CAIIB BRBL Module D Unit 12 : Relations Of Partners To Third Parties

22/11/2023

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CAIIB Paper 4 BRBL Module D Unit 12 : Relations Of Partners To Third Parties (New Syllabus)

IIBF has released the New Syllabus Exam Pattern for CAIIB Exam 2023. Following the format of the current exam, CAIIB 2023 will have now four papers. The CAIIB Paper 4 (BANKING REGULATIONS AND BUSINESS LAWS) includes an important topic called “Relations Of Partners To Third Parties”. Every candidate who are appearing for the CAIIB Certification Examination 2023 must understand each unit included in the syllabus.

In this article, we are going to cover all the necessary details of CAIIB Paper 4 (BRBL) Module D (COMMERCIAL & OTHER LAWS WITH REFERENCE TO BANKING OPERATIONS) Unit 12 : Relations Of Partners To Third Parties, Aspirants must go through this article to better understand the topic, Relations Of Partners To Third Parties and practice using our Online Mock Test Series to strengthen their knowledge of Relations Of Partners To Third Parties. Unit 12 : Relations Of Partners To Third Parties

Partner Is An Agent Of The Firm

Section 18 of the Act implies that a partner is an agent of the firm for the purpose of the business of the firm. A partner can make the firm liable by his acts, if done in the name of the firm and in the ordinary course of business of the firm.
However a partner, who contracts in his own name, incurs only a personal liability and the firm is not liable for the contracts entered in to in his personal name.

Implied Authority Of Partner As Agent Of The Firm

Authority

‘Authority’ available to a partner in a firm is actually the capacity in which a partner can bind the firm, through his acts. The authority may be express or implied.
Where the authority of a partner is conferred on him through an express agreement, it is called express authority. However, on the contrary, where there is no agreement or there is one which is silent about the authority of the partner, then “the act of a partner which is done to carry on, in the usual way, business of the kind, carried on by the firm, binds the firm” and is known to be done under the ‘implied authority’ of a partner.

This authority has its origin in the principle of agency and is subject to the following:

The act carried out by the partner must relate to the firm’s normal business and should not be different from it
The act must be done on behalf of the firm or in a manner expressing or implying an intention to bind the firm.

“In order to bind a firm, an act or instrument done or executed by a partner or other person on behalf of the firm, shall be done or executed in the firm name or in any other manner expressing or implying an intention to bind the firm.”

Acts Included In Implied Authority

Purchasing goods on behalf of the firm
Selling goods to the clients of the firm
Receiving repayments in respect of the debt of the firm and giving receipts for them
Settling accounts with the stakeholders of the firm
Engaging servants to help in the business
Borrowing money on behalf of the firm.
Receiving goods from suppliers to the firm on credit.
Drawing, Accepting and endorsing negotiable instruments on behalf of the firm.
Pledging goods of the firm as security for borrowed money
Employing a solicitor or lawyer to defend an action against the firm in a court of law

Submitting a dispute pertaining to the business of the firm for arbitration.
Open a banking account on behalf of the firm
Compromise or relinquish any claim filed on behalf of the firm
Withdraw a suit or proceedings filed on behalf of the firm
Admit a liability in a suit or proceedings in a court of law
Acquire or dispose or transfer immoveable property on behalf of the firm
Enter into partnership on behalf of the firm.

The aforesaid acts can however be carried out by a partner if a partner has express authority to do so from the other partners.

Extension And Restriction Of Partner’s Implied Authority

The partners in a firm may by mutual agreement amongst themselves, extend or restrict the implied authority of any partner.
Any act done by a partner on behalf of the firm within his implied authority binds the firm unless the person with whom he is dealing knows the restriction or does not know or believe that partner to be a partner. This has been provided in Section 20.
Thus a third party is not affected by a secret restriction of the implied authority of a partner of which he does not know about or has no notice about.

Partner’s Authority In An Emergency

Whatever may be the powers given to a particular partner, in case of an emergency, a partner has authority to do all acts to protect the firm from loss, as would be done by a person of ordinary prudence in his own case. The firm is bound by such acts. This has been provided in Section 21.

For example: a partner in a firm receives a consignment of fruit in Kolkata on behalf of his firm situated in Chennai and being perishable sells it in Kolkata for a price which was less than that obtaining in Chennai as he was sure that the fruit will not bear the journey. He is not liable as Section 21 protects him.

Mode Of Action To Bind Firm

In order to bind a firm, the partner must do the activities in the name of the firm and execute the documents on behalf of the firm or in any other manner expressing or implying an intention to bind the firm.
A person cannot simply sign an agreement in his own name to purchase goods for the firm and say that since he is the partner in a firm XYZ it is implied that the partners are bound to pay for the goods. For example, he should sign as ‘For and on behalf of XYZ’.
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. This is a core principle of partnership business.

Liability Of The Firm For Wrongful Acts Of A Partner

Sec. 26 of the Act stipulate that if a partner commits some wrongful act or omits doing of something in the ordinary course of the business of the firm with or without the authority of other partners and consequently a loss or injury is caused to any third party, the firm is liable thereof to the same extent as the partner.

For example where due to the negligence of the managing partner of a firm the shaft of the mine they operated is not properly guarded and a workman falls and is injured, the firm itself becomes liable.

Liability Of Firm For Misapplication By Partners

Misapplication by a partner is dealt with in Section 27 of the Indian Partnership Act 1932. This section of the statute states “Where –

A partner acting within his apparent authority receives money or property from a third party and misapplies it or,
A firm in the course of its business receives money or property from a thirty party, and the money or property 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.

Holding Out

28 of the Act states that anyone who, by words spoken or written or by conduct, represents himself for knowingly permits himself to be represented to be a partner in a firm is as liable as a partner in that firm to anyone who has on the faith of any such representation given credit to the firm whether the person representing himself or represented to be a partner does or does not know that the representation has reached the person so giving credit. This is known as doctrine of holding out.
Such a stranger is liable individually and personally for the debts of the firm as if he was a partner in the firm on the principle of holding out. However, legal heirs or estate of the deceased partner is not liable to the firm, who uses his name or when the business of the firm is carried on in the old name of the firm, after his death.

Rights Of Transferee Of A Partner’s Interest

A transfer by a partner of his interest in the firm does not entitle the person to whom the interest is transferred (transferee) to interfere in the conduct of the business but entitles the transferee only to receive the share of profits of the transferring partner and the transferee has to accept the account of profits agreed to by the partners.
On dissolution of firm or cessation of the partnership business, the transferee is entitled to a share in assets of the firm and verification of accounts to ascertain his share.

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CAIIB Paper 4 (BRBL) Module D Unit 12 ( Ambitious_Baba )