Ans.
Partner by estoppel
or holding out:
The circumstances under which a person may be held liable
for the acts of a firm, without being its partners
Doctrine of ‘holding
out’
Holding out means “to represent”. Strangers, who hold
themselves out or represent themselves to be partners in a firm, whereby they
induce others to give credit to the partnership are called “partners by holding
out” or partnership by estoppel. The object of the above stated rule,
obviously, is to prevent frauds to which creditors would otherwise be exposed.
The principle of ‘holding out’ has been recognised by
Sec. 28 of the Indian Partnership Act.
“Anyone who by words spoken or written or by conduct
represents himself, or knowing permits himself to be represented, to be a
partner a firm, is liable as partner in that firm to anyone who has on the
faith of any such representation given credit to the firm, whether the person
representing himself or represented to be a partner does or does not know that
the representation has reached the person so giving credit”.
In order to hold a person liable as a partner-though in
fact he may not be one on the basis of holding out, it must be established:
(a) That by words or conduct he represented himself to be
a partner or knowingly permitted himself to be represented as a partner to
anyone and,
(b) That the other person acting on the faith of the
representation gave credit to the firm.
Effects of holding out: The partner by estoppel or holding
out becomes personally liable for the acts of the firm. But he does not become
a partner in the firm and is not entitled to any rights or claim upon the firm.
An outsider, who has given credit to the firm thinking him to be a partner can
hold him liable as if he is a partner in that firm.
Example: A retired businessman of some repute assumed the
honorary presidentship of the business of certain persons who requested him for
the same. Held, he was liable for the debts of the firm to those who gave
credit to the firm in the bona fide belief that he was a partner. [Lake v. Duke
of Argyll, (1844) 6 Q.B. 477].
