- March 4, 2012 at 5:09 am
Please can you explain this to me in simpler words :
“Any restriction placed on the power of any partner is not binding on the firm, provided that notice of the agreement is duly communicated to third parties.”
What does that means in simpler words ?????March 4, 2012 at 1:08 pm
Let’s get back to basics! Partners in a firm can agree amongst themselves to do anything they want, so long as it’s legal. For example, they can agree that I shall put in all the capital, I will do all the work, you will stay away from the business of the firm, you will undertake no work on behalf of the firm, and you will take 99% of the profits with me taking just 1%
It’s all perfectly legal.
Now, let’s consider that line from your question – “Any restriction placed ….” we have just agreed that you will undertake no work on behalf of the firm. And for whatever reason, you do. You enter into a contract in the firm’s name and on the firm’s behalf. Now I find out and refuse to allow the firm to go ahead with the obligations which you have brought to the firm.
If the third party knew ( or ought reasonably to have known ) that you were restricted by the partnership agreement – maybe I had previously written to this third party and said “Whatever you do, do not enter into a contract with Nadir if he claims that it is on behalf of the firm” – then the third party will be unable to hold the firm liable. But you had better have your running shoes close by the door to your house because the third party will most certainly be chasing you to get satisfaction from the contract.
If, however, the third party did not know ( or could not reasonably have known ) of this restriction on your authority, then by your actions you have just placed the firm into a binding contract EVEN THOUGH YOU SPECIFICALLY HAVE AGREED WITH ME THAT YOU WILL NOT DO THIS!
Heaven only knows why I allow you to take 99% of the profits. In fact, with immediate effect, I’m giving you notice that our partnership is over. Good bye, and good luckMarch 6, 2012 at 10:03 am
Is the third party aware that there is a limit on your authority? If (s)he is, then only you will be liable. If (s)he isn’t aware of the limitation, then the partnership will be liable
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