SECTION 3.

- OBLIGATIONS OF
THE PARTNERS
WITH REGARD TO THIRD
PERSONS
 Art. 1815. Every partnership shall operate
under a firm name, which may or may not
include the name of one or more of the
partners.
 Those who, not being members of the
partnership, include their names in the firm
name, shall be subject to the liability of a
partner. (n)
 Firm Name
As a juridical person
 Liability of strangers who include their names
in the firm name
Principle of estoppel; no rights as a partner
with respect to the real partners
 Firm name – name, title or style under which
a company transacts business

 Importance – necessary to distinguish the

partnership which has a distinct and separate
juridical personality from the individuals
composing the partnership and from other
partnerships and entities

 General rule: partners may adopt any firm

name desired. May be last names of the
partners or even fictitious or fanciful names.
Signature in the firm name is in law the
signature of all the partners
 Use of misleading name – partners cannot
use a name that is “identical or deceptively
and confusingly similar to that of any existing
partnership or corporation or to any name
already protected by law or is patently
deceptive, confusing or contrary to existing
laws
 Use of name of deceased partners
 General rule: Supreme Court says partnership
CANNOT use name of deceased partners

 Exception: permissible provided that the firm

indicates in all its communications that said
partner is deceased
 Persons who, not being a partner, include
their name in the firm name do not acquire
the rights of a partner, but they shall be liable
as a partner insofar as third parties without
notice are concerned. BY ESTOPPEL.
 Art. 1816. All partners, including industrial
ones, shall be liable pro rata with all their
property and after all the partnership assets
have been exhausted, for the contracts which
may be entered into in the name and for the
account of the partnership, under its signature
and by a person authorized to act for the
partnership. However, any partner may enter
into a separate obligation to perform a
partnership contract. (n)
 Partnership liability – partners are principals
to the other partners and agents for them
and the partnership. They are liable to third
persons who have dealt with one of them in
the same way that a principal is liable to third
persons who have dealt with an agent

 General rule: a partner has the right to make

all partners liable for contracts he makes for
the partnership in the name and for the
account of the partnership
 Individual liability – a partner may assume a
separate undertaking in his name with a third
party to perform a partnership contract or
make himself solidarily liable on a partnership
contract. In this case, he is personally liable
even if the partnership derived benefits from
it.

 Partners are liable to creditors (including

industrial partners) for obligations contracted
in the name and for the account of the
partnership. Liabilities are pro-rata and
subsidiary
 Liability vs Losses as to Industrial Partner
As to liability
Prorata or jointly after exhausting
partnership property including industrial
partner; Industrial partner may ask for
reimbursement unless there is contrary
agreement
PRO RATA
 Understood to mean equally or jointly and not
proportionately which is its literal meaning.

 Based on the number of partners and not on the amount of

their contributions to the common fund, subject to
adjustment among the partners

 o If a partner has left the country, he cannot increase the

liability of the other partners

 o Subsidiarily – partners are liable as guarantors of the

partnership. When the assets of the partnership are
exhausted, the private properties of the partners are liable
 o Industrial partners would also have to pay but may
recover from the capitalist partner unless there is an
agreement to the contrary
 Exception:

 o The industrial partner to pay losses relates

exclusively to the settlement of the
partnership affairs among the partners
themselves and has nothing to do with the
liabilities of the partners to third persons. An
industrial partner is not exempted from
liability to third persons for the debts of the
partnership
 Art. 1817. Any stipulation against the
liability laid down in the preceding article
shall be void, except as among the
partners. (n)
 Stipulation eliminating liability
A stipulation exempting any of the partners
from liability to third persons is void as to
third person but valid among the partners.

Exempted partner may recover from the

other partners
Query

 IN the articles of a general co-ownership, one

of the partners is expressly exempted from
personal liability for the losses of the
partnership. Is the agreement valid? Why?
Answer

 If the exempted partner is an industrial one,

the agreement is valid as among themselves,
but not insofar as creditors are concerned.

