McBride Law Blog

Can I Be Held Liable as Partner When in Fact I Am Not? (Part 2)

McBride Law Blog

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Cox Enterprises, Inc. v. Filip.

In Cox Enterprises, Inc. v. Filip, Filip was owner of Trans Texas Properties and Elliott was not. [1] One of its employees filled out a credit application to obtain newspaper advertising services for the business and falsely listed Elliott as an owner.[2] The employee had no authority to make such representation and Elliott did not hold himself out to the advertising company as having any ownership interest.[3] The advertising company relied on the employee’s representation that Elliott was an owner and rendered its services to the business on credit, but made no effort to verify the accuracy of the representation.[4]

The trial court concluded that Filip, as the owner of the business, was liable for the advertising services, but Elliott was not, because he was not an owner, did not hold himself out as an owner, and did not authorize anyone to represent him as an owner.[5] At the time this case came out, Texas had a different governing statute, Texas Uniform Partnership Act, which, like the current statute, codified the principle of partnership by estoppel as follows: “When a person, . . . , represents himself, or consents to another representing him to any one, as a partner . . . , he is liable to any such person . . . who has, on the faith of such representation, given credit to the actual or apparent partnership . . . .”[6]  On appeal, the advertising company argued that the statute meant that one who negligently holds himself out or permits himself to be held out as a partner is liable.[7] The appeals court, however, did not find any evidence that Elliott negligently held himself out as a partner (i.e., by consenting to the employee’s false representation) and affirmed the trial court’s judgment that Elliott was not liable.[8]

In other words, here, the court found no partnership by estoppel because there was no representation of partnership, negligent or otherwise, by the purported partner. But what if there is? The clear inference from the court’s finding is that if Elliott had made a statement that he was a partner he could have been liable.

This post was a part of a multi-post blog series on partnership by estoppel.  In our next post, we will look at Branscome v. Schoneweis,[9] a case where the court did find negligent false representation of partnership.

This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances.  This article should not be treated as legal advice to any person or entity.

Steps have been taken to verify the contents of this article prior to publication.  However, readers should not, and may not, rely on this article.  Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.

About the Author

Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C., which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. Shawn can be contacted at: (214) 418-0258; shawn.mcbride@rsmlawpllc.com, or www.mcbrideattorneys.com.

[1] See generally Cox Enters., Inc. v. Filip, 538 S.W.2d 836 (Ct. App.–Austin 1976).

[2] Id. at 837.

[3] Id.

[4] Id.

[5] Id.

[6] Id. at 838 (citing Tex. Rev. Civ. Stat. Ann. art. 6132b, § 16(1) (1970)).

[7] Id. (emphasis added).

[8] Id.

[9] 361 F.2d 717 (7th Cir. 1966).

Posted In: Choice of Entity, Partnerships, Texas Law Update, Uncategorized

Facebooktwittergoogle_pluslinkedinmailAbout the Author Shawn works successful, private business owners in their growth and missions to make a company that stands the test of time. You can email or call (214) 418-0258.

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