Section 3

Obligations of the Partners with Regard to Third Persons

Art. 1816
Industrial partners are exempted from losses, but they are not exempted from liability to third persons. After exhausting the partnership property, all partners (including the industrial partners) are jointly liable for the excess debt. The industrial partner(s) have the right of reimbursement from the capitalist partners.

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?

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 by
X, Y, W, and Z (paying 1,000 each to B)

Art. 1817
Any stipulation against the liability laid down in the preceding article shall be void, except as among the partners.

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?

Answer to Illustration
104,000 Debt 80,000 (capital of the partnership) 24,000 excess debt (6,000 each) X Y W Z
reimbursed by X, Y, W by paying Z 2,000 each.

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.

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 of 110,000. Q1: How will Mr. Ms claim be satisfied? Q2: Supposing the partnership as a surplus, will Y be entitled to a share therein?

Answer to Illustration
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 separate property, and shall each pay 15,000. A2: Y will not share in the surplus or profits of the partnership.

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 carrying on in the usual way the business of the partnership, provided the third party is in good faith.

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 depend on the particular instances and nature of the partnerships business.

Paragraph 3 of Art. 1818

7 acts enumerated in Art. 1818 requires the consent of all the partners because they are unusual and are not in the ordinary course of doing business.

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.

Art. 1819 continued

Conveyance made in the name of: The partnership Real property registered in the name of: 1) Partnership 2) All of the partners 3) One, some, or not all of the partners 4) One, some or not all of the partners in trust for the partnership Title passes Title passes Only equitable interest passes Title passes A partner Partner(s) in whose name title stands All of the partners

Only equitable interest passes

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).

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).

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).

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).

Art. 1825: Partner by Estoppel

Partner by Estoppel defined as: A person 1) who represents himself as a partner in a partnership without the knowledge or consent of all the partners, AND 2) because of such 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 partners who gave their consent to the representation.

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 such misrepresentation, 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.

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 the loan becomes due and demandable.

Answer to Illustration
20,000 Debt 5,000 (capital of the partnership) 15,000 excess debt (5,000 each) A B C

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?

Answer to Illustration
20,000 Debt 0 (no partnership liability) 20,000 excess debt (10,000 each) A C

Liability of Newly Admitted Partner (Art. 1826)

Liability of newly admitted partner depends on the time partnership obligation is incurred. If partnership obligation is incurred before his admission into the partnership.
Newly admitted partners liability is limited to his capital contribution, unless otherwise agreed.

If partnership obligation is incurred after his admission into the partnership.

Newly admitted partners liability extends to his separate property after partnerships assets are exhausted.

Illustration (Art. 1826)

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 favor of A in the amount of 160,000 payable in December 2010. In May, 2010, B joined the partnership with a contribution of 30,000. How will A be paid on December, 2010?

Answer to Illustration (Art. 1826)

160,000 Debt 130,000 (capital of partnership) 30,000 excess debt (10,000 each) X Y Z

Illustration (Art. 1826)

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?

Answer to Illustration (Art. 1826)

160,000 Debt 130,000 (capital of partnership) 30,000 excess debt (7,500 each) X Y Z B

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 partnership assets (Art. 1827).