Story Case

Simon Jones, Richard Moran, and Carl Tilden were partners in the dairy business. It was agreed among them that Moran should be the purchasing agent of the firm and that the other two should not have the power to make any contracts for buying materials unless the consent of Moran was secured. Nevertheless, Tilden made a contract to purchase two horses from Frank Forgan. Forgan did not know of the limitations put upon Jones and Tilden. After the contract was made, the firm refused to take the horses and gave as one defense, the fact that Tilden had no authority to act. Is this a good defense?

Ruling Court Case. Burgan Vs. Lyell, Volume 2 Michigan Reports, Page 102; Same Case, Volume 55 American Decisions, Page 53

One Harvie, a member of a certain partnership and one of its managers, engaged the plaintiff to do certain work for the partnership. This case was an action brought by the plaintiff to recover the amount due as agreed upon, for the services which he had performed for the partnership. The action was brought against all the members of the partnership; it was contended by them that they were not liable on the contract, because, by the terms of their partnership's articles, a single member was inhibited from making such a contract. The plaintiff, however, showed that he had not been acquainted with the limitation upon the power of Harvie and contended that it was, therefore, not binding upon him.

Decision

As between the partners and the public with whom they deal, each partner has power to transact the usual and authorized business, and secret limitations upon the power of a partner are not binding upon third persons, unless they have notice of such limitations. Mr. Justice Pratt said in part: "But whether his powers, as one of the managers of the Company, were general, or special or limited, does not appear; nor is it material to a judicial determination of this cause, as every member, in legal contemplation, without any special powers being conferred upon him by the articles of copartnership, is not only a principal of the firm, but a general agent for all the copartners in the transaction of their legitimate business, each member being vested with power which enables him to act at once as principal and all are regarded as being present and sanctioning the engagements and contracts which they may singly enter into within the scope of their partnership matters." Accordingly, it was held that this contract was binding upon the partners, and that the plaintiff could recover from them the amount due for the services which he performed.

Ruling Law. Story Case Answer

Each partner, in the absence of a contrary agreement, has an equal right with his copartners to participate in the management and conduct of the business, even though all the partners have not contributed equally to the capital of the relation.

In many cases it happens that the partners will agree or stipulate that certain things may not be done by one partner without the consent of the others. As between themselves, this agreement is binding. But as to the third persons, it has no effect unless notice of such agreements and stipulations have been made known to them. A general partner is an agent for his copartners. Secret limitations upon the powers of a partner, as in the case of any other agency, are not binding upon third persons; who knew nothing of such limitations. If one partner acts within the apparent scope of his authority, his contracts are binding on the firm. Therefore, in the Story Case, the dairy firm is liable for the contract made by Tilden.