Two farmers are in a business together dealing with farm machinery. Farmer 1, on behalf of the partnership, entered into a contract with a third-party tractor supplier to buy 10 tractors. However, the partnership agreement prohibited Farmer 1 from making such contracts, which the tractor supplier was unaware of. Farmer 2 refused to allow the partnership to receive the tractors, and now the tractor manufacturer is seeking to enforce the contract.
Can the tractor manufacturer be successful in this situation?
Two farmers are in a business together dealing with farm machinery. Farmer 1, on behalf of the partnership, entered into a contract with a third-party tractor supplier to buy 10 tractors. However, the partnership agreement prohibited Farmer 1 from making such contracts, which the tractor supplier was unaware of. Farmer 2 refused to allow the partnership to receive the tractors, and now the tractor manufacturer is seeking to enforce the contract.
Can the tractor manufacturer be successful in this situation?
Yes, because Farmer 1 had apparent authority to bind the partnership.
(C) According to the Partnership Act, every partner is considered an agent of the firm. Therefore, any partner's actions while conducting usual business for the firm will be considered legally binding for the firm through apparent authority. This rule applies until the third party is aware that the partner does not have the authority to act or that the partner is not a partner of the firm.
In this case, the contract is a purchase agreement for farm machinery. Since the contract appears to be a part of the farm machinery business, the supplier had no idea that Farmer 1 had limited authority.
Option (A) is incorrect because implied express authority arises from the partner's expectations based on communication or prior conduct between the partnership and that partner. There is nothing in the given facts to suggest that the partner had implied authority to make the purchase. Therefore, option (B) is also wrong. However, the partnership will still be bound through apparent authority.
Option (D) is incorrect because the private partnership agreement does not affect the partner's apparent authority. Therefore, the supplier would have no knowledge of the terms of the partnership agreement, and Farmer 1 would still have apparent authority.
Option (E) is also incorrect. Although the partnership agreement is valid, it does not affect the partner's apparent authority unless the supplier is aware of it.