DON HONORIO VENTURA STATE UNIVERSITY

College of Business Studies

Business Laws and Regulations
Atty. Angela Dela Cruz-Lacanlale
LAW ON PARTNERSHIP

I. LIABILITY OF PARTNERSHIP AND PARTNERS FOR PARTNERSHIP

CONTRACTS (Art. 1816) – To enforce the liability of the partners for
partnership debts and obligations, the action should be filed both against the
partnership and the individual partners. However, the private property of the
individual partners cannot be seized for satisfaction of partnership debts until
all partnership assets have been exhausted.

INDUSTRIAL PARTNER NOT EXEMPTED FROM LIABILITY – An industrial partner

is exempted from losses. However, he is not exempted from liability.

The exemption of the industrial partner to pay losses relates exclusively to the
settlement of the partnership affairs among the partners themselves and has
nothing to do with liabilities of the partners to third persons. An industrial
partner is not exempted from liability to third persons for the debts of the
partnership.

NATURE OF LIABILILITY OF PARTNERS – The liability of the partners for the

partnership debts is pro rata, if their contributions are unequal. Pro rata
means in proportion or ratably, or a division according to share, interest, or
liability of each.

II. STIPULATION AGAINST PRO RATA LIABILITY IS VOID - Any stipulation by and
among the partners contradicting the pro rata liability of partners is void
insofar as it shall affect the rights of innocent third persons.

However, such stipulation is valid by and among the partners themselves.

III. LAW ON PARTNERSHIP IS A BRANCH OF THE LAW ON AGENCY - There is

more than mutual agency among the partners. They are not only agents of one
another but they are also agents of the partnership. Each partner is acting as
principal on his own behalf and as agents of his co-partners.

When the manner of management has not been agreed upon, all partners shall
be considered as agents and whatever any one of them may do alone shall
bind the partnership.

TWO KINDS OF ACTS OF A PARTNER CONTEMPLATED IN ARTICLE 1818

(1) Acts which APPARENTLY are for the carrying of the business of the
partnership in the usual way

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Business Laws and Regulations
Atty. Angela Dela Cruz-Lacanlale
- The acts of the partners bind the partnership unless the partner had in fact
no authority and the third person dealing with him had knowledge of such
fact

USUAL WAY – an ordinary activity for the particular partnership or similar

partnership

Example: A partnership engaged in real estate usually involved in the sale

and purchase of lands and buildings. It is unusual for it to sell fish or
animals.

(2) Acts which ARE NOT APPARENTLY for carrying on the business of the
partnership in the usual way

- The acts of the partner only bind the partnership if he was in fact authorized
by his co-partners

SEVEN ACTS OF DOMINION OR OWNERSHIP – Any of these acts can only be

transacted on behalf of the partnership if ALL the partners jointly act. The law
requires unanimity of actions or consent.

(1) Assignment of partnership property in trust for creditors or on the assignees’

promise to pay the debts of the partnership
(2) Disposal or alteration of the goodwill of the business
(3) Making the usual way of carrying on the business of the partnership
impossible,
(4) Confession of a judgment.
(5) Entering into a compromise concerning partnership claim.
(6) Submit a partnership claim or liability to arbitration.
(7) Renunciation of partnership claim

The law provides for an exception when a partner may execute any of the above
acts. The law, however, requires the following conditions –

(a) All the co-partners have authorized a partner to execute the act; or
(b) All the co-partners had abandoned the business, in which case, their
conformity is no longer required.

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Business Laws and Regulations
Atty. Angela Dela Cruz-Lacanlale
IV. CONVEYANCE OF REAL PROPERTY BELONGING TO THE PARTNERSHIP
(Art. 1819)

Type of Conveyance Effect/s

Title in the partnership’s name; Conveyance passes title but
Conveyance in partnership name partnership can recover, unless:
(1st paragraph)
(1) Conveyance was done in the
usual way of business, and the
partner so acting has the
authority to act for the
partnership; or
(2) The property which 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 his
conveyance, has exceeded his
authority.
Title in the partnership’s name; Conveyance does not pass title but
Conveyance in partner’s name (2nd only equitable interest, provided:
paragraph)
(1) Conveyance was done in the
usual way of business; or
(2) The partners so acting has the
authority to act for the
partnership.
Title in the name of one or more Conveyance passes title but the
partner/s, and the record does not partnership may recover such
disclose the right of the partnership; property if the partner’s act does not
Conveyance in the name of bind the partnership:
partner/s in whose name title
stands (3rd paragraph) (1) The partner so acting has no
authority to act for the
partnership; and
(2) The person with whom he is
dealing has knowledge of the
fact unless the purchaser or
assignee is a holder for value,
without knowledge.
Title in the name of one (1) or more Conveyance will only pass equitable
or all partners or a 3rd person in trust interest, provided:
for partnership; Conveyance
executed in partnership name or in (1) The act is one within the
name of partners (4 paragraph)
th
authority of the partner; and

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Business Laws and Regulations
Atty. Angela Dela Cruz-Lacanlale
(2) Conveyance was done in the
usual way of business
Titles in the name of all partners; Conveyance will pass all the rights in
Conveyance executed by all such property.
partners (5th paragraph)

V. REQUISITES TO MAKE A PARTNER’S ADMISSION OR REPRESENTATION

ADMISSIBLE AGAINST THE PARTNERSHIP

To render the partner’s previous admission or representation binding as

evidence against the partnership, the following requisites are necessary –

(1) The admission or representation must be connected with partnership

affairs
(2) It is within the scope of the partner’s authority
(3) It is made during the existence of the firm

VI. NOTICE TO A PARTNER; EFFECT – Notice to a partner while already a partner

is notice to the partnership if the matter is connected to partnership affairs.
Notice to one partner is considered a sufficient and effective notice to the firm.

