What is the legal outcome when one partner exceeds his/her authority and borrows

Question

What is the legal outcome when one partner exceeds his/her authority and borrows money on behalf of the partnership without the consent of his/her partners and the lender is unaware the borrowing partner lacks authority?

a. The other partners will be liable to the third party because partners are mutual agents of each other.

b. The other partners can avoid liability to the third party by proving the partner had no authority to borrow the money.

c. Partnership law allows the third party to collect the debt only from the partner who borrowed the money.

d. The third party can take collection proceedings against the partnership assets but not against the personal assets of the other partners.

Explanation / Answer

a. The other partners will be liable to the third party because partners are mutual agents of each other.

Since the lender is unaware that the borrowing partner lacks authority but the action is in usual course of the business, and believes such a partner to be acting as an agent on behalf of the partnership firm, then the act of this partner is binding to all other partners of the firm. It is a wrongful act doen by this partner in the ordinary course of business and hence all other partners are liable for it.  

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