PA 1890 s. 5

One partner's acts bind the firm: PA 1890 s. 5

A partner's usual business acts bind the firm under PA 1890 s. 5 unless they lack authority and the other party knows it or does not know they are a partner.

Official text PA 1890 s. 5 — United Kingdom

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 business of the kind carried on by 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.

Text in force at .

Source: legislation.gov.uk — The National Archives (legislation.gov.uk), reproduced under licence Open Government Licence v3.0.

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What it actually says

Section 5 is why one partner's signature can commit the others. Every partner is an agent of the firm and of the other partners for the purpose of the partnership business, and the acts of every partner who does any act "for carrying on in the usual way business of the kind carried on by the firm" bind the firm and the partners.

There are two escape routes, and the section requires both parts of the second one. The firm is not bound if the partner in fact had no authority to act in the particular matter and the person he was dealing with either knew that he had no authority, or did not know or believe him to be a partner. So an internal restriction - an agreement that no partner may commit the firm above a certain sum - protects the firm only against someone who knew about it. Against a supplier who knew nothing, the internal limit is worth nothing.

The words "in the usual way business of the kind carried on by the firm" do most of the filtering. An order for stock that the firm ordinarily buys is within it; a purchase of something the firm has no use for is not. The test is objective and judged from the outside, which is why it is the third party's knowledge, not the partners' intentions, that decides. Where the act is outside the usual way of the firm's business, section 6 and section 7 deal with the position, and section 8 allows the partners to give notice that the firm will not be bound by acts of a particular partner - notice that binds only those who have it.

When it applies

  • One partner signing a supply contract or a lease the others knew nothing about.
  • A partner ordering stock on credit in the firm's name shortly before a falling-out.
  • A partnership agreement limiting each partner's authority to a fixed sum.
  • A supplier suing all the partners for a debt only one of them incurred.
  • A partner borrowing in the firm's name for a purpose unconnected with the business.

What this section does not say

  • It does not bind the firm to acts outside the usual way of its business. The act must be for carrying on in the usual way business of the kind the firm carries on.
  • An internal limit on authority is not enough on its own. It only protects the firm against a third party who knew of it, or who did not know or believe the person was a partner.
  • It does not make the partner who acted personally blameless as between the partners. That is a matter for the partnership accounts and for sections 24 and 30.
  • It does not cover a partner using the firm's credit for private purposes, which is dealt with by section 7.
  • It does not apply to former partners, whose position is governed by sections 17 and 36.

Worked examples

Invented situations, written to show how the wording bites. They are not real cases, not judgments and not precedent, and nothing here predicts what would happen in yours.

Illustrative example

One partner signs a three-year supply contract in the firm's name without telling the other. The firm ordinarily buys the same goods, though never on such a long commitment. The other partner wants out of it.

How the wording applies

Every partner is an agent of the firm, and acts done for carrying on in the usual way business of the kind the firm carries on bind the firm. The escape has two parts and both are needed: the partner must in fact have had no authority, and the third party must have known that, or not have known or believed him to be a partner. The fact that decides it here is what the supplier knew - an internal understanding between the partners is worth nothing against someone who never heard of it.

How the parties settled it

The partners accept the contract binds the firm, agree to negotiate a shorter term with the supplier, and record in writing that neither will commit the firm beyond a set value or twelve months without the other's signature.

Illustrative example

A partner orders a large quantity of stock on credit in the firm's name days before announcing they are leaving. The stock has nothing to do with anything the firm has ever sold.

How the wording applies

The filter is the phrase 'in the usual way business of the kind carried on by the firm'. An order for stock the firm ordinarily buys is within it; a purchase of something the firm has no use for is not, and the test is objective, judged from the outside. The fact that decides whether the firm is bound is therefore what this firm visibly trades in, not the departing partner's intentions.

How the parties settled it

The departing partner takes over the order personally and indemnifies the firm against the supplier's claim, with the indemnity recorded in the dissolution agreement.

Related sections

PA 1890 s. 9 Partners Are Jointly Liable for Firm Debts: PA 1890 s. 9 PA 1890 s. 24 Equal profits split, no salary rules: PA 1890 s. 24 PA 1890 s. 1 Business in common with a view of profit: PA 1890 s. 1 PA 1890 s. 6 Partners bound by acts on behalf of firm – PA 1890 s. 6

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We copy this text from the official publisher and re-check it against that source on every page load, but we cannot guarantee it is complete, current or free of error, and we accept no liability for any reliance on it. An amendment can take effect before a consolidation catches up. The publisher's own copy is linked below; where the two differ, it is the official one that counts.

This page reproduces the text of PA 1890 s. 5 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.

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