Q2. What is meant by implied authority of a partner?

Are third parties

affected by restrictions placed on such implied authority?
Answer:
The authority of a partner means the capacity of a partner to bind the firm by his
act. This authority may be express or implied. The authority conferred on a partner
by mutual agreement is called express authority. The authority conferred on a
partner by the provisions of Section 19 of The Indian Partnership Act is called
implied authority. Implied authority covers those acts of partners which fulfill the
following 3 conditions:
The act must relate to the normal business of the firm;
The act must have been done in the usual way of carrying on the business of
the firm;
The act must be done in the firms name or in any other manner expressing
or implying an intention to bind the firm.
A partner has the implied authority to do the following acts on behalf of his firm.
i.)
To buy, sell and pledge goods on behalf of the firm.
ii.)
To raise loans on the security of such assets.
iii.)
To receive payments of debts due to the firm.
iv.)
To accept, make an issue bills of exchange, promissory notes, etc., on
behalf of the firm.
v.)
To engage servants for the firm's business.
vi.)
To take on lease a premises on behalf of the firm.
However, a partner has no implied authority, unless otherwise expressed in the
partnership deed, in the following matters:
i.)
To submit a dispute relating to the firm to arbitration.
ii.)
To compromise or relinquish any claim or a portion of claim made by the
firm.
iii.)
To withdraw a suit or proceeding filed on behalf of the firm.
iv.)
To admit any liability in a suit or proceeding against the firm.
v.)
To open a bank account on behalf of the firm in his own name.
vi.)
To acquire or purchase immovable property for and on behalf of the firm
vii.)
To transfer or sell immovable property belong to the firm; and
viii.)
To enter into partnership with others on behalf of the firm.
Implied authority and third parties
All partners are liable to third parties for all acts of a partner which fall within the
scope of his implied authority. Their liabilities to third parties in various cases are
summarized as under:
Effect of restriction on implied authority (Section 20) The partners of a firm by
mutual agreement, may extend or restrict the scope of implied authority of any
partner. But, the third party is not bound by any restriction imposed on the implied
authority of a partner unless it has knowledge of such restriction.
The liability of partners to third parties may be divided into three categories:-

Liability of a partner for acts of the firm Every partner is liable, jointly with
all the other partners and also severally, for all acts of the firm done while he
is a partner. Further, the liability of all the partners is unlimited. By virtue of
joint and several liabilities, a creditor of the firm has several causes of action.
He can sue all partners together, or can sue them separately (in successive
actions if necessary). As between the partners themselves, the partner
paying for more than his share of the liability may claim contribution from the
others according to the terms of the partnership agreement.
Liability of the firm for wrongful acts of a partner Where, by the wrongful act
or omission of a partner acting in the ordinary course of the business of a
firm, or with the authority of his partners, loss or injury is caused to any third
party, or any penalty is incurred, the firm is liable therefore to the same
extent as the partner. The wrongful act may be tort, fraud or negligence. It is
important to note that although the firm is liable to third party for loss caused
to him by fraud committed by a partner, but, as between the partners, as per
section 10, the same must be borne by the partner committing the fraud and
cannot be shared among all the partners. Of course, in the case of loss
caused by tort or negligence of any partner all partners are liable inter-se in
their profit sharing ratio and the firm is liable to the third party as it is liable
in the case of fraud.
Liability of the firm for misapplication by partner Where (a) a partner acting
within his apparent authority receives money or property from third party and
misapplies it, or (b) a firm in the course of its business receives money or
property from a third party, and he same is misapplied by any of the partners
while it is in the custody of the firm, the firm is liable to make good the loss.
Under this section it has been recognized that the firm must be treated as
receiving what any partner receives in the ordinary course of the business of
the firm. Accordingly, if any partner misappropriates any money or property
which he might not receive either in repayment of a debt or as a loan on
account for the firm, the third party can make the firm or any of the partners
liable for the same.