Partnership Notes

Johanna Marie B. Bermudo LLB 3-A Partnership, Agency and Trusts Notes (From: Dean Pineda) University of San Agustin

Art. 1767 Contract of Partnership: a. 2/more persons bind themselves b. to contribute money, property, or industry to a common fund, c. with the intent of dividing the profits among themselves. themselves. (Business Partnership) Partnership) 

Two or more persons may form partnership partnership for the exercise of profession - Ex. Formation of law firm by two or more lawyers for the practice of law. (Professional Partnership) Partnership) -While this is not for profit but the pursuit is partnership. partnership. -Requisites of Partnership: Partnership: 1. mutual contribution to a common fund 2. joint interest for profits -Pool agreement is not a partnership -Nature of Partnership is a privilege. To organize a partnership is not an absolute right. It is a privilege which may be enjoyed only under the terms that the State may imposed. -Kinds of Partnerships: Partnerships: 1. As to nature a. Commercial/trading- organized for the pursuit of business or trade b. Professional- organized for the exercise of profession 2. As to duration a. With a fixed term – organized – organized for a specific period. Upon the expiration of the specific period, the partnership is dissolved unless continued by some/all the partners.

b. At will- organized w/o any any definite period. period. Not formed for a specific undertaking & may be terminated by the consent or agreement of the parties. -Partnership whose term has expired and was continued is a partnership at will. 3. As to legality of existence a. De jure – jure – has has complied with all the necessary requisites for lawful establishment b. De facto – facto – failed failed to comply with the requisites for lawful establishment 4. As to existence & relation to third persons a. Ordinary/real Ordinary/real – really – really exists between & among the partners themselves and as to third persons b. Ostensible/by estoppel – estoppel – deemed deemed one only in relation to transacting third persons. It arises by acts of misrepresentation which may be oral, written or conduct. 5. As to public perception a. Open – Open – known known to the public b. Secret- not made known to the public 6. As to its object a. Universal i. As to all present property ii. As to profits b. Particular – Particular – determinate things, the use or the fruits or the exercise of the profession or vocation

-Nature of Relationship between partners: 1


-Essential ly fiduciary. Each is required to observe the highest degree of good faith. Each is the confidential agent of another. Partner cannot apply to his own benefit all the knowledge & information acquired during the partnership. -Delectus Personae -no one can become a member of the partnership w/o the consent of all the partners -Juridical Relationship arising from Contract of Partnership: 1.between & among the partners themselves 2. between the partners & the firm 3. between the firm & the third persons who may have contracted it 4. between the partners & such third persons -Characteristics: 1.Fiduciary- based on trust & confidence 2.Nominate- w/ specific name 3.Consensual- perfected by mere consent although in certain cases, formalities are required for its validity 4.Bilateral/multilateral- two or more persons are involved in a contract 5.Principal- existence does not depend on another contract

1. As to membership a. Real – a contributing member b. By estoppel/quasi-partner – not really a partner but represents himself as one -liable as partner so that the innocent third person who relied on his misrepresentation will not be prejudiced 2. As to continuation of business affairs after dissolution a. Continuing- one who continues the partnership after the dissolution b. Discontinuing- one who does not continue the partnership after the dissolution 3. As to value of contribution a. Majority- has a contribution of the majority or controlling interest b. Nominal- has a contribution of the minority interest 4. As to nature of membership a. Original- member of the partnership from its commencement b. Incoming-member after the establishment of the partnership -member by consent of all partners 5. As to state of survivorship a. Surviving – continues to be a partner after dissolution due to death of a partner b. Deceased- one who died while being member of a partnership. His shares will be paid to his legal rep. 6. As to effect of expulsion a. Expelled- one who is expelled from partnership on a valid cause b. Expelling- one who caused the expulsion of the partner on a valid cause

6.Onerous- has a consideration consisting of the contribution of money, property or industry 7.Preparatory- after its constitution, another contract or contracts may be entered into for the establishment of its purpose

7. As to nature of contribution a. Capitalist – contribute money or property b. Industrial – contribute industry/labor. He can’t engage in business for himself unless expressly permitted -An industrial partner can only be a general partner & not a limited partner

8.With legal personality- can sue & be sued unlike unlawful partnership 9.Profit oriented- common benefit & interest of the partners not just enjoyment -Kinds of Partners

8. As to liability a. General/Real – liability extend to separate property b. Limited/Special – only to extent of contribution c. Capitalist-Industrial- one who contributes both capital & industry 2


9. As to management a. Managing – manages the firm’s affairs b. Silent – doesn’t participate in management c. Li quidating – winds up the affairs after dissolution

- Whether a partnership exists is a factual matter. Where circumstances taken singly may be inadequate to prove the intent to form a partnership, the collective effect of these circumstances may be such as to support a finding of the existence of the parties’ intent. (Heirs of Tan Eng Kee v CA) -Test of existence of partnership

10. Other special classifications a. Subpartner – related only to the regular partner b. Retiring – withdraws/retires from the partnership

