WEEK 8_ Section IV.

Obligation of the Partners with regard to

Third Persons Art. 1815 – Firm Name 
Name, title or style under which a company transacts business; a partnership of two
or more  persons; a commercial house 

Purpose 
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. 

Liability of strangers who include their name 

- liability as partners because of estoppel, but do not have the rights
as partners Art. 1816 – Liability for Contractual Obligations of
Partners 
Partnership Liability –exhaust partnership assets 
Individual Liability – liable up to separate assets (subsidiary and pro rata) 

Liability Distinguished from Losse 

- An industrial partner is exempted by law for losses’ but not from liability; - third
persons may sue the firm and the partners, including the industrial partners; -
partners will be personally liable only after the assets of the partnership have been
exhausted 

Stipulations such as those exempting all the industrial partners and some of the
capitalist  partners, insofar as third persons are concerned, would be null and void 

Example: 

A and B capitalist = 20,000 each (original contribution) 

C industrial = N/A 

Liability of the Partnership = 40,000 

Partnership assets = 31,000 

A, B and C liable 3,000 each to 3 person – divide the remaining liability to the
rd

number of partners C is entitled to reimbursement from A and B (1,500 each*) since

there is no stipulation as to P/L  sharing, making him exempted from losses. 

*based on ratio of capital contribution 

Pro tip: Use P/L ratio for determining the amount of reimbursement for exempt
partner/s from  each of capitalist partners (based on amount shouldered by exempt
partner/s), if none, use capital  contribution ratio.
Art 1817 – Stipulations Eliminating Liability 
These stipulations are void except between partners – in the eyes of third persons,
partners are  liable pro rata. 

Art. 1799 and 1817 reconciled: it is permissible to stipulate among them that a
capitalist partner  will be exempted from liability in excess of the original capital
contributed; but will not be exempted  insofar as his capital is concerned  

Liability vs. Losses 

Liability – refers to responsibility towards third persons 
Losses – refers to responsibility as among partners 

Art. 1818 – Partner as an Agent of Partnership 

Speaks of an instance when the partner is an agent and when he can and cannot
bind as agent 

Agency of a partner 
- Partnership is a contract of mutual agency 
- Partner acting as a principal on his own behalf and as an agent for his co-partners
or the firm 

When can a partner bind the partnership? 

Requisites: 
a. when he is expressly authorized or impliedly authorized; and 
b. when he acts in behalf and in the name of the partnership 

When will act not bind the partnership? 

a. when, although for apparently carrying on in the usual way the business of the 
partnership,” still the partner has in fact NO AUTHORITY, and the third party
knows that  the partner has no authority; 
b. when the act is not for apparently carrying on in the usual way of the partnership
and the  partner has no authority 

NOTE: The 7 kinds of acts enumerated in Art. 1818 are instances of acts which are
NOT for  apparently carrying on in the usual way the business of the partnership 

In the 7 instances, the authority must be unanimous except if the business has been
abandoned. 

Reasons why 7 acts are “unusual” 

1. Assign the firm property – firm will virtually be dishonored 
2. Dispose of the goodwill – good will is valuable property 
3. Do any other act which would make it impossible to carry on – this is evidently 
prejudicial 
 4. Confers a judgment – if done before a case is filed, this is null and void; if done
later,  the firm would be jeopardized 
5. Compromise – an act of ownership and may be said to be equivalent to
alienation 6. Arbitration – an act of ownership which may not be justified 
7. Renounce a claim – why should a partner renounce a claim that does not
belong to  him but to the partnership?
Art. 1819 – Conveyance of Real Property 

The article speaks of the effect conveyance real property which may be registered or
owned in  the name of: 
1. the partnership and conveyed in partnership name 
2. the partnership and conveyed in partner’s name 
3. one or more of the partners and conveyance in the name of partner whose name
title  stands 
4. one or more or all of the partners, or in third person in trust for the partnership and 
conveyance in the name of the partnership or partner 
5. all the partners and conveyed by all partners 

Effects: 
1. Title is conveyed to third person, partnership can recover if: 
a. Conveyance is not in usual way of business or 
b. In usual way of business but the partner exceeded his authority 
2. Assumption: in usual course of business and third party in good faith – third party
entitled  only to equitable interest 
3. Same with 1 
4. Same with 2 
5. Title is conveyed to third person, way of business is irrelevant 

Art. 1920 – Admission or representation made by a partner 

Conditions: 
- admission must concern partnership affairs; 
- within the scope of the authority 

Restrictions on the rule: 

a. admission made BEFORE dissolution are binding only when the partners has
authority to  act on the particular matter 
b. admissions made AFTER dissolution are binding only if the admissions were
necessary  to wind up the business 

Note: a previous admission of a partner is admissible in evidence against the

partnership when it  is made within the scope of the partnership, and during the
existence, provided of course that the  existence of the partnership is first proved by
evidence other than such act or declaration