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Partnerships and LLPs — SQE1 BLP question

A worked single-best-answer question on partnerships and llps, with why each wrong option is wrong — the way SQE1 traps candidates.

Partnerships and LLPs

Ella, Finn and Gus are partners in Greenleaf Landscapes, a general partnership. Their written partnership agreement provides that no partner may buy any item costing more than £5,000 without the consent of the other partners. Without consulting the others, Finn orders a £9,000 ride-on mower from Tillers Ltd, a supplier that knows nothing of the restriction. Buying such equipment is in the usual course of a landscaping business. Ella and Gus refuse to pay for the mower.

Is the partnership bound by the contract with Tillers Ltd?

  1. ANo, because Finn did not have actual authority under the partnership agreement to place the order.
  2. BYes, but only up to £5,000, the limit of Finn's authority under the partnership agreement.
  3. CNo, Finn alone is liable to Tillers Ltd because he exceeded the authority given to him by his partners.
  4. DOnly if Ella and Gus later ratify the contract made by Finn.
  5. EYes, because Finn acted in the usual way of carrying on the firm's business and Tillers Ltd did not know of the restriction on his authority.
Show answer and reasoning
E is the best answer. Under s 5 Partnership Act 1890 every partner is an agent of the firm, and acts done in carrying on in the usual way business of the kind carried on by the firm bind the firm, unless the partner had no authority and the third party knew this or did not know or believe him to be a partner. An internal restriction binds third parties only if they have notice of it (s 8). Finn may, however, have to indemnify his co-partners for breaching the agreement.

Rule: Every partner is an agent of the firm and binds it by acts in the usual course of its business, unless the third party knows of the lack of authority (PA 1890 ss 5, 8).

  • A Lack of actual authority does not prevent the firm being bound where the partner has apparent authority under s 5 and the third party has no notice. (wrong rule)
  • B Apparent authority does not divide the contract; the firm is bound for the whole contract. (wrong rule)
  • C Finn's breach of the partnership agreement is an internal matter; the firm remains liable to Tillers. (wrong rule)
  • D No ratification is needed, because the firm is already bound under s 5. (wrong rule)

Source: Partnership Act 1890, ss 5, 8

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