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ACCA Applied Skills · Corporate and Business Law (Global) · Partnerships

Farid, Greta and Hana are partners in an architectural firm. The partners agreed that no partner may sign contracts above 20,000 without the approval of all partners. Greta, without approval, signs a 50,000 contract with Jorge for the firm's normal services. Jorge knew nothing of the restriction. Which statement is correct?

The firm is bound. A restriction in the partnership agreement does not bind a third party who does not know about it, and the contract was within the firm's normal business. Greta may owe her partners for breaching the agreement, but Jorge can enforce the contract.

  1. AThe firm is bound, because the restriction does not affect a third party who is unaware of itCorrect
  2. BThe firm is not bound, because the partnership agreement limits Greta's authority
  3. COnly Greta is bound, because she exceeded the agreed limit
  4. DThe contract is voidable at Jorge's option only if the firm made a loss

Explanation

Internal restrictions on a partner's authority bind outsiders only if they know of them. The contract is in the ordinary course of the firm's business and Jorge was unaware of the limit, so the firm is bound. Greta may be liable to her partners for breach of the agreement, but that is an internal matter.

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