Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership. Discuss in light of Partnership Act
Partnership Business a form of business organization created through voluntary agreements of minimum two and maximum 20 persons (the maximum is 10 in the case of banking business), with the intention of making and sharing profits among themselves. A partnership can arise only as a result of an agreement or contract, expressed or implied, between the partners. In Bangladesh, a partnership firm is to be formed under the provisions of the Partnership Act 1932. A person of unsound mind is not eligible to become a partner. A minor is also not eligible to become of partner in a firm. However, if all the partners agree, a minor may only be admitted to the benefits of an already existing partnership. In that case he is not personally liable, nor is his separate property for the debts of the firm, although his share in the partnership property and profits will so be liable. By definition, a partnership is illegal if it consists of more than 20 persons in case of a general business and more than 10 persons in case of business in banking. A partnership becomes illegal if its object is prohibited by law, or is immoral, or opposed to public interest. A non-profit making association is not a partnership in law of Bangladesh. In general, institutions or associations cannot be a member of a partnership.
Rules for determining existence of partnership:
In determining whether a partnership does or does not exist, regard shall be had to the following rules-
(1) Joint tenancy, tenancy in common, joint property, common property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners door do not share any profits made by the use thereof.
(2) The sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived.
(3) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but the receipt of such a share, or of a payment contingent on or varying with the profits of a business, does not of itself make him a partner in the business; and in particular-
(a) The receipt by a person of a debt or other liquidated amount by installments, or otherwise out of the accruing profits of a business does not of itself make him a partner in the business or liable as such
(b) A contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such
(c) A person being the widow or child of a deceased partner, and receiving by way of annuity a portion of the profits made in the business in which the deceased person was a partner, is not by reason only of such receipt a partner in the business or liable as such.
(d) A person receiving by way of annuity or otherwise a portion of the profits of a business in consideration of the sale by him of the goodwill of the business is not by reason only of such receipt a partner in the business or liable as such.
Meaning of firm:
Persons who have entered into partnership with one another are for the purposes of this Act called collectively a firm, and the name under which their business is carried on is called the firm-name.
In Scotland a firm is a legal person distinct from the partners, of whom it is composed, but an individual partner may be charged on a decree or diligence directed against the firm, and on payment of the debts is entitled to relief pro rata from the firm and its other members.
Partners as agent of the firm:
Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom he is dealing either knows that he has no authority or does not know or believe him to be a partner. R.S.P.E.I. 1974, Cap. P-2, s.7.
Partners bound by acts on behalf of firm:
An act or instrument relating to the business of the firm and done or executed in the firm-name, or in any other manner showing an intention to bind the firm, by any person thereto authorized, whether a partner or not, is binding on the firm and all the partners. Provided that this section shall not affect any general rule of law relating to the execution of deeds or negotiable instruments.
Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner so acting has in fact no authority to act for the Persons to whom money advanced becomes bankrupt, effect on other creditors Firm & firm name Partners as agents of the firm Partnership Act Cap. P-1 33 firm in the particular matter, and the person with whom he is dealing either knows that he has no authority or does not know or believe him to be a partner.
Rights of an Agent
Right to Receive Remuneration –An agent has a right to claim his remuneration on completion of his work, even if the contract never materializes on account of breach. But, if an agent is found guilty of misconduct or fraud, etc. he has no right over remuneration.
Right of Retainer: An agent has the right to retain any sum, received by him on behalf of his principal from the third parties, which may fall due as part of his remuneration, or advances or expenses incurred in the general conduct of business.
Right of Lien: An agent has the right to retain any movable or immovable property, papers or goods of the principal received by him, until the amount of commission due to him is received. This kind of a lien is a ‘Particular lien’ which will end as soon as the possession is cost. However, by a special contract such a lien can be extended to a ‘General Lien’.
Right to be indemnified against Consequences of Lawful Acts: An agent has also the right to be indemnified against the consequences of all lawful acts done by him in exercise of authority conferred upon him. This right of the agent is obvious for the simple reason that an agent is a representative of his principal.
