A dissociated partner has no actual authority to act for the partnership. See Section 603(b)(1). Nevertheless, in order to protect innocent third parties, Section 702(a) provides that the partnership remains bound, for two years after a partner's dissociation, by that partner's acts that would, before his dissociation, have bound the partnership under Section 301 if, and only if, the other party to the transaction reasonably believed that he was still a partner, did not have notice of the partner's dissociation, and is not deemed to have had knowledge of the dissociation under Section 303(e) or notice thereof under Section 704(c).

Under Section 301, every partner has apparent authority to bind the partnership by any act for carrying on the partnership business in the ordinary course, unless the other party knows that the partner has no actual authority to act for the partnership or has received a notification of the partner's lack of authority. Section 702(a) continues that general rule for two years after a partner's dissociation, subject to three modifications.

After a partner's dissociation, the general rule is modified, first, by requiring the other party to show reasonable reliance on the partner's status as a partner. Section 301 has no explicit reliance requirement, although the partnership is bound only if the partner purports to act on its behalf. Thus, the other party will normally be aware of the partnership and presumably the partner's status as such.

The second modification is that, under Section 702(a), the partnership is not bound if the third party has notice of the partner's dissociation, while under the general rule of Section 301 the partnership is bound unless the third party knows of the partner's lack of authority. Under Section 102(b), a person has "notice" of a fact if he knows or has reason to know it exists from all the facts that are known to him or he has received a notification of it. Thus, the partnership may protect itself by sending a notification of the dissociation to a third party, and a third party may, in any event, have a duty to inquire further based on what is known. That provides the partnership with greater protection from the unauthorized acts of a dissociated partner than from those of partners generally.

The third modification of the general apparent authority rule under Section 702(a) involves the effect of a statement of dissociation. Section 704(c) provides that, for the purposes of Sections 702(a)(3) and 703(b)(3), third parties are deemed to