Bar Exam (Next Generation) Quiz: Formation Management And Control Of General Partnerships

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Formation Management And Control Of General PartnershipsQuestion 1 of 11

Alex, Bea, and Chris are equal partners in a general partnership that owns and operates five delivery vans. The partnership agreement is silent on asset sales. Alex and Bea vote to sell one van that has reached the end of its useful life and to use the proceeds as the down payment on a newer van under a standard purchase contract already negotiated. Chris objects, arguing that the sale requires unanimous consent.

The applicable statute provides: Section 401(j): A difference arising as to a matter in the ordinary course of the partnership business may be decided by a majority of the partners. An act outside the ordinary course of the partnership business may be undertaken only by the consent of all partners. Section 405: For purposes of Section 401(j), a disposition of partnership property is in the ordinary course of the partnership business if the property is inventory or if the disposition is accompanied by, or reasonably intended to be followed by, the acquisition of comparable property for use in the ongoing business. A disposition of all or substantially all of the partnership's assets is not in the ordinary course.

Was the sale of the van authorized?

Yes, because the sale is in the ordinary course under Section 405 and was approved by a majority of the partners.

Yes, because any partner may sell and replace a partnership asset without a vote when the sale is in the ordinary course.

No, because a delivery van is a capital asset, and the sale of a capital asset is never in the ordinary course.

No, because only two of three partners approved, and every disposition of partnership property requires unanimous consent.

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Bar Exam (Next Generation) Quiz

Bar Exam (Next Generation) Quiz: Formation Management And Control Of General Partnerships

Practice Formation Management And Control Of General Partnerships in Bar Exam (Next Generation) with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

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This quiz focuses on Formation Management And Control Of General Partnerships, giving you a quick way to practice the rules, question types, and explanations that matter most for Bar Exam (Next Generation).

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Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

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Question 1

Was the sale of the van authorized?

Yes, because the sale is in the ordinary course under Section 405 and was approved by a majority of the partners. (correct answer)
Yes, because any partner may sell and replace a partnership asset without a vote when the sale is in the ordinary course.
No, because a delivery van is a capital asset, and the sale of a capital asset is never in the ordinary course.
No, because only two of three partners approved, and every disposition of partnership property requires unanimous consent.

Explanation: Whenever you see a partnership action question, start by classifying the action: ordinary-course matters need only a majority, while outside-ordinary-course actions require unanimity. Here, the statute's Section 405 supplies the key rule: a disposition is ordinary-course if it is accompanied by, or reasonably intended to be followed by, acquisition of comparable property for the ongoing business. Selling one worn-out delivery van and using the proceeds as a down payment on a newer van fits that definition exactly. Also, one van out of five is not "all or substantially all" of partnership assets, so the unanimity exception does not apply. Therefore, the sale was authorized by Alex and Bea's majority vote. The wrong answers each miss part of the statute. The choice saying "any partner may sell and replace a partnership asset without a vote" confuses ordinary-course status with unilateral authority; when Chris objects, the "difference" must be decided by a majority, not by one partner. The claim that "a delivery van is a capital asset, and the sale of a capital asset is never in the ordinary course" ignores Section 405's explicit inclusion of disposition-plus-replacement of comparable property; capital assets can be replaced in the ordinary course. Finally, the argument that "every disposition requires unanimous consent" contradicts Section 401(j), which requires unanimity only for acts outside the ordinary course or for substantially all assets. Your takeaway: when a statute defines ordinary course, apply its factors precisely — sale plus comparable replacement means majority vote, not unanimity.

Question 2

Rosa, Sam, and Ty are equal partners in a general partnership. Without Sam's or Ty's consent, Rosa executes a written assignment to her daughter Una of all of Rosa's transferable interest in the partnership, including the right to receive distributions, to participate in management, and to inspect the partnership's books and records. Later, Rosa and Sam vote to admit Una as a partner; Ty refuses.

The applicable statute provides: Section 401(i): A person may become a partner only by the consent of all partners. Section 503(a): A partnership interest is transferable in whole or in part. A transfer of a partnership interest does not by itself dissolve the partnership or make the transferee a partner. Section 503(b): A transferee of a partnership interest is entitled to receive, to the extent transferred, distributions to which the transferor would otherwise be entitled. A transferee is not entitled to participate in the management or conduct of the partnership business, to require access to information concerning partnership transactions, or to inspect or copy the partnership books or records.

Which of the following most accurately describes Una's rights with respect to the partnership?

