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Partnership is nothing but notional

Extension of Agency

Submitted by
Tishita Tyagi

Class 2019-24 Programme of Study BBALLB

Division B Roll No. 19010224175

of Symbiosis Law School, NOIDA

Symbiosis International(Deemed University)
January, 2020
Under the guidance of
Mr. Nitin Kumar
The Project entitled “Partnership is nothing but notional
Extension of Agency” submitted to the Symbiosis Law
School, NOIDA for Special Contract as part of internal
assessment is based on my original work carried out under the
guidance of_Mr. Nitin Kumar from________ to __________.
The research work has not been submitted elsewhere forward
of any degree. The material borrowed from other sources and
incorporated in the submission has been duly acknowledged.
I understand that I myself could be held responsible and
accountable for plagiarism, ifany, detected later on.

Signature of the candidate

Agency as defined under the “Indian Contract Act” is an “agent” who is a person employed
do an act for the other person or to represent a third party in dealings. The person for whom
act is done is called “principal”. As the law states in sections (182-189) the essential role of
agent’s position is his/her power of making the principal answerable to the third party. An
agency is a relationship arising from mutual display of permission that an agent should act on
behalf of and is to the control of principal, in Indian Contract Act “agency” is defined under
Section 182 and it also highlights all types and essentials of agency. Partnership as defined
under the “The Indian Partnership Act” is relationship between two or more person who
to share the profits of a business and run by all the partners or by one or more persons acting
for them all. A partnership is contractual, so a partnership results from a contract or an
agreement between two or more persons. A partnership cannot be made from the operation of
law or can be inherited. It has to be a voluntary agreement between partners. Under the Indian
Partnership Act Section 18 it is stated that “a partner is the agent of the firm for the purpose
business and work related to it in the firm”. A partnership is said to be an association between
partners who are in an agreement to share the profits and losses of the business. The business
can be carried on by all of them or any one of them acting for all. This suggests that a partner
can be an agent for others. Section 18 clarifies that a partner is an agent of the firm for the
purpose of business of the firm. This is one of the most important element of a partnership.
Hence, a partner accepts the character of the principal and the agent. Therefore, if the agent
acts for himself/herself or in his/her own interest in the common concern of the partnership,
then he/she is acting as a principal. On the other hand, if he/she acts in the best interest of his
partner, then he/she is acting as an agent. It is important to note that a partner is an agent only
for the purpose of business of the company. He/she cannot be an agent for any transactions
dealings between the acting partners themselves. This part highlights on the mere relationship
agency and partnership and how they are both co-related to each other and play an important
role with the functioning of company and firms.
Agency defined under the Indian Contract Act, agency is dependant on the nature of
relationship. The American Jurisprudence relates to a case in which they held that the use of
words “agency agreement” and “agent” does not necessarily mean that there is an
of relationship of agency in a legal sense. An agent has the authority to perform every act and
work, which are explicitly instructed to him/her but he/she also has an implied authority to do
acts which are incidental to the main role and work. Section 189 of the Indian Contract Act
states that an agent has powers to do all acts for the interest of protecting the principal in an
emergency as would be done by the person of prudence for their own case. An agency is
either orally or through writing but it is also be created through subsequent ratification of the
act done by one person for the other. The duties of an agent depend on the type of work
to him/her by the principal which include, for conducting of the business of the principal
according to the instructions given by the principal, to manage business of the agency with
utmost skill as generally possessed by a person who is in similar business and to act with
amount of diligence, to make compensation to the principal in any case of direct
of his/her own neglect for want of skill, keep track of proper accounts to his principal on will
and to make payment to his/her principal whole sum received by doing anything on his/her
part, though during the period of the agency business and without any previous consent of the
principal, that is in the interest of his/her own doing so he/she is liable to pay to the principal
for the benefit, which may have resulted from the transaction.
Section 4 of Indian Partnership Act, 1932 defines that “Persons who 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”. An association of two or more persons entering into an agreement to share
profits is not necessarily determined as a partnership because such agreements will not be
to carry on a business and may be used for social objects. Similarly, just sharing of profits
exist between the joint owners of the property and therefore this will not make sure that there
is an existence of partnership. Even a small statement that the parties will be partners
eventually, will not identify them as partners in law. It is the element of agency which
differentiates a partnership from co-ownership. It was observed in various cases that where
and profit is shared, the presumption of the existence of partnership becomes better for all.
Agency is essential as an element of partnership by just mixing and sharing of profits and
contribution to losses is not called to be sufficient.

