NATIONAL LAW UNIVERSITY AND JUDICIAL

ACADEMY

B.A.,LL.B(HONS.)
SEMESTER III

ASSIGNMENT FOR

305. SPECIAL CONTRACT

FACULTY IN CHARGE: PROF. DAISY CHANGMAI

SUBMITTED BY
HIMANSHU KUMAR
(SM0120067)

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LAW OF PARTNERSHIP IS AN EXTENSION OF LAW OF
AGENCY

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 PREFACE

I feel great pleasure in presenting this assignment entitled “Law of Partnership is an extension
of law of Agency” under study. I hope that the readers will find this assignment interesting and
the assignment in its present form shall be well received by all. The assignment contains the
detailed research of the Law of Partnership and how it is an extension of Agency.

This assignment deals with the study of Principal-Agent relationship and its implications in
daily business process. It also deals with some land mark cases related to concept of Agency
and what is the judicial approach in it.

Every effort is made to keep the assignment error free. I would gratefully acknowledge the
suggestions to improve the paper so as to make it more useful.

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 AKNOWLEDGEMENTS

On the successful completion of this project, I would like to thank our worthy Prof. Daisy
Changmai, for helping me with the research and always attending my queries and doubts
regarding the same. I sincerely thank her for all the support and encouragement without which
the completion of this project could not have been possible.

I would like to convey my gratitude towards our friends and batch mates who have rendered
us their valuable time and without their help this assignment would not have been in its present
shape and form. No work is complete with solo endeavour , neither is ours. I thank each and
every non-teaching staff of NLUJAA, for their unconditional support.

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 Table of Contents

PREFACE ..................................................................................................................... 3

AKNOWLEDGEMENTS ............................................................................................ 4

INTRODUCTION ........................................................................................................ 6

OBJECTIVES AND PURPOSE OF THE STUDY ................................................... 7

PARTNERSHIP & AGENCY: .......................................................................................... 8

PARTNERSHIP: AN EXTENSION OF AGENCY: ............................................................... 8

CONCLUSION ........................................................................................................... 11

REFERENCES ........................................................................................................... 12

BOOKS ..................................................................................................................... 12
WEBSITES ............................................................................................................... 12

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 INTRODUCTION

One of the forms in which business can be carried on is ‘partnership’, where two or more
persons join together to form the partnership and run the business. Partnership is a relationship
resembling a legal partnership and usually involving close cooperation between parties having
specified and joint rights and responsibilities.1 It is a formal arrangement by two or more parties
to manage and operate a business and share its profits. Basically, Partnership is an agreement
between two or more persons who have agreed to share profits of the business carried on by all
or any one of them acting upon all.2 There must be an agreement entered into by all the parties
concerned, the agreement must be to share profits of the business, and the business must be
carried on by all or any of the person concerned for all.3 The Indian Partnership Act, 1932 is
an act enacted by the Parliament of India to regulate partnership firms in India. In a broad
sense, a partnership can be any endeavour undertaken jointly by multiple parties. Governments,
non-profit organisations, businesses, and private individuals may be involved. A partnership's
objectives can also differ greatly.

When one party delegates some authority to another party whereby the latter performs his
actions in a more or less independent fashion, on behalf of the first party, the relationship
between them is called an agency. Agency can be express or implied. An ‘Agent’ as “a person
employed to do any act for another or to represent another in dealings with third person”. The
person for whom such act is done or who is represented is called the “principal”. The
relationship between the agent and the principal is called “agency”.4 The common law principle
in operation is usually represented in the Latin phrase, “qui facit per alium, facit per se , i.e.
the one who acts through another, acts in his or her own interests” and it is a parallel concept
to vicarious liability and strict liability in which one person is held liable in Criminal law or
Tort for the acts or omissions of another.

1
Merriam-Webster.
2
The Partnership Act, 1932, $ 2, No. 9, Acts of Parliament, 1932 (India).
3
Helper Girdharbhai v. Saiyed M Kadri & Ors, AIR 1987.
4
The Indian Contract Act, 1872, $ 182, No. 9, Acts of Parliament, 1872 (India).

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OBJECTIVES AND PURPOSE OF THE STUDY

The study about “Law of Partnership is an extension of law of Agency” will help the students
to know about what is Partnership and the law of Agency. How these to concepts are basically
interrelated to each other.

By the end of the study students will be having idea about how the Law of Partnership is an
extension of law of Agency.

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 LAW OF PARTNERSHIP IS AN EXTENSION OF LAW OF
AGENCY

Partnership & Agency:

Partnership is an agreement between two or more persons who have agreed to share profits of
the business carried on by all or any one of them acting upon all.5 Persons who have entered
into partnership with one another are individually called partners and collectively called a firm
and the name under which their business is carried on is called firm name. Partnership is thus
Invisibility which binds the partners together and firm is the visible form of those partners who
are thus bound together.6 While when one party delegates some authority to another party
whereby the latter performs his actions in a more or less independent fashion, on behalf of the
first party, the relationship between them is called an agency.