Una is entitled to receive Rosa's distributions and to inspect the partnership books, because Rosa's assignment expressly included those rights.
Una is entitled to receive Rosa's distributions, but she may not participate in management or inspect the partnership's books because she is not a partner. (correct answer)
Una became a partner when Rosa assigned her the entire interest, but the later vote was ineffective because Ty refused to consent.
Una has no rights against the partnership because Rosa's assignment was invalid without the consent of all partners.

Explanation: Whenever you see a partnership transfer question, separate the economic interest from partner status. A partner can transfer her right to distributions, but she cannot transfer the right to be a partner or to exercise management powers. Here, Rosa's assignment to Una is valid as a transfer of Rosa's transferable interest. Section 503(a) expressly says a transfer does not make the transferee a partner, and Section 503(b) gives Una the right to receive Rosa's distributions but denies management participation and access to books. So Una has economic rights only. The later vote to admit Una fails because Section 401(i) requires consent of all partners, and Ty refused. Now examine the wrong choices. "Una is entitled to receive Rosa's distributions and to inspect the books because the assignment expressly included those rights" misunderstands that Rosa cannot transfer what Section 503(b) withholds from a transferee; express language cannot override the statute. "Una became a partner when Rosa assigned her the entire interest" ignores both Section 503(a) and the unanimous-consent requirement. Finally, "Una has no rights because the assignment was invalid without consent" is wrong because the statute explicitly allows transfer of the economic interest without consent; only admission as a partner requires unanimity. Your takeaway: on bar-exam partnership questions, ask first whether the issue is economic rights or management rights. Transferees get distributions, not governance—unless all partners unanimously agree to admit them.

Question 3

Kai, Lena, and Mia are partners in a business that operates three hardware stores. The partnership agreement is silent about management authority. Without consulting Lena or Mia, Kai signed a contract to sell the flagship store's entire building, leasehold, and customer goodwill to a competitor. The competitor knew Kai was a partner and believed Kai had authority to sign. Lena and Mia want to rescind the sale. Which issue is most significant?

Which issue is most significant?

Whether Lena and Mia's failure to monitor Kai's business activities prevents them from objecting to the sale.
Whether the competitor's reasonable belief that Kai had authority makes the contract enforceable against the partnership despite the other partners' objection.
Whether the sale of the entire building, leasehold, and customer goodwill was the sort of transaction that, under the partnership's default rules, required the consent of all three partners. (correct answer)
Whether Kai is entitled to compensation for the time he spent negotiating the sale on the partnership's behalf.

Explanation: Whenever you see one partner unilaterally making a major deal, ask first: was this an ordinary-course decision or an extraordinary one? Under the default partnership rules, ordinary business matters can be decided by a majority of partners, but transactions outside the ordinary course—especially disposing of major assets like an entire store building, leasehold, and goodwill—require unanimous consent of all partners. Here that threshold issue is the most significant: if the sale required all three partners' consent, then Kai had no actual authority to bind the partnership, and the competitor's good faith cannot cure that fundamental defect because apparent authority only reaches acts in the ordinary course of partnership business. Lena and Mia's failure to monitor Kai is not a genuine barrier: they don't forfeit their right to object merely by being passive, absent some affirmative holding-out or estoppel behavior. And the competitor's reasonable belief, while relevant to apparent authority, is not dispositive—he can't rely on apparent authority to validate a transaction that was never within Kai's default authority in the first place. Kai's possible compensation for negotiating time is a distraction: partners generally aren't entitled to payment for partnership services, and even if Kai earned something, it wouldn't make the sale enforceable against the others. So focus on whether the transaction was extraordinary; if it was, unanimity was required and the sale can be rescinded.

Question 4

Three partners — Priya, Quinn, and Raj — own and operate Valley Print Co. as a general partnership. The partnership agreement is silent on management and voting. Priya contributed 70% of the capital and is entitled to 70% of profits and losses; Quinn and Raj each contributed 15% and are each entitled to 15%. At a meeting, Priya proposes that the partnership sign a one-year contract with a new paper supplier at market rates. Quinn and Raj vote no; Priya votes yes.

The applicable statute provides: Section 401(f): Each partner has equal rights in the management and conduct of the partnership business. Section 401(j): A difference arising as to a matter in the ordinary course of the partnership business may be decided by a majority of the partners. An act outside the ordinary course of the partnership business may be undertaken only by the consent of all partners. Section 401(k): For purposes of this section, each partner has one vote regardless of the partner's share of capital, profits, or losses.

Is Valley Print authorized to enter into the proposed supply contract?

