Question:
Nick and Susan decide to go into business, selling discounted merchandise through their Web site.They sign a partnership agreement that requires Susan to contribute $12,000 and Nick to contribute $8,000 in capital to start the firm. The agreement also states that only Susan will have the authority to bind the partnership in deals with third parties, but the agreement says nothing about the management of the firm or a division of profits. Without Susan's knowledge, Nick tells United Computer Products, Inc., that he represents the firm and signs a contract with United to buy hard drives for resale on their website. In the first year, their business makes a profit of $50,000. What are the partners’ rights with respect to the management of the firm? Is the partnership bound to the contract with United?
Answer:
Since Nick represented to United that he had the authority to sign the contract and United had no knowledge that he was unauthorized to act in such manner, the partnership is bound to the contract with United.
Nick breached their contract that say only Susan can bind deals with third parties, which Nick just did.
Their first mistake was creating a partnership. Horrible idea.
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