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RELATION OF PARTNERS TO THIRD PARTIES

The liability of partners to third parties is governed by the law of governed by the law of agency.  Generally every partner is an agent of the firm and also of each of these co-partners for the purpose of the business of the partnership  consequently all the partners are collectively liable for the acts or omissions of each other.

However just as an agent does not bind the principal if the agent exceeds his authority so a partner can only bind a firm and his co-partners when he acts within the scope of his authority.  Refer to Section 7 of PA.  Thus in order to bind the firm a partner must have had actual authority to the act in question but the term actual authority in this context is not restricted to express authority.  It also includes the general authority with which in the absence of express authority the law clothes every agents for the purpose of doing all acts which are necessary or proper to the carrying on of the principal’s business in the manner usual in businesses of a similar nature.  The general authority is the ostensible authority.

In many businesses those acts which are usual are not prohibited in which case then the actual authority and the ostensible and apparent authority are co-extensive.  In some other business it is usual to find some provision in the articles of partnership prohibiting some partners from doing certain acts.  Such is particularly the position where there are senior and junior partners.

The term junior partner includes not only those who are under 18 years but also those who have recently joined the firm.  For instance it is quite usual to find an article prohibiting a partner from buying or ordering goods the value of which exceeds a certain stated amount without the consent of the others.  In such cases the actual authority is much less than the apparent authority and if a partner in fact exceeds his actual authority by doing a prohibited act the question that arises for determination is whether what he has done is within the ambit of his apparent authority.  If it is within the ambit of that authority and even if it was expressly prohibited the firm will be bound unless a 3rd party knew that he was dealing with a person who had no authority. 
If a dispute arises as to whether the firm is bound by the Act of a particular partner, then it must be ascertained whether the act in question is one which in the absence of notice to the contrary, the 3rd person would be justified in regarding as being within the ostensible or apparent authority of each of the partners.  And if the question is answered in the affirmative then the lack of actual authority is immaterial.

Watteu V. Fenwick [1893] 1QB 346 in this case the Defendants who were a firm of brewers were also the owners of the business of a beer house for which they appointed a manager to run.  The licence was always taken out in the name of the manager whose name also appeared on the door.  By agreements between the defendants and the manager the manager was prohibited or forbidden from purchasing certain articles for the purpose of the business.  Such articles were to be supplied solely by the Defendants.  In contravention of these instructions the manager ordered those articles from the Plaintiff for the use in the business.  An action was filed against the Defendants for the recovery of the price thereof.  The court held that the principle is liable for all the acts of the agent which are within the authority usually confided in an agent of that character notwithstanding limitations put on that authority as between the principal and the agent.  Also an undisclosed principal is liable for the acts of the agents even those in excess of the agent’s authority.  This also applies to the area of partnerships. 

In order that a firm be bound by the act of the partner however,  3 conditions must be satisfied namely:

1.                  The acts must be done in relation to the partnership business;
2.                  It must be an act for carrying on business in the usual way;
The act must be done by the partner acting as a partner and not as a private 

 
 
 

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