Yes, because Priya owns a majority of the economic interests and the contract is in the ordinary course.
Yes, because the contract is in the ordinary course and therefore requires only the consent of a partner with management authority.
No, because the contract is outside the ordinary course of the partnership business and therefore requires unanimous consent.
No, because only one of three partners voted for the contract, and a majority of partners, not economic interests, is required. (correct answer)

Explanation: Whenever you see a partnership voting question, check the statute first: ordinary-course decisions are made by a majority of partners, with each partner getting one vote unless the agreement says otherwise. Here, the partnership agreement is silent, and Sections 401(f), (j), and (k) establish equal management rights and one vote per partner regardless of economic share. The proposed supply contract is a one-year paper supplier agreement at market rates — that is squarely in the ordinary course of a printing business. So it needs only a majority of the partners, not unanimous consent. The vote was Priya yes, Quinn and Raj no: only one of three partners approved. A majority means at least two, so Valley Print is not authorized to enter the contract. The choice saying "Yes, because Priya owns a majority of the economic interests" misses the statutory rule that capital shares do not control voting — Section 401(k) gives each partner one vote. The choice saying "Yes, because the contract is in the ordinary course and requires only consent of a partner with management authority" is also wrong: ordinary-course decisions require a majority of partners, not unilateral action by one partner. The choice saying "No, because the contract is outside the ordinary course and requires unanimous consent" misclassifies the contract; market-rate supply contracts are ordinary, not extraordinary. Study tip: on bar exam partnership questions, immediately identify whether the act is ordinary or extraordinary, then count partners — not dollars.

Question 5

Nadia and Owen are partners in a marketing firm. Their partnership agreement says neither partner may sign a contract for more than $10,000 without the other's written consent. Nadia nonetheless signed a $30,000 contract with Beta Corp. for marketing services. Both Nadia and Owen agree that this type of contract was within the firm's ordinary business. Beta's chief executive had read the partnership agreement a year earlier and remembers the $10,000 limit, but signed without asking Nadia about it. Owen wants the firm to reject the contract. Which issue is most important in deciding whether the partnership is bound?

Which issue is most important in deciding whether the partnership is bound?

Whether Beta's chief executive's knowledge of the $10,000 limit prevents Beta from holding the partnership to the contract. (correct answer)
Whether the contract was within the firm's ordinary business despite its unusually large dollar amount and one-time nature.
Whether Nadia's signing of the contract was authorized by the partnership agreement or by the other partner.
Whether Owen's refusal to honor the contract is a breach of the partners' fiduciary duties to each other.

Explanation: Whenever you see a partnership question involving a contract signed by one partner, separate actual authority (what the partnership agreement gives) from apparent authority (what a reasonable third party may assume). Actual authority is limited here by the $10,000 consent requirement, so Nadia could not bind the firm by agreement alone. The key question is whether Beta can rely on her apparent authority to bind the partnership through an act in the firm’s ordinary business. Beta’s chief executive had read the partnership agreement and remembered the $10,000 limit. A third party who actually knows the partner lacks authority cannot claim apparent authority. That knowledge is therefore the most important issue: if Beta knew Nadia was exceeding her authority, the partnership is not bound. This makes the choice about the CEO's knowledge correct. The choice about whether the contract was within ordinary business is relevant but not decisive, because ordinary business only creates apparent authority when the third party is unaware of the limitation. The choice about whether Nadia's signing was authorized misses the point: the agreement clearly did not authorize it, but apparent authority could still bind the firm despite that. Finally, Owen's refusal as a fiduciary duty issue is a distractor; Owen is not breaching a duty by refusing to accept a contract he believes is unauthorized, and fiduciary duties are not the basis for deciding whether the firm is bound. Study tip: when a third party knows a partner lacks authority, stop — apparent authority disappears. Knowledge of the limitation is the trump card.

Question 6

Garza, Nguyen, and Patel are partners in a general partnership operating a wholesale produce business. The partnership agreement states that no partner may enter into a contract for more than $15,000 without the prior approval of all partners. The partnership files a statement of authority containing the same limitation. Patel, without seeking approval, contracts with FreshMart to sell $40,000 of produce over the next six months. The produce sale is in the ordinary course of the partnership business. Before signing, FreshMart received a copy of the filed statement of authority but did not read it.