Partnership: An extension of Agency:

There are five essentials of the partnership:
I. Agreement :
There has to be an agreement between two or more people to enter into partnership.
The agreement is the source of the partnership. It is not necessary that the agreement
be formal or written.

II. Agreement between two or more persons:

There has to be an agreement between two or more person. The term ‘person’ as used
in Sec.4 does not include a firm. This is because a firm is not a separate legal entity.

III. Business:
They must intend to start or do a business. A business is a very wide term and includes
any trade, occupation, or profession.

5
Supra note at 2.
6
The Partnership Act, 1932, $ 4, No. 9, Acts of Parliament, 1932 (India).

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 IV. Sharing of Profits:
For a valid partnership to exist, the partners must agree to share the profits according
to their investment.

V. Business carried on by all or any of them acting for all (Mutual Agency):
The firm must be managed by the partners and thus when any partner acts; he acts on
behalf of the firm and thus on behalf of other partners. Therefore, a partner is considered
an agent of others.

As mentioned above there are five essential characteristics of partnership. Because such an
agreement may not be able to carry on business and may be created for charitable or social
purposes, an association of two or more persons entering into an agreement to share profits
may not necessarily determine partnership. Similarly, a simple profit sharing arrangement
between joint property owners may exist, but this does determine the existence of a partnership.
Even a simple declaration that the parties will be partners in business does not imply that they
will be partners in law. A person who claims to be a partner is not a partner in law, even if he
may be liable to third parties.

Thus, the true test for determining the existence of partnership is Agency and Authority. The
difference between a partnership and a co-ownership is the agency relation. It was decided that
in circumstances where both losses and gains are shared, the presumption of partnership grows
stronger, though not conclusive. It is not enough to share earnings and contribute to losses in a
partnership; agency is also required. It was decided that a person's receipt of a share of a
company's earnings is prima facie evidence that he is a partner, but that this is not a decisive
test. The question whether a person is a partner or not therefore depends in nearly all cases
upon whether or not he has the authority to act for other partners and whether or not other
partners have the authority to act for him. From the above discussion we can conclude that
Partnership is the branch of the law of agency.

Section 18 of the Partnership Act further clarifies and confirms this. It states:
“Subject to the provisions of this Act, a partner is the agent of the firm for the purposes of the
business of the firm.”

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Hence, the firm's conduct will bind the firm as well as its other partners. In the case of Cox v.
Hickman7:
Benjamin Smith and Josiah Smith are business carriers as corn merchants and the
ironworkers. In their lease of 21 years, they got credit without the concern of the other trustees.
Hence, the House of Lords held that the creditor is not liable as he is not a principal here.
Smith, trustees and also the trust which acts as an agency is liable.

Also in the case of Hirabai v. Bhagirath8:

The managing owner of an agency gave that agency to the defendant for the 15 years for its
maintenance on a temporary basis and kept on receiving the profits. Hence, the Bombay high
court held that there is no agency and mere sharing of profit does not make one, a partner.

Thus, from the above discussions it can be concluded that “the Law of Partnership is an
extension of the Law of Agency.”

7
(1860) 8 H.L. 268
8
AIR 1946 Bom 174

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 CONCLUSION

“Agency” may in one sense be considered the broader term because "Partnership" is only a
form of “Agency.” An agent never acts for himself but only for his principal; a partner is both
a principal for his own interest and an agent for the firm and the others. The liability of one
partner for the acts of his co-partner is in truth the liability of a principal for the acts of his
agent. Where two or more persons are engaged as partners in an ordinary trade each of them
has an implied authority from the other to bind all by contracts entered into during the course
of business. Every partner in trade is the agent of his co-partner; all are, therefore, liable for
the ordinary trade contract of the other. Therefore, we can conclude that the “Law of
Partnership is an extension of Law of Agency.”

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 REFERENCES

BOOKS
• Dr. S.K. Kapoor, Contract – II, Central Law Agency, Twelfth Edition, 2012
• S.D. Singh & J.P.Gupta, Law of Partnerships in India, Orient Law House, Third
Revised Edition,(1988), at p.8.
• Justice K. Sukumaran, Mulla The Indian Partnership Act, Pollock & Mulla, Lexis Nexis
Butterworths, Sixth Edition.
• H.R. Gokhale & Y.S. Chithale, The Sale of Goods & Partnership Act, Pollock & Mulla,
Tripathi, Fourth Edition.
• G.C.V. Subba Rao’s , Special Contracts, s.gogia & company, 12th edition 2012

WEBSITES
• www.studymode.com/.
• www.hanumant.com/.
• https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf.
• https://www.investopedia.com/terms/p/partnership.asp.
• https://blog.ipleaders.in/law-of-agency-what-is-principal-agent-relationship/.

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