Monday, October 08, 2007

Parternship Act_Practical Problems_3

Anand and Ravi are carrying on business in partnership. In the partnershipdeed, it is provided that none of the partners should borrow money except with theconsent of both. Anand borrowed a sum of Rs. 1,000 from Suresh for the business ofthe firm without the consent of Ravi. Is the firm liable? Give reasons for your answer.

The problem relates to the authority of a partner. According to Section 19 of the Partnership Act, 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. Now, the question that may arise is that where a specific restraint has been put on a partner's authority, will such a restraint affect the partner's implied authority to bind the firm.
In this regard. Section 20 provides that the partners in a firm may, by contract between themselves, extend or restrict the implied authority of any partner. But, in so far as third parties are concerned, the firm continues to be liable to him for any such act which falls within the scope of the implied authority of a partner unless the person, with whom the partner is dealing, knows the lack of authority of the partner. Thus, in the given case, since Anand borrowed money for business purposes (and in a trading firm, power to borrow money falls within the usual course of business and hence implied power of a partner), the firm shall be held liable to Suresh.

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