Singson vs. Isabela Sawmill, 88 SCRA 623 [1979].

ILLUSTRATIVE CASE: A third person, without notice, extended credit to a partnership

after withdrawal of a partner and its continuation by the other partners.
Facts: A withdrew from the partnership Isabela Sawmill composed of A, B, and C. It
does not appear that the withdrawal of A from the partnership was published in the
newspapers. There was no liquidation of the partnership assets. On the contrary, it was
expressly stipulated in a memorandum- agreement among A, B, and C that the
remaining partners, B and C, had constituted themselves as the partnership entity, the
Isabela Sawmill. B and C continued the business, using the properties of the
partnership. To secure the obligations of B and C to A, B and C executed a chattel
mortgage over certain properties of the partnership in favor of A who was issued a certi
cate of sale over the same as a result of the judicial foreclosure of the mortgage. In the
meantime, X, etc. extended credit to the partnership.
Issue: Is A liable to X, etc. for the properties of the partnership which were mortgaged to
her and which she purchased at public auction?
Held: Yes. The judicial foreclosure of the chattel mortgage executed in favor of A did
not relieve her from liability to the creditors of the partnership. X, etc. and the public in
general had a right to expect that whatever credit they extended to B and C doing the
business in the name of the partnership could be enforced against the properties of the
partnership. Although A acted in good faith, X, etc. also acted in good faith in extending
credit to the rm. Where one of two innocent persons must suffer, the person who gave
occasion for the damages to be caused must bear the consequences.