I never signed that! – The ability to ‘bind’ a partner

The ability of a partner to ‘bind’ the other partner(s) is extremely important if you are currently in, or are thinking about entering into a partnership agreement.  This means you will be taken to have entered into contracts or legal agreements that your partner enters into. Even if you didn’t know about them! Your assets could be at the mercy of the other partner’s liability.

At law, the basic requirements are: 

1. The act or transaction is entered into by a partner,
2. It is within the ‘scope of the kind of business carried on by the firm’,
3. The act or transaction has to be entered into in the usual way,
4. The other party must know or believe that the person entering the agreement is a partner, or has authority to act. 

A famous example occurred in 1934 when a client of a firm of solicitors operating as a partnership received poor financial advice. The client sued the firm and at law, the innocent parties were liable for the loss as the advice was the kind provided in the course of doing business.[1] It didn’t matter that the other partners knew nothing about the financial advice that was provided and had never sanctioned it. 

If you have further questions, please contact us at frank@franklaw.com.au

This is not legal advice. 

Written by Tim Cargill & Zdenka Marinov and edited by Andrew Graham.

[1] Polkinghorne v Holland (1934) 51 CLR 143.