The applicable statute provides: Section 301(a): Each partner is an agent of the partnership for the purpose of its business. An act of a partner for apparently carrying on in the ordinary course of the partnership business binds the partnership, unless the partner had no actual authority and the person with whom the partner dealt knew or had notice of the lack of authority. Section 302(c): A limitation on a partner's authority contained in a filed statement of authority is notice to a third party if the third party receives a copy of the statement before entering into the transaction, even if the third party does not read it.

Is the partnership bound by Patel's contract with FreshMart?

Yes, because Patel's act was in the ordinary course and FreshMart did not have actual knowledge of the limitation.
Yes, because a partnership cannot use an internal agreement to limit the apparent authority of a partner.
No, because Patel lacked actual authority and FreshMart had notice of the limitation before contracting. (correct answer)
No, because Patel lacked actual authority, and a partner can bind the partnership only by acting with actual authority.

Explanation: Whenever you see a question about a partner's authority to bind the partnership, focus on two things: whether the act was in the ordinary course of business, and whether the third party knew or had notice of any limitation on that authority. Here, Patel's produce sale was clearly ordinary course, so under Section 301(a) he would normally bind the partnership. But that same section carves out an exception: if Patel lacked actual authority and the third party had notice of that lack, the partnership is not bound. Patel lacked actual authority because the partnership agreement required unanimous approval for contracts over $15,000. The key twist is Section 302(c): a filed statement of authority provides constructive notice to any third party who receives a copy before the transaction, even if they never read it. FreshMart received that copy, so they had notice. Therefore, the partnership is not bound. Now look at the wrong answers. The first says "yes because FreshMart did not have actual knowledge"—but actual knowledge is not needed; notice suffices. The second says "a partnership cannot use an internal agreement to limit apparent authority"—that's generally true, but here the filed statement turned the internal limitation into external notice, so it can limit. The last says "a partner can bind the partnership only by acting with actual authority"—that's false; apparent authority alone can bind in ordinary course. Remember: filing a statement of authority converts a private limitation into constructive notice—always check whether the third party received it.

Question 7

Mei owns and operates a food-packaging business as a sole proprietor. To expand, she borrowed $200,000 from her former colleague Nina. The loan agreement provides that Nina will receive 40% of the business's net profits, payable quarterly, until the loan and interest are fully repaid. The agreement also states that, after repayment, Nina will receive 5% of net profits for three years as compensation for consulting services she will provide. Nina provides monthly marketing advice but has no right to control the business's operations, no obligation for its losses, and no interest in its assets. A supplier later seeks to hold Nina liable as a partner.

The applicable statute provides: Section 202(c): In determining whether a partnership is formed, a person who receives a share of the profits of a business is presumed to be a partner unless the profits were received in payment of a debt by installments or otherwise, or for services as an independent contractor. A person who receives profits in either capacity is not a partner merely because of that receipt.

Is Nina a partner in Mei's business?

Yes, because Nina receives a share of net profits both before and after the loan is repaid.
Yes, because the continuing profit share after repayment is not a debt payment and is evidence of co-ownership of the business.
No, because the pre-repayment share is debt repayment and the post-repayment share is compensation for independent-contractor services. (correct answer)
No, because Nina did not intend to form a partnership and did not exercise control, both of which are prerequisites to partnership formation.

Explanation: Whenever you see a profit-sharing arrangement in a partnership question, your first move should be to test the statutory exceptions. Under Section 202(c), sharing profits creates a presumption of partnership, but that presumption is rebutted when the profits are received as debt installment payments or as compensation to an independent contractor. Here, Nina's 40% share before repayment is exactly a debt installment: she loaned $200,000 and is being repaid from the business's net profits. Her 5% share after repayment is expressly described as compensation for consulting services she will provide. She gives monthly marketing advice, has no control over operations, bears no loss obligation, and has no interest in the business's assets—all consistent with independent-contractor status. Therefore, Nina is not a partner. The answer claiming "Yes, because Nina receives a share of net profits both before and after the loan is repaid" ignores that both profit shares fall within statutory exceptions. The answer claiming "Yes, because the continuing profit share after repayment is not a debt payment and is evidence of co-ownership" wrongly equates profit sharing with co-ownership; under the statute, compensation for services does not create ownership. The answer saying "No, because Nina did not intend to form a partnership and did not exercise control" reaches the right result but for the wrong reason: intent is not a formal prerequisite, and control is not required for partnership formation. The decisive fact is that both profit shares are statutorily excepted. Study tip: whenever a person receives profits, ask immediately—is this a debt payment or independent-contractor compensation? If yes, it does not make the recipient a partner.

