Apparent authority

• Apparent or ostensible authority arises where the principal has held out the agent as having authority to do a particular thing that the third party relies on the representation.

Sithambaram Chetty & Ors v Hop Hing & Ors

• Illustrates the principal of “ostensible principal”.

• In this case, two persons established in 1922 a business in Penang for the sale of medicated wines.

• Their connection with the business was not made public and they took no part in carrying it on.

• They entrusted its entire control to two managers, the second defendant and one C and there was nothing in the circumstances to make it appear to those dealing with the firm that the managers were not partners or proprietors.

• The second defendant borrows money from the plaintiff in the three actions upon promissory notes drawn in the name of the firm and absconded.

• Princhard J. held that whatever was the real position of the second defendant, the acknowledged partners did allow him to carry on particular business as an ostensible principal, and therefore, clothed him every authority incidental to a principal in the business and therefore the defendant was liable.

Osman bin Haji Mohamed Usop v Chan Kang Swi

• A firm styled “The Federal Trading Co.” consisted of three Chinese partners who managed it and three Malays who took no part in the management.

• The three managing partners borrowed from a money-lender sued for his debt and the firm failing to pay him.

• C paid the debt and then sued all six partners for the amount thus paid on their behalf.

• Five admitted liability but the third defendant, the appellant, contested the claim.

• The Court of Appeal held that there was sufficient evidence upon the face of the promissory note that it was the note of the firm and not merely of the three partners who signed it.

• There was an obligation on the firm to repay to the plaintiff the money paid to discharge the debt of the firm.

• The payment to the money-lender being an act lawfully done for the firm, the firm was bound to make compensation to the plaintiff.

• Both implied and apparent autority, therefore are based on the idea that the agent looks as though he has authority to do the particular thing and the third party should be able to rely on appearance.

• It is also implicit in both these ideas that even though the agent has no actual authority from his principal, the principal will still be bound.

• The difference is that implied authority arises from the nature of the agency (eg. What it is usual for an estate agent to do) whereas apparent authority arises from a representation by the principal (eg. If the agent has in fact made such contracts with the third party before and the principal has always honoured them.

• In both cases, of course the third party cannot rely on the authority if he knows that the agent has no actual authority.

• Applying these concepts to partnership it is clear that actual authority is a question of fact in each case.

• One partner may be given actual authority either by the terms of the partnership agreement (eg. to contract debts for a limited amount) or by the oral agreement of the other partners.

• Apparent authority is also largely a question of fact – did the other partner by words or conduct represent that one partner had authority to enter into a particular transaction?

• Implied authority is a question of law to be ascertained in respect of each type of agent – what exactly is it usual for a particular partner to do?

• The answer depends upon an examination of the carious sections of the Partnership Act 1961 and the relevant cases.

• Because a partner’s implied and apparent authority will usually be much wider than a partner’s actual authority there will often be provisions in the partnership agreement seeking to limit any partner’s activities.

• But since such authority is based on the idea that the third party can rely on appearances, no internal agreement between the partners can affect him unless he knows of the restriction, and he has no duty to inspect or check the partnership agreement.

Effect of notice that firm not bound by act of a partner

• Section 10 of the Partnership Act 1961 provides that:-

“ if it has been agreed between the partners that any restriction shall be placed on the power of any 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.”

• The generally accepted rule of agency is that a principal cannot terminate an agent’s power to involve the principal in legal relationship with third parties, who know of the agency relationship, merely by notifying the agent that authority has been withdrawn.

• If the agent’s power is to be effectively terminated or restricted notice of such termination or restriction must be given to the third parties.

Ratification

• There is one other agency concept which applies in a straight forward way to partnership.

• If the partner making the contract has no authority under any of the three heads then the other partners may nevertheless ratify the contract and thus adopt it as binding on all concerned.

• Ratification may be express or implied by word or conduct but if it is effective no problem arise simply because a partnership is involved.

Holding out• The doctrine that a person who holds himself out as a partner

will be liable as such to all persons who rely on his representation was well established.

• Section 16 of the Partnership Act 1961 provides that:-“everyone who by words spoken or written or by conduct represents himself, or who knowingly suffers himself, to be represented, as a partner in a particular firm is liable as a partner to any one who has on the faith of any such representation given credit to the firm, whether the representation has or has not been made or communicated to the person so giving credit by or with the knowledge of the apparent partner making the representation or suffering it to be made:

• Provided that where, after a partner’s death, the partnership business is continued in the old firm-name, the continued use of that name or of the deceased partner’s name as part thereof shall not to itself make his executor’s or administrator’s estate or effects liable for any partnership debts contracted after his death.

• As is apparent from s. 16, the holding out need not take any particular form: it may be express or implied, and made orally, in writing or by conduct or any combination of the three.

• However, there can be no liability on the basis of holding out unless the relevant representation was made before the credit was given.

• Liability can arise under s.16 of the Partnership Act 1961 where a person “knowingly suffers” himself to be held out as a partner.

