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Can a partnership be held liable on a contract debt signed by a partner as an individual?

Sylmar, CA |

Person A signed a contract as an individual to secure a business loan. Person A defaulted on loan. It has come to light that Person A may be in a partnership. If the loan was secured to benefit the partnership, are the other partners liable even if Person A only signed as an individual?

Attorney Answers 3

Posted

In a general partnership, the individual partners are held jointly and severally responsible for debts of the partnership. However, the partnership is not held responsible for the individual debts of its partners. So if one partner, as an individual, enters into a contract to borrow money and lends it to the partnership, the individual, and not the partnership, is on the hook for repayment. However, if the party, with whom the individual borrowing partner entered into the contract, believed for some reason he was loaning money to the partnership then, there may be a valid claim against the partnership. In essence, the question becomes, did the borrowing party ostensibly give the impression he was acting on behalf of the partnership even though he signed the contract as an individual? If this turns out to be the case, then each partner is jointly and severally liable for the debt. The actual facts and circumstances will dictate whether the partnership is exposed to liability so please take the time to consult with an experienced business and contracts attorney to properly advise you.

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Norman Antonio Stiteler

Norman Antonio Stiteler

Posted

I agree, this is complicated enough to require an attorney to review all documents ant to cut through the wall of noise that will be thrown up by the lender.

Posted

I agree with Mr. Messina. Likely the most significant factor in the potential liability of the partnership and hence the other general partners, is the conduct of the borrower and the impression or understanding he fostered in the lender. The lender will have to determine whether to make a claim or claims on the loan against the other partners, based on who it understood to be the borrower, and it is not enough that the borrower may have entered into the loan intending to furnish or provide the money to the partnership, particularly if he did not provide the name or information regarding the partnership to the lender.

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Posted

If the loan was a business loan and the business for which the loan was given is the same business that Person A has partners in, then the partners are very likely going to also be liable for repayment of the loan. Of course there are a number of facts that first need to be determined. You need to know whether the partnership is a limited partnership or not. You also need to know whether Person A has more than one business. Ultimately, you should consult an attorney and go through all of the facts in detail.

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