Enforcing The Unenforceable: Limited Partners May Be Bound By Unauthorized Conduct Of General Partner

In a limited partnership, a general partner runs the business of a limited partnership, with little to no oversight by the limited partners. Thus, limited partnerships are often governed by carefully drafted partnership agreements that set out the general partner's authority.

But what happens when the general partner goes beyond their authority and enters into agreements it ought not to have? Can the limited partners escape the contractual arrangements? What recourse does the other contracting party have when the partnership refuses to proceed with the contract?

The Saskatchewan Court of Appeal answered these questions in ADAG Corporation Canada Ltd v SaskEnergy Incorporated, 2021 SKCA 74.  The Court of Appeal held that despite the protections provided under the The Partnership Act (Saskatchewan) (the "Act"), limited partners may be bound by the unauthorized conduct of the general partner and the contracting party can enforce the contract.¹