 If the exempted partner is a capitalist partner,

the agreement is void as against creditors of
the firm. As among themselves, it is valid,
regarding contributions in excess of the
capital (art. 1817); but void, regarding the
original contribution.
Example

 A, B and C, CAPITALIST partners, each

contributed P10,000. The firm’s indebtedness
amounts to P90,000. It was stipulated that A
would be exempted from liability. Assuming
that the capital of P30,000 is still in the firm,
what would be the rights of the firm’s
creditors?
Answer

 To get the P30,000 capital of the firm, and to

get still P20,000 each from the 3 partners ( a
total of P90,000).

 A will be liable to the third persons for 20,000.

 A can recover from B and C P10,000 each for
a total of P20,000. Reason: he is exempted as
to liability among them.
 A, however, cannot recover his original
capital of P10,000 (Art. 1799)
 Art. 1818. 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.
 An act of a partner which is not apparently for the
carrying on of business of the partnership in the
usual way does not bind the partnership unless
authorized by the other partners.
 Except when authorized by the other partners or unless
they have abandoned the business, one or more but less
than all the partners have no authority to:
 (1) Assign the partnership property in trust for creditors
or on the assignee's promise to pay the debts of the
partnership;
 (2) Dispose of the good-will of the business;
 (3) Do any other act which would make it impossible to
carry on the ordinary business of a partnership;
 (4) Confess a judgment;
 (5) Enter into a compromise concerning a partnership
claim or liability;
 (6) Submit a partnership claim or liability to arbitration;
 (7) Renounce a claim of the partnership.
 No act of a partner in contravention of a restriction on
authority shall bind the partnership to persons having
knowledge of the restriction. (n)
 Agency of a partner
Mutual Agency
 Instances when partnership is bound
 1. When the partner is expressly or impliedly
authorized.
 2. When he acts in behalf and in the name of
the partnership.
Instances of Implied
authorization
 When the other partners do not object,
although they have knowledge of the act.
 When the act is for “apparently carrying on in
the usual way the business of the
partnership”.
Instances when partnership
is not bound
 When the act executed is not for “ apparently
carrying on in the usual way of the partnership
and the partner has no authority”
-- even if the third person has no knowledge of the
lack of authority, the partnership is not bound.
 If the act executed is “apparently carrying on in
the usual way of the business”, but the partner
has no authority and the third person knows that
the acting partner has no authority
Reason why the seven
instances enumerated in
paragraph 3 requires the
consent
 Because they are “unusual” and they are not
for “ apparently carrying on in the usual way
the business of the partnership”
Unusual because...

 “ Assign the partnership property” – the firm

will be virtually dissolved
 “Dispose of the goodwill” – Goodwill is
valuable property
 “ Do any other act which would make it
impossible to carry on” – evidently prejudicial
to the partnership
 “ Confess a judgment” – if done before a case
is filed, null and void; if done later, the firm
would be jeopardized.
 “Compromise” – an act of ownership;
equivalent to alienation
 “Arbitration” -- an act of ownership
 “ Renounce a claim” – why should a partner
renounce a claim that does not belong to him
but to the partnership?
Example

 A, B and C are partners. X owes the

partnership P100,000. C , a friend of X,
renounced or remitted in behalf of the
partnership the obligation of X. X did not
know the lack of authority of C.

 Question: Is the remission valid?

