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)
a. Firm- defined as the name title or style under which a
company transacts business.
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)

b. Importance- to distinguish the partnership which has
a distinct and separate juridical personality.
c. Firm name- it may be the surnames of all the
partners, or the surname of one or more of the
members with the addition of “and Company.”
a. Partnership liability- Partners are principals to the
other partners and agents for them and the
partnership. General rule is 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 BUT ONLY if the partner was authorized.

d. Prohibitions: b. Individual liability- A partner may assume separate

undertaking in his name with a third party to perform a
- Must not use misleading name partnership contract
- Cannot use in its firm name the deceased
partner’s name for it will run counter to Article - NATURE OF INDIVIDUAL LIABLITY OF
1815. PARTNERS
 Note: Rule 3.02 of the Code of
professional responsibility allows the 1) Pro rata – equally or jointly, and not
use of the name of a deceased proportionately. Pro-rating is based on the
partner provided there is an indication number of partners and not on the amount
that the said partner is already dead. of their contribution.

e. Liability for inclusion of non-partner’s name in 2) Subsidiary or secondary – the partners

firm name: because the partners become personally
- Article 1767 provides that persons not being liable only after all the partnership assets
partners include their names in the firm name do not have been exhausted
acquire the rights of a partner, but Article 1815
provides that they shall be subject to the liability of a 3) Industrial partner also has to pay but he can
partner, insofar as third persons are concerned. recover the amount he has paid from the
capitalist

c. Applicability: It was for a breach of warranty in a

contractual obligation entered into in the name and
for the account of the partnership.

d. Liability vs Loss

Liability Loss
- Article 1816 refers to - Article 1797 speaks of
liabilities losses

- pertains to the obligations - Settlement of the

to third persons ( breach of partnership affairs among
contract, torts, breach of the partners
trust)
 SECTION 3. - Obligations of the Partners
With Regard to Third Persons

Art. 1817. Any stipulation against the liability laid

down in the preceding article shall be void, except as
among the partners. (n)
a. Effect:
- Stipulation contrary to pro rata and
subsidiary liability imposed by Article is void
and of no effect in so far as rights of third
persons are concerned.
- Valid and enforceable among the partners
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:
a. Power of Partner as agent of partnership
The act of a partner concerning partnership
business and every contract signed in the partnership
name bind the firm.
When a partner deals with a third party, the
partnership is bound by his contract or conduct if it
was apparently or actually authorized.
There is a general presumption that each
individual partner is an agent of the firm and that he
has authority to bind the firm in carrying on the
partnership transactions.
Law of partnership is a branch of the law of agency.
Thus, liability of one partner for the acts of his co-partners is
founded on the principle of mutual agency.
LIABILITY OF PARTNERSHIP FOR ACTS OF PARTNERS
1. ) Acts for apparently carrying on in the usual way the
business of the partnership ( First par)- binds the
partnership
Two requisites in order that the partnership will not be
liable:
a) The partner so acting has in fact no authority; and
b) The third person knows that the acting partner has
no authority.
2) Acts of strict dominion or ownership – (2nd and 3rd par)
- acts not apparently for carrying on in the usual way of
business of the partnership, the partnership is not bound
unless authorized by ALL the other partners or unless they
have abandoned their business.

3) Acts in contravention of a restriction on authority (4th

(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;
par)
- the partnership is not liable to third persons having actual or
presumptive knowledge of the restrictions, W/N the acts are for
apparently carrying on in the usual way of the business of the
partnership.

(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)
 SECTION 3. - Obligations of the Partners
With Regard to Third Persons

Art. 1819. Where title to real property is in the

partnership name, any partner may convey title to c. Scope of terms conveyance
such property by a conveyance executed in the - Par 1,3,and 5- what is conveyed is title or
partnership name; but the partnership may recover ownership
such property unless the partner's act binds the - Par 2, and 4- what is conveyed is merely
equitable interest.
partnership under the provisions of the first
 Equitable interest is a right of interest
paragraph of article 1818, or unless such property has in property which is imperfect and
been conveyed by the grantee or a person claiming unenforceable at law but which under
through such grantee to a holder for value without well-organized equitable principles,
knowledge that the partner, in making the conveyance, should be and is convertible into a
has exceeded his authority. legal right or title.
d. Summary:
- Paragraph 1:
Where title to real property is in the name of the
Title in partnership
partnership, a conveyance executed by a partner, in name = conveyance passes
his own name, passes the equitable interest of the + title to third persons.
partnership, provided the act is one within the conveyance
authority of the partner under the provisions of the partnership name =
first paragraph of Article 1818.
Partnership may recover the partnership if
Where title to real property is in the name of one or 1. The conveyance was not the usual way of
more but not all the partners, and the record does not business; or
2. Third person has knowledge of the fact that
disclose the right of the partnership, the partners in a partners has no authority though
whose name the title stands may convey title to such conveyance was made in usual way of
property, but the partnership may recover such business.
property if the partners' act does not bind the
partnership under the provisions of the first - Paragraph 2:
paragraph of Article 1818, unless the purchaser or his Title in partnership
assignee, is a holder for value, without knowledge. name
+ = third person does not
Conveyance in become an owner of
Where the title to real property is in the name of one partner’s name = the land but gets only
or more or all the partners, or in a third person in the equitable interest
trust for the partnership, a conveyance executed by a of the partnership
partner in the partnership name, or in his own name,
passes the equitable interest of the partnership, Third person not be entitled even to the equitable
provided the act is one within the authority of the interest if:
partner under the provisions of the first paragraph of 1. If the conveyance is not in the usual way of
business
Article 1818.
2. Third person has knowledge of partner’s lack
of authority
Where the title to real property is in the name of all
the partners a conveyance executed by all the partners - Paragraph 3:
passes all their rights in such property. (n) Title in name of one or
 more partners
 Conveyance of title + = effect is same with
Conveyance in partner’s par 1.
 or partners’ name in
a. Prima facie ownership of real property whose name title stands
- The presumption is that, property purchased with =
partnership funds belongs to the partnership
unless a contrary intent is shown - Paragraph 4:
Title in name of one or
b. Legal effects of conveyance more or all the partners
the real property may be registered or owned in the or a third person in trust = effect is same with
name of: for partnership par2.
+
(a) The partnership (par 1; 2) Conveyance in
(b) One or more but not all the partners (par 3) partnership’s name or in
(c) One or more or all the partners, or in a third name of partner=
person in trust for the partnership (par 4)
(d) All the partners. (par 5)
 SECTION 3. - Obligations of the Partners
With Regard to Third Persons

