Indian Partnership Act
Partner as Agent of the Firm: Section 18
Section 18 contains one sentence: a partner is the agent of the firm for the purposes of the business of the firm. It is the statutory form of the words in Section 4, 'carried on by all or any of them acting for all'. Its consequence is the dual character of every partner: an agent when he acts, a principal when the others act. That is why one partner's signature can bind people who never met the customer, and why every partner's personal estate answers for the firm's debts. This note explains the section and when one partner's act binds the rest.
Section 18 and the two hats of a partner, the limit of the agency, examples of what binds the firm, and why the dual character matters
1. The Provision
§ Section 18 Subject to the provisions of this Act, a partner is the agent of the firm for the purposes of the business of the firm. 'Subject to the provisions of this Act': read it with Section 19 on implied authority, Section 20 on restriction, Section 21 on emergencies and Section 22 on the mode of acting. 'For the purposes of the business of the firm': the agency is confined to the firm's business; a personal transaction binds only the partner. |
2. The Dual Character
Role | When it operates | Consequence |
|---|---|---|
Agent | When the partner himself acts for the firm | His act, within authority, binds the firm and therefore every other partner |
Principal | When another partner acts | He is bound by that act, and is liable jointly and severally under Section 25 |
Both at once | Throughout the partnership | Each partner trusts every other with the power to create obligations for all |
- Why it is unique. In ordinary agency, one person is principal and the other agent. In a firm, each partner occupies both positions at the same time, which is why the relation demands utmost good faith under Section 9.
3. When One Partner's Act Binds the Others
Situation | Result |
|---|---|
Buys stock for the shop in the firm name | Binds the firm: implied authority, Section 19(1) |
Borrows money for the firm's trading needs | Binds a trading firm, where the trade requires borrowing |
Receives payment from a customer and gives a receipt | Binds the firm |
Sells the firm's land without express authority | Does not bind the firm: Section 19(2) |
Refers a firm dispute to arbitration on his own | Does not bind the firm: Section 19(2) |
Buys a car for his family, signing in the firm name | Does not bind the firm: outside the business, Section 18 |
Acts contrary to a restriction the outsider knew of | Does not bind the firm: Section 20 |
Hires transport during a fire to save the firm's stock | Binds the firm: emergency, Section 21 |
4. Why the Dual Character Matters
§ Six consequences • Unlimited liability. Because each partner is a principal, the firm's debts reach his personal estate: Section 25. • Good faith. Because each acts for the others, the law imposes a fiduciary duty: Section 9. • Trust in trade. An outsider need not read the deed; he may rely on the usual authority of a partner: Section 19. • Notice and admissions. What an acting partner knows or admits in the ordinary course is treated as the firm's: Sections 23 and 24. • Exit must be announced. A retiring partner's power to bind continues as to old customers until public notice is given: Section 32. • Appearances count. Even a person who is not a partner may be liable if held out as one: Section 28. |
5. The Limits of the Agency
i. Scope. Only acts for the purposes of the firm's business; the nature of that business fixes the boundary.
ii. Manner. The act must be done in the firm name, or so as to express or imply an intention to bind the firm: Section 22.
iii. Excluded acts. The eight matters in Section 19(2) need express authority.
iv. Known restrictions. A restriction under Section 20 defeats an outsider who knows of it.
v. Ratification. An act beyond authority may still bind the firm if the partners ratify it, on ordinary principles of agency preserved by Section 3.
6. Frequently Asked Questions
What does Section 18 say?
That, subject to the provisions of the Act, a partner is the agent of the firm for the purposes of the business of the firm.
What is the dual character of a partner?
He is an agent when he acts for the firm, and a principal bound by the acts of his co-partners, at the same time.
Does a partner's personal contract bind the firm?
No. The agency extends only to the purposes of the firm's business.
Can the firm ratify an unauthorised act of a partner?
Yes. The ordinary principles of agency under the Contract Act continue to apply by virtue of Section 3.