Authority of a partner
- Express authority: It can be described as the authority which is expressly given by words, spoken or written. The partners are free to give any kind of authority to any partner by an agreement. The expressed authority would be the authority granted to the partner and also such unexpressed authority which would logically be associated with such actual authority.
Example: When the partner has been asked to take care of sales, the partner would logically be authorized for fixing the price, credit limit, arranging the goods for sale etc.
- Implied authority: Implied authority of a partner is the authority which is ordinarily available to any partner to do the routine business of the firm. The firm is bound by the acts of the partners, which are done in the usual way to carry on the business of the firm. Such authority to bind the firm is called implied authority.
- The act must relate to the normal business of the firm:
If a partner of a firm dealing in clothes places an order for certain quantity of wine in the name of the firm, the firm will not be liable.
- The act must be done in the usual way in which such a business is carried on: It is difficult to lay down any fool proof rules as to what the usual way of carrying on a business is. It will depend on the nature and circumstances of each particular case.
X and Y were carrying on banking business in partnership. X received a certain sum of money on behalf of the firm. Y did not know anything about the money received by X. X used the money for his personal benefits. In this case, the firm is liable for the money received by X as it is received in the usual course of business.
Suresh, a partner in the firm of solicitors borrows and executes a promissory note in the name of the firm. The other partners are not liable on the promissory note so given by Suresh as executing such promissory note does not come within the ordinary course of business.
- The act must be done in the name of the firm: If an act is done in the personal name of a partner, then the firm cannot be held liable for such acts. In such cases, the partner will be personally liable to the third parties.
A partner purchased certain goods in which the firm deals, on credit, in his own name. The firm is not bound as the act is not within the implied authority of the partner.