Partner's Ability to Bind Partnership to Contracts

Question 1

What is the general rule re: partner’s ability to bind the partnership to third parties?

Answer 1

RUPA provides that each partner is the agent of the partnership

THUS –> the rules for binding the partnership roughly follow agency law

Question 2

Under what theories may a partner bind the partnership?

Answer 2

1. actual authority

2. apparent authority

Question 3

What is “actual authority”?

Answer 3

“Actual Authority” is the authority that the partner reasonably believes he has based on communications with the partnership

Question 4

Where does “actual authority” generally come from?

Answer 4

The partnership agreement or vote of the partners.

Question 5

Under what circumstances can a partner bind a partnership under “apparent authority”?

Answer 5

As agents of the partnership, a partner has “apparent authority” to bind the partnership as to any contract within the scope of the partnership’s business, or business of the kind of the partnership, UNLESS:
- the third party KNEW or RECEIVED NOTIFICATION of the lack of authority

Question 6

With regards to a partner binding a partnership via “apparent authority”, what constitutes “knowledge” by the 3rd party that there was no authority?

Answer 6

Under RUPA –> “knowledge” means actual subjective knowledge. It is irrelevant whether the 3rd party should have known that the partner lacked authority

Question 7

With regards to a partner binding a partnership via “apparent authority”, what constitutes “notification” that there was no authority?

Answer 7

Under RUPA –> notification is effective when:

(1) it comes to a person’s attention; OR
(2) is duly delivered

THUS –> if it was duly delivered, there is no apparent authority even if notice was never read

Question 8

With regards to “apparent authority” and the transfer of partnership property, what three categories arise to determine the outcome?

Answer 8

1. Property titled in partnership’s name
2. Property titled in one or more partner’s name (who are identified as partners), but partnership is not named
3. Partnership Interest is Not indicated

Question 9

What is the rule re: transfer of property if property is titled in partnership’s name?

(“apparent authority”)

Answer 9

1. Transfer by any partner is effective
2. If partner lacked authority, partnership MAY recover property from initial transferee, BUT NOT from a subsequent bona fide purchaser

Question 10

What is the rule re: transfer of property if property is titled in one or more partners names, as partners, without naming partnership?

(“apparent authority”)

Answer 10

1. Transfer by titleholders is effective
2. If partners lacked authority, partnership MAY recover property from initial transferee, BUT NOT from a subsequent bona fide purchaser.

Question 11

What is a “statement of authority”?

What is the rule to properly file it?

Answer 11

A statement of authority grants or limits a partner’s authority to enter into transactions on behalf of the partnership.

• Must be filed with the secretary of state, and for real property transactions, with the county recorder

Question 12

What is the effect of a properly filed statement of authority GRANTING authority?

Answer 12

A properly filed statement of authority GRANTING authority is conclusive in favor of a bona fide purchaser for value

Question 13

What is the effect of a properly filed statement of authority limiting authority to transfer real property?

Answer 13

• Gives purchasers constructive knowledge of a lack of authority, but does not give constructive knowledge of the limitation with regards to any other transaction