The recent case of Lifeline Litigation Loans Inc. v. Hanson, 2022 ONSC 489 is an important reminder to partners in partnerships to be aware of and careful about contracts signed by your other partners.
In a relatively brief decision issued by Justice Morgan of Ontario’s Superior Court of Justice the court was asked to rule on a motion for summary judgment brought by the Plaintiff, a litigation loan company.
The Plaintiff, a litigation loan company, sued the law firm and its partners for loans it gave to the law firm. The terms of the loans were that they would be repaid when the firm settled the cases. As it transpired, the loans were not repaid and the partner who arranged for the loans had passed away.
Furthermore, the partner who had passed away had signed for the loans had forged signatures on behalf of his clients.
The loan company sued the law firm on the basis that the law firm was responsible for replaying the loans on the basis that they were liable under the Partnerships Act, RSO 1990 c. P.5.
Justice Morgan held that the liability for the loans attaches to a partner despite the fact that the partner did not participate or authorize the acts of another partner on which liability is based.
Lessons to Learn
The critical lesson to take from this unfortunate set of circumstances is that partners should be careful about the activities of their other partners. It is important to determine who signs contracts on behalf of a partnership and how those contracts are vetted.
We all want to trust our business partners to do the right thing, but a robust accountability system is important when the firm and other partners’ liabilities are implicated in transactions.