Obligations of the Partners with

regard to Third Persons

Partnerships
 Key Questions for Articles 1817-1821

 What is the effect of stipulations against the liability under Article 1816?
 How will an act of one partner bind or not bind the partnership?
 What are the acts of a partner involving real property that bind or not bind the partnership?
 What is the effect of an admission or representation of a partner?
 How will notice or knowledge to a partner of a matter related to the partnership affairs bind the
partnership?
 Article 1817

STIPULATION ELIMINATING LIABILITY

 Any stipulation against the liability laid down in the preceding article shall be void except
as among the partners. (n.)
 liability laid down in Article 1816

 Contractual obligations with third persons

 In the name or account of the partnership under its signature and the person authorized
 Includes all partners–whether they are capital or industrial, they are still liable pro rata and
subsidiary with all their personal property
 This liability takes effect after the properties of the partnership have been exhausted
 Query: Is it permissible to stipulate that a partner be exempt from
liability?

 General rule: The answer is NO.

 Reason – all partners are liable with all their property under Article 1816, in relation to the
principle of commonality of interests.

 Exception: YES. But only valid as among the partners.

 Article 1818

 Acts of a partner that bind the partnership

 Acts of a partner that do not bind the partnership
 Article 1818

Acts for apparently carrying on in the usual way the business of the
partnership

 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. (par.1)
GENERAL RULE: 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.

EXCEPTION: He 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.
 Article 1818, par. 1

 This should be read with Article 1803

 There is a presumption that all partners have equal rights in the management of the partnership
and its conduct
 Hence, every act of every partner which is in connection with the conduct of business of the
partnership BINDS the partnership
 There is an exception
 When partner has no authority to do so
 When the person to whom the partner mentioned above is dealing with knows that he has no authority
 Article 1818

Acts of strict dominion or ownership

 An act of a partner which is not apparently for the carrying of business of the partnership
in the usual way does not bind the partnership unless authorized by the other partners. (par.2)

 “Apparently carrying” means actions which are connected with or within the scope of the usual
course of business
 Example: A, B, and C are in a contract of partnership for buying and selling cars. If C is authorized
only to buy cars on CASH basis, and he buys a car from X on an installment basis, the partnership will
still be bound by the transaction because it was still apparently connected with the course of business.
 Article 1818

Acts of strict dominion or ownership

 GENERAL RULE: One or more but less than all the partners have no authority to:
 Assign the partnership property in trust for the creditors or on the assignee’s promise to pay the debts of the partnership;
 Dispose of the goodwill of the business
 Do any other act which would make it impossible to carry on the ordinary business of a partnership
 Confess a judgment
 Enter into a compromise concerning partnership claim or liability
 Submit a partnership claim or liability to arbitration
 Renounce a claim of the partnership

 EXCEPTION: When authorized by the other partners or unless they have abandoned the business. (par.
3)
 Article 1818

Acts in contravention of a restriction on authority

 No act of a partner in contravention of a restriction on authority shall bind the partnership to

persons having knowledge of the restriction.

 REQUISITES:
1. Act of partner must be an act restricted
2. Person knows the restrictions

 This applies to all acts whether they are classified under par. 1, 2, or 3. If the act is a restricted
act, and person knows that the act is a restricted one, it will never bind the partnership.
 Article 1819

Conveyance of Real Property Belonging to the Partnership

Where title to real property is in the partnership name, any partner may convey title to such
property by a conveyance executed in 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. (par.1)
 Article 1819

Conveyance of Real Property Belonging to the Partnership

1. Title to real property must be in the partnership name

2. A partner or partners convey title to such property in the partnership name

 When this happens, partnership may still recover the property, except:
 When the act falls under Article 1818, par. 1; or
 When grantee or person claiming through such grantee conveys the property to a holder for value in good
faith. (Here, whether the act falls under Article 1818 or not, doesn’t matter)
 Article 1819

