ARTICLE 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.

Q: Why is it necessary that a partnership operate under a firm name?

A: A firm name is necessary to distinguish the partnership which has a distinct and
separate juridical personality apart from its partners.

Note: While the partners have the right to choose the firm name of their partnership, they
must however, ensure that it is not misleading or “identical or deceptively confusingly
similar to that of any existing partnership.

Q: Can a firm name use the name of a deceased partner?

A: In the Matter of the Petition for Authority to Continue Use of The Firm Name
‘Ozaeta, Romulo, De Leon, Mabanta and Reyes, et al
SC: It is clearly tacit in the above provision that names in a firm name of a
partnership must either be those of living partners and. in the case of non-partners, should
be living persons who can be subjected to liability. In fact, Article 1825 of the Civil Code
prohibits a third person from including his name in the firm name under pain of assuming
the liability of a partner. The heirs of a deceased partner in a law firm cannot be held
liable as the old members to the creditors of a firm particularly where they are non-
lawyers.
HOWEVER, see Rule 3.02 of the Code of Professional Responsibility which was
approved on June 21, 1988, which provides: “In the choice of a firm name, no false,
misleading, or assumed name shall be used. The continued use of the name of a deceased
partner is permissible provided that the firm indicates in all its communications that said
partner is deceased.”

Q: What is the liability if your name is included in the firm name?

A: Persons who, not being partners, include their names in the firm name do not acquire
the rights of a partner, but shall be subject to the liability of a partner insofar as third
persons are concerned without notice that they are not really partners in said partnership.
Such persons whose names are included become partners by estoppel.

ARTICLE 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.

Note: Partners are principals to the other partners and agents for them and the
partnership. Article 1816 lays down the rule that the partners, including the industrial
partner, are liable to creditors of the partnership for the obligations contracted by the
partner in the name and for the account of the partnership.

Q: What is the nature of the liability of the partners to the partnership creditors?
A: The individual liability of the partners to creditors of the partnership is pro rata and
subsidiary.

Q: What is pro rata and subsidiary?

A: Pro rata means equally or jointly, and not proportionately. Pro rata is based on the
number of partners and not on the amount of their contributions to the common fund,
subject to adjustment among the partners.
Subsidiary or secondary means the partners only become personally liable after all
the partnership assets have been exhausted. Thus, the partners biome liable as guarantors
in favor of partnership creditors.

Q: Are industrial partners also liable to pay, despite the fact that he shall not be liable for
losses?
A: Yes. The remedy of the industrial partner is to recover the amount he has paid from
the capitalist partners unless there is an agreement to the contrary.
Reason: Article 1797 speaks of exemption of industrial partners from losses, while
Article 1816 speaks of liabilities.

Q: Supposing partners A B C are partners of the Rainbow Partnership. A, executed a

promissory note in favor of X for the delivery of 100 sacks of rice. Upon default, X filed
a complaint for sum of money against the partnership and A, B, and C for the amount of
Php 120,000.00 representing the unpaid obligation. The case was dismissed as to A. X is
now recovering Php 60,000.00 from B and the remaining Php 60,000.00 from C. Partners
B and C opposed saying that their liability is pro rata. Decide.
A: Partners B and C are correct. In this case, since the liability of the partners are pro
rata, the liabilities of B and C cannot exceed or shall be limited to one-third of the
obligation to X. Hence, partners B and C are only liable for Php 40,000.00 each.

ISLAND SALES INC vs PIONEER GENERAL CONSTRUCTION COMPANY

SC: In the instant case, there were five (5) general partners when the promissory
note in question was executed for and in behalf of the partnership. Since the liability of
the partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited to
only one-fifth (1/5 ) of the obligations of the defendant company. The fact that the
complaint against the defendant Romulo B. Lumauig was dismissed, upon motion of the
plaintiff, does not unmake the said Lumauig as a general partner in the defendant
company. In so moving to dismiss the complaint, the plaintiff merely condoned
Lumauig's individual liability to the plaintiff.

