Misapplication of money or property - PA 1890 s. 11
Firm liable when a partner misapplies money or property received within apparent authority, or when firm receives and partner misapplies it while in custody.
In the following cases; namely— Where one partner acting within the scope of his apparent authority receives the money or property of a third person and misapplies it; and Where a firm in the course of its business receives money or property of a third person, and the money or property so received is misapplied by one or more of the partners while it is in the custody of the firm; the firm is liable to make good the loss.
Text in force at .
Source: legislation.gov.uk — The National Archives (legislation.gov.uk), reproduced under licence Open Government Licence v3.0.
What it actually says
This section says a partnership (the firm) is responsible when a partner, while acting in a way that looks normal to outsiders (apparent authority), takes money or property from someone and uses it wrongly. It also covers the situation where the firm itself receives money or property as part of its business, and then one or more partners misuse it while the firm is holding it.
"Apparent authority" means the partner appears to have the power to act for the firm, even if the partner's actual authority is limited. "In the custody of the firm" means the money or property is under the firm's control, for example in the firm's bank account or office.
The result is the same in both cases: the firm must compensate the person who lost the money or property. The firm cannot escape liability simply because the partner acted dishonestly or outside their actual instructions.
When it applies
- A client gives a deposit to a partner of a law firm to hold in escrow; the partner spends the money on personal expenses.
- A customer pays a construction partnership for materials; one partner uses the payment to gamble instead of buying the materials.
- A tenant pays rent to a letting agency partnership; a partner pockets the rent and does not pass it to the landlord.
- An investor entrusts funds to a partner of an investment firm, who then transfers the funds to their own account.
What this section does not say
- This section does not cover a partner stealing property that belongs to the firm itself, because that is not money or property received from a third person.
- It does not cover a partner acting entirely outside their apparent authority, such as a real estate partner signing a contract for a completely unrelated business without any appearance of authority.
- It does not cover misapplication by an employee of the firm who is not a partner.
- It does not cover criminal liability for theft or fraud; this provision only decides civil liability of the firm.
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This page reproduces the text of PA 1890 s. 11 in force at the date shown and explains it in general terms. It is not legal advice and takes no account of the circumstances of your case, which can change the answer completely. For a live dispute, for limitation periods, and before taking any step in court, consult a qualified lawyer in England and Wales.