RELATIONS OF PARTNERS TO THIRD PARTIES

RELATIONS OF PARTNERS TO THIRD PARTIES

The relation between partners on one hand and third parties on the other is founded on principal of mutual agency as contained in Section 18 which reads as under:
“Subject to the provision of this act a partner is the agent of the firm for the purpose of the
business of the firm.”
Relations regarding the partners and third parties are classified under following sub-heads:
I. Nature and extent of liability of the firm for acts of partner (Sections 18-27)
II. Doctrine of holding out (Section 28)
III. Rights of transferee of a partner’s interest (Section 29)
IV. Position of a minor admitted to benefits of partnership (Section 30)

I. NATURE AND EXTENT OF LIABILITY OF THE FIRM FOR ACTS OF A PARTNER

1. Nature of liability of the partners toward third parties (Section 25)
2. Extent i.e., the kinds of acts for which the partners are liable are as follows:
   i) Liability for acts done within the authority of a partner (Sections 18, 19, 20 and 22). Such
   authority may be either express or implied.
   ii) Liability when partner acts in emergency (Section 21)
   iii) Liability on ratification of partners act
   iv) Liability for admission made by a partner (Section 23)
   v) Liability on notice to an acting partner (Section 24)
   vi) Liability for torts and wrongful acts (Section 26)
   vii) Liability for misapplication of money or property (Section 27)

1. Nature of liability of the partners toward third parties – Section 25
   “Every partner is liable, jointly with all other partners and also severally for all acts of firm
   done while he is a partner.”
   – Liability is unlimited.
   – The liability that the partners incur is for the acts of the firm done while they are partners.
   An act done after a partner ceases to be so either by death or otherwise will not bind him
   except where the liability is continued by reason of the principle of holding out. Section 25
   regarding personal liability of partners for acts of the firm would not be applicable unless
   these is a statutory provisions would be personally liable for lapses of the firm.
   (Dena Bank v. Bhikhabhai Prabhuda Parekh & co. 2000 SC)
   The agency operates against the sleeping partners as well. They too are liable for the
   acts of ostensible partners (Ashutosh v. S.O.Rajasthan AIR 2005 SC)
   The death of a partner does not preclude the surviving partner from drawing on the
   partnership account (Tanna 8 Modi v CIT AIR 2007 SC)

2. The kind of acts for which partners are liable