CONTRACT OF PARTNERSHIP

OBLIGATIONS OF PARTNERSHIP/ PARTNERS TO THIRD PERSONS

1. Every partnership shall operate under a firm name (NCC, Art. 1815).

2. All partners shall be liable for contractual obligations of the partnership with their property, after
all partnership assets have been exhausted:

a. Pro rata

b. Subsidiary (NCC, Art. 1816) (1993, 2010 Bar)

XPN: All partners shall be liable solidarily with the partnership for everything
chargeable to the partnership under Art. 1822 and 1823 (NCC, Art. 1824).

NOTE: Any stipulation against the liability laid down in Art. 1816 shall be void except as among
the partners (NCC, Art. 1817).

3. Partner as an agent of the partnership (NCC, Art. 1818) (1994 Bar)

4. Conveyance of real property belonging to the partnership (NCC, Art. 1819)

5. Admission or representation made by any partner concerning partnership affairs within the scope
of his authority is evidence against the partnership (NCC, Art. 1820)

6. Notice to partner of any matter relating to partnership affairs operates as notice to partnership
except in case of fraud:

a. Knowledge of partner acting in the particular matter acquired while a partner

b. Knowledge of the partner acting in the particular matter then present to his mind

c. Knowledge of any other partner who reasonably could and should have communicated it to
the acting partner (NCC, Art. 1821)

7. Partners and the partnership are solidarily liable to 3 rd persons for the partner's tort or breach
of trust (NCC, Art. 1822-24)

8. Liability of incoming partner is limited to:

a. His share in the partnership property for existing obligations

b. His separate property for subsequent obligations (NCC, Art. 1826)

9. Creditors of partnership are preferred in partnership property & may attach partner's share in
partnership assets (NCC, Art. 1827)

NOTE: On solidary liability, Art. 1816 should be construed together with Art. 1824 (in connection with Arts.
1822 & 1823). While the liability of the partners is merely joint in transactions entered into by the
partnership, a third person who transacted with said partnership may hold the partners solidarily liable for
the whole obligation if the case of the third person falls under Articles 1822 and 1823 (Munasque v. CA, G.R.
No. L-39780, November 11, 1985).

Importance of having a firm name

A partnership must have a firm name under which it will operate. It is necessary to distinguish the
partnership which has a distinct and separate juridical personality from the individuals composing the
partnership and from other partnerships and entities (De Leon, 2010).

Liability for the inclusion of name in the firm name

Persons who, not being partners, include their names in the firm name do not acquire the rights of a partner
but under Art. 1815, they shall be subject to the liability of a partner (Art. 1816) insofar as third persons
without notice are concerned (De Leon, 2010).

Remedies available to the creditors of a partner

1. Separate or individual creditors should first secure a judgment on their credit; and
 2. Apply to the proper court for a charging order subjecting the interest of the debtor-partner in the
partnership for the payment of the unsatisfied amount of the judgment debt with interest thereon
(De Leon, 2014).

NOTE: The court may resort to other courses of action provided in Art. 1814 of the NCC, (i.e., appointment of
receiver, sale of the interest, etc.) if the judgment debt remains unsatisfied, notwithstanding the issuance of
charging order (De Leon, 2014).

Effects of the acts of partners acting as an agent of the partnership

ACTS OF A PARTNER EFFECT

With binding effect except:

Acts for apparently carrying on in the usual way When the partner so acting has in fact no authority
the business of the partnership 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 [NCC, Art.
1818(1)].

Acts not in the ordinary course of business Do not bind partnership unless authorized by other
partners (NCC, Art. 1818).

Acts of strict dominion or ownership: GR: One or more but less than all the partners have
no authority

Assigning partnership property in trust for creditors ;

Disposing of goodwill of business; XPNs:

Doing an act which would make it impossible to Authorized by the other partners; or
carry on the ordinary business of partnership;
Confessing a judgment; Entering into a compromise Partners have abandoned the business [Art.
concerning a partnership claim or liability; Submitting 1818(3)].
partnership claim or liability to arbitration; Renouncing
claim of partnership

Acts in contravention of a restriction on authority Partnership is not liable to 3rd persons having
actual or presumptive knowledge of the restriction
[NCC, Art. 1818(4)].

Effect of conveyance of a real property

TYPE OF CONVEYANCE EFFECT

Title in the partnership’s name; Conveyance passes title but partnership can recover unless:
Conveyance in partnership name
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 the conveyance,
has exceeded his authority (De Leon, 2014).

Title in the partnership’s name; Conveyance does not pass title but only equitable interest,
Conveyance in partner's name provided: Conveyance was done in the usual way of business, or
The partner so acting has the authority to act for the partnership
(De Leon, 2014).

Title in the name of 1 or more
partners, and the record does not
disclose the right of the partnership;
Conveyance in name of partner/s in
whose name title stands
Conveyance passes title but the partnership may recover such
property if the partners’ act does not bind the partnership: The
partner so acting has no authority to act for the partnership, and
The person with whom he is dealing has knowledge of the fact
unless the purchaser of his assignee, is a holder for value, without
 knowledge (De Leon, 2014).

Title in name of 1 or more or all
partners or 3rd person in trust for
partnership; Conveyance executed
in partnership name or in name of
partners
Conveyance will only pass equitable interest, provided: The act
is one within the authority of the partner, and Conveyance was
done in the usual way of the business (De Leon, 2014).

Title in the names of all the Conveyance will pass all the rights in such property (De Leon,
partners; Conveyance executed by 2014).
all the partners

Sources:

UST_Golden Notes_2019 Bar