The Law on Partnership

7/29/2019 The Law on Partnership

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Section 3

Obligations of the Partners with

Regard to Third Persons


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Art. 1816

Industrial partners are exempted from losses,

but they are not exempted from liability to third

persons.

After exhausting the partnership property, allpartners (including the industrial partners) are

jointly liable for the excess debt.

The industrial partner(s) have the right of

reimbursement from the capitalist partners.


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Illustration (Art. 1816)

X, Y, W, Z, are capitalist partners each

contributing 20,000 each. B is an

industrial partner.

Creditor R is a supplier with a credit

against the partnership in the amount of

100,000. How will Creditor R be paid?


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Answer to Illustration

100,000 Debt

- 80,000 (capital of the partnership)

20,000 excess debt

(4,000 each)

X Y W Z B

will be reimbursed byX, Y, W, and Z (paying 1,000 each toB)


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Art. 1817

Any stipulation against the liability laid

down in the preceding article shall be void,

except as among the partners.


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Illustration

X, Y, W, Z, are capitalist partners each

contributing 20,000 each. Z, by

agreement with all other partners, is

exempted from liability.

Creditor R is a supplier with a credit

against the partnership in the amount of

104,000. How will Creditor R be paid?


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104,000 Debt


24,000 excess debt(6,000 each)

X Y W Zreimbursed by X, Y, W by

paying Z 2,000 each.


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Firm Name (Art. 1815)

Firm name may or may not include the

name of the partners.

Liability of people who are not partners but

include their names in the firm name

(misrepresentation)

Liable as partners

But do not have the rights of partners.


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Illustration

A, B, C are partners. Total capital contribution is

50,000. Y allowed his name to be included in

the firm name thus A, B, C and Y partnership.

Mr. M, a partnership creditor, has a total credit of110,000.

Q1: How will Mr. Ms claim be satisfied?

Q2: Supposing the partnership as a surplus, willY be entitled to a share therein?


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A1: The capital contribution shall first be

exhausted leaving an unpaid balance of

60,000. All the partners A, B, and C, and

the Y shall be liable with their separateproperty, and shall each pay 15,000.

A2: Y will not share in the surplus or

profits of the partnership.


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Mutual Agency (Art. 1818)

Partner can bind the partnership when:1) Partner acts in behalf and in the name of the

partnership AND

2) Partner is expressly or impliedly authorized by the

partnership.- Implied authority:

a) When the other partners do not object

when they know of the act of the partner; or

b) The partners act is for apparently carryingon in the usual way the business of thepartnership, provided the third party is ingood faith.


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Apparently carrying on in the usual way the

business of the partnership

Examples:

- Selling on credit

- Providing warranties- Making minor repairs

The meaning of the phrase would dependon the particular instances and nature of

the partnerships business.


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Paragraph 3 of Art. 1818

7 acts enumerated in Art. 1818 requires

the consent ofall the partners because

they are unusual and are not in the

ordinary course of doing business.


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Art. 1819: Conveyance of Real

Property

Title to real property of the partnership can

be conveyed (Art. 1819)

Equitable interest to real property of the

partnership can be conveyed (Art. 1819)

Provided, the partnership is in the real

estate business (buying and selling of real

estate, and the buyer is in good faith.


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Art. 1819 continuedConveyance made in the name of:

Thepartnership

A partner Partner(s) inwhose name

title stands

All of thepartners

Real property

registered in the

name of:

1) Partnership Title passes Only equitableinterest passes

2) All of the

partners

Title passes

3) One, some, or

not all of thepartners

Title passes

4) One, some or

not all of the

partners in trust for

the partnership

Only equitable

interest passes


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Partner representation and

admission

Admission by a partner

a) concerning partnership affairs

b) within the scope of his authority

is evidence against the partnership (Art.

1820).


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Notice to Partner

Notice to a partner is notice to the

partnership (which cannot claim

ignorance) when:

a) matter relates to partnership affairs;

and

b) notice was given while still a partner

(Art. 1821).


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Knowledge of Partner

The following are considered knowledge

of the partnership:

1) Knowledge of partner acting on a

particular matter;

2) Knowledge of any other partner who

reasonably could and should have

communicated the knowledge to the

acting partner (Art. 1821).


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Solidary Liability of Partnership for

Partners Acts (Art. 1824)

Torts by partners acting in the ordinary

course of the partnerships business (Art.

1822).

Torts by partners acting with the authority

of co-partners (Art. 1822).

Partner misapplies money received by the

partnership (Art. 1823).


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Art. 1825: Partner by Estoppel

Partner by Estoppel defined as:

A person 1) who represents himself as a partnerin a partnership without the knowledge or

consent of all the partners, AND 2) because ofsuch misrepresentation, a third person is misled.

Legal consequence Partnership is not liable to the third person.

Partner by estoppel has the obligations of a partner,but does not have the rights of a partner.

Partner by estoppel shall be liable with the partnerswho gave their consent to the representation.


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Art. 1825: Partnership by Estoppel

Partnership by Estoppel occurs when:

A person 1) who represents himself as a partner

in a partnership with the knowledge or consent

of all the partners, AND 2) because of suchmisrepresentation, a third person is misled.

Legal consequence

Partnership is liable to the third person.

Partner by estoppel and the other partners are liable

as partners.


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Illustration

A and B are partners in a business with a

capital of 5,000. C, with the consent of A

and B, represented to X that he was a

partner of A and B in the partnership. X,because of his confidence in C, loaned the

partnership money in the amount of

20,000. How will X be paid when theloan becomes due and demandable.


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20,000 Debt



A B C


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Illustration

In the previous illustration, if A consents

to the representation of C, how will the

credit of X be paid once it becomes due

and demandable?


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20,000 Debt

- 0 (no partnership liability)


A C


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Liability of Newly Admitted Partner

(Art. 1826)

Liability of newly admitted partner depends onthe time partnership obligation is incurred.

If partnership obligation is incurred before his

admission into the partnership. Newly admitted partners liability is limited to hiscapital contribution, unless otherwise agreed.

If partnership obligation is incurred after hisadmission into the partnership. Newly admitted partners liability extends to his

separate property after partnerships assets areexhausted.


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X, Y, and Z formed a partnership on

January 1, 2010 with a capital of

100,000. In March, 2010, the

partnership incurred an obligation in favorof A in the amount of 160,000 payable in

December 2010. In May, 2010, B joined

the partnership with a contribution of30,000. How will A be paid on

December, 2010?


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Answer to Illustration (Art. 1826)

160,000 Debt

- 130,000 (capital of partnership)


X Y Z


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If in the previous example, the partnership

obligation was incurred on June, 2010,

after B joined the partnership. How will

the partnership creditor be paid?


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Answer to Illustration (Art. 1826)

160,000 Debt

- 130,000 (capital of partnership)


X Y Z B


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Creditors of Partnerships

Creditors of Partners (Art. 1827)

The creditors of the partnership shall be

preferred to those of each partner as

regards partnership property (Art. 1827).

However, private creditors of each partner

may ask the attachment and public sale of

the share of the partner in the partnershipassets (Art. 1827).

The Law on Partnership

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