MBE Rules · Business Associations
Partner Authority
Cal. Corp. Code § 16301
The rule
Each partner is an agent whose acts for apparently carrying on the ordinary business bind the partnership unless the partner lacked authority and the third party knew or had notice; extraordinary acts require actual authority.
In plain English
In a partnership, each partner has the authority to act on behalf of the partnership in ordinary business matters, which means their actions can legally bind the partnership. However, if a partner takes an extraordinary action that goes beyond the usual business activities, they need actual authority from the partnership for that action to be binding.
Worked example
Partner A enters into a contract to lease a new office space for the partnership without consulting Partner B. The lease is for a standard office space, and Partner B was unaware of the lease being signed. Since this is an ordinary business matter, the partnership is bound by the lease, even though Partner B did not approve it.
Memory hook
Partners can bind the business in ordinary matters, but extraordinary moves need a green light.
The trap
Exams often present scenarios where a partner acts outside the ordinary scope of business, leading students to mistakenly believe the partnership is bound without considering the need for actual authority.
How examiners test it
Questions frequently involve fact patterns where one partner makes a decision that could be seen as ordinary or extraordinary, testing the candidate's ability to distinguish between the two and apply the authority rules.
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