likely to be known as a partner to an outsider. So if a
dormant partner makes an unauthorised contract in the
ordinary course of business in the usual or normal way,
the outsider should now be able to say that he knew or
believed the dormant partner to be a partner. If so, a
dormant partner can enter into an unauthorised trans-
action which will bind the firm under s 5. If the outsider
does not know the dormant partner is a member of the
firm, as where the 2006 Act is not being complied with,
then the firm will not be bound. The dormant partner
would be liable to compensate the outsider for any loss
following upon his failure to get a contract with the
firm.
Examples of apparent authority as laid down
by case law
Section 5 does not say what acts are ‘in the usual course
of business’. However, the courts have, over the years,
and sometimes in cases heard before the 1890 Act was
passed codifying the law, decided that there are a num-
ber of definite areas in which a partner has apparent
authority. These are set out below.
1 All partners in all businesses. Here there is apparent
authority to sell the goods (but not the land) of the firm,
and to buy goods (but not land) on behalf of the firm; to
receive money in payment of debts due to the firm and
give valid receipts. So if A pays a debt due to the firm to
B, a partner, who gives A a receipt and then fails to put
the money into the firm’s funds, A is nevertheless dis-
charged from payment of the debt. There is also a power
to pay debts owed by the firm including a power to draw
cheques for this purpose. Partners can also employ
workers, but once they are set on they are employees of
allthe partners so that one partner cannot discharge an
employee without the consent of the others. Partners
also have an insurable interest in the firm’s property and
can insure it. They may also employ a solicitor to defend
the firm if an action is brought against it. The authority
of an individual partner to employ a solicitor to bring an
action on behalf of the firm seems to be restricted to
actions to recover debts owing to the firm.
2 All partners in trading partnerships. Partners in
trading firms have powers which are additional to those
set out in 1 above. Thus partners in a firm of grocers
have more powers than partners in a professional prac-
tice of, e.g. law or accountancy. There does not seem to
be any good reason for this, but it has been confirmed by
many cases in court and cannot be ignored.
In WheatleyvSmithers(1906) the judge said in regard
to what was meant by the word ‘trader’: ‘One important
element in any definition of the term would be that
trading implies buying or selling.’ This was applied in
Higginsv Beauchamp(1914) where it was decided that
a partner in a business running a cinema had no implied
power to borrow on behalf of the firm. The partnership
agreement did not give power to borrow and, because
the firm did not trade in the Wheatleyv Smitherssense,
there was no implied power to borrow. If a firm is
engaged in trade, the main additional implied powers of
the partners are:■to borrow money on the credit of the firm even beyond
any limit agreed on by the partners unless this limit is
known to the lender. Borrowing includes overdraw-
ing a bank account;
■to secure the loan, which means giving the lender a
right to sell property belonging to the firm if the loan
is not repaid.Situations of no apparent authority
No partner, whether in a trading firm or not, has appar-
ent authority in the following situations:1 He cannot make the firm liable on a deed. He needs
the authority of the other partners. This authority must
be given by deed. In English law an agent who is to make
contracts by deed must be appointed as an agent by a
written document which states that it is a deed.
2 He cannot give a guarantee, e.g. of another person’s
debt, on which the firm will be liable unless there is a situ-
ation of inferred actual authority where the consent of
the other partners is inferred or presumed as in Bank of
Scotland v Henry Butcher & Co(2003) (see p 119 ).
3 He cannot accept payment of a debt at a discount by,
e.g. accepting 75p instead of £1, nor can he take some-
thing for the debt which is not money. He cannot, there-
fore, take shares in a company in payment of a debt
owed to the firm.
4 He cannot bind the firm by agreeing to go to arbitra-
tion with a dispute. Going to arbitration with a dispute
and having it heard by, say, an engineer, if the dispute
relates, for example, to the quality of engineering work
done under a contract, is a sort of compromise of the
right to go first to a court of law and have the case heard
by a judge. A partner cannot compromise the legal rights
of the firm.Part 2Business organisations