-intention as manifested in the entire transaction, attendant facts, language used and conduct of the parties. (Cases Page 15)

11. As to exposure to public perception a. Secret- one who participates in the profits or losses but is not publicly known

Partnership Created by mere agreement of the parties;

Creation

b. Silent- does not take an active part but is publicly known c. Ostensible- does take an active part and is publicly known

Commencement legal personality

d. Dormant- does not take an active part and is not publicly known

Lifetime Power to bind

-Common fund may be intangible like credit or industry. - For tax purposes, a co-ownership of inherited properties is automatically converted to an unregistered partnership when these are used as a common fund with intent to produce profits for the heirs in proportion to their shares in the inheritance as determined in a project of partition. (Oña v. CIR)

Nationality

-General Rule: Partners share not only in the profits but also the losses

Extent of liability

Exception: Industrial Partner does not share in the losses Exception to the Exception: Unless there is a contrary stipulation

of

From the time the contract begins to exists No time limit provided by law Partners bind both the partnership & other partners National of the country where it is established

Partners are liable w/ their private property beyond the amount of their contribution except limited partners unless there is a stipulation.

Corporation Created by operation of law or by incorporation under the Corp. Code. From the date of the issuance of the cert. of reg. of SEC Not more than 50 years Board of Directors binds the corporation National of the country under ehose laws it was incorporated except in time of war the nationality of the controlling stockholders prevails. The stockholders are liable to the extent of the shares subscribed by them unless they act w/ fraud 3


Suit for mismanagement

A partner as such may sue a co- partner who mismanages

Management

If no agreement as to mgt. - every partner is an agent of the partnership Based on delectus personam May be dissolved at anytime by the will of any or all partners

Transferabil ity of interest Dissolution, Causes

Suit against the board/director who mismanages must be brought in the corp.’s name Power to do business is vested in the board of directors/ trustees Not based on delectus personam May be dissolved only with the consent of the state

Representa -tion Effect of Death

consent of partners to make assignee of interest a partner There is mutual agency It dissolves partnership

of his share without the consent of the others

the

There is no mutual agency It does not dissolve the partnership

-Partnership and Agency Agent does not act for himself but for his principal. Partner is both a principal and agent. He is a principal for his own interests and agent for partnership & other partners.

Creation

Juridical Personality

Purpose

Duration

Transfer of Interests

Partnership Always created by a contract

Has a separate, distinct juridical personality Realization of profits

No limitati on upon the duration is set by law Need unanimous

Co-ownership Gen., created by law, may exist even without a contract Has no juridical personality

-The main distinction is that the partnership contemplates a general business with some degree of continuity, while the joint adventure is formed for the execution of a single transaction, and is of a temporary nature. Under Phil. law, a joint adventure is a form of partnership. Although a corporation cannot enter into a partnership contract, it may engage in a joint venture (Heirs of Tan Eng Kee v CA).

Common enjoyment of a thing or right Property can’t be undivided for more than 10 years A co-owner can dispose

-A corp. can’t enter into a partnership contract . This is based on public policy, since in a partnership the corporation would be bound by the acts of persons who aren’t duly appointed and authorized agents and officers, which would be inconsistent with the policy that the corporation shall manage its own affairs, separately and exclusively. 

Art. 1768 Partnership endowed w/ juridical personality 4


-separate and distinct from that of each of the partners.

3. Prima facie evidence of partnership: receipt of a share of the business profits

-It can sue and be sued. If partnership is involved in litigation, a partner already represented by the firm, has no right or be made a party as an individual separate from the firm.

Except if received in payment as: (DWAIC) a. A debt by installment b. Wages or rent c. An annuity d. Interest on a loan e. Consideration in a sale

- The partners can’t be held liable for the partnership’s obligations unless it is shown that the legal fiction of a different juridical personality is being used for fraudulent, unfair, or illegal purposes (Aguila v C A). -Case filed against the partnership will not be dismissed in case of death of the partner

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Form of Contract General Rule: No special form is required (Art. 1771, CC) Exceptions: 1. Where immovable property or real rights are contributed (Art. 1771, CC) – written in a public instrument with a signed inventory of the contributions. (Art. 1773, CC) 2. Where the capital is at least P3,000, in money or property – need a public instrument, which must be recorded in the SEC. (Art. 1772, CC) But a partnership has a juridical personality even if requirement is not complied with. Art. 1769 Rules to determine the existence of a partnership Persons who are not partners to each other are not partners as to third persons. 2. Co-ownership or co-possession and sharing of gross returns don’t establish a partnership, by itself

(Cases- Page 27-28) 

Art. 1770 Partnership must have a lawful object or purpose. It must be for the mutual benefit or interest of the partners. Dissolution of an unlawful partnership by a judicial decree- profits of which shall be confiscated in favor of the State w/o prejudice to the provisions of RPC. -COP w/o lawful object or purpose is void. -Even if the object or purpose is not unlawful but it is outside the commerce of men, the contract is still void. -Rules when some of the objects or purposes are illegal and others are not: The illegal ones shall be separated from those that are legal. The Partnership may still continue to exist -Juridical Dissolution of Unlawful Partnership: There must be due process. Partners are given the opportunity to be heard. They are given the opportunity to prove that partnership is not unlawful. -Coverage of Confiscation: Only the profits and not the contribution which is the capital of the partners. If contributions have already been made, the return shall be 5


made except if they are instruments or effects of the crime. If they have not been made, partners shall not be compelled to make contributions.