Example lifted from the book of De Leon:

A and B are capitalist partners with C as an industrial partner. A and B contributed

Php 10,000.00 each to the capital of the partnership. A contractual liability of Php
26,000.00 was incurred by the partnership in favor of D.
Under Article 1816, D can sue the firm and all the partners including C, the
industrial parter. The capital assets of Php 20,000.00 shall first be exhausted thereby
leaving an unsatisfied liability of Php 6,000.00. D can recover the amount from A, B and
C jointly or pro rata at Php 2,000.00 each. After paying D, industrial partner C can
recover reimbursement of Php 1,000.00 each from A and B. Under Article 1797, he is
exempted from the loss of Php 6,000.00 as among themselves, unless there is a
stipulation to the contrary.
If, in the same example, the capital contributions of A and B are Php 15,000.00
and Php 5,000.00 respectively, in the absence of stipulation, they share in the loss of Php
6,000.00 in proportion to their contributions, to wit: A - ¾ or Php 4,500.00 and B - ¼ or
Php 1,500.00 Hence, B can recover Php 500.00 and C, Php 2,000.00 from A.

MUÑASQUE vs CA
SC: While it is true that under Article 1816 of CC, “All partners, including
industrial ones, shall be liable pro rate with all their property and after all the partnership
assets have been exhausted, for the contracts which may be entered into the name and for
account of the partnership, under its signature and by a person authorized to act for the
partnership. xxx”, this provision should be construed together with Article 1824 which
provides that:
“All partners are liable solidarily with the partnership for everything chargeable to
the partnership under Articles 1822 and 1823.” While the liability of the partners are
merely joint in transactions entered into by the partnership, a third person who transacted
with said partnership can hold the partners solidarily liable for the whole obligation if the
case of the third person falls under Articles 1822 and 1823.
The 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.

COMPANIA MARITIMA vs MUNOZ

SC: Neither on principle nor onn authority can the industrial partner be relieved
from liability to third persons for the debts of the partnership.

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

Q: A stipulation against the pro rata and subsidiary liability is void. True or False?
A: Qualify your answer. Such stipulation is void and of no effect as it affects the rights of
third persons, but it is valid and enforceable only as among its partners.

Q: Supposing A B C and D are partners, each contributing Php 20,000.00 to the

partnership. In their Articles of Partnership, they stipulated that the liability of B shall not
exceed Php 20,000.00. Supposing the partnership owed Creditor X Php 100,000.00. How
much can X recover from the partners?
A: X can recover Php 25,000.00 from each of the partners, but B can recover Php
5,000.00 from A, C and D.

ARTICLE 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:

(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;

(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.

*** Relate with Article 1803 of the Civil Code.

Q: What is the liability of the partnership for the acts of the partners?
A: Considering that partners are mutual agents of one another and of the partnership, his
acts are considered as acts of the principal, the partnership, hence the partnership is liable
for:
1. Acts for apparently carrying on in the usual way the business of the partnership
(with exception that partner has no authority and third person knows of such fact)
2. Acts of strict dominion
3. Acts in contravention of a restriction on authority

Q: What is the consequence if partner acts without authority?

A: The third person will not be prejudiced and the partner who acted without authority
shall be individually and personally liable on such contract.

Q: Can such partner who acted without authority invoke the defense that he has no such
authority?
A: No. He is now estopped from doing so.

Goquiolay vs Sycip, G.R. No. L-11840 July 26, 1960

SC: That the partnership was left without the real property it originally had will
not work its dissolution, since the firm was not organized to exploit these precise lots but
to engage in buying and selling real estate, and “in general real estate agency and
brokerage business”. Incidentally, it is to be noted that the payment of the solidary
obligation of both the partnership and the late Tan Sin An, leaves open the question of
accounting and contribution between the co-debtors, that should be ventilated separately.