Right to be indemnified against Consequences of Acts Done in Good Faith: An agent has the right to be indemnified against all acts done by him in utmost good faith, where one person employs another to do an act and the agent does the act in good faith, the employer or principal is liable to indemnify the agent.
Example. A employs B to sell the goods in A’s possession B sells the goods unaware of the fact that C is the actual owner of the goods. C sues B for the recovery of the value of goods. In this case B has a right to be indemnified by A and to rum burse the expenses incurred by B is the liability of A.
Right of Stopping of Goods in Transit: An agent has a right to stop the goods in transit if:-
a) He has bought goods either with his own money or by incurring a personal liability for the price on behalf of the principal,
b) The principal has become insolvent
c) When an agent, e.g. del Credere agent is personally liable to his principal to his principal for the price of the goods sold, he can exercise the unpaid seller’s right and stop the goods in transit on the insolvency of the buyer.
Agent’s Right to do All Lawful Things: A person who is appointed as an agent has the right to do all lawful things which fall under the usual course of business.
Right to Renounce His Agency: An agent is in full right to renounce his agency by giving a reasonable notice to his principal.
Right in Emergency: An agent has a right to do all such acts which could protect his principal from loss in case of emergency as would have been done in his own case, in a similar situation.
Restriction on power to bind firm:
If it has been agreed between the partners that any restriction shall be placed on the power of any one or more of them to bind the firm, no act done in contravention of the agreement is binding on the firm with respect to persons having notice of the agreement. R.S.P.E.I. 1974, Cap. P-2, s.10.
Responsibilities of an Agent
Duty of Follow Principal’s Directions of Customs: The first and the foremost duty of an agent is to act within the scope of authority conferred upon him and act according to the directions given by his principal. In the absence of any such instructions the agent should work according to the customs prevailing in the agency. If he acts otherwise he is liable to make good the loss caused by him.
Duty to Carry out Work with Reasonable Skill & Diligence: The agent must conduct the business with reasonable skill and diligence unless otherwise specified i.e. if the principal has notice of want of skill. In general the agent is expected to work in the manner as he would do in his own name.
Duty to Render Accounts: It is the duty of the agent to maintain proper accounts of his principal’s property and render it to him on demanded, or periodically if so agreed upon.
Duty to Communicate: It is the duty of the agent to communicate to the principal with full diligence any difficulty that may arise from time to time. He should obtain proper instructions from the principals, before taking any steps in facing the difficulty. But, if due to certain reasons he is unable to communicate the difficulty, he has full authority to take all reasonable steps to prevent loss.
Duty Not to deal on his Own Account: It is the duty of the agent not to buy from or sell goods to the principal in his own account, which he is actually asked to sell or buy on his principal’s behalf, without obtaining prior consent of his principal, all material facts being disclosed.
Duty not to make any profit out of his Agency Except his Remuneration: An agent stands in a fiduciary relation to his principal and therefore he must not make any secret profits from the agency. He is authorized only to a fixed remuneration or commission as the case may be. If the principal gets the notice of any such secret profit he can either recover the amount of profit from the agent, refuse to pay his remuneration, terminate the agency without prior notice, file a suit against his agent or can even repudiate the contract entered by his agent with the third party.
Duty on Termination of Agency by Principal’s death or Insanity: When an agency is terminated due to the death or insanity of his principal, it is the duty of the agent to take all steps to protect and preserve all the interests entrusted to him.
Duty not to delegate His Authority: It is the duty of an agent not to do his work i.e. to perform the work which he has expressly or impliedly undertaken to perform personally except of specifically agreed upon.
Duty not to use the Information Obtained in the course of the Agency Against his Principal: It is the duty of the agent not to use the information obtained in the course of business against his principal. If he does so, he must compensate the loss incurred by his principal.
Duty to Pay Sums Received for the Principal: It is the duty of the agent to pay all such sums to his principal which he may have received for him. He has the right to deduct any amount which may be outstanding in this account like remuneration, etc.
Duty not to set up an Advance Adverse Title: When an agent receives goods from his principal or other sources, on behalf of the principal, it is the duty of the agent not to set up on adverse titles i.e. his own title or title of third parties to it. If he does so, he can be held liable.