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Art. 1771 Formalities of the Contract of Partnership Refer to previous notes (Form of Contract) Where immovable property have been contributed & inventory have been properly made, to bind third persons, it must be registered w/ the Registry of Property where the immovable is located If personal properties are contributed, partnership may be entered orally Art. 1772 When the capital is at least 3000 php, money or property Refer to previous notes (Form of Contract) Failure to comply with this shall not affect the liability of the partnership and its members thereof to third persons Registration is only mandatory- in case when immovable or real rights are contributed in order to bind third persons

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Art. 1773 Inventory is required Refer to previous notes (Form of Contract) -when immovable or real rights are contributed, inventory must be signed & attached to the public instrument

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Art. 1774 Any immovable property or interest therein may be acquired in the partnership name. Title acquired may be conveyed in the partnership name. -Present article shall not apply if the firm has no name. In case of conveyance, it must be in the name/s of the partners.

-Partner who conveys must have authority. -If the immovable prop. is in the name of the firm, it must be alienated in the name of the firm. If it is in the name of the partner/s, it must be alienated in the name of the latter. If it is in the name of the firm but alienated in the name of the partner/s, equitable interest is only passed to the buyer or grantee in good faith. 

Art. 1775 -Associations and societies whose articles are kept secret to the members and any member may contract to a third person- no legal personality -law on co-ownership will govern -they may be sued by third persons under their common name

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Art. 1776 As to object, partnership may be universal or particular As to liability, partnership may be general or limited -

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As to object: 1. Universal- one the object of which is either a. All the present party b. All the profits 2. Particular- object of w/c are determinate things, their use & fruits, specific undertaking or the exercise of profession or vocation As to liability: 1. General- liable with his separate or individual properties after the assets of partnership have been exhausted 2. Limited- liable only up to the extent of his contribution

Arts. 1777-1779 Universal Partnership: 6


Coverage

Profits

Of all present property All present property actually owned by partners are contributed become common property of the partnership & the partners.

Only profits from the property contributed become common property;; other profits may, by stipulation, be considered as common property

Property owned by the partners when the partnership was formed continue to pertain to them only the usufruct becomes common property All profits acquired through partners’ industry/work become common property.

-Universal Partnership of all present property: Property w/ are subsequently acquired through donation, inheritance or legacy shall not cannot be included in such stipulations except the fruits thereof. 

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1. 2. 3.

Of all profits

Art. 1781 Articles of incorporation entered into as universal partnership w/o specification, shall constitute universal partnership of profits. Art. 1782 Persons prohibited from giving each other donation or advantage cannot enter into universal partnership.

4. 5.

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Legally married spouses Common law spouses Criminals convicted of the same offense in consideration of the same Parties guilty of adultery or concubinage A person and a public officer (wife, ascendants & descendants) by reason of his office

Art. 1783 Particular Partnership - object of w/c are determinate things, their use & fruits, or a specific undertaking or the exercise of profession or vocation 1. 2. 3.

Determinate thing- to buy and sell a particular house & lot Specific undertaking- to paint a car Exercise of a profession- practice of law by lawyers (industrial partners)

CHAPTER 2: OBLIGATIONS OF PARTNERS: 

Art. 1784

General Rule: Partnership shall begin at the moment of the execution of contract Exception: Unless it is stipulated -If the agreement is subject to a suspensive condition, partnership will begin to exist from the happening of the condition. -If the future partnership by agreement is to be implemented until after one year, it must be evidenced in a document or writing pursuant to Statute of Frauds. Otherwise, it is unenforceable.

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Art. 1785 -When a partnership for a fixed term or specific undertaking is continued after the termination such term or undertaking w/o express agreement, rights & duties of partners shall remain the same as they were at such termination

-When what is contributed is the “use” of the thing w/o transferring ownership- there is still warranty against eviction. (LEASE) -Rule when what is contributed is credit: contributing partner shall warrant its existence and not the solvency of the debtor unless there i s contrary stipulation

- Prima Facie Evidence of continuation of partnership: actual continuation of the affairs of the partnership

-Remedy for breach of warranty: Partnership may recover proper indemnity from the contributing partner. If the partnership wouldn’t have been constituted had it not been for the contribution, the other partners may dissolve the firm

(partnership at wi ll) -Renewal of Partnership Contract: May be oral or tacit 

Art. 1786 Obligation with respect to contribution of property

Other duties of contributing partners: a. to preserve the property with the diligence of a good father of a family

Partner is a debtor : for whatever he had promised to contribute thereto Partner is a warrantor with contributions of specific & determinate things: he’