ARTICLE 1819 Where title to real property is in the partnership name, any partner may
convey title to such property by a conveyance executed in the 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.

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.

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 or his assignee, is a holder for value,
without knowledge.

Where the title to real property is in the name of one or more or all the 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.

Where the title to real property is in the name of all the partners a conveyance executed
by all the partners passes all their rights in such property.

Legal Effects of Conveyance of Real Property

Title of Real Conveyance Legal Effect

Property (Name)
Partnership Partnership Title passes to 3rd person subject to recovery
by partnership if:
1) Conveyance not in usual way of
business; or
2) 3rd person had knowledge that partner
has no authority
Partnership Partner Only equitable title passes to 3rd person.
BUT see Article 1818
In one or more In one or more Legal title passes to 3rd person subject to
Partners partners recovery by partnership
In one or more Partnership or Equitable interest passes to 3rd person subject
partners or 3rd partner to Article 1818
person trustee

Names of all Names of all Title passes to 3rd person. (even if not made
partners partners in the usual way of business)

*** Note that this rule is subject to the rule on Innocent Purchasers for Value (Land
Titles)

ARTICLE 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.

Q: What are the requisites for applicability of this rule?

A: 1. Proof of existence of partnership
2. Admission relates/concerns partnership affairs
3. Partner acts within the scope of his authority

Q: Supposing a partner who withdrew from the partnership admits that the partnership
owes creditor X Php 10,000.00 Is such admission admissible in evidence?
A: No. Since the partner is no longer a partner at the time the admission was made, such
admission will not bind the partnership.

Q: Supposing a partner admitted that the son of his partner was driving a car owned by
the partnership. Will this admission bind the partnership in a suit for damages filed by a
3rd person who was injured by an accident caused by the son of the partner?
A: No. Liability of the son of the partner does not concern partnership affairs
ARTICLE 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.

*** Again, relate to mutual agency.

ARTICLES 1822 to 1823

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 omitting to act. (n)

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.

Guy vs Gacott, G.R. No. 206147, January 13, 2016

SC: In the spirit of fair play, it is a better rule that a partner must first be impleaded
before he could be prejudiced by the judgment against the partnership. The court cited
Articles 1816, 1822-1824.
In essence, these provisions articulate that it is the act of a partner which caused
loss or injury to a third person that makes all other partners solidarity liable with the
partnership because of the words "any wrongful act or omission of any partner acting in
the ordinary course of the business, " "one partner acting within the scope of his apparent
authority" and "misapplied by any partner while it is in the custody of the partnership."
The obligation is solidary because the law protects the third person, who in good faith
relied upon the authority of a partner, whether such authority is real or apparent.

ARTICLE 1824 All partners are liable solidarily with the partnership for everything
chargeable to the partnership under articles 1822 and 1823.

Munasque vs CA, G.R. No. L-39780 November 11, 1985 (supra)

*** Read Articles 1822 to 1824 very well.

Article 1816 Articles 1822-1824

Contractual liability Liabity arising from Quasi-Delict or Tort

Joint and Subsidiary Solidary

Requisites for applicability:

1. The partner must be guilty of a wrongful act or omission;
 2. He must be acting in the ordinary course of business, or with the authority of his
co-partners even if unconnected with the business

Q: Supposing partner A delivered pandesal for the partnership whose business is the pan
de sal/bakeshop business. While driving the car owned by the partnership, A collided
with B. Will the partnership be held liable?
A: Articles 1822-1824

Q: Supposing after the bakeshop closed, and while A was on his way home, he decided to
go to SM to buy pasalubong for his wife. While parking, he scratched another car in the
parking lot. Will the partnership be held liable?
A: No. Such act was his own act and not connected with the partnership business.

Q: Supposing Atty A misappropriated the funds entrusted to him by the client of ABC
Lawfirm, and the client filed a disbarment suit and an estafa case against Attys A B and
C. Will this prosper?
A: No. Such act of Atty A only holds him individually liable. Articles 1822-1824 does
not extend to criminal liability.