Answer

 No, because a partner without the consent of

all cannot renounce a claim that does not
belong to him but to the partnership.
 Art. 1819. Where title to real property is in the
partnership name, any partner may convey title to
such property by a conveyance executed in the
partnership name; but the partnership may
recover such property unless the partner's act
binds the partnership under the provisions of the
first paragraph of article 1818, or unless such
property has been conveyed by the grantee or a
person claiming through such grantee to a holder
for value without knowledge that the partner, in
making the conveyance, has exceeded his
authority.
 Where title to real property is in the name of the
partnership, a conveyance executed by a partner,
in his own name, passes the equitable interest of
the partnership, provided the act is one within the
authority of the partner under the provisions of
the first paragraph of Article 1818.
 Where title to real property is in the name of one or more
but not all the partners, and the record does not disclose
the right of the partnership, the partners in whose name
the title stands may convey title to such property, but
the partnership may recover such property if the
partners' act does not bind the partnership under the
provisions of the first paragraph of Article 1818, unless
the purchaser or his assignee, is a holder for value,
without knowledge.
 Where the title to real property is in the name of one or
more or all the partners, or in a third person in trust for
the partnership, a conveyance executed by a partner in
the partnership name, or in his own name, passes the
equitable interest of the partnership, provided the act is
one within the authority of the partner under the
provisions of the first paragraph of Article 1818.
 Where the title to real property is in the name of all the
partners a conveyance executed by all the partners
passes all their rights in such property. (n)
Registration of property
belonging to the partnership
 In the name of:
 Partnership
 All of the partners
 One, some, or not all the partners
 One, some, or not all the partners in trust for the
partnership
 Third person in trust for the partnership
Effect of conveyance of real
property of partnership
 Depends in whose name the property is
registered and in whose name the property is
conveyed.
 1. Conveyance made by a partner in the name of
the registered owner passes title to the property.
 2. if conveyance is made not in the name of the
registered owner, it is only the equitable interest
of the partnership that is transferred, provided
the conveyance is in the ordinary course of
partnership business.
Equitable Interest/
Beneficial Interest
 All interest which the partnership had except
the TITLE.
Title in PH name, conveyance
in PH
 A, B and C are partners of the firm ABC
partnership. A parcel of land registered under
the name ABC Partnership was sold by C on
behalf and in the name of the firm ABC, but
without express authority, to X, purchaser.
 Does X become the owner?
Answer:

 Yes if the firm is engaged in buying and

selling of land and X is in good faith.
 Supposing X sold the land to Y for value and Y
did not know of C’s lack of authority, can the
partnership get back the land?
Answer:

 NO more, because the land was sold by the

grantee (X) to a holder for value (Y), without
knowledge that the partner, in making the
conveyance, has exceeded his authority.
Title in the PH, conveyance
in the name of partner
 A, B, and C are partners of ABC Company,
engaged in buying and selling real estate. The
partnership is the owner of a parcel of land
registered in the name of ABC. C sold the land
to X executing the deed of sale in his own
name.
 Is X the owner of the land?
Answer:

 No, but he gets the equitable interest of the

partnership because the sale is made in the
ordinary course of business.

 If the firm is not engaged in the business of

buying and selling real estate, or if X had
knowledge of C’s want of authority, no title or
equitable interest will pass to X.
Title is in the name of one
or more but not all of the
partners; conveyance in the
name of partners, in whose
name title stands
 A, B, and C are partners of ABC Company,
engaged in buying and selling real estate. The
partnership owns a parcel of land registered
in the name of C. C sold the land to X, acting
in his name.

 Will title to the land pass to X?

Answer:

 Yes, because the partnership is engaged in

buying and selling real estate and C who is
the registered owner was the seller.
Title in the name of one, or
more or all partners, or a
third person in trust for
the partnership; conveyance
in the name of the
partnership, or in the name
of that partner
 A, B, and C are partners of ABC Company,
engaged in buying and selling real estate. The
partnership owns a parcel of land registered
in the name of A and B, in trust for ABC
Company.

 If A sells the land to X in his own name, will X

become the owner?
Answer

 NO, the conveyance made passes only the

equitable title to X, because A is only a
trustee of the partnership.
Title in the names of all
partners, conveyance in the
name of all partners.
 A, B, and C are partners of ABC Company,
engaged in buying and selling real estate. The
partnership is the owner of a parcel of land
registered in the names of A, B and C.

