Partners may already be aware of their individual liability regarding the partnership as a whole. However, a recent High Court case has determined that, in law, a partner also has authority to bind the other partner to a loan agreement with their bank, even where the bank mandate specifies that the signature of both partners is required.
Section 5 of the Partnership Act 1890 provides that every partner carrying on the usual business of the partnership, binds the firm and the other partners, unless such a partner does not, in fact, have authority in the particular matter, and the person with whom the partner is dealing, either knows he has no authority, or does not know or believe them to be a partner. In the recent case, the court decided that, as the bank mandate was intended to be an additional protection for the bank, requiring the signature of each partner should not preclude the bank from the protection afforded by the Partnership Act. As a result, the contract with the bank was held to bind the partnership, even if it had only been validly signed by one of the partners.
It may well be that any appeal of this decision will come to a different conclusion, on the basis that not only the bank, but also the partners, were afforded protection by the terms of the bank mandate, and should be able to rely on it. However, it is also apparent, that partners should always obtain the protection of a carefully drafted Partnership Agreement, before embarking upon an enterprise as risky as partnership.
If you need any advice about partnership agreements, please contact our Corporate and Commercial Team on 0121 698 2200.
 |
 |
 |
 |
 |
 |
|