Q: Would your answer be the same if partner A misappropriated payments to partnership

with the result that creditors who supplied materials on credit were not paid?
A: See Munasque vs CA

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 the 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:

(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 an existing partnership, or

with one or 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 consent to the representation, a 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.

Q: What is estoppel?
A: Estoppel is a 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. Through estoppel, an admission or representation is rendered
conclusive upon the person making it and cannot be denied or disapproved as against the
person relying thereon
Q: When is a partner a partner by estoppel?
A: When he 1) Directly represents himself to anyone as a partner in an existing
partnership or in a non-existing partnership; or 2) Indirectly represents himself by
consenting to another representing him as a partner in an existing partnership or in a non-
existing partnership (De Leon)

Elements to establish liability as a partner on ground of estoppel (De Leon)

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 by the defendant
2. Reliance on such representations by the plaintiff
3. Lack of any denial or refutation of the statements made by the defendant; such
denial need not precede plaintiff’s acting thereon if the denial was forthcoming
promptly upon hearing of the representations and if by prudence and diligence the
plaintiff might have learned of the truth or untruth of the representations

MacDonald, et al vs The National City Bank of New York, G.R. No. L-7991, May 21,
1956
SC: While an unregistered commercial partnership has no juridical personality,
nevertheless, where two or more persons attempt to create a partnership failing to comply
with all the legal formalities, the law considers them as partners and the association is a
partnership in so far as it is a favorable to third persons, by reason of the equitable
principle of estoppel.

Pioneer Insurance and Security Corporation vs CA, G.R. No. 84197 July 28, 1989
SC: Thus, where persons associate themselves together under articles to purchase
property to carry on a business, and their organization is so defective as to come short of
creating a corporation within the statute, they become in legal effect partners inter se, and
their rights as members of the company to the property acquired by the company will be
recognized. x x x However, such a relation does not necessarily exist, for ordinarily
persons cannot be made to assume the relation of partners, as between themselves, when
their purpose is that no partnership shall exist, and it should be implied only when
necessary to do justice between the parties; thus, one who takes no part except to
subscribe for stock in a proposed corporation which is never legally formed does not
become a partner with other subscribers who engage in business under the name of the
pretended corporation, so as to be liable as such in an action for settlement of the alleged
partnership and contribution. A partnership relation between certain stockholders and
other stockholders, who were also directors, will not be implied in the absence of an
agreement, so as to make the former liable to contribute for payment of debts illegally
contracted by the latter.

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 this liability shall be satisfied
only out of partnership property, unless there is a stipulation to the contrary.

- Limited to his share in the partnership property

- Partner knows what he was getting into (assumption of risk and liability)
- Since partner partakes of the benefits, he shall also share the risks and liabilities
- However, for subsequent obligations, his liability extends even to his personal and
separate property already

Q: Supposing a contract of lease was entered into before accepting partner E into the
partnership. Partner E denies liability saying that such contract was entered into before he
became a partner. Is his contention correct?
A: No. When E was admitted into the partnership, the former partnership was dissolved
and the new partnership (with him as partner) is born. Hence, he is held liable for all
subsequent monthly rents accruing thereafter. Also, contract of lease is a continuing one.

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.

Q: Why are partnership creditors preferred with respect to partnership property?

A: This rule is based on the separate juridical personality of the partnership.

Q: What is the remedy of private creditors of a partner?

A: Apply for a charging order.

Viuda de Chan vs Peng, G.R. No. L-29182 October 24, 1928

SC: “all the members of the general co-partnership, be they or be they not
managing partners of the same, are personally and severally liable with all their
properties for the results of the transactions made in thename and for the account of the
partnership, under the signature of the latter, and by the person authorized to make use
thereof". It is further to be noted that both the partnership and the separate partners
thereof may be joined in the same action, though the private property of the latter cannot
be taken in payment of the partnership debts until the common property of the concern is
exhausted.