Paragraph 5:
Title in name of all
partners
+ = conveyance by all
Conveyance in name of the partners passes
all partners = all their rights in such
property.
e. Innocent purchasers without notice
- Innocent purchasers without notice may be
protected regardless of the fact that one partner
cannot convey partnership property without the
authority of his co-partners.
f. Authorization or ratification of conveyance
- A conveyance of partnership realty by one
partner may be authorized by his co-partners, or
when made without authority, may be ratified by
them.
- Authority and ratification must affirmatively
appear since the authority of one partner to make
and acknowledge a deed for the partnership will
not be presumed.
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)
a. Cases of knowledge of a partner:
1.) Knowledge of the partner acting in the particular
matter acquired while a partner;
2.) Knowledge of the partner acting in the particular
matter then present to his mind; and
3.) Knowledge of any other partner who reasonably
could and should have communicated it to the acting
partner.

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)

a. Admission by a partner
(1) Admission by a party as testified to by the third
person are admissible in evidence against him in
litigation
(2) Admission of a partner made during the
existence of the partnership are binding against
the partnership can co-partners when such
admissions refer to a matter concerning
partnership affairs and made within the scope of
his authority
(3) When a partner makes admission for himself only
without purporting to the act for the partnership,
he alone shall be chargeable with his admission.
(4) After dissolution, admission made by a partner
will bind co-partners if connected with the
winding-up of partnership affairs (Art. 1834)

b. Existence of partnership must be proved.

(1) Before a partnership may be charged with the
admission of a partner, the partnership relation
must be shown and proof of the fact must be
made by evidence other than the admission itself.
(2) Declaration in the presence of person to be
charged as partner are admissible to prove the
existence of the partnership.
(3) Admission by person no longer a partner is not
admissible in evidence against the partnership.
 SECTION 3. - Obligations of the Partners
With Regard to Third Persons

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)
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)
e. Requisites for liability of partnership under
Article 1822:
1) The partner must be guilty of a wrongful act or
omission; and
2) 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.
f. Misapplication of money or property of a third
person ( Article 1823)
- Partnership is liable for any losses suffered by
third person whose money or property is
misappropriated by a partner who received it
within the scope of his authority or by any partner
after it was received by the partnership in the
ordinary course of business while in its custody.
- Note: partner who receives it; or by partner after
it was received by the partnership.

Art. 1824. All partners are liable solidarily with the

partnership for everything chargeable to the
partnership under Articles 1822 and 1823. (n)

a. Liability arising from the partner’s wrongful act or

omission or breach of trust
(1) Solidary Liability- All three provisions
contemplate the liability of the partners and the
partnership to be solidary for the wrongful act or
omission, or breach of trust of a partner acting
within the scope of the firm’s business or with the
authority of his co-partners.

b. Different from liability under Article 1816- Article

1816 liability is arising from a contractual obligations
and the nature of liability is pro-rata and subsidiary. It
is the liability of the partnership. While for articles
1822-1824, liability arising from wrongful act or
omission of any partner (Article 1822) and b breach of
trust (Article 1823). The nature of liability is solidary.

c. Injured party may go against partnership or any

partner

d. Reason for imposition of wider liability:

- It is based on public policy
- Rule of respondent superior or rule of vicarious
liability applies to the law of partnership in the
same manner as other rules governing the
agency relationship.
- Obligation is solidary because the law protects
him who in good faith relied upon the authority of
a partner whether such authority is real or
apparent.
 SECTION 3. - Obligations of the Partners
With Regard to Third Persons