Duty in Naming an Agent for his Principal: Selecting an agent for his principal, an agent is bound to put in same amount of discretion, as he would do in his own case, under similar circumstances.
Liabilities of an Agent:
Liabilities in Respect of Damages and Misconduct: In case of breach of contract by an agent, he is liable to pay damages. If he is found guilty of misconduct, the principal can hold back his remuneration for that part of business which he has mis-conducted.
Personal Liability of an Agent where Fixed by Trade Custom or Usage: Ifthe trade custom or usage in business specifies the personal liability of an agent, then hill be held personally liable for his misconducts, until unless specified.
When an Agent Expressly agrees to be Liable: When the contract expressly specifies that the agent shall be held personally liable in case of breach of contract, then he can be held liable personally.
Liability for his wrongful Acts: An agent is held liable personally when he acts beyond his authority or commits fraud or misrepresentation.
Liability for the Acts of Sub-agents: When an agent appoints a sub-agent, without having the authority to do so, hill be liable for all acts of the sub agent, both to the principal and the third party.
Partner’s authority in an emergency
A partner has authority, in an emergency; to do all such acts for the purpose of protecting the firm from loss as would be done by a person of ordinary prudence, in his own case, acting under similar circumstances, and such acts bind the firm.
Implied authority of partner as agent of the firm-
(1) subject to the provisions of Sec. 22, 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, The authority of a partner to bind the firm conferred by this section is called his implied authority”
(2) In the absence of any usage or custom of trade to the contract, the implied authority of a partner does not empower him to –
a) Submit a dispute relating to the business of the firm to arbitration.
b) Open a banking account on behalf of the firm in his own name.
c) Compromise or relinquish any claim or portion of a claim by the firm,
d) Withdraw a suit or proceeding filed on behalf of the firm.
e) Admit any liability in a suit or proceeding against the firm
f) Acquire immovable property on behalf of the firm.
g) Transfer immovable property belonging to the firm or
h) Enter into partnership on behalf of the firm.
Restriction of partner’s implied authority-
The partners in a firm may, by contract between the partners, extend or restrict the implied authority of any partner. Notwithstanding any such restriction, any act done by a partner on behalf of the firm which falls within his implied authority binds the firm, unless the person with whom he is dealing knows of the restriction or does not know or believe that partner to be a partner.
Context of Bangladesh:
The partnership business plays a dominant role in the trade sector in Bangladesh. As on 30 June 2000, the total number of partnership firms registered in Bangladesh under the Partnership Act 1932 was 32,726, while the total number of joint stock companies registered under the companies act 1994 was 44,524 (public 2,556 and private 41,970 including 462 foreign).The Partnership Act 1932 does not require a partnership deed or agreement to be registered. The registration of such firm is optional. But if registered, a partnership firm can enjoy some legal rights and facilities. A partnership deed includes the name of the firm, nature of business, the capital and property of the firm, the capital of individual partners, term of partnership, provision for salaries, and drawings on account of profit, rate of interest (if any) on partners’ capital, advances and drawings, rights and duties of individual partners, provision for accounts and audit, division of profits and losses (capital and revenue), powers of admission and expulsion of a partner, termination of agreement by insolvency, death, etc., valuation of goodwill and share of assets on sale or death, and an arbitration clause.
· The persons who join hands are individually known as ‘Partner’ and collectively a ‘Firm’. The name under which the business is carried on is called ‘Firm name’.
· The relationship amongst the partners can be compared with that of Principal and Agent
· No partner can transfer or sell his interest in the business without the consent of others
and the liability of each partner is unlimited.
· A partnership firm is very easy to form and also flexible in its operation. It pool
Resources from the partners, makes their optimum utilization by taking better decisions. It protects the interest of each and every partner and gets benefit out of the
Specialized knowledge and skill of individual partners.
· A partnership firm suffers from many limitations like- uncertain life, disharmony among
partners, inability to pool large resources because of restriction on number of members,
and it does not permit the transfer of the interest of individual partners.
Finally we can say that, Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom he is dealing either knows that he has no authority, or does not know or believe him to be a partner. Provided that this section shall not affect any general rule of law relating to the execution of deeds or negotiable instruments.
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