Conveyance of Real Property Belonging to the Partnership

 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. (par. 2)
 Article 1819

Conveyance of Real Property Belonging to the Partnership

1. Title to real property must be in the partnership name

2. A partner conveys the property in his own name
3. Conveyance falls under Article 1818, par. 1

 When this happens, only the equitable interest of the partnership is transferred to the third person, and no
transfer takes place:
 When it does not fall under Article 1818, par. 1
 When third person knows that the partner has no authority to do the act (even if it falls under Article 1818)
 Article 1819

Conveyance of Real Property Belonging to the Partnership

 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 of his assignee, is a holder for value, without knowledge.
(par. 3)
 Article 1819

Conveyance of Real Property Belonging to the Partnership

1. Title to real property is in the name of one or more but not all of the partners
2. The record does not disclose the right of the partnership
3. A partner or partners convey the title of the property to a third person

 When this happens, the partnership cannot recover the title to the property, except:
 When it does not fall under Article 1818, par. 1
 When third person knows that the partner has no authority to do the act (even if it falls under Article 1818)
 Article 1819

Conveyance of Real Property Belonging to the Partnership

 Where the title to real property is in the name of one or more or all 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. (par. 4)
 Article 1819

Conveyance of Real Property Belonging to the Partnership

1. Title to real property is in the name of one or more but not all of the partners, or in a third person
in trust for the partnership
2. A partner or partners or the trustee conveys the title of the property to a third person, either in the
partnership name or in their own name

 When this happens, the partnership cannot recover the equitable interest to the property, except:
 When it does not fall under Article 1818, par. 1
 When third person knows that the partner has no authority to do the act (even if it falls under Article 1818)
 Article 1819

Conveyance of Real Property Belonging to the Partnership

 Where the title to real property is in the names of all the partners a conveyance is executed
by all the partners passes all their rights in such property. (par. 5)
 Article 1819

Conveyance of Real Property Belonging to the Partnership

1. Title to real property is in the name of all the partners

2. All the partners executed a conveyance of the title to the real property
 When this happens, all their rights in such property are also conveyed or transferred
 Article 1820

Admissions or representations made by a partner

 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.
 Article 1820

Admissions or representations made by a partner

 Elements:
1. A partner makes an admission or representation
2. The admission or representation is related to the partnership affairs
3. Admission or representation is within the scope of his authority

 If these concur, the admission or representation is evidence against the partnership

 Article 1820

Admissions or representations made by a partner

 General rule: A person is not bound by the act or admission of another of which he has no
knowledge or has not given his consent

 Exception: When a particular relation (like a contract) exists between them (Samilliano v.
Samilliano)
 Article 1820

Admissions or representations made by a partner

Ormachea Tin Congco v. Trillana (13 Phil 194)

 An admission made after a partner had ceased to be a partner to a partnership business cannot be
used as evidence.
 Article 1821

Notice to or knowledge of a partner of matter affecting partnership affairs

 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 a fraud on the partnership, committed by or with the consent of that
partner.
 Article 1821

Notice to or knowledge of a partner of matter affecting partnership affairs

 “Notice” to a partner on any matter relating to partnership affairs

 “Knowledge” of a partner acting in the particular matter acquired while a partner or then
present to his mind

 “Knowledge” of a partner who reasonably could and should have communicated it to the
acting partner
 Article 1821

Notice to or knowledge of a partner of matter affecting partnership affairs

 All three instances presume that the partner acquired the notice or knowledge WHEN HE
IS ALREADY A PARTNER to bind the partnership.

 But with respect to knowledge, it must be acquired by a partner acting in a particular matter
in order to bind the partnership.

 If it is acquired by a partner not acting in a particular matter, communication to the acting

partner is necessary to bind the partnership.
 Article 1821

Notice to or knowledge of a partner of matter affecting partnership affairs

 Exception:

 When there is FRAUD on the partnership committed by a partner or with the consent of that
partner.
 Shenapotchie naaaaaa
 Article 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 his 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 committing the act.
 Article 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
 Article 1824

 All partners are liable solidarily with the partnership for everything chargeable to the
partnership under 1822 and 1823
 Solidary liability

