Relations of Partners to Third Parties: Implied Authority of Partner as Agent of the Firm

In addition to the authority that is expressly granted to a partner in the partnership agreement, a partner also has implied authority. Implied authority is authority that is inferred from the nature of the business of the firm and the position of the partner within the firm.

For example, a partner who is in charge of sales has implied authority to make contracts for the sale of goods on behalf of the firm.

The implied authority of a partner can be limited by the partnership agreement. However, if a third party deals with the firm in good faith and without knowledge of the limitation on the partner’s authority, the third party can still hold the firm liable.

Here are some MCQs on the relations of partners to third parties: implied authority of partner as agent of the firm:

  1. Which of the following is true about the implied authority of a partner?
    • It is authority that is inferred from the nature of the business of the firm and the position of the partner within the firm.
    • It can be limited by the partnership agreement.
    • A third party can hold the firm liable for a contract made by a partner even if the partner did not have the implied authority to make the contract.
    • All of the above.
    • The answer is (d). All of the above are true about the implied authority of a partner.
  2. A partner in a banking partnership makes a contract with a third party to lend money. 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 implied authority of a partner in a banking partnership includes the authority to lend money.
  3. A partnership agreement limits the authority of a partner to make contracts for amounts over $10,000. A partner makes a contract for $15,000 with a third party. 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 implied authority of a partner does not include the authority to make contracts for amounts over $10,000.