(a) Directly represent himself to

Art. 1825. When a person, by words spoken or written anyone as a partner in an
or by conduct, represents himself, or consents to existing partnership or in a non-
existing partnership;
another representing him to anyone, as a partner in an
existing partnership or with one or more persons not (b) Indirectly represents himself
actual partners, he is liable to any such persons to by consenting to another
whom such representation has been made, who has, representing him as a partner in
on the faith of such representation, given credit to the an existing partnership or in a
actual or apparent partnership, and if he has made non-existing partnership.
such representation or consented to its being made in
d. Nature of Liability
a public manner he is liable to such person, whether
Partnership- When there is an existing
the representation has or has not been made or partnership and all actual partners
communicated to such person so giving credit by or consented to the representation ,
with the knowledge of the apparent partner making the partnership liability results.
the representation or consenting to its being made: Thus all partners and partner by
estoppel are liable. This is
(1) When a partnership liability results, he is liable as partnership by estoppel.
though he were an actual member of the partnership;
(2) When no partnership liability results, he is liable Pro rata- When there is no existing
pro rata with the other persons, if any, so consenting partnership and all consented.
to the contract or representation as to incur liability,
When there is existing partnership
otherwise separately. and not all those represented as
partners consented to the
When a person has been thus represented to be a representation
partner in an existing partnership, or with one or Separate - When there is no existing
more persons not actual partners, he is an agent of the liability partnership and not all but some of
persons consenting to such representation to bind - person who those represented as partners
them to the same extent and in the same manner as represented consented to the representation;
himself as a or
though he were a partner in fact, with respect to
partner or who - When there is an existing
persons who rely upon the representation. When all consented to partnership but none of the
the members of the existing partnership consent to the his being partners consented such
representation, a partnership act or obligation results; represented representation.
but in all other cases it is the joint act or obligation of - those who
the person acting and the persons consenting to the consented to
representation. (n) the
representation
or only the
Partner by estoppel; Partnership by estoppel person who
represented
a. Estoppel - is a bar which precludes a person from
himself as
denying or asserting anything contrary to that which
partner
has been established as the truth by his own deed or
representation, either express or implied. Situation 1:
A, b, and C are partners in XO Company. D represented
b. Creation of partnership
himself as partner to E.
- Partnership is generally created by contract
among parties - If all consented, partnership liability results All the
partners and D are liable. This is partnership by
- Partnership may be imposed by law even though
the parties have not entered into any partnership estoppel.
agreement but the parties act as if there were an - If only A and B consented to the representation, there is
agreement to the detriment of some third party- no partnership liability. Only A, B and D are partners by
partnership by estoppel estoppel. They are liable pro rata E.
- If D acted alone, without the consent of all partners, D
c. When person a partner by estoppel- is liable separately.
-
- General Rule: , a person who are not partners to Situation 2
each other are not partners as to third persons. A, B, and C are not really partners, and D represented
(Article 1709 [1]) himself as partners to E.
-if representation was made without the consent of all
- Exception: Article 1825- a person not a partner partners, then D alone shall be separately liable to E.
may become a partner by estoppel and thus be - if representation was made with the consent of all,
held liable to third persons as if he were a partner then all of them shall be liable pro rata.
when by words or by conduct he:
 SECTION 3. - Obligations of the Partners
With Regard to Third Persons
- if only A consented then separate liability is created
against A and D.
e. Applicability of general provisions on partnership
- If the law recognizes a defectively organized
partnership as de facto as far as third persons
are concerned, for purposes of its de facto
existence, it should have such attribute of a
partnership domicile. ( Macdonald vs National City
Bank of New York.)
f. Estoppel does not create partnership as between
the alleged partners
- One who is deemed to be liable as partner by
reason of estoppel does not thereby obtain full
rights as a partner.
g. Misrepresentation made after the contract in
question as entered into.
- For partnership by estoppel to exist, the
misrepresentation must have been made before
the contract with third person was entered into
and the third person must be induced into
entering said contract by reason of such
misrepresentation. ( Peralta vs Manalang)
g. Doctrine of estoppel does not apply between
partners
h. 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 as
to his being a partner; or that such
representations were made by others and
not denied or refuted
(2) Reliance on such representations by the
plaintiff
(3) Lack of any denial or refutation of the
statements by the defendant
i. Corporation by Estoppel
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.
- The law makes “all persons who assume to act
as a corporation” liable as general partners. It
may include person who attempt, but fail to form a
corporation and who carry on business under the
corporate name.
- A de facto partnership among them is created.
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 partner for partnership obligations
(1) Limited to his share in partnership property for
existing obligations unless there is a stipulation to the
contrary
- When a person is admitted as partner into an
existing partnership, he is liable for all obligations
existing at the time of his admission.
(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. (Article 1816)
(3) Reason for rule making the new partner liable
- Because he 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.
(1) Basis of rule
- Partnership is treated as a legal entity distinct
and separate from the members composing it.
Thus, the partnership property should apply to
the payment of the partnership’s debt.
(2) Remedy of private creditors
- Without prejudice to the right to preference of
partnership creditors, the creditors of each
partner may ask for the attachment and public
share of the latter in the partnership assets. (Art.
1814)