National Biscuit Co. v. Stroud
Citation and Court
National Biscuit Co. v. Stroud, 106 S.E.2d 692 (N.C. 1959)
Facts
Stroud and Freeman were equal partners in a grocery store. Stroud personally notified National Biscuit Company that he would not be personally responsible for any further bread deliveries to the store. Despite this, Freeman continued to order bread from National Biscuit on behalf of the partnership. After the partnership dissolved insolvent, National Biscuit sought to hold Stroud liable for the bread Freeman ordered.
Issue
Can one partner unilaterally restrict the apparent authority of a co-partner to bind the partnership in ordinary business transactions?
Holding
Yes, Stroud was liable. The North Carolina Supreme Court held that Freeman’s orders for bread were within the ordinary course of the grocery business, and one partner cannot unilaterally restrict the authority of an equal co-partner to carry on ordinary partnership business.
Rule / Doctrine
In a general partnership, each partner has apparent authority to bind the partnership for transactions in the ordinary course of business. A partner cannot unilaterally restrict a co-partner’s authority to carry on ordinary business; that requires a majority vote of the partners or a contrary agreement. Where partners are equally divided, neither partner’s restriction controls, and the partner who acts in the ordinary course of business binds the firm.
Significance
National Biscuit Co. v. Stroud is a classic case illustrating the breadth of partnership apparent authority and the limitations of one partner’s ability to restrict another’s agency. The case demonstrates the default rule of equal management rights in partnerships and the practical consequences: third parties dealing with partnerships in good faith can rely on the apparent authority of individual partners for ordinary business transactions. It also highlights the importance of formal partnership agreements to allocate authority and prevent such disputes.