Question 8

Ari contributed $80,000 to a business operated by Bea. Their written agreement, titled 'Loan Agreement,' says Ari will receive 30% of the business's net profits until the $80,000 is repaid, and then 30% of net profits thereafter. Ari also has the right to inspect Bea's financial records and must approve any new borrowing over $10,000. The agreement states that Ari is 'not a partner.' The business later defaults on a debt to a supplier, and the supplier seeks to hold Ari liable as a partner. Which legal issue is most significant in determining whether Ari is a partner?

Which legal issue is most significant in determining whether Ari is a partner?

Whether the agreement's statement that Ari is 'not a partner' conclusively prevents a partnership from existing despite the parties' actual conduct.
Whether Ari's continuing right to receive net profits after repayment, together with her approval rights over new borrowing, shows that Ari and Bea were carrying on the business as co-owners. (correct answer)
Whether Ari's right to inspect Bea's financial records and to approve new borrowing gave Ari day-to-day control of the business.
Whether the supplier extended credit to the business in reliance on Ari's name appearing in the written agreement rather than on Bea's individual credit.

Explanation: Whenever you see a partnership-liability question, focus on the statutory test: did Ari and Bea "carry on" the business "as co-owners" for profit? Labels, creditor reliance, and creditor-style safeguards can mislead you; the central issue is whether Ari had an ownership stake. Here, Ari's 30% share of net profits continues even after the $80,000 is repaid. That ongoing profit share is strong evidence of co-ownership, not just loan repayment. Her right to approve any new borrowing over $10,000 also gives her meaningful influence over the business's capital structure—something beyond a passive lender. Together, these facts show Ari and Bea were carrying on the business as co-owners, which is the most significant issue. The agreement's statement that Ari is "not a partner" is not conclusive; parties cannot contract around actual partnership status if their conduct shows co-ownership. Ari's right to inspect records and approve borrowing does not amount to day-to-day control; those are protective rights typical of lenders or investors, not evidence of managing operations. The supplier's reliance on Ari's name could matter for liability by estoppel or apparent partnership, but that is a separate theory—not the key issue for whether Ari is an actual partner. Remember: ongoing profit sharing plus governance rights points to co-ownership. Ask yourself, "Would a lender demand these rights, or only an owner?" That question helps separate true partners from creditors.

Question 9

Dan, Eva, and Frank are partners in a business that operates three restaurants. Their partnership agreement is silent about the sale of partnership assets. Without consulting Eva or Frank, Dan signs a contract to sell the partnership's central commercial kitchen building, where all food for the three restaurants is prepared, to a real estate developer. The developer knows Dan is a partner, has no reason to think Eva and Frank were not consulted, and has already paid a substantial deposit. Eva and Frank want to cancel the sale.

Which of the following issues is most important in determining whether the partnership is bound by the contract to sell the building?

Whether Dan's equal right to manage the partnership's business gave him authority to sell the building without consulting Eva and Frank.
Whether the developer's good-faith belief that Dan had authority to sell the building is sufficient to bind the partnership to the contract.
Whether the contract is unenforceable under the Statute of Frauds because Eva and Frank did not sign it.
Whether the sale of the building was outside the ordinary course of the partnership's business and therefore required the unanimous consent of all three partners. (correct answer)

Explanation: Whenever a partner claims to bind the partnership, start by asking whether the act was in the ordinary course of partnership business. Ordinary acts can be done by an individual partner under equal management rights; extraordinary acts—like selling a central asset—require unanimous consent unless the partnership agreement says otherwise. Here the agreement is silent, so the critical inquiry is whether selling the central commercial kitchen building is outside the ordinary course. If it is, Dan could not act alone; the contract is not binding without Eva and Frank's consent. Dan's equal right to manage does not answer the question: equal management rights extend to ordinary matters, not to unilateral sale of a major partnership asset. The developer's good-faith belief also is not dispositive; while good faith can support apparent authority in ordinary transactions, it cannot supply actual authority for an extraordinary disposition without consent. The Statute of Frauds is a red herring: a land-sale contract generally needs a writing, but Dan signed on behalf of the partnership; the issue is whether he had authority to sign, not whether Eva and Frank's signatures appear. Therefore, when a partner makes an extraordinary sale, look first for unanimous consent or an agreement provision authorizing it; otherwise the partnership is not bound.

Question 10

Lena owns a graphic design business as a sole proprietor. She asks Omar, a well-known marketing executive, to allow her to describe him as 'Partner' on her website and business cards to attract clients. Omar agrees. Nordic Coffee's CEO sees the website and is impressed by Omar's name. Before signing a $100,000 branding contract, Nordic's lawyer emails Omar, who replies: 'I am not an owner of Lena's business; I am just a consultant.' Nordic signs the contract anyway. When the campaign is defective, Nordic seeks to hold Omar liable as a partner.

