Skip to content

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

Fatima and Gus are partners. Their written agreement says each partner may bind the firm only to contracts up to 10,000. Without telling Hana, a supplier, Gus signs a contract for 40,000 of goods that are within the normal course of the firm's business. Hana did not know of the limit and reasonably believed Gus was a partner. What is the likely position?

The firm is bound. A partner is an agent of the firm for usual business acts, and an internal restriction on authority does not affect a third party who did not know of it. Any remedy lies against Gus internally.

  1. AThe firm is not bound, as the internal limit overrides all outsiders
  2. BThe firm is bound, as Gus had apparent authority in the usual course of business and Hana was unaware of the restrictionCorrect
  3. COnly Gus is bound, and the firm has no liability in any event
  4. DThe contract is void as it exceeds the limit

Explanation

A partner acts as agent of the firm for acts in the ordinary course of its business. An internal restriction does not bind third parties who are unaware of it. Fatima may be able to claim against Gus internally for breaching the agreement, but the firm is bound to Hana.

Did you get it right without looking?

One question tells you little. A timed set on Partnerships shows your real accuracy, how long you take and where you lose marks.

Practise PartnershipsFree diagnostic mock

More Partnerships questions