Relationship between Partners and Third Parties Flashcards
What are the powers of partners?
Unless the PS agreement provides otherwise, each partner has equal rights to participate in management and has at least apparent authority to bind the PS, and all partners are subject to join and several liability to creditors.
Each partner is an agent of the PS for the purpose of its business.
The act of a partner for apparently carrying on the business of the PS in the usual way binds the PS, unless:
- the partner has no authority to act in the matter; and
- the person with whom he is dealing has knowledge that he has no such authority.
What authority do partners have?
A partner may have express authority to act by the terms of the PS agreement or by consent of the other partners.
A partner may have apparent authority based on the nature and course of business of the PS, or on the custom in similar PS in the same area.
However, an act of a partner that is not apparently for the carrying on of the business of the PS in the usual way does not bind the PS unless authorized by the other partners.
When is there knowledge of a lack of authority?
PS agreements may include specific restrictions on authority. If a partner acts in contravention of such a restriction, and the the third party has knowledge of the restriction, the PS will not be bound.
A person has knowledge of a fact not only when he has actual knowledge thereof, but also when he has knowledge of other facts, such as when the circumstances show bad faith.
What is a statement of PS authority?
A PS may file a statement of PS authority, which:
- must include:
a. the name of the PS;
b. the street address of its CEO and of an office in the state;
c. the name and address of an agent; and
d. the names of the partners authorized to execute an instrument transferring real property held in the name of the PS; and - may state the authority, or limitations on the authority, of some or all of the partners to enter into transactions, or any matter, on behalf of the PS.
The effect of filing a statement of authority is as follows:
- Except for transfers of real property, a grant of authority contained in a filed statement of PS authority is conclusive in favor of a person who gives value without knowledge to the contrary, so long as and to the extent that a limitation on that authority is not contained in another filed statement. A filed cancellation of a limitation on authority revives the previous grant of authority.
- A grant of authority to transfer real property held in the name of the PS is also conclusive in favor of a person who gives value without knowledge to the contrary, so long as and to the extent that the authority is contained in a certified copy of a filed statement recorded in the office for recording transfers of that real property, and no certified statement containing a limitation on that authority is of record in such office.
- A person who is not a partner is not deemed to know of a limitation on the authority of a partner merely because the limitation is contained in a filed statement.
Unless previously canceled, a filed statement of PS authority is canceled by operation of law five years after the date on which the statement, or the most recent amendment, was filed with the secretary of state.
When does a PS have notice?
Generally, notice to any partner of any matter relating to PS affairs constitutes notice to the PS.
A person has notice of a fact when the notification:
- comes to the person’s attention; or
- is duly delivered at the person’s place of business, or at any other place held out by the person as a place for receiving communications.
If a partner acting in particular matter has acquired knowledge while a partner, that knowledge is imputed to the PS.
If a partner not acting for the PS in a particular matter has knowledge that he could and should have communicated to the acting partner, that knowledge also will be imputed to the PS.
An exception to this rule of imputation of notice or knowledge is made if a fraud on a PS is committed by, or with the consent of, that partner.
What liability do partners have?
All partners are jointly and severally liable for all obligations of the PS.
An action can be brought against the partner, but the judgment cannot be satisfied with the partner’s own assets unless the judgment is also against the partner.
Unless one of the partners is no longer subject to jurisdiction, all of the partners must be joined in the action.
A partner may enter into a separate obligation to perform a PS contract, and the partner’s liability is several.
A PS may sue and be sued in the name of the PS.
An action may be brought against the PS and any or all of the partners in the same action or in separate actions.
What is the extent of a partner’s liability?
Even though a PS obligation is joint, each partner is individually liable for the entire amount.
A partner is entitled to indemnification for amounts paid on the PS’s behalf.
A partner is also entitled to contribution from other partners for their pro rata share if the PS is unable to indemnify him.
An incoming partner is not personally liable for any obligations incurred before his admission as a partner.
What is the PS’s liability for the acts of partners?
The PS is liable for loss or injury caused to any person who is not a partner, or any penalty incurred for an wrongful act, or other actionable conduct, of any partner acting in the ordinary course of the business of the PS or with the authority of the PS.
The PS is liable for the loss caused by the partner’s misapplication of money or property of another in the ordinary course of the PS’s business.