The applicable statute provides: Section 308(a): A person who, by words or conduct, purports to be a partner, or consents to another person's representation that the person is a partner, is liable to a person who extends credit or deals with the actual or purported partnership in reasonable reliance on the representation. Section 308(b): A person is not liable under this section if the person seeking to hold the person liable knew, before entering into the transaction, that the person was not a partner. Section 308(c): Receipt of profits is not required for liability under this section.

Can Nordic hold Omar liable under Section 308?

Yes, because Omar consented to the website representation and Nordic relied on his name and reputation in signing the contract.
Yes, because Omar is estopped from denying partnership after allowing the website to describe him as a partner.
No, because Nordic knew before signing that Omar was not a partner, and the statute requires reliance on the representation that he was. (correct answer)
No, because Omar received no profits from the contract and did not actually participate in planning or performing the work.

Explanation: Whenever you see a question about apparent partnership or liability by estoppel, focus on the statutory elements—especially the timing of the creditor's knowledge. Here, Omar's website label and his consent satisfy Section 308(a), but Section 308(b) creates a shield: no liability if the claimant knew, before entering the transaction, that the person was not a partner. Nordic's lawyer emailed Omar before signing, and Omar plainly stated he was not an owner, only a consultant. From that moment, Nordic knew he was not a partner. It signed anyway, so it cannot say it reasonably relied on the representation that he was. The statute requires reliance on the partnership representation, not merely reliance on Omar's name and reputation. That is why the correct answer is no, because Nordic knew before signing. The first yes-answer—that Omar consented and Nordic relied on his name—fails because it ignores the critical pre-signing disclaimer. The second yes-answer, estopping Omar from denying partnership, likewise misses that estoppel requires justifiable reliance, and Nordic's actual knowledge destroyed that reliance. The no-answer about receiving no profits is also wrong: Section 308(c) expressly says profit receipt is not required, and liability under this section does not depend on actual participation. Study tip: read statutes for explicit "knew before entering" exceptions. If a claimant learns the truth before the deal, reliance is gone—no matter how impressive the original website was.

Question 11

Priya and Raj are partners in a hardware store. Their partnership agreement states that neither partner may purchase goods for the store costing more than $5,000 without the other partner's written consent. For several years, Priya has bought supplies for the store from Northern Supply Co. Last month, when Raj paid Northern's invoice in person, Raj told Northern's manager, "Do not let Priya order anything over $5,000 without my written approval from now on." This week, Priya signed a purchase order for $18,000 of lumber from Northern, telling the manager, "Raj already approved this in writing." Raj did not approve the purchase, and he refuses to accept the lumber.

Which of the following issues is most important in determining whether the partnership must pay Northern for the lumber?

Whether purchasing lumber for the hardware store was within the ordinary course of the partnership's business.
Whether Raj's warning to Northern's manager gave Northern notice that Priya could not buy more than $5,000 without Raj's written consent. (correct answer)
Whether Northern's manager reasonably relied on Priya's statement that Raj had already approved the purchase in writing.
Whether the $5,000 limit in the partnership agreement is enforceable between Priya and Raj.

Explanation: This question tests the line between actual authority (what Priya and Raj agreed to) and apparent authority (what Northern reasonably believed Priya could do). A partnership can be bound by a partner's ordinary-course actions, but a third party who has actual notice of a limit cannot later claim apparent authority. The decisive issue is whether Raj's warning to Northern's manager gave Northern notice that Priya lacked authority to order over $5,000 without his written consent. If that warning was clear enough, Northern knew Priya was exceeding her authority, so the partnership should not be bound. Priya’s statement that “Raj already approved this in writing” cannot restore authority the third party knows she does not have. “Whether purchasing lumber was within the ordinary course” is not the best answer: buying lumber for a hardware store probably is ordinary, but even an ordinary purchase can be unauthorized if the third party knows of the restriction. “Whether Northern’s manager reasonably relied” is also wrong because, after Raj’s warning, any reliance on Priya’s unsupported oral assurance was not reasonable. “Whether the $5,000 limit is enforceable between Priya and Raj" misses the point: the agreement may bind the partners internally, but it does not affect Northern unless Northern knew about it. On exam day, when a partner exceeds an internal limit, ask: did the outsider have notice? Notice defeats apparent authority.