- Refer disputes to arbitration
- Open bank account in own name for firm
- Give up claims of the firm
- Withdraw legal proceedings
- Admit liability in a suit
- Buy or sell immovable property
- Enter into another partnership on behalf of firm
Firm is not liable for these acts unless authorized.
Restrictions by Agreement (Section 20)
- Partners may limit authority by agreement
- Third parties are bound only if they know about such limits
- If third party has no knowledge, firm remains liable
Authority in Emergency (Section 21)
A partner can act beyond normal authority if:
- It is to protect firm from loss
- A reasonable (careful) person would do the same
Such acts bind the firm.
Effect on Third Parties (Sections 23–27)
- Admissions by partner bind firm if made in business course
- Notice to active partner is notice to firm
- Partners are jointly and individually liable
- Firm liable for wrongful acts (torts) of partners
- Firm liable for misuse (wrong use) of money by partner
Important Case Law
Mathuranath v. Bageshwari Rani
Acts done in usual course of business fall within implied authority and bind the firm.
Lloyd v. Grace, Smith & Co.
Firm is liable for wrongful acts of a partner done within authority.
Thomas Bear & Sons v. Ralia Ram
Partners are liable for acts done while they were partners.
Distinction / Comparison
Express Authority vs Implied Authority
| Basis | Express Authority | Implied Authority |
|---|---|---|
| Source | Agreement | Law |
| Scope | Specifically defined | Usual business acts |
| Communication | Clearly given | Not expressly stated |
| Flexibility | Limited to agreement | Based on business practice |
Practical Example
A partner of a trading firm borrows money in firm’s name:
- Firm is liable (within implied authority)
If partner sells firm’s land without permission:
- Firm is not liable (restricted act)
If partner sells goods urgently to prevent loss:
- Firm is liable (emergency authority)
Summary
- Implied authority allows partners to bind firm in usual business
- Must be in ordinary course and in firm’s name
- Certain acts require express authority
- Internal restrictions do not affect third parties without knowledge
- Firm is liable for partner’s acts within authority
- Emergency powers allow actions to prevent loss