ACCA Applied Skills · Corporate and Business Law (Global) · Partnerships
Chen, Dara and Eli are partners in a design firm. Chen, without authority and outside the usual business of the firm, signs a long lease of a luxury yacht for personal use, in the firm's name. The lessor knows the firm is a design business. What is the position?
The firm is not bound. A partner binds the firm only for acts within the usual course of its business, and leasing a yacht is outside a design firm's normal activity. The lessor knew the business type, so cannot rely on apparent authority; Chen is personally liable.
- AThe firm is bound, because Chen is a partner
- BThe firm is not bound, because the act is not in the usual course of business and the lessor knew or should have known thisCorrect
- CThe firm is bound only to the extent of Chen's capital contribution
Explanation
A partner's implied authority covers only acts in the usual course of the firm's business. Leasing a yacht is clearly unusual for a design firm and the lessor was aware of the nature of the business. The first option is wrong because partner status alone does not create authority for unusual acts.
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