Relations of Partners to Third Parties: Mode of Action to Bind Firm

The mode of action to bind a firm to a contract with a third party depends on whether the partner who acts on behalf of the firm has express authority, implied authority, or authority in an emergency.

  • Express authority: A partner has express authority to bind the firm to a contract if the partner has been given express permission by the other partners to do so. This permission can be given orally or in writing.
  • Implied authority: A partner has implied authority to bind the firm to a contract if the contract is within the scope of the partner’s apparent authority. Apparent authority is the authority that a third party reasonably believes that a partner has based on the partner’s position within the firm and the firm’s conduct.
  • Authority in an emergency: A partner has authority in an emergency to bind the firm to a contract that is necessary to protect the firm’s property or its ability to carry on its business.

Here are some MCQs on the relations of partners to third parties: mode of action to bind firm:

  1. Which of the following statements is true?
    • A partner has express authority to bind the firm to a contract if the partner has been given express permission by the other partners to do so.
    • A partner has implied authority to bind the firm to a contract if the contract is within the scope of the partner’s apparent authority.
    • A partner has authority in an emergency to bind the firm to a contract that is necessary to protect the firm’s property or its ability to carry on its business.
    • All of the above.
    • The answer is (d). All of the above statements are true.
  2. A partner in a law firm makes a contract with a third party to represent the third party in a lawsuit. Is the firm liable for the contract?
    • Yes, the firm is liable for the contract.
    • No, the firm is not liable for the contract.
    • The answer is (a). The firm is liable for the contract, as the partner has express authority to represent clients in lawsuits.
  3. A partner in a construction company makes a contract with a third party to purchase materials to complete a project. Is the firm liable for the contract?
    • Yes, the firm is liable for the contract.
    • No, the firm is not liable for the contract.
    • The answer is (b). The firm is not liable for the contract, as the partner does not have express authority to purchase materials.