What happens when a partner acts outside the scope of their authority?

When a partner acts outside the scope of their authority, it is essential to understand the implications for both the partnership and the individual partner. The correct answer highlights that if a third party is unaware of the partner's limits of authority, the partnership may still be held liable for the actions of that partner. This rule is based on the principle of apparent authority, where the actions of a partner can create an impression to a third party that they have the authority to act, even if they do not.

This creates a layer of protection and reliance for third parties who engage in business transactions with the partnership. If a third party believes, in good faith, that the partner had the authority to act, the partnership may still be obligated to fulfill any commitments made by that partner. This principle aims to promote fairness and reliability in business dealings, ensuring that innocent third parties are not harmed by the internal dynamics of a partnership.

Understanding this aspect is crucial as it emphasizes the importance of how partnerships communicate internal authority limits both to their partners and to the outside world. While the partnership may have recourse against the partner who acted outside their authority, the liability to the third party remains intact unless the third party had knowledge of the partner's lack of authority.