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CA Foundation · Business Laws · The Indian Partnership Act, 1932

Ishaan, Jyoti and Kunal are partners. Ishaan has authority to buy goods, but the partners agreed that any single purchase above Rs 1,00,000 needs consent of all. Ishaan, without consent, buys goods worth Rs 3,00,000 from Lakshmi Traders, who knows nothing of this restriction and the goods are for the firm's usual business. Later the firm refuses to pay. What is the position?

The firm is liable to Lakshmi Traders for the full amount, because a private restriction on a partner's authority does not bind a third party who is unaware of it and deals in the usual course of business. Ishaan must indemnify the firm for any resulting loss.

  1. AThe firm is not liable, as the internal restriction was breached
  2. BThe firm is liable to Lakshmi Traders, and Ishaan must indemnify the firm for any loss causedCorrect
  3. COnly Ishaan is liable to Lakshmi Traders; the firm is not
  4. DThe firm is liable only for Rs 1,00,000

Explanation

A restriction on implied authority does not bind outsiders who do not know of it. The purchase is in the usual course of business, so the firm is bound to pay the full Rs 3,00,000. As between the partners, Ishaan acted against the agreement and must make good any loss to the firm. Option A ignores that Lakshmi had no notice.

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