 If A, B and C sells the land to X, will the latter

be the owner?
Answer

 YES, the conveyance was made by all

partners and the partnership is engaged in
buying and selling real estate.
 Art. 1820. An admission or representation
made by any partner concerning
partnership affairs within the scope of his
authority in accordance with this Title is
evidence against the partnership. (n)
Admission or representation
made by a partner
 An evidence against the partnership if:
 1. The facts admitted concern partnership
affairs
 2. The facts admitted are within the scope of
his authority
 3. The admission must be made during the
existence of the partnership
 4. Proof of existence of the partnership must
be shown.
Admission after dissolution

 Binds the partnership only if necessary to

wind up the business. If not for winding up of
partnership affairs, it does not affect the
partnership.
 Art. 1821. Notice to any partner of any matter
relating to partnership affairs, and the
knowledge of the partner acting in the
particular matter, acquired while a partner or
then present to his mind, and the knowledge
of any other partner who reasonably could and
should have communicated it to the acting
partner, operate as notice to or knowledge of
the partnership, except in the case of fraud on
the partnership, committed by or with the
consent of that partner. (n)
Effect of notice to a
partner
 Considered notice to the partnership
 Firm cannot claim ignorance if a partner
knew.
Knowledge of acting partner

 Whether acquired while already a partner or

even before his admission into the
partnership, provided he still remembers the
same, is KNOWLEDGE of the partnership.
Knowledge of other partner

 If acquired already as a partner is deemed

knowledge of the partnership if that partner
could and should have communicated it to
the acting partner.
 Art. 1822. Where, by any wrongful act or
omission of any partner acting in the
ordinary course of the business of the
partnership or with the authority of co-
partners, loss or injury is caused to any
person, not being a partner in the
partnership, or any penalty is incurred, the
partnership is liable therefor to the same
extent as the partner so acting or omitting
to act. (n)
 Liability of partnership for torts of partners if:
 1. Wrongful act or omission is committed in
the ordinary course of business of the
partnership or if not, the act or omission was
made with the consent or authority of the
other partner.
 2. Loss or injury is caused to a person who is
not a partner in the partnership.
When partnership or partners
are not liable
 1. Wrongful act or omission was not done
within the scope of partnership business and
for its benefit or not done with the authority
of the co-partners
 2. Act or omission was not wrongful.
 3. If the wrongful act or omission was
committed after the partnership had been
dissolved and the same was not in connection
with the process of winding up.
 Art. 1823. The partnership is bound to make
good the loss:
 (1) Where one partner acting within the scope
of his apparent authority receives money or
property of a third person and misapplies it;
and
 (2) Where the partnership in the course of its
business receives money or property of a third
person and the money or property so received
is misapplied by any partner while it is in the
custody of the partnership. (n)
 Art. 1824. All partners are liable solidarily
with the partnership for everything
chargeable to the partnership under
Articles 1822 and 1823. (n)
When the partnership and the
partners are solidarily
liable
 1. Art 1822
 2. Art. 1823
Example

 A, B and C are partners in ABC Partnership

engaged in buying and selling dried fish.
While C is driving the wagon of the
partnership distributing dried fish from one
store to another, the wagon hit X, a third
person not a partner. Liability caused is
P6,000. Is the partnership liable?
Answer

 Yes, the partnership and any , or all of the

partners are liable solidarily.

