PARTNERSHIP PART II

Contractually Binding Partnerships

 When is a partner’s act contractually binding on the firm and other partners?
 Partner has express actual authority, implied actual authority and ostensible authority to
bind firm
 When partner has no authority  firm ratifies contract and confers retrospective authority
 Partner has express actual authority  PA 13 and PA 16 impose liability on firm
 Partner has implied or ostensible authority  co-partners jointly liable for contract (PA
16)
 PA 26  allows third parties to claim partner has implied and/or ostensible authority in
certain circumstances  “Any act necessary for/or usually done in carrying on business
od kind carried on by firm”

PA 26 – Special Powers of Partners

 Subject to provisions of this Act, the acts of every partner who does any act necessary
for or usually done in carrying on business of the kind carried on by the firm of which he
is a member shall bind his partners to the same extent as if he were their agent duly
appointed for that purpose; unless the partner so acting has in fact no authority to act for
the firm in the particular matter, and the person with whom he is dealing —
(a) knows that he has no authority; or
(b) does not know or believe him to be a partner
 In PA 26, implied actual authority results from:  ostensible authority  focus on third parties
 ‘Necessary for’  business efficacy  powers needed by person in position of partner
of firm to fulfil job function
 ‘usually done’  custom in firms of that type and authority consistent with partnership
agreement
 ‘unless partner so acting in fact no authority to act for firm’  implied authority taken
away by restriction imposed on partner

Ostensible Authority
 Ostensible (apparent) authority  results from holding out by firm that partner in
question has certain authority and reasonable reliance by outsider
 Holding out  public appointment of person as partner of firm
 Firm estopped from denying usual authority of any partner unless outsider has notice that
partner’s authority is specially restricted
 Ostensible authority exists unless:
 Outsider knows of restriction on authority (objective test  can be constructive
knowledge)  PA 26 (a)
 Outsider did not know/believe that dealing with partner  PA 26 (b)
 Restriction in partnership agreement can take away implied authority  BUT cannot take
away ostensible authority unless third party is aware of restriction

Ratification
 If no authority  firm may decide to be bound  can ratify contract
 If no authority  partner said to be “bootstrapping”  no contract and third party can
sue for breach of warranty of authority (Collen v Wright) or sue in tort of deceit/negligent
misrepresentation
Goldberg v Jenkins (1889) 15 VLR 36
 Partner borrows money at 60% interest when market rate is 6%-10%.
 Borrowing money is a type of conduct “necessary for and “usually done” in firm of this
type but partnership agreement withholds authority from this partner. No implied
authority.
 In addition as a reasonable lender would have been suspicious (very high interest rate)
there was no ostensible authority.
 Firm and innocent co-partners not bound.
 Objective test for ostensible authority under PA 26 (a)

Liability for Wrongful Acts/Omissions

