332 Chapter 12Partnership, limited liability partnership and choice of legal status
For example, if a partner in a firm of accountants ordered office furniture or a new com-
puter for the firm, these contracts would be binding on the firm. If, however, the partner
ordered a new yacht for the firm, this contract would not; it is not in the usual way of
business for a firm of accountants to order yachts. In JJ Coughlan Ltd vRuparelia (2003)a
dishonest partner in a solicitor’s firm persuaded a third party to give him £500,000 to invest,
by promising a return of 6,000 per cent a year. The dishonest partner stole the money and
the third party claimed it back from another partner in the firm. The Court of Appeal held
that the partner of the dishonest solicitor was not liable under s. 5 because the scheme was
so unbelievable that a reasonable third party would have thought that it was not the kind
of transaction which was within the usual business of a solicitor.
The final part of s. 5 allows for situations where a partner will not be the agent of the firm,
even as regards goods which were ordered in the usual way of the firm’s business.... unless the partner so acting has in fact no authority to act for the firm in the particular matter,
and the person with whom he is dealing either knows that he has no authority, or does not know
or believe him to be a partner.
It can be seen that there are two requirements here. First, the partner must have had no
authority to act for the firm in the way that he did. Second, the person with whom the
partner dealt must either have known this, or must have thought that the partner was not
in fact a partner in the firm.
For example, let us assume that the partnership deed of firm ABC say that partner C has
no authority to buy supplies on the firm’s behalf. If C does buy the type of goods which the
firm usually needs, on the firm’s behalf, the firm will be bound by the contract unless:
(i) the supplier knows that C has no authority to buy; or
(ii) the supplier does not know or believe C to be a partner in the firm.
Section 7 deals with contracts which are not made in the ordinary course of the firm’s business:
Where one partner pledges the credit of the firm for a purpose apparently not connected with the
firm’s ordinary course of business, the firm is not bound, unless he is in fact specially authorised by
the other partners; but this section does not affect any personal liability incurred by any individual
partner.
Again, it is helpful to break this section down:
Section 7 begins: ‘Where one partner pledges the credit of the firm for a purpose appar-
ently not connected with the firm’s ordinary course of business, the firm is not bound.. .’
For example, in a firm of accountants, DEF, partner D orders a new snooker table for the
firm, saying that the firm would pay for it later. D has therefore pledged the firm’s credit
because he has arranged for the firm to be given credit. Under s. 7 this contract would not
be binding on the firm because it is not in the ordinary course of business for a firm of
accountants to need a snooker table.
Section 7 continues: ‘... unless he is in fact specially authorised by the other partners...’
So the contract to buy the snooker table would be binding on the firm if E and F had
authorised D to order it.
The final part of s. 7 says: ‘... but this section does not affect any personal liability
incurred by any individual partner.’
This merely means that the one who made the contract (in this case D, who ordered the
snooker table) will be personally liable whether the other partners are liable or not.
Figure 12.1 gives an outline of the extent to which one partner is liable on a contract made
by another partner.