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Ravi, a partner of a firm, borrows money on his own credit by giving his own promissory note for the same, but he subsequently uses the proceeds of the note in the partnership concern of his own free will without any reference to the lender to do so. Which of the following is/are true?
- a)The firm would be liable, provided the lender did not know the limitation on the authority of Ravi
- b)The firm is not liable for the loan
- c)Both (a) and (b) are true
- d)None of the above
Correct answer is option 'C'. Can you explain this answer?
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Ravi, a partner of a firm, borrows money on his own credit by giving h...
Correct Answer :- c
Explanation : The partnership is not liable for the loan incurred by a partner upon his credit by giving his own promissory note where the partner uses the money in the partnership concern of his own free will and without any contract with the lender to do so. The fact that the partnership obtained the benefit of the loan is only a piece of evidence to show that he entered into the transaction by a member of the firm and not further because it is not the ultimate use by the firm of money borrowed as above that makes the firm liable.
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Ravi, a partner of a firm, borrows money on his own credit by giving h...
Liability of the firm for loan borrowed by a partner on his own credit:
When a partner of a firm borrows money on his own credit by giving his own promissory note for the same, the firm may or may not be liable for the loan. It depends on certain conditions, as explained below:
Condition 1: The lender knows the limitation on the authority of the partner
- If the lender knows that the partner has no authority to borrow on behalf of the firm, then the firm would not be liable for the loan.
- This is because the lender cannot hold the firm responsible for the acts of the partner done without authority.
Condition 2: The lender does not know the limitation on the authority of the partner
- If the lender does not know that the partner has no authority to borrow on behalf of the firm, then the firm would be liable for the loan.
- This is because the lender can assume that the partner has the authority to borrow on behalf of the firm, and the firm should honor the obligations arising from such borrowing.
Application of conditions to the given scenario:
In the given scenario, Ravi, a partner of a firm, borrows money on his own credit by giving his own promissory note for the same. However, he subsequently uses the proceeds of the note in the partnership concern of his own free will without any reference to the lender to do so. Now, we need to determine whether the firm is liable for the loan or not, based on the two conditions mentioned above.
- Condition 1: The lender knows the limitation on the authority of Ravi
If the lender knew that Ravi had no authority to borrow on behalf of the firm, then the firm would not be liable for the loan. However, the given scenario does not provide any information about whether the lender knew about Ravi's authority or not. Hence, we cannot conclude anything based on this condition.
- Condition 2: The lender does not know the limitation on the authority of Ravi
If the lender did not know that Ravi had no authority to borrow on behalf of the firm, then the firm would be liable for the loan. This is because the lender can assume that Ravi had the authority to borrow on behalf of the firm, and the firm should honor the obligations arising from such borrowing. In the given scenario, it is not mentioned whether the lender knew about Ravi's authority or not. Hence, we cannot conclude anything based on this condition either.
Therefore, the correct answer is option (c) - Both (a) and (b) are true, as we cannot determine the liability of the firm based on the given information.
When a partner of a firm borrows money on his own credit by giving his own promissory note for the same, the firm may or may not be liable for the loan. It depends on certain conditions, as explained below:
Condition 1: The lender knows the limitation on the authority of the partner
- If the lender knows that the partner has no authority to borrow on behalf of the firm, then the firm would not be liable for the loan.
- This is because the lender cannot hold the firm responsible for the acts of the partner done without authority.
Condition 2: The lender does not know the limitation on the authority of the partner
- If the lender does not know that the partner has no authority to borrow on behalf of the firm, then the firm would be liable for the loan.
- This is because the lender can assume that the partner has the authority to borrow on behalf of the firm, and the firm should honor the obligations arising from such borrowing.
Application of conditions to the given scenario:
In the given scenario, Ravi, a partner of a firm, borrows money on his own credit by giving his own promissory note for the same. However, he subsequently uses the proceeds of the note in the partnership concern of his own free will without any reference to the lender to do so. Now, we need to determine whether the firm is liable for the loan or not, based on the two conditions mentioned above.
