Kent and Davis are partners in operating a store. Without consulting Kent, Davis

Question

Kent and Davis are partners in operating a store. Without consulting Kent, Davis enters into a contract to purchase merchandise for the store. Kent contends that he did not authorize the order and refuses to pay for it. The vendor sues the partners for the contract price of the merchandise. (a) Must the partnership pay for the merchandise? Why? (b) Does your answer differ if Kent and Davis are partners in a public accounting firm? Explain.
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Source:ISBN: 0077554698 | Title: Fundamental Accounting Principles, Vol 2 (Chapters 12-25) | Publisher: McGraw-Hill Higher Education

Explanation / Answer

The partnership will probably have to pay because it is a merchandising firm. That is, if the vendor knows nothing to the contrary, the vendor may assume that davis has the right, because of mutual agency, to bind the firm to contracts for the purchase of merchandise. Under these circumstances, the public accounting firm is not in the merchandising business. Because the purchase of merchandise to be sold is not within the normal scope of the business of this firm, the vendor has no right to assume davis is acting as the agent for the partnership. Hence, the firm probably will not have to pay.

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