National Biscuit Company v. Stroud

Supreme Court of North Carolina · Corporations

CorporationsPartnershipAuthority of partnersgeneral partnershippartner authorityagencyUniform Partnership Actordinary matters

Facts

Stroud and Freeman were general partners operating a grocery business as Stroud's Food Center. Nothing in the agreed facts showed any partnership agreement restricting Freeman's authority in the ordinary and legitimate business of the partnership, and buying bread was part of that ordinary business. Several months before February 1956, Stroud told plaintiff he personally would not be responsible for any additional bread sold to the partnership, but from February 6 to February 25, 1956, plaintiff sold and delivered $171.04 worth of bread to the partnership at Freeman's request. On February 25, 1956, the partners dissolved the partnership, and Stroud agreed in the dissolution agreement to liquidate assets and discharge liabilities.

Issue

Whether one of two general partners can, by notifying a supplier that he will not be responsible for future purchases, prevent the other partner from binding the partnership for purchases of bread made in the ordinary course of the partnership business. Also, whether Freeman's purchases bound Stroud and the partnership despite Stroud's notice to plaintiff.

Rule

Under the Uniform Partnership Act, every partner is an agent of the partnership for the purpose of its business, and an act of a partner for apparently carrying on the partnership business in the usual way binds the partnership unless the acting partner lacks authority in the particular matter and the third party has knowledge of that lack of authority. All partners have equal rights in management, and ordinary partnership matters are decided by a majority; therefore, in a two-person partnership, one partner alone cannot restrict the other partner's authority over ordinary matters within the scope of the business.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Maya Ortiz and Colin Reed are equal general partners operating a neighborhood pharmacy in Phoenix under the name Desert Lantern Drugs. Colin emails a pill-bottle supplier that he will not be personally responsible for any future inventory orders, but Maya later places a routine order for prescription vials used in daily store operations while the business is still open and functioning.

Is the partnership bound to pay the supplier for the vials?

Explanation. Every partner is an agent of the partnership for acts apparently carrying on the business in the usual way. Buying routine inventory for a pharmacy is an ordinary matter connected with the business. In a two-partner firm, one partner is not a majority and cannot unilaterally restrict the other partner's authority over ordinary matters while the partnership remains a going concern. The firm's liability does not depend on proof that it actually profited from the goods. (Derived from National Biscuit Company v. Stroud (n.d.).)