Story Case

Theodore Watson and Ralph Jennings were partners, conducting a brick manufacturing business as Watson & Jennings. Harry Forbes, a friend of Watson 's, having been elected to the office of commissioner of public works in his town, agreed with Watson to buy the latter's brick for the streets of the town, provided the brick firm would become his surety on the bond he must give to the city, guaranteeing faithful performance of his work. The bond of the firm was given without the consent of Jennings. Later, Forbes was indicted for misappropriating city funds, and suit was brought against Watson & Jennings on the bond.

Jennings maintained that he was not liable, because Watson had no express authority to sign the firm name, and no implied authority, since the act was not within the scope of the partnership business. Is this a valid defense?

Ruling Court Case. Duncan Vs. Lowndes, Volume 3 Campbell's Reports, Page 478

The Plaintiff, Duncan, had sold a consignment of goods to a certain party and had drawn a bill of exchange upon him. Lowndes, a member of a partnership, entered into an agreement in the name of his firm to guarantee the payment of the bill. This was an action brought by the plaintiff egainst the firm on this guaranty.

Decision

There is no implied power for one partner to bind the firm by a guaranty for other than the partnership business. Hence, in order for the plaintiff to recover, he must show that Lowndes was authorized to sign this instrument in the name of the firm. The plaintiff, being unable to show any such authority, was held not to be entitled to recover anything from the other partner.

Ruling Law. Story Case Answer

It is the general rule that a partner has implied power to bind his firm by contracts of surety and guaranty, so long as such contracts are within the scope of the partnership business. He is not, however, vested with any implied power to bind the firm by any such contract for himself or for a stranger to the firm. In the Story Case, Jennings could not be held on the surety bond, because Watson was acting outside the scope of his authority in signing the firm name for this purpose. It is true, the act was done in furtherance of the firm business to sell brick, but the promise coming from Forbes, binding himself to buy street brick from the firm, was against public policy and illegal. The Courts never imply an authority to make an illegal contract. Therefore, Jennings, as a member of the firm, cannot be held.