Under what circumstance can a firm be bound when a partner pledges its credit for non-business purposes?

A firm can be bound when a partner pledges its credit for non-business purposes only if there is actual express authority from the other partners. This means that one partner must have explicit permission from the other partners to act in a manner that involves the firm's credit, even for non-business purposes. Actual express authority is a formal agreement that dictates what specific actions a partner can take on behalf of the firm.

In partnerships, each partner generally has the authority to bind the partnership in transactions related to the business. However, for situations outside the scope of normal business operations, such as personal matters or non-business transactions, the default rules of agency may not apply. Therefore, it is essential for the partner seeking to pledge the firm’s credit for non-business purposes to obtain explicit consent from the other partners. This requirement protects the partnership from being held liable for obligations that were not agreed upon by all the partners.

Other choices may suggest alternative forms of authority or informal agreements that do not provide the necessary legal backing for binding the firm in such transactions. For instance, relying solely on verbal consent without documentation could lead to misunderstandings and disputes, while apparent authority does not apply when actions are explicitly outside the scope of the partnership’s business activities. Similarly, member agreement alone without