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CS Executive · Setting Up of Business, Industrial and Labour Laws · Limited Liability Partnership

Nikhil, a partner of Orbit Design LLP, has no authority to sign supply contracts for the LLP. He signs one with Sharma Supplies, which knows he lacks authority. Separately, Nikhil commits a wrongful act in the course of the LLP's business, injuring a customer. Which is correct?

The LLP is not bound by the contract, since Nikhil lacked authority and Sharma Supplies knew it. But the LLP is liable for his wrongful act done in the course of its business, because it is liable whenever a partner is so liable in that course.

  1. AThe LLP is bound by the contract and is also liable for the wrongful act
  2. BThe LLP is bound by neither the contract nor liable for the wrongful act
  3. CThe LLP is not bound by the contract but is liable for the wrongful act done in the course of its businessCorrect
  4. DThe LLP is bound by the contract but not liable for the wrongful act

Explanation

The LLP is not bound by an act of a partner who has no authority if the other person knows this. So the contract does not bind it. However, if a partner is liable for a wrongful act or omission in the course of the LLP's business or with its authority, the LLP is liable too. The two situations therefore have different outcomes.

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