Cox Enterprises, Inc. v. Filip
538 S.W.2d 836, 1976 Tex. App. LEXIS 2947 (1976)
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Rule of Law:
Under the Texas Uniform Partnership Act, partnership liability by estoppel requires that a person either represents themselves as a partner or consents to being represented as one; a negligent failure to discover that one is being held out as a partner by another is insufficient to establish consent and impose liability.
Facts:
- Richard Filip was the owner of a business called Trans Texas Properties.
- Jack Elliott had no ownership interest in Trans Texas Properties.
- An employee of Trans Texas Properties, Tracey Peoples, completed a credit application with Cox Enterprises, Inc. for newspaper advertising.
- On the credit application, Peoples represented that Elliott was an owner of the business.
- Elliott did not authorize Peoples to make this representation.
- Relying on Peoples' representation, Cox Enterprises extended credit and provided $622.78 worth of advertising services to Trans Texas Properties.
- Cox Enterprises made no effort to independently verify whether Elliott was an owner.
Procedural Posture:
- Cox Enterprises, Inc. sued Richard Filip and Jack Elliott in the county court at law of Travis County for an unpaid debt on a sworn account.
- After a trial to the court, the trial court entered a take-nothing judgment in favor of Elliott, but found Filip liable for the full amount.
- Upon request, the trial court issued findings of fact that Elliott was not an owner and did not consent to being represented as one.
- Upon a further request, the trial court found that Elliott, in the exercise of ordinary care, should have known he was being held out as an owner.
- Cox Enterprises, Inc., as appellant, appealed the take-nothing judgment in favor of Elliott, as appellee, to the Court of Civil Appeals of Texas.
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Issue:
Does a person become liable as a partner by estoppel under the Texas Uniform Partnership Act, § 16(1), when they do not consent to being represented as a partner, even if they were negligent in not discovering that a third party was making such a representation to a creditor?
Opinions:
Majority - Shannon, Justice
No. A person is not liable as a partner by estoppel unless they consent to being held out as a partner. The Texas Uniform Partnership Act, § 16(1), imposes a duty on a person to deny a partnership representation only once they know that third persons are relying on it. The statute does not create an affirmative duty to seek out and discover all instances where one might be represented as a partner. The trial court found as a matter of fact that Elliott did not consent to Peoples' representation, and this finding was supported by the evidence. The additional finding that Elliott, in the exercise of ordinary care, should have known about the representation is insufficient to establish the consent required for liability under the statute.
Analysis:
This decision clarifies the scope of the "consent" requirement for establishing a partnership by estoppel under the Uniform Partnership Act. It sets a clear boundary against imposing liability based on a negligence standard, protecting individuals from being held liable for business debts they were not even aware of. The ruling reinforces that the burden is on the creditor to prove actual consent, not just a failure to be vigilant. This precedent underscores the importance of due diligence for creditors, who cannot simply rely on the representations of a company's employee about its ownership structure.
