Extension and restriction of partner’s implied authority
“Extension and Restriction of a Partner’s Implied Authority” in a detailed and structured manner. This falls under Partnership Law, mainly governed by the Indian Partnership Act, 1932.
🔹 Partner’s Authority – Overview
A partner in a firm has actual and implied authority to act on behalf of the firm.
Actual Authority – Expressly given by the partnership agreement.
Implied Authority – Authority necessary for carrying on the business of the firm, even if not expressly mentioned.
Relevant Section: Section 19(1) of the Indian Partnership Act, 1932
“Every partner is an agent of the firm and his acts, including the execution of any instrument in the firm’s name, for carrying on the usual business of the firm, bind the firm, unless the partner had no authority to act in that matter.”
🔹 Extension of Implied Authority
Meaning: Circumstances under which a partner can act beyond the explicit partnership agreement because such acts are necessary or usual for carrying on the business.
Examples:
Purchasing raw materials – Even if not explicitly mentioned in the agreement, necessary for business.
Hiring employees – Implied as part of business operations.
Borrowing money for business needs – If customary in the trade.
Key Points:
The acts must be for carrying on the usual business of the firm.
Third parties can rely on this implied authority.
Firm is bound, unless the third party knew the partner lacked authority.
Case Law:
Mercantile Credit v. Garrod (UK Case, 1962) – Partner had implied authority to enter into a contract that was usual for the business, even if not expressly authorized.
Sukumar v. K.K. Paul (AIR 1962 Cal 183) – Firm is bound by partner’s implied acts in ordinary business operations.
🔹 Restriction of Implied Authority
Meaning: Circumstances under which a partner’s implied authority cannot be exercised.
Types of Restrictions:
Internal Restrictions
Restrictions in the partnership agreement (e.g., a partner cannot borrow more than ₹1 lakh without consent).
Binding between partners, but not binding on third parties who act in good faith.
Reference: Section 19(2) – “Restriction on partner’s authority is not binding on a person dealing with the firm in good faith.”
External Restrictions
Acts outside the scope of business (ultra vires)
Acts illegal or fraudulent
Examples:
Selling firm property for personal use
Giving guarantees for unrelated business
Case Law:
Ingram v. IRC (1876) – A partner exceeded internal restrictions; firm still liable to third party because they acted in ordinary business.
Barnes v. Addy (1874) – Firm not bound by acts done outside the scope of business or fraudulent acts.
🔹 Summary Table
| Aspect | Extension of Implied Authority | Restriction of Implied Authority |
|---|---|---|
| Definition | Acts not expressly authorized but necessary for business | Acts a partner cannot do, either by agreement or law |
| Scope | Usual business operations | Ultra vires, illegal, personal transactions |
| Effect on Firm | Firm bound if third party acted in good faith | Firm not bound if act outside authority or fraudulent |
| Internal Agreement | Can extend authority indirectly | Restriction applies between partners, but not to third parties in good faith |
| Case Law | Mercantile Credit v. Garrod (1962) | Ingram v. IRC (1876), Barnes v. Addy (1874) |
✅ Conclusion:
Implied authority is necessary for running the firm smoothly.
Extensions allow partners to act in ordinary business matters.
Restrictions protect the firm internally and legally, but third parties are generally protected if they act in good faith
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