MENDIOLA, ROSSEANNE GAYLE THERESE

Litton v. Hill & Ceron

67 Phil. 509 (1935)

Area of Law on Agency Covered: Partner’s Right to Manage Partnership—Effect

of Designation of Managing Partner in Articles of Partnership

SALIENT FACTS:

1. Hill & Ceron is a partnership with a business enterprise of brokerage.

2. Ceron, one of the managing partners of Hill & Ceron bought several mining
claims from Litton for the price of P1,870.

3. Ceron received the share certificates for the mining claims and paid to Litton
the sum of P1,150, leaving an unpaid balance of P720.

4. Unable to collect the unpaid balance from Hill & Ceron, Litton filed a complaint
against the partnership, Hill, and Ceron, for the recovery of the balance.

5. The Court of First Instance held Ceron personally liable to Litton and absolved
the partnership.

6. The Court of Appeals affirmed the decision of the CFI, having reached the
conclusion that Ceron did not intend to represent and did not act for the firm
Hill & Ceron in the transaction to buy the mining claims. s

7. Hill did not consent to the purchase made by Ceron, and even advised Litton
not to deliver the shares for sale to Ceron because the partnership was being
dissolved soon, but the sale was made while the partnership was still
subsisting and was yet to be dissolved.

ISSUES: Is the partnership firm Hill & Ceron liable for the unpaid balance to Litton
even though the purchase was made only by Ceron, without the consent of Hill?

SUPREME COURT HELD:

Resolution of the Issue: Yes, the transaction that Ceron individually entered
into by Ceron with Litton was effected by Hill & Ceron and is binding upon the
partnership.
Law Applicable to the ISSUE and FACTS: Article 1818 of the Civil Code
provides that “every partner is an agent of the partnership for the purpose of its
business, and the act of every partner, including the execution in the partnership
name of any instrument, for apparently carrying on in the usual way the business of
the partnership of which he is a member binds the partnership, unless the partner so
acting has in fact no authority to act for the partnership in the particular matter, and
the person with whom he is dealing has knowledge of the fact that he has no such
authority.”

Application of the Law Cited to the Facts of the Problem: The articles of
partnership entrusted the management of the partnership to both Hill & Ceron so the
act of just one of the managing partners will be enough to bind the partnership.
Therefore, there is a general presumption that each partner is an authorized agent of
the firm and that he has the authority to bind the firm in carrying on the partnership
transaction. Third parties, such as Litton, may rely on the presumption that the
partner he is transacting with is acting on the firm’s behalf within the scope of his
authority especially if the transaction is in the ordinary course of business of the
partnership.

Doctrine of the Case: When the management of a business is entrusted to all

the partners, third persons transacting with a partner can generally presume that the
partners are each authorized agents of the partnership and the partner’s acts in the
ordinary course of business of the partnership will make the firm liable.

MY CRITIQUE AND ANALYSIS:

An attribute of a partnership is mutual agency. The individual acts of partners

will bind the partnership as well as the other partner-members. From this arises a
general presumption that third parties can comfortably rely that their dealings with a
partner will make the partnership and the other partners liable too.

In this case, it is held that a stipulation in the articles of partnership requiring

the consent of the other partners by one partner before entering a transaction with a
third person serves only as an obligation between the partners. Third parties need
not ascertain if the consent of the other partners despite the existence of the
stipulation because the articles of partnership is an intra-partnership document that
only bind the partners. This is unlike in dealing with an agent, where the third party
dealing with an agent is bound at their own peril to ascertain the scope of authority of
the agent. Thus, third parties can rely on the presumption that the partner they are
dealing with has the authority and has gained the consent of the other partners.

Unlike in a contract of agency where the agent acting in his own name will
generally not bind the principal except when the transaction involves the property of
the principal, a partner acting in his own name will still bind the partnership and the
other partner-members. If the third party transacts with a partner acting in his own
name is within the ordinary course of business of the partnership, there is a general
presumption that the transaction will bind the partnership and the other partners.
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