Contract Liability of the Partnership

Question 1

Do partners have the authority to bind the partnership in dealings with 3rd parties?

Answer 1

Each partner is an agent of the partnership. Therefore, the actions of every partner that are made within THE ORDINARY COURSE OF BUSINESS TO CARRY ON THE PARTNERSHIP’S BUSINESS (e.g., entering into contracts in the partnership’s name) BIND THE PARTNERSHIP.

Question 2

When may a partner’s action made within the ordinary course of partnership business not bind the partnership?

Answer 2

The partnership will not be bound if the partner taking action:

(1) had no authority to act on behalf of the partnership;

AND

(2) the other side (3rd party) has knowledge or notice that the partner lacks authority

Question 3

Are actions taken by a partner outside of the ordinary course of the partnership’s business binding?

Answer 3

Actions taken by a partner that are outside the ordinary course of partnership business are NOT BINDING–UNLESS, the other partners UNANIMOUSLY AUTHORIZE the action with actual or apparent authority