 Where, by any wrongful act or omission of

any partner acting in the ordinary course of
business of the partnership or with the
authority of his co-partners, loss or injury is
committed against a third person, not being a
partner in the partnership, the latter and any
or all of them are liable solidarily.
Example 2

 A, B and C formed ABC partnership engaged

in selling furniture. C partner received from X,
a customer, P10,000 as initial payment. C
misapplies the amount given. Can X hold A or
B liable?
Answer

 Yes. The partnership and any, or all of the

partners are liable because the obligation is
solidary. The law states that the partnership,
or any partner is bound to make good the loss
whenever they received money or property
and the partner receiving misapplies it. This is
to give protection to innocent third person
transacting business with any of the partners.
 Art. 1825. When a person, by words spoken or
written or by conduct, represents himself, or
consents to another representing him to anyone,
as a partner in an existing partnership or with one
or more persons not actual partners, he is liable to
any such persons to whom such representation
has been made, who has, on the faith of such
representation, given credit to the actual or
apparent partnership, and if he has made such
representation or consented to its being made in a
public manner he is liable to such person, whether
the representation has or has not been made or
communicated to such person so giving credit by
or with the knowledge of the apparent partner
making the representation or consenting to its
being made:
 (1) When a partnership liability results, he is liable
as though he were an actual member of the
partnership;
 (2) When no partnership liability results, he is liable pro
rata with the other persons, if any, so consenting to the
contract or representation as to incur liability, otherwise
separately.
 When a person has been thus represented to be a partner
in an existing partnership, or with one or more persons
not actual partners, he is an agent of the persons
consenting to such representation to bind them to the
same extent and in the same manner as though he were
a partner in fact, with respect to persons who rely upon
the representation. When all the members of the existing
partnership consent to the representation, a partnership
act or obligation results; but in all other cases it is the
joint act or obligation of the person acting and the
persons consenting to the representation. (n)
 Art. 1826. A person admitted as a partner
into an existing partnership is liable for all
the obligations of the partnership arising
before his admission as though he had been
a partner when such obligations were
incurred, except that this liability shall be
satisfied only out of partnership property,
unless there is a stipulation to the contrary.
(n)
Liability of incoming
partners for partnership
obligations:
1. Limited to his share in partnership property
for existing obligations
 when a person is admitted as a partner into
an existing partnership, he is liable for all
obligations existing at the time of his
admission as though he was already a partner
when such obligations were incurred.
 For such obligations, his liability is limited to
his share in the partnership property, unless
there is a stipulation to the contrary
 2. Extends to his separate property for
subsequent obligations

 those who were already partners at the time

when the obligations were incurred are liable
with their separate property (Art. 1816). For all
the obligations accruing subsequent to the
admission of the new partner, all the partners are
liable with their separate properties
 o existing and subsequent creditors have equal
rights as against partnership property and
separate property of previously existing
members of the partnership. As to newly
admitted partners, only subsequent creditors
have rights against their separate property
Note:

 Art. 1826 should be read in conjunction with Art.

1840 which provides liability of persons
continuing the business in certain cases.

 Both sections are based on the principle that

where there has been one continuous business
the fact that a new partner has been admitted or
a partner has ceased to be connected with it,
should not cause confusion as to the claims of
the creditors on the property employed in the
business
Note

 When an incoming partner has assumed the

obligation of the retiring partner as one of the
terms of the contract, he is liable directly to
the old partnership creditors such that the
latter have a right of action against the
incoming partner
 Reason for the rule
 The rule making an incoming partner liable
even for partnership obligations contracted
before his admission cannot be considered
harsh because the new partner partakes of
the benefits of the partnership property and
an established business
 Art. 1827. The creditors of the partnership
shall be preferred to those of each partner
as regards the partnership property.
Without prejudice to this right, the private
creditors of each partner may ask the
attachment and public sale of the share of
the latter in the partnership assets. (n)
 Preference of partnership creditors in
partnership property
 With respect to partnership assets, the
partnership creditors are entitled to priority
of payment
 The partnership should apply its property to
the payment of its debts in preference to the
claim of any partner or his creditors
 The rule applies only in the event of the
disposition of partnership property among its
creditors to pay partnership debts
 Remedy of private creditors of a partner
 The creditors of each partner may ask for the
attachment and public sale of the share of the
latter in the partnership assets

 The purchaser at the public sale does not

become a partner
END