1. Case Law
Cox Vs Hickman 186017:
Facts -
Benjamin Smith and Josiah Timmis Smith worked together on a business as iron workers and
corn merchants and the name of their company was B Smith & Son. They had taken a loan of
alot of money from the creditors and later a meeting was held, amongst whom were Cox and
Wheat croft. A deed of arrangement was executed by more than six-sevenths in number and
value of the creditors. The trusts were enumerated and the lease was fixed at 21years. They
were to carry on business under the name of “The Stanton Iron Company”. The deed also
contained a clause which prevented them from suing the Smiths for existing debts. Cox never
acted as trustee, and Wheatcroft resigned after six weeks after which no trustee was
The goods for the business were provided by Hickman who drew 3 bills of exchange, which
the business accepted but did not honour. The suit was first tried in front of Lord Jervis who
ruled in favour of the defendants. The action was then taken to the Exchequer Chamber
three judges wanted to uphold the judgment and the other three were for reversing it.

Issues -
-Whether there is a partnership between the traders who were in essence the
creditors of the firm?
-Wheatcroft were the trustees, he would have realized that Cox had never
been a trustee and Wheatcroft had resigned.

Judgement –
The deed gave special powers to the creditors. They were given the choice by
majority regarding whether or not the trade should be continued and making rules
and regulations as to the carrying out of that trade, which are the powers that
partners have. The creditors, however, did not carry out the business of the trade when they
could have but let the trustees do the same. By this act of theirs, they did not make
partners of the trade. If they had carried out the business they could have made sure none of
the trustees accepted the bill of exchange as they would be the principals.
The deed in this case is merely an arrangement between the creditors and the
Smiths, to repay the creditors out of existing and future profits. The relationship
between the creditors and debtors was not enough to constitute a relationship
between a principal and agent. Trustees are liable as they are the agent by the
contract but the creditors are not the principals of the trustees.

2. Article Review
Law and Economics of Agency and Partnership
Oxford Handbook of Law and Economics, Forthcoming
George M. Cohen
University of Virginia School of Law
The article is written in the reference of the University of Virginia of Law. It throws shade on
the relationship of Agency and Partnership and how they are dependent and co-related to
other. The starting is done by the introduction which talks about how agency and the general
partnership are the intermediate steps between contract and complex business organization.
The article offers an economic theory of how the law of agency and partnership facilitates
economic transactions using these two devices. It also mentions how agency serves different
and overlapping view of economics and law. It also talks about the most important type of
collusion addressed by agency law is that between the principal and the agent and how
law recognizes and addresses at least seven different ways that principal can collude with its
agent to the detriment of third parties. To conclude, the article has attempted to explain how
agency and partnership bridge the gap between contract and the firm. Both agency and
partnership facilitate contracting, the first by enabling contractual intermediation, and the
second by enabling the pooling of resources in the joint pursuit of an enterprise. The main
concern of agency law, however, is to address the problems caused by moving from the two-
party contractual relations to three-party relationships, which creates the potential for any two
parties to collude against the interests of the third.

It can be said that, a partnership is a form of business. It has at least two members
who joined capital or services for prosecuting of some business. Partnership is very
important because in day to day activities we enter into partnership agreements and
by making partners big goals are achieved with the help of joint and more number of
people. The joint efforts of all the member results in successful accomplishment of
tasks and that task or job can be easily afforded. Division of work leads to increase
in efficiency at work among different partners. So in my view Partnership is a good
form of doing business than a company which is owned by a single person.
Partnership is one of the oldest forms of business relationships. Though limited
liability companies have replaced partnership firms in complex businesses,
partnerships are still preferred by professionals and small trading and business
enterprises in India and abroad. General partners are also jointly and severally
liable for tortuous acts of co-partners. Each partner has the exposure of their personal assets
being appropriated and liquidated to meet partnership dues. These are statutory position,
cannot be altered by contract inter-se, though at times subterfuges are resorted to by
unscrupulous partners to avoid personal liability. General partnership holdings are not easy to
transfer; typically all other partners have to agree. Yet partnership is preferred in India,
of the ease of formation and lack of compliances involved.