Crawford Bates and Enoch Ross were partners, conducting a general brokerage business in buying and selling stocks and bonds. In the articles of partnership, Ross agreed not to sign any promissory notes in the name of the firm. Nevertheless, during the course of the business, Ross did execute such an obligation to Jacob Teschner, who was not aware of the limitation in the articles of partnership. When suit was brought on the note, Bates maintained that Ross had no authority to make the note because of the written contract between them. Teschner contended that this was a trading partnership, and that, therefore, Ross had the apparent power to execute notes. For whom should the Court make its finding?

Ruling Court Case. Lennon Vs. Walsh, Volume 98 Illinois Reports, Page 27

Thomas Walsh and Robert Walsh, partners engaged in business, under the firm name of Walsh Bros, dealt in dry goods. Thomas Walsh executed a promissory note to Lennon to which he signed the firm name Walsh Bros. - Thomas Walsh. This note was executed for a loan of money paid by Lennon to Walsh for the firm. Later, suit was brought on the note by Lennon. Thomas Walsh allowed judgment to go against him, but Robert Walsh defended that his brother had no authority to make the instrument.

Mr. Chief Justice Dickey delivered the opinion of the Court: "It is among the powers of a partner in a mercantile or trading business to borrow money in the name of the firm and thus render his partners liable for the sum borrowed; and to bind the firm by agreement to pay interest on the same at any lawful rate, and to sign the firm name to any writing admitting the fact of the borrowing, and promise to pay, and thereby to furnish evidence against the firm, and each of its members. All this Thomas Walsh did do, and thereby did bind the firm and each of its members." Judgment is given for plaintiff.

Ruling Law. Story Case Answer

Heretofore, it has been stated repeatedly that each partner is an agent of the firm and his co-partners. But from this statement it is not to be inferred that one partner has power to bind the firm by all his acts and all his contracts. There are certain limitations imposed upon the authority of each partner by the very nature of the business in which the partners are engaged. The extent or scope of a partner's power will therefore, in a large degree, depend upon the nature of the partnership business. In determining this question, the courts draw a distinction between trading and non-trading partnerships.

A trading partnership is denned as one, the principal business of which, consists in buying and selling and dealing in commercial transactions. A member of a trading partnership has very full power to bind the firm and his co-partners by all his contracts, unless express limitations upon his authority are impressed upon third persons dealing with him. In the Story Case, because this was a trading partnership, Ross was acting within the apparent scope of his authority, and Teschner had no reason to suspect that his power was limited by contract. Therefore, Teschner can hold either member of the firm.