 Art. 1822- for the wrongful act or omission

 Art. 1823- breach of trust
 Art. 1822-1824 vs Art. 1816

Art.1822-1824 Art. 1816

• Solidary • Joint and subsidiary
• Liability arising from • Refers to partnership
acts or omissions of obligations
any partner
 Requisites for liability under Art. 1822

 The partner must be guilty of a wrongful act or omission; and

 He must be acting in the ordinary course of business, or with the authority of his co-partners
even if the act is unconnected with the business.
 Art 1823

 Misapplication of money or property of a third person

 Article 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 an 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:
…next
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 existing partnership, or with one 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 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.
 Article 1825

Partner by Estoppel;
Partnership by Estoppel
 ESTOPPEL

 Bar which precludes a person from denying or asserting anything

contrary to that which has been established as the truth by his own
deed or representation, either express or implied
 PARTNER BY ESTOPPEL

When by words or by conduct he:

a. Directly represents himself to anyone as a partner in an existing partnership or in a non-existing
partnership

b. Indirectly represents himself by consenting to another representing him as partner in an existing

partnership or in a non-existing partnership
 PARTNERSHIP BY ESTOPPEL

 If all the actual partnership consented to the representation

 When liability pro rata
• When there is no existing partnership
and ALL those represented as partners
consented to the representation
• Or NOT ALL the partners of an existing
partnership consented to the
representation
When liability separate
• When there is no existing partnership
and NOT ALL of the partners of an
existing partnership consented to the
representation
• Or NONE of the partners in an existing
partnership consented to such
representation

Who are liable

• person who represented himself to be a • person who represented himself to be a
partner, or partner, or
• Person who consented to his being • Person who consented to his being
represented as partner; and represented as partner; and
• All those who made and consented to • All those who made and consented to
such representation such representation, or
• That only of the person who represented
himself as partner
 Elements to establish liability as a partner on ground of
estoppel
1. Proof by plaintiff that he was individually aware of the defendant’s representations were made
by others and not denied or refuted by the defendant

2. Reliance on such representations by the plaintiff;

3. Lack of any denial or refutation of the statements by the defendant

 Liability as general partners of persons who assume to act as a
corporation

The Corporation Code:

“Sec. 21. Corporation by estoppel.−All persons who assume to act as a corporation knowing it to
be without authority to do so shall be liable as general partners for all debts, liabilities and damages
incurred or arising as a result thereof: Provided, however, That when any such ostensible
corporation is sued on any transaction entered by it as a corporation or on any tort committed by it
as such, it shall not be allowed to use as a defense its lack of corporate personality. x x x .”
 Article 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 his liability shall be satisfied only out of partnership property unless
there is a stipulation to the contrary.
 Article 1826

Liability of incoming partner for partnership obligations

 Limited to his share in partnership property for existing obligations

 Extends to his separate property for subsequent obligations
 Rights of existing and subsequent creditors

 Existing and subsequent creditors have equal rights as against partnership property and separate
property of the previous existing member
 Subsequent creditors have rights against the separate estate of the newly admitted partner
 Liability of Outgoing Partner

 He is freed from any liability on contracts entered into after notice of his retirement or
withdrawal from the partnership
 Liability on existing incomplete contracts continues
 Liability of Incoming Partner

 Not personally liable for the existing partnership obligations unless there is a stipulation to the
contrary
 Liable for the performance of an obligation made before his admission
 Article 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.
Preference of partnership creditors
in partnership property
 Remedy of private creditors of a partner

 Attachment and public sale of the share of the partner in the partnership
 Article 1828
 The dissolution of a partnership is the change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on as distinguished from the winding up of the
business.
Effects of change in membership of a partnership

1. Dissolution of Existing partnership and formation of a new one

2. Transformation of all partners into upcoming partners
3. Continuance by remaining partners of partnership as before
 3 stages in ENDING a partnership
 Dissolution
change in the relation of the partners caused by any partner ceasing to be associated in the
carrying on the business
 Winding up
actual process of settling the business or partnership affairs after dissolution
 Termination
point in time when all partnership affairs are completely wound up
 Article 1829

 On the dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed.
 Effects of Dissolution

 Partnership is not terminated

 Partnership continues for a limited purpose
 Transaction of new business prohibited