R IGHTS AND O BLIGATIONS OF P ARTNERSHIP AND P ARTNERS

Rights and Obligations of the Partnership

Q: K.Co is an entity engaged in selling imported coffee beans from Vietnam

and was owned and managed by partners KC and Kris. One day, when Kris is on a
trip to Vietnam in search for other suppliers, KC decided to display in their physical
store her own make-up products called Coffee-Kissed Lip Tint which is a lip product
infused with coffee scent and flavor. Kylie, an avid fan of lip tints and a coffee-lover
bought 12 boxes for her personal use. After using the product, her lips began to swell
which caused her sleepless nights and so much pain and discomfort. She had to be
rushed to the emergency for urgent treatment and medication. Kylie filed a complaint
for damages against K.Co. Will the suit prosper?

A: No. Second paragraph of Art. 1818 of the Civil Code provides that 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.
In the present case, the selling of lip products is not in any way connected to the
carrying on of the business of K.Co which is engaged in selling imported coffee beans.
In addition, the selling of lip products was made without the other partner’s consent.
The act of KC cannot effectively bind the partnership. K.Co is not the proper party to
the damages suit; hence, the case should be dismissed. Instead, Kylie should have
sued KC in her personal capacity.

Obligations of Partners Among Themselves

Q: Janet, Michael, Randy, and La Toya established a partnership called

Jackson 4 Co. with the intention of operating a music store selling vintage and modern
vinyl records in Cubao Expo. In the Articles of Incorporation, Michael is designated as
the managing partner. One Friday afternoon, Janet visited the physical store and had
to keep watch for a while because Michael needed to go to the bank to deposit their
yesterday’s sales. Bruno entered the shop and saw Janet. He is a debtor of Janet in
the amount of 20,000 pesos and also a debtor of the partnership in the same amount.
Both debts are already due and demandable. Bruno paid Janet 20,000 pesos without

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 specifying which debt he is paying for so the latter issued her personal receipt as proof
of payment. Upon Michael’s return and witnessing such, he contends that Janet should
have issued a receipt of the partnership since as a partner, she must act on what is
deemed best for the partnership and that is to apply the payment for the partnership’s
credit. Is Michael’s contention correct?

A: No. Art. 1972 of the Civil Code provides that if a partner authorized to
manage collects a demandable sum, which was owed to him in his own name, from a
person who owed the partnership another sum also demandable, the sum thus
collected shall be applied to the two credits in proportion to their amounts, even though
he may have given a receipt for his own credit only. In the present case, the said
provision cannot be applied to Janet because she is not a partner authorized to
manage the partnership. It was Michael who was designated as managing partner in
the Articles of Incorporation. Michael’s contention, although only looking after the best
interest of the partnership, is incorrect.

Obligations of Partners to Third Persons

Q: Hogwarts, Inc. is an entity engaged in making halloween costume and selling

it to the public. It is owned by Harry, Ron, (both capitalist partners) and Hermione
(industrial partner). Severus ordered 1000 pieces of their wizards and witches
halloween costume for an upcoming event. Hagrid, supplier of cloth and linens,
provided them their needed materials on credit for 60 days in the amount of 500,000
pesos. Severus defaulted in the payment of his order and the partnership’s obligation
became due. After exhausting the partnership’s assets, the remaining debt to Hagrid
is still at 120,000 pesos. Harry and Ron told Hermione that they need to shell out their
personal money to settle the debt. Hermione disagreed and claimed that she cannot
be held liable for the losses because she is an industrial partner. Is the contention
correct?

A: No. While it is true that an industrial partner cannot be liable for losses under
Art. 1797 of the Civil Code, Art. 1816 provides that all partners, including industrial
ones, shall be liable pro rata with all their property and after 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

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 act for the partnership. Hermione, as an industrial partner, cannot validly excuse
herself for the payment of partnership debt to Hagrid, a third person.

D ISSOLUTION AND W INDING U P

Q: Morris, Franco and Mimi are partners of Bark & Co. engaged in selling
customized dog beds in Marikina. The business did not go well and they decided to
end the partnership in February 28, 2021. They are yet to publish notice of the
dissolution of the partnership and they agreed that Mimi will be the one to liquidate
and wind-up the partnership affairs. In March 5, 2021, Dodie, an old customer of Bark
& Co. is also engaged in the business of personal lending. He lent a sum of money to
Mimi, acting in behalf of the partnership, in the amount of 50,000 pesos due after 30
days with interest. He is unaware of the dissolution and that Mimi is a partner in-charge
of liquidation. On due date, the partnership failed to pay despite demand which
prompted Dodie to file a collection suit. The partners contend that the complaint should
be dismissed because the partnership is already dissolved and inexistent on March 5,
2021. Is the contention correct?

A: No. Art. 1829 of the Civil Code provides that on dissolution, the partnership
is not terminated but continues until the winding up of partnership affairs is completed.
In addition, the sub-paragraph 2(b) of the first paragraph of Art. 1834 provides that
after dissolution, a partner can bind the partnership to any transaction which would
bind the partnership if dissolution had not taken place, provided the other party to the
transaction, though he had not so extended credit, had nevertheless known of the
partnership prior to dissolution, and, having no knowledge or notice of dissolution, the
fact of dissolution had not been advertised in a newspaper of general circulation in the
place at which the partnership business was regularly carried on. In the present case,
the partnership’s dissolution has not been published in a newspaper of general
circulation to serve as a notice to third person of such fact. This cannot prejudice the
rights of Dodie since when he lent the sum of money, the partnership, though
dissolved, is not yet terminated during the winding up and liquidation process.

L IMITED P ARTNERSHIP
Q: Jollybeen, McRonald and ChowQueen are partners engaged in the selling
of McJoy Chinese Style-Fried Chicken in the name of JMC Ltd. ChowQueen is a
limited partner who insists on providing her services as a managing partner to serve

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 as her contribution to the partnership. She contends that she is the best one to manage
since she graduated his Masters Degree in Business Administration at Harvard
University. Can ChowQueen be a managing partner of JMC Ltd.?

A: No. Art. 1845 of the Civil Code provides that the contributions of a limited
partner may be cash or other property, but not services. A limited partner cannot be
an industrial partner nor can be a managing partner due to his limited liability and being
a mere contributor of capital. This is intended to protect third persons. Thus,
ChowQueen, cannot be the managing partner of JMC Ltd.

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