Mercantile Credit Co Ltd v Garrod
Rule established
A partner's implied authority is measured by what is usual in a business of that kind as it appears to outsiders. A restriction contained in the partnership agreement but unknown to the third party does not limit the firm's liability.
Facts
- Garrod and Parkin were partners in a business of letting garages and repairing motor vehicles.
- Garrod was a sleeping partner who took no part in the business and had contributed capital.
- The written partnership agreement expressly provided that the business did not include the buying and selling of cars.
- Parkin sold a car to the plaintiff finance company for a sum of money, representing that he had title to it.
- Parkin had no title to the car.
- The plaintiff, having lost the car to the true owner, sued Garrod as a partner for the money paid.
Issue
- Whether the sale of the car was an act done in the usual way of carrying on the firm's business, so as to bind the sleeping partner, notwithstanding an express exclusion of car dealing in the partnership agreement.
Held
- Garrod was liable. Mocatta J held that the question was not what the partners had agreed between themselves but what the business appeared to be to the outside world. The plaintiff was concerned with the nature of the business as carried on and held out. Buying and selling cars is an ordinary incident of a garage business. The private restriction, being unknown to the plaintiff, could not be relied on against him.
Ratio Decidendi
Liability to third parties rests on the objective appearance of the business, not on the partners' internal bargain. The test is whether the act was of a kind done in the usual course of business of that description. If it was, the partner had implied authority as regards outsiders, and the firm is bound. The deed may give the innocent partner a remedy against his co-partner, but it does not shift the loss onto the third party who dealt in good faith.
How to use it in an exam
- Direct authority on S.19 of the Indian Partnership Act 1932 (implied authority of a partner as agent of the firm) read with S.18 and S.22.
- Use to make the central point that a sleeping partner is fully liable to third parties for acts within the firm's apparent business.
- Contrast with S.20, which allows partners to restrict implied authority: such a restriction binds a third party only if he had notice of it.
- Also contrast with S.19(2), which lists acts a partner has no implied authority to do at all, such as submitting a dispute to arbitration, opening a bank account in his own name for the firm, compromising a claim, or transferring immovable property of the firm.
- Anchor the standard for judging usual course: the trade or business of the kind carried on by the firm, viewed from the outside.
Source
Source: [1962] 3 All ER 1103; leading authority that internal restrictions do not cut down implied authority as against outsiders; citation and bench checked against Indian Kanoon and reported sources, audit of 12 August 2026
This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.