Mode of doing act, the effect of admission and notice on other partner/partners

Introduction 

A partnership is a form of business borne out of a formal agreement, where two or more persons agree to become co-owners, to manage and operate the business in order to share its profit and losses. The partners in a partnership can be organizations, individuals, schools, businesses, governments or combinations. Partnership is a result of a contract that is governed by Partnership Act. In India, we have a definite law which regulates the functioning of a partnership known as Indian Partnership Act, 1932. According to the section 4 of the Indian Partnership Act, 1932 “partnership is the relation between persons who have agreed to share the profits of a business arrived on by all or any of them acting for all”. 

Essential elements of a partnership 

The essential elements of a partnership are:

1. There should an existing agreement 
2. There should be 2 or more persons 
3. A business motive
4. Sharing of profits and losses
5. Business should be carried on jointly or by any one of them acting on behalf of all.
6. Every partner has an unlimited liability 
7. Continuity

Kinds of partners

In a partnership, there are different kinds of partners such as:

1. Active partner 
2. Dormant partner 
3. Minor partner 
4. Nominal partner 
5. Partner by estoppel 
6. Partner for profit only
7. Secret partner

Mode of doing act to bind firm (Section 22)

This section states that in order to bind a firm for an act done in the firm name or executed in any other manner by a partner or other person on behalf of the firm expressing or implying the intention to bind the firm. This section simply states the mode of doing an act in order to bind a firm and provides that an act should be done or executed in the following manner so as to bind a firm

1. In the name of the firm
2. In the manner expressing or implying the intention to bind.

The underlying principle of this section is that the firm is bound only for the acts done by him in his capacity as a partner.

• Essentials of this section- In order to bind a firm the following essentials are required to be fulfilled:

1. The act should be done or executed by a partner or other person on behalf of the firm.
2. The act should be executed in the name of the firm.
3. The act must have been done in a manner that it is expressly or impliedly done with the intention to bind.

Effects of admission by a partner (Section 23)

This section says that in order to make an admission or representation effective against the firm it must be made concerning the affairs of the firm and it must be made in the ordinary course of business both of these conditions should be satisfied before making an representation or admission an evidence against the firm. The legal effect of this section is that the partner has got the power to bind his co-partners.

• Cases in which admissions were held in the ordinary course of business- 

A. When there is a declaration by a partner as to partnership is evidence against the co- partners, even though he may not be a party to the suit.

B. All the statement of the accounts in the ordinary course of transactions of firm are binding against the firm.

• Cases in which admission are not binding on the firm and other co-partners.

A. When the admission is not made in ordinary course of business.

B. When admission is not related to the affairs of the firm.

C. When the authority of the partner is limited , then the admission or representation by the partner will not bind the firm and the person who made the representation aware about the limitation.

D. Admission by the representative of the partner  in the representative capacity would be evidence against the firm under sec. 18 of the evidence act.

E. Any representation capacity would be an evidence against the firm but will not bund the other partners

• In case of Babu Lal vs. Sham Sunder Lal

It was held that where a partner makes an endorsement with an implied consent of other partners in the ordinary course of business, he binds the latter.

Effect of notice to acting partner (Section 24)

This sections states that a notice should be served to partner acting habitually in the business of the firm regarding any matter concerning the affairs of the firm, except in case of fraud committed by or with the consent of that partner. The following conditions must be satisfied in order to make the notice binding:

1. Notice should be served to a partner acting habitually in the business of the firm.
2. Notice must be regarding any matter concerning the affairs of the firm.
3. Fraud should not have been committed by that partner or with the consent of that partner.

For the purpose of making the firm liable, for a wrongful act it is necessary to prove that either the partner was acting with the consent of the co-partners i.e. the act so done was authorized by the co-partners or the act was done in the ordinary course of business.

• Notice to a retired partner- A retired partner has no effect of the notice, what has occurred after his retirement even if the agency subsisting between them is dissolved. But if a bill is dishonoured  after the dissolution of the firm a notice to the retiring partner is enough or sufficient. 

• In case of Williamson vs. Barbour

It was held that if a partner acts beyond his limit or power and is commuting a fraud on his co-partners, or is the person whose duty is to inform of what he has done, in all such cases notice will not be regarded as equal on his part to notice to them.