• It has been held that a retiring partner cannot be said to have knowingly suffered himself to be represented as a partner merely because he did not take care at the time of his retirement to ensure that all notepaper bearing his name as a partner has been destroyed, where the firm subsequently, without his knowledge or authority, used that notepaper to place an order.

William Jacks & Co. (Malaya) Ltd v. Chan & Yong Trading Co.

The plaintiffs claimed against the defendant for RM12,734.91 for goods sold and delivered by the plaintiffs to the defendants.

The writ was served on C and Y, the partners of the defendant firm.

Y did not take any steps to defend but C denied the plaintiff’s claim because he had not in any way represented or held himself out as partner of the partnership firm.

Gijj J. (Malaysian High Court) held that C represented himself to be a partner in the firm by approaching a salesman of the plaintiffs to ask for credit facilities with the plaintiff company, by registering the partnership with the Registrar of Business and by opening a banking account with his own money in the name of the partnership with Bangkok Bank.

Each mode of representation was enough to fix him with liability as a partner of the firm.

• If a person has been induced to hold himself out as a partner by fraud or by a promise of freedom from liability, he will remain fully liable under the section to third parties who have relied on his representation.

• So far as such third parties are concerned, the fraud or promise is strictly res inter alios acta.

The implied and usual authority of a partner

• The implied authority of any agent depends upon the status of the agent giving rise to the presumption that he has the authority to carry out the transaction.

• S. 7 of the Partnership Act 1961 provides:-• 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 of business of the kind carried on b 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.

• There are two limbs in the section: th first is contained in the opening words of S.7, “Every partner is an agent of the firm and other partners for purpose of the business of the partnership”.

• It governs the position onth as:-(i) between the partners inter se and(ii) as between them and third parties.

• The second limb, the remainder of the section deals only with rights of third parties.

• Where a partner acts as an agent of the firm within the scope of his actual authority, liability will attach to the firm irrespective of the second limb.

• The effect of S.7 can be summarised as follows:-(i) An act done by a partner on behalf of the firm and

within the scope of his actual authority will bind the firm, whether or not the act was done in carrying on the partnership business in the usual way;

(ii) An act done by a partner on behalf of the firm in the course of carrying on the partnership business in the usual way, will prima facie bind the firm, even if the partner acted without authority, unless the third party with whom he dealt knew that lack of authority or did not know or believe him to be a partner.

(iii) An act done by a partner on behalf of the firm otherwise than in the course of carrying on the partnership business in the usual way will prima facie not bind the firm in the absence of express authority or subsequent ratification by the other partners.

• Where a partner has no actual authority to bind the firm, the fact of being a partner confers a prima facie authority to do so provided that three conditions are fulfilled:-

(i) The transaction must be within the scope of the kind of business carried on by the firm;

(ii) that transaction must be effected in the usual way;

(iii) The other party to the transaction must either know or believe that the person acting is a partner and must not know of his lack of authority.

British Homes Assurance Corporation v Paterson

• If a partner does not act in his capacity of an agent but as a principal on his own account, his act cannot be imputed to the partnership firm and he alone is liable for them even though the firm may have benefited by them.

Vasu Devan & Ors v. V.A. Nair

• Mohd. Azmi F.J explained the effect of s.7 and s.8 of Partnership Act 1961 and gave reason why the sale agreement in the case purporting to dispose of the partnership business was null and void.

• In the words of Mohammad Azmi F.J:-

:in this appeal… the sale agreement… entered by [first appellant] with [S] in his capacity as a principal and not sole proprietor of [the partnership firm] and not as an agent.

As such the first appellant’s act could not be imputed to the partnership.

This is consistent with the fact that the purchase money of RM38,000 was never paid to the partnership account.

Clearly in law of which [S] was a founder director, could not enforce the agreement against the partnership.

The agreement is not binding on the form nor was the respondent bound by it as a partner.

• Therefore, the sale agreement purporting to dispose of the partnership business was null and void and of no effect against the partnership.

The kind of Business carried on

• Whether a particular activity is or is not related to the business of the firm is a question of fact and clearly depends upon the type of business involved.

• From the wording of S.7 of the Partnership Act 1961, it is clear that a transaction by one of the partners binds the firm, if it is of a type usually effected ie. The kind of business carried on by the firm, whether or not the firm does in fact usually enter into those sort of transactions.

Merchantile Credit Co. Ltd v. Garrod

• An innocent partner was found liable for a deal involving a motor vehicle, effected by the other partner in contravention of the partnership agreement, because the court found that dealing in motor vehicles was usual for motor garage companies.

Polikinghorne v. Holland

• In this case, the plaintiff soughy to make all the members of a firm of solicitors liable for the losses sustained by her as a result of her dealings with one of the partners.

• Her claim fell under two heads. • In the first place, she had lost a large sum of

money, by altering her investment, after having consulted a partner.

• Secondly, she had been forced to meet her liability as a guarantor of the bank overdraft of a company in which she had become a shareholder on the recommendations of that partner and of which that partner was a director.

• It was held that the firm was liable for the losses on the investment but was not liable to indemnify the guarantee.

