Story Case

A partnership existed between Richard Harding and Simon Davis for the purpose of dealing in lumber and other building material. It was agreed between the partners that the firm should not handle brick or any stone materials, and that neither partner had the right to purchase these commodities. While Harding was away during- the summer, Davis purchased a quantity of these materials for the firm because he was in a position to buy them at a cheap price. Two months later, when Harding returned, business was very dull and these materials were marketing at a lower price than Davis had paid for them. Harding, therefore, refused to abide by the agreement and to accept any more deliveries under the contract, on the ground that Davis had no authority to buy these goods, since the firm was not organized to deal in brick and stone. The vendor of the goods said that he did not know the firm was not in the brick and lumber business. In fact, he believed, he said, that it did handle these goods, since all of the other lumber companies in the town bought or sold brick and stone: Because he acted in good faith, he claimed that the firm of Hardin and Davis should be bound on the contract. Is this a good answer?

Ruling Court Case. Williar Vs. Irwin, Volume 110 United States Reports, Page 499

Irwin and Davis were partners, engaged in business as dealers in wheat. A contract existed between them to the effect that Davis should not have the power to sell any wheat. Contrary to this authority, he did make a sale to Williar for future delivery. Davis died, tile wheat was not delivered, and this action is brought against Irwin, the survivor, because of breach of a partnership contract. Irwin defended on the ground that Davis had no power to sell the wheat. The lower Court gave its decision in favor of Irwin, and Williar appealed.

The Court, below, charged the jury that, if Irwin and Davis had held themselves out to the world as partners and third person had dealt with either upon that basis, such acts by one partner bound both, even though as between themselves limitations might have existed as to the power of either.

Decision

The lower Court erred because it did not add to its instructions these words, "provided the third person who dealt with the partner was ignorant of the limitations imposed upon him by the partnership contract."

Referring to the instructions given by the Court below to the jury, Mr. Justice Matthews said: "In this, we think, there was error. The liability of one partner for acts and contracts done and made by his copartners without his actual knowledge and assent is a question of agency. If the authority is denied by the actual agreement between the partners, with actual knowledge thereof to the party who claims under it, there is no partnership obligation. If the party with whom the dealing has taken place has no notice of a partner's limitations, the authority for each transaction may be implied from the nature of the business, according to the usual and ordinary course in which it is carried on by those engaged in it in the locality which is its seat, or as reasonably necessary or fit for its successful prosecution."

"What the nature of that business in each case is; what is necessary and proper to its successful prosecution; what is involved in the usual and ordinary course of its management by those engaged in it at the time and place where it is carried on, are all questions of fact to be decided by the jury, from a consideration of all the circumstances which, singly or in combination, affect its character or determine its peculiarities; and from them all, giving to each its due weight, it is its province to ascertain and say whether the transaction in question is one which those dealing with the firm had reason to believe was authorized by all its members." The case was sent back for new trial in accordance with the principles announced.

Ruling Law. Story Case Answer

The authority of a partner to act for the firm may be actual or it may be apparent. Actual authority consists in those powers which are expressly or impliedly conferred upon a partner. Apparent authority is the power on the part of a partner to do those acts which are reasonably necessary in carrying on the particular business; or the power to do those acts which are customarily done by partners under the same or similar circumstances. A firm is bound by all of the acts of a partner within the actual scope of his authority. Further, the firm is bound by acts done by a partner within the scope of his apparent authority, even though as between the partners, he was expressly forbidden not to do a given act, unless the notice of this prohibition was brought to the notice of third persons dealing with such partner.

What constitutes apparent scope of authority is a difficult question of fact which must be determined in each case by a jury. It will depend upon the nature of the business, the customs of that business, the custom of similar businesses in the same locality. The firm of Harding & Davis, in the Story Case, is bound on the contract, since Davis was acting within apparent scope of his authority, based on the fact that all other like dealers in the town handled brick and stone.