Short answer. No. Article 1818 binds the partnership to a partner's acts done in the usual course of business unless the partner had no actual authority and the other party knew he lacked it. Since the third party already knew the partner had no authority, that knowledge defeats the partnership's usual liability.
What the law says
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.
Civil Code, Article 1818 — Partner as Agent of the Partnership. Read the full provision →
The general rule of apparent authority, and its exception
Article 1818 makes every partner an agent of the partnership and generally binds the partnership to acts for apparently carrying on in the usual way the business of the partnership. That protection for outsiders exists precisely so people dealing with a partner do not have to investigate the partner's internal authority every time. But the same sentence carves out an exception: the act does not bind the partnership when the acting partner in fact has no authority for that particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority.
Why the third party's knowledge changes everything
Apparent authority is meant to protect someone who reasonably relies on how a partner appears to be acting for the partnership. That justification disappears once the other party actually knows the partner has no authority for the deal. A person who deals with a partner despite knowing the partner cannot bind the partnership on that particular matter is not an innocent third party relying on appearances; they are proceeding with their eyes open, and the law does not extend the partnership's liability to cover that choice.
Both conditions have to be met
The exception in Article 1818 requires two things together: the partner must genuinely lack authority for that particular matter, not merely be acting outside what someone might consider ideal judgment, and the other party must actually know of that lack of authority, not merely have reason to suspect it or fail to ask. If either element is missing, for instance if the partner did have some form of authority, or if the other party genuinely did not know of the restriction, the general rule binding the partnership for acts done in the usual course would still apply.
What this means for the partnership here
Since the facts describe a partner with no actual authority for this particular deal, and a counterparty who already knew that, both conditions of the exception appear satisfied, meaning the partnership is not bound by the deal under Article 1818. The partnership's remedy, and the third party's, would then run against the partner personally rather than against the partnership, since the partnership never gave, and the third party never reasonably believed, that this particular transaction was authorized.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Villamor & Victolero Construction Company, et al. vs. Sogo Realty and Development Corporation/Sogo Realty, G.R. No. 218771 / G.R. No. 220689, June 3, 2019 — read the decision on LawPhil →