KNOWLEDGE WITHOUT NOTICE; EFFECT – Knowledge of a partner is also a

knowledge of the firm under the following:

(a) When knowledge is acquired by a partner who is acting in the particular

matter. It may have been acquired while he is already a partner or even
before his becoming a partner provided that the matter is “present to
his mind” which means, he still remembers the partnership matter.
(b) When knowledge is acquired by a partner not acting in the particular
matter, but with reason to believe that the matter would become or has
the possibility of becoming the subject of the partnership business

VII. WHEN A PARTNER INCURS ANY WRONGFUL ACT OR OMISSION

RESULTING IN INJURY OR LOSS TO A THIRD PERSON (Art. 1822)

Requisites for the Application of the Article:

(a) Partner committed a wrongful act or omission. The act may be a crime or
quasi-delict.
(b) The guilty partner is acting in the ordinary course of business of the
partnership or with the authority of the co-partners even if the act is not
connected with the partnership business

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Business Laws and Regulations
Atty. Angela Dela Cruz-Lacanlale
(c) Loss or injury is suffered by a third person as a result of the wrongful act or
omission
(d) The aggrieved third person is not a partner in the firm
(e) There is no pre-existing contract between the partnership and the third
person; If there is, but it was grossly and deliberately violated, this itself
constitutes quasi-delict.

EXTENT OF LIABILITY OF THE FIRM AND CO-PARTNERS – The firm is liable to

the same extent as the partner who committed the tortious act. All partners
are also solidarily liable with the firm whether or not they participated in the
commission of the wrongful acts or omissions.

CRIMINAL LIABILITY OF A PARTNER – Art. 1822 does not extend the criminal
liability of the erring partner to the partnership or partners because the
wrongdoing is regarded as individual in character.

VIII. MISAPPLICATION OF MONEY OR PROPERTY RESULTING IN LOSSES (Art.

1823)

The article applies when:

(a) Money or property is delivered and received by a partner acting within the
scope of his apparent authority, and he misapplied what he so received; or

(b) When the partnership received money or property in the course of its
business, and any partner misapplied or misappropriated the money or
property.

If loss is suffered by the third person who delivered the money or property,
the partnership is solidarily liable with the misappropriating partner.

IX. LIABILITY OF PARTNERSHIP AND PARTNERS, SOLIDARY – For everything

chargeable to the partnership under Arts. 1822 and 1823, the partners are
solidarily liable. The partnership is also solidarily liable.

X. PARTNERS BY ESTOPPEL/PARTNERSHIP BY ESTOPPEL

Partner by estoppel – where the representation of being a partner is committed

by one person only

Partnership by estoppel – where representation involves several persons

pretending to be a firm

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Business Laws and Regulations
Atty. Angela Dela Cruz-Lacanlale
Requisites to make a person a “partner by estoppel”

(1) The person must represent himself as a partner of an existing partnership,

when in fact he is not a partner, or consents to another representing him to
anyone as a partner in an existing partnership or with one or more persons
who not actual partners;

(2) Third person relied on the said misrepresentation not being aware of the
deception;

(3) On the faith of such representation, the third person has given credit to the
actual or apparent partnership;

(4) The alleged partner cannot disallow liability by claiming he is not actually a
partner. He is estopped from making a disclaimer. He is bound as a
“partner,” although he is not actually a partner.

PARTNERSHIP BY ESTOPPEL, HOW IT ARISES – when all the members of the

existing partnership consented to the representation, a partnership act or
obligation arises. This is a case of “partnership by estoppel” composed of the
alleged partner and the partnership itself. The person becomes an agent of the
existing firm and his act or obligation binds the said firm.

NO REAL PARTNERSHIP IS CREATED BY ESTOPPEL – A real partnership is

formed by virtue of a contract, express or implied, between the parties. It is
only insofar as third persons are involved and for the purpose of giving them
protection that the equitable principle of estoppel is recognized in the law.

Those who did not rely on the misrepresentations of the alleged partner/s, or
those who are aware thereof, and those who did not give credit to the actual
or apparent partnership cannot invoke the protective mantle of Art. 1825.

XI. LIABILITY OF NEWLY-ADMITTED PARTNER – The incoming partner or newly-

admitted partner is liable for all the obligations of the firm contracted before
his admission. However, this liability is only up to his share in the partnership
property, unless there is a contrary stipulation. His separate property will not
be reached by partnership creditors.

Reason: To eliminate the difficulty which arises when by a new partner’s

admission, the existing partnership is dissolved and all the properties of the
said partnership are taken over by the new partnership. Old creditors lose their
preference as partnership creditors. By making the new partner liable even to

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Business Laws and Regulations
Atty. Angela Dela Cruz-Lacanlale
eld creditors, the problem had been solved. Equality among creditors is
established.

XII. PARTNERSHIP CREDITORS PREFERRED TO CREDITORS OF INDIVIDUAL

PARTNERS

Reason: the partnership has a separate and distinct personality from the
individual partners. The partnership should apply its property to the payment
first of its debts to its own creditors. Conversely, the private property of the
partners cannot be taken as payment for partnership debts until the common
property (partnership property) of the firm had been exhausted.