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Ham, Sam and Tam formed a partnership to run a petrol station. The partnership agreement expressly stated
that the partnership business was to be limited exclusively to the sale of petrol.
In January 20X8 Sam received £10,000 from the partnership’s bank drawn on its overdraft facility. He told
the bank that the money was to finance a short-term partnership debt but in fact he used the money to pay
for a round-the-world cruise. In February 20X8 Tam entered into a £15,000 contract on behalf of the
partnership to buy a stock of bicycles, which he hoped to sell from the garage forecourt. In March 20X8 the
partnership’s bank refused to honour its cheque for the payment of its monthly petrol account, on the basis
that there were no funds in its account and it had reached its overdraft facility.Sir please explain me the liability of the partners for the contract to buy the bicycles and that whether Tam has acted within his authority?
Tam has clearly acted outside his specific authority but how could the bank have known that? A partner has apparent authority to bind the firm in contracts for the firm’s business and the acts of every partner carried out on behalf of the firm bind the firm and the partners
The question now remains, could the bank have known … the third party (in this case, the bicycle supplier) is not bound to make enquiry as to the partner’s authority to enter into this contract
So the firm is liable and therefore also the individual partners are liable to find the resources to settle the firm’s debts
However, Ham and Sam will be able to claim compensation from Tam because Tam has knowingly breached the restriction imposed by the partnership agreement
OK?
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