By associating themselves, in a partnership with Harold Holland, the respondents made themselves responsible, as principles are for the agent, for all his acts done in the course of his authority as a partner.

The authority was to do on behalf of the firm all things that is part of the business of a solicitor to do.

if, in assuming to do what is in the course of that business, he is guilty of a wrongful act of default his partners are responsible, notwithstanding that it is, done fraudulently for his own benefit (Lloyd v Smith).

But to make his co-partners answerable, it is not enough that a partner utilizes information obtained in the course of his duties, or relies upon the personal confidence won or influence obtained in doing the firm’s business.

Something actually done in the course of his duties must be the occasion of the wrongful act.

The claim for the loss from the transaction in which the appellant guaranteed the overdraft of Secretariat Ltd is disposed off by his consideration.

Harold Holland, doubtless, used the influenced which, as a member of the firm, he had gained over the appellant, and abused the confidence which she reposed in him in that capacity, in order to obtain her suretyship.

But he did nothing which was part of his business to do.

She applied to him doe no advice, she did not instruct him to act on her behalf.

She and he entered into a business engagement as contracting parties, not as solicitor and client.

the wrongful act for default was committed outside the course of his actual and apparent authority as a partner.

But in the first transaction when Turner proposed the investment of the shares of S.A Trust Investment Co. Ltd, she repaired to Harold Holland for advice on the proposal.

She requested his services… She went to him, because he was her solicitor, he was her solicitor because he was a member of the firm… But the question remains whether it was in the province of a solicitor to respond to her request for that advice or assistance.

Solicitors possess, in virtue of their profession, no special skill in the valuation of real property, of shares, or of marketable securities.

It is not in the course of their professional duties to advise on such matters (Scholes v. Brook).

But it is one thing to say that a valuation or expression of his own judgment on a commercial or financial question is not within the scope of a solicitor’s duties, and another to say that when he is consulted on the wisdom of investing in the shares of a company of which his client knows nothing, it is outside his province to inquire into the matter and to furnish his client with the information and assistance which the facts upon the register will give, to point out what inquiries may be made, and if required, to undertake them or invoke the aid of those who will…

On the whole circumstances of this case, the advice and guidance which the appellant sought from Harold Holland in relation to the proposal of Turner, and the proposal of Cox, involved work which it was in the course of a solicitor’s business to perform.”

• A guideline as to what transaction are within the usual scope of business, the court, at times indicated that certain specific acts that are within the usual authority of a partner in a trading partnership.

Bank of Australia v. Breillat

• The Privy Council stated the basic powers of a partner in an ordinary trading firm:

Every partner is, in contemplation of law, the general and accredited agent of the partnership; or, as it is sometimes expressed, each partner is preaepositus negotias societatis; and consequently may bind all the other partners by his acts, in all matters which are within the scope and objects.

Hence if the partnership is of a general commercial nature, he may pledge or sell the partnership property, he may but goods on account of the partnership, he may borrow money, contract debts, and pay debts on account of the partnership, he may borrow money, contract debts, and pay debts on account of the partnership; he may draw, make, sign, indorse, accept, transfer, negotiate, and procure to be discounted, promissory notes, bills of exchange, checks and other negotiable paper, in the name of and on account of the partnership.”

Mandelberg v. Adams

• Australian caseIt was held that in a partnership agreement

between money-lender, where there is no express provision allowing a partner to borrow money on behalf of the partnership, no such power will be implied, because the borrowing of money is not usual in the carrying on that kind of business.

Partners bound by acts on behalf of the firm

• S. 8 Partnership Act 1961 provides that:-An act or instrument relating to the business of the

firm and 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 deed or negotiable instruments.

• Clearly, this section applies mainly to specific problem of negotiable instruments and the problem is whether the partner signing the deed intended to act on his own account or account of the firm.

Asamaju Entreprises v. Malayan Banking Berhad

• Richard Malanjum J held that:- in a partnership it is not necessary that all the partners

must endorse any cheque payable to the partnership. The arrangement between the partners must be

considered. In this case, as managing partner and another partner

were present when the first cheque was presented to the defendant, it was reasonable for the defendant to conclude that the two partners had authority from the plaintiff to present the cheque.

The plaintiff’s claim for conversion failed.

Re Briggs & Co

A two-partner firm of the father and son were being pressed by a creditor, the son agreed to assign the book debts (money owed to the firm) to the creditor in order to play for time.

The father knew nothing of this. This deed of assignment stated that it was to

be made between R.B.Briggs and H.R.Briggs, trading under the style or firm of Briggs & Co.”

But the father’s name was forged by the son.The question arose as to whether the father

was liable on this deed. The court applied an equivalent to s.8 of the

Partnership Act 1961 since it related to the business of the firm and was done in a manner showing an intention to bind the firm and executed by a partner.

• Thus in so far s. 8 of the Partnership Act 1961 relates to acts done and instruments executed by one of the partners, it is merely declaratory of the common law rules governing agency and the master and servant relationship.

• Because the provision applies only when an intention to bind the firm is shown, it can have no application to the doctrine of undisclosed principle.