SECTION 3 – Obligations of the Partners as to 3rd Persons

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. (n)

 Firm names are required for partnerships because they are juridical persons in need of separate names so that
they are distinguishable from the partners and other partnerships. The name can come from any of the partners or
3rd persons.
 If a 3rd person’s name is used with his consent, then he shall be liable as a partner without the rights of a partner
because the partnership uses his name.
 Partnership name must be registered with the (DTI) DEPARTMENT OF TRADE AND INDSUTRY because if there
was already such an existing name, there might be cases of duplication.
 You cannot choose the name of a deceased partner as his death caused the partnership’s dissolution.
 Sample General and Limited Partnership Names:
(1) GENERAL – A & Company
(2) LIMITED – A, Ltd.

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. (n)

Article 1817
Any stipulation against the liability laid down in the preceding article shall be void, expect as among
the partners. (n)

 As to 3rd persons, ALL partners are liable pro-rata and subsidiary, but as to each other, they are liable in proportion
to their capital contribution.
 Examples:
(1) A, B and C are in a partnership where C is the industrial partner and a sum of P26,000.00 is owed to D. A and
B contributed P15,000.00 and P5,000.00 respectively. How shall the debt be shared?
As to D, the partners will share equally in the debt left after exhausting all assets (P6,000.00) so they will each
have to pay P2,000.00 regardless of C being an industrial partner. If C is insolvent, or if B died, or if A has left
the country, the liability of the partners cannot be increased.
As to each other, they are liable in proportion to their capital contribution, so B and C will be reimbursed by A.
(2) A, B, C, D and E are sued in court but E is later cleared of his charges. The court orders A, B, C and D to pay
their creditor, but C moves to reconsider that all should be charged, but this move was denied. Can A, B, C
and D alone be liable for the debt?
According to the Supreme Court, the 4 partners cannot alone be liable for the debt because in excluding E,
they have increased the other partners’ liability and this is prohibited by the law. The law states that the liability
of the partners cannot be increased such that they shoulder the liability of another partner.
(3) What if there was an agreement that stated B is only liable up to P5,000.00? How will A, B and C share in their
liability?
The stipulation shall be void as to 3rd persons, so they will still share pro-rata. Anyway, B and C will be
reimbursed by A, because as among themselves, the stipulation is valid and C is an industrial partner.

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 no 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 o the assignee’s promise to pay the debts
of the partnership
 (2) Dispose of the goodwill of the business
(3) Do any other act which would make 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. (n)

 Qualifies the authority of partners.

 Authority must be in the usual course of business.
 Transactions beyond a partner’s authority is binding if it is in the usual course of business because the 3 rd person is
assumed to have no knowledge of his lack of authority.
 When are transactions not binding?
(1) When a transaction is not in the usual course of business and has no consent from all other partners
(2) When the 3rd person had knowledge of the lack of authority of the acting partner

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 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 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 partner’s act does not bind the
partnership under Article 1818, unless the purchaser of his assignee, is a holder for value without
knowledge.
Where title to real property is in the name of one or more or all partners, or in a 3trd person in trust for
the partnership, a conveyance executed by a partner in the partnership name, or in his name, passes the
equitable interest of the partnership, provided the act is one within the authority of the partner under
Article 1818.
Where title to real property is in the names of all the partners a conveyance executed by all the
partners passes all their rights in such property. (n)

 Refers to the conveyance of immovable property

 Suppose A, B and C are partners engaged in the buying and selling of property, and the following situations occur:
(1) A, without authority, sells land to D in the partnership’s name but D immediately sells it to E. The land title was
originally under the partnership’s name. Can the partnership recover the land?
Title passes to D, then to E. The partnership cannot recover the land once it has transferred to E but if the land
was still with D, they could have recovered it if the contract was not binding .
(2) What if A sells the property under his name?
Only the equitable title passes to D.
(3) What if A sells the property and the land title is registered under his name?
Title passes to D because land is registered under the partner’s names. This will hold true if A, B and C are co-
owners of the land, even if only A sold it to D.
(4) Land title belongs to one or more or all of the partners or a 3rd person in trust for the partnership.
Only the equitable title will pass to D if the seller had no authority to sell such to D.
(5) A, B and C ALL sell the land to D, with the land title belonging to ALL of them.
Title passes to D because ALL partners sell to him.