Chapter 5Non-corporate organisations – sole traders and partnershipsActual authority
If a partner is asked by his co-partners to buy a new van
for the firm’s use and makes a contract to purchase one,
the firm is bound. Section 6 of the 1890 Act deals with
authorised acts and says that the firm will be liable for
the authorised acts of partners and also of employees of
the firm.
Actual authority inferred
It may be possible in some circumstances to infer the
consent of the other partners to a transaction entered
into by only some of them. If so, the firm will be bound
by it as the following case shows.
However, s 5 says that the transaction must be con-
nected with the business. If there is a dispute about this,
the court will decide what can be said to be ‘connected’,
regardless of what the partnership agreement may say.119
Bank of Scotlandv Henry Butcher & Co
(2003)
In this case the Court of Appeal had to consider whether
a guarantee given to the bank by four out of 13 partners
bound the firm. It was held that it did. The other partners
had not passed a resolution authorising the four to make
the guarantee of overdraft arrangements but they were
informed that it was being made and in the absence of
an objection it was reasonable to infer that they con-
sented to it. Furthermore, the four partners signed the
guarantee for and on behalf of the firm, thus indicating
that they were agents of the firm and were not giving the
guarantee in a personal capacity. In addition, the bank
had no intention of taking a guarantee from them but
only from the firm.
Comment. The guarantee was of a bank overdraft granted
to another organisation with which the defendant firm
was involved in a joint business venture. It is also worth
noting that the partnership agreement stated in clause
14(c) that ‘no partner shall without the consent of the other
partners... give any guarantee on behalf of the partner-
ship’. However, the Court of Appeal affirmed the ruling
of the High Court that it was reasonable in the circum-
stances for the bank to infer that the partners entering
into the guarantee did so with the consent of all the
partners.Apparent or ‘ostensible’ authority
If a partner enters into a transaction on behalf of the
firm without authority, the person he deals with may, if
he does not know of the lack of authority, hold the firm
bound under the provisions of s 5 of the Partnership Act
1890 which gives partners some apparent authority.
Mercantile Credit Co Ltdv Garrod(1962)Mr Parkin and Mr Garrod had entered into an agreement
as partners for the letting of garages and the carrying out
of motor repairs, but the agreement expressly excluded
the buying and selling of cars. Parkin, without Garrod’s
knowledge, sold a car to Mercantile for the sum of £700
but the owner of the car had not consented to the sale.
The finance company did not, therefore, become the owner
of the car and wanted its money back. The court held
that the firm was liable and that Mr Garrod was liable
as a partner to repay what the firm owed to Mercantile.
The judge dismissed the argument that the transaction
did not bind the firm because the agreement excluded
the buying and selling of cars. He looked at the matter
instead from ‘what was apparent to the outside world
in general’. Parkin was doing an act of a like kind to the
business carried on by persons trading as a garage.
Comment. The point of the case is that, although the
buying and selling of cars was expressly forbidden by
the partnership agreement, the firm was bound. This is a
correct application of s 8, which provides that internal
restrictions on the authority of partners will have effect
only if the outsider deals with a partner, but with actual
notice of the restrictions. In this case Mercantile had no
such knowledge of the restrictions.Also the transaction must be carried out in the usual
way of business. In other words, it must be a normal
transaction for the business.
An example can be seen in Goldbergv Jenkins(1889)
where a partner borrowed money on behalf of the firm
at 60 per cent interest per annum when money could
be borrowed at between 6 per cent and 10 per cent per
annum. He had no actual authority to enter into such a
transaction and the court held that the firm was not bound
to accept the loan. The firm did borrow money but it
was not usual or normal to borrow at that high rate.
Finally, s 5 says that the outsider must know or believe
that he is dealing with a partner in the firm. Because of
the requirements of the Companies Act 2006 as regards
the display of the names of the owners of the firm on
various documents and in various places which we have
already considered, a dormant partner is now more