- Condition 1: The lender knows the limitation on the authority of Ravi
If the lender knew that Ravi had no authority to borrow on behalf of the firm, then the firm would not be liable for the loan. However, the given scenario does not provide any information about whether the lender knew about Ravi's authority or not. Hence, we cannot conclude anything based on this condition.
- Condition 2: The lender does not know the limitation on the authority of Ravi
If the lender did not know that Ravi had no authority to borrow on behalf of the firm, then the firm would be liable for the loan. This is because the lender can assume that Ravi had the authority to borrow on behalf of the firm, and the firm should honor the obligations arising from such borrowing. In the given scenario, it is not mentioned whether the lender knew about Ravi's authority or not. Hence, we cannot conclude anything based on this condition either.
Therefore, the correct answer is option (c) - Both (a) and (b) are true, as we cannot determine the liability of the firm based on the given information.
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Ravi, a partner of a firm, borrows money on his own credit by giving his own promissory note for the same, but he subsequently uses the proceeds of the note in the partnership concern of his own free will without any reference to the lender to do so. Which of the following is/are true?a)The firm would be liable, provided the lender did not know the limitation on the authority of Ravib)The firm is not liable for the loanc)Both (a) and (b) are trued)None of the aboveCorrect answer is option 'C'. Can you explain this answer?
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Ravi, a partner of a firm, borrows money on his own credit by giving his own promissory note for the same, but he subsequently uses the proceeds of the note in the partnership concern of his own free will without any reference to the lender to do so. Which of the following is/are true?a)The firm would be liable, provided the lender did not know the limitation on the authority of Ravib)The firm is not liable for the loanc)Both (a) and (b) are trued)None of the aboveCorrect answer is option 'C'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Ravi, a partner of a firm, borrows money on his own credit by giving his own promissory note for the same, but he subsequently uses the proceeds of the note in the partnership concern of his own free will without any reference to the lender to do so. Which of the following is/are true?a)The firm would be liable, provided the lender did not know the limitation on the authority of Ravib)The firm is not liable for the loanc)Both (a) and (b) are trued)None of the aboveCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Ravi, a partner of a firm, borrows money on his own credit by giving his own promissory note for the same, but he subsequently uses the proceeds of the note in the partnership concern of his own free will without any reference to the lender to do so. Which of the following is/are true?a)The firm would be liable, provided the lender did not know the limitation on the authority of Ravib)The firm is not liable for the loanc)Both (a) and (b) are trued)None of the aboveCorrect answer is option 'C'. Can you explain this answer?.
Ravi, a partner of a firm, borrows money on his own credit by giving his own promissory note for the same, but he subsequently uses the proceeds of the note in the partnership concern of his own free will without any reference to the lender to do so. Which of the following is/are true?a)The firm would be liable, provided the lender did not know the limitation on the authority of Ravib)The firm is not liable for the loanc)Both (a) and (b) are trued)None of the aboveCorrect answer is option 'C'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Ravi, a partner of a firm, borrows money on his own credit by giving his own promissory note for the same, but he subsequently uses the proceeds of the note in the partnership concern of his own free will without any reference to the lender to do so. Which of the following is/are true?a)The firm would be liable, provided the lender did not know the limitation on the authority of Ravib)The firm is not liable for the loanc)Both (a) and (b) are trued)None of the aboveCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Ravi, a partner of a firm, borrows money on his own credit by giving his own promissory note for the same, but he subsequently uses the proceeds of the note in the partnership concern of his own free will without any reference to the lender to do so. Which of the following is/are true?a)The firm would be liable, provided the lender did not know the limitation on the authority of Ravib)The firm is not liable for the loanc)Both (a) and (b) are trued)None of the aboveCorrect answer is option 'C'. Can you explain this answer?.
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