One Partners Unauthorized
Acts on Behalf of Partnership May
Bind Other Partners
12/30/05
Dear
Mr.
Duman:
My friend
and
I are thinking about starting a business and being partners.
I am
concerned that my friend is inclined to act before thinking things
through. To what extent, will I as a
partner be liable for his actions, if he does things without first
consulting
me?
A.
L., San Lorenzo
Dear
A. L.:
One partner’s
ability to create liability for the partnership and other partners
depends on a
number of variables.
California
Corporations Code, Section 15009, provides, generally, that "Every
partner
is an agent of the partnership for the purpose of its business, and the
act of
every partner...binds the partnership."
The law
creates “joint and several” personal liability for each of the individual partners for the entire
amount of the partnership’s obligations, regardless of the extent to
which the
partners were (or were not) involved in the decision making or conduct
underlying those obligations. Also,
each partner may be held liable for all of the partnership’s debts,
even though
they own only a portion of the partnership.
A partner’s
liability for the acts of another partner depends in most cases upon
the
offending partner having “actual” or “apparent” authority
to undertake, on behalf of the partnership,
those actions, which result in liability for the partnership. In order to bind the partnership and other
partners to a contract negotiated by one partner with a third party, it
must be
shown that the one partner had either “actual” or “apparent” authority
to bind
the partnership.
“Actual” authority extends to activities for
which a partner has been expressly authorized by the partnership to
undertake,
such as when the authority is found within the partnership agreement or
when
all of the partners have agreed that one partner shall act on the
partnership’s
behalf.
“Apparent”
authority refers to situations, where one or more partners
are deemed to have acted in such a way that a
“reasonable” person would believe that they had been authorized to
represent
the partnership. A partner’s “apparent" authority may be evident, when
that the partner’s conduct was consistent with the partnership's normal
business practices and within the
structure and purpose of the partnership as a whole.
One partner’s
conduct can bind the partnership, retroactively, in cases where the
other
partners have ratified the actions of that partner after they occurred.
A single
partner’s ability to bind the partnership has limitations. For example,
when
the actions of a partner are clearly outside the usual scope of the
partnership's regular business, and the other partners did not actually
authorize the actions, the partnership might not be liable for the
single
partner’s conduct. Likewise, when the
acting partner’s lack of authority is actually known to the injured
party (even
if a reasonable person might imply the requisite authority in the
absence of
such knowledge) that partner’s conduct will generally not bind the
partnership.
When a
partner incurs liability through the partnership, the liability is not
limited
to the business assets, but also extends to the partners personal
assets.
There are,
however, types of business structures, other than a general
partnership, where
the liability of certain owners are limited to only their investment in
the
business and will not extend to personal assets. Examples of these
limited
liability alternatives include a “Limited Liability Companies”,
“Limited
Partnerships”, and the various types of corporations and business
trusts.
Our readers
with questions regarding suitable business structures should consult
with their
own attorneys for specific attention.
FD779 12/30/05
4\column\partner5.lia
Readers may address their
questions to The Real Estate
Lawyer, Fred M. Duman, 2807 Castro Valley Boulevard, Castro Valley, California
94546. Mr. Duman will answer those of
general
interest in his column. He reserves the
right to edit the letter for brevity and clarity.
Each real estate problem
usually has its own distinct
circumstances, and frequently is more complicated than realized by a
layperson. Readers are also encouraged
to consult with their own lawyers to obtain guidance concerning their
problems
when they first arise.
Readers are cautioned that
these answers are not intended
to be the basis for any action or reliance by the reader.
You are welcome to
visit our web site at “www.dumanlaw.com”.
© 2005, Fred M. Duman All Rights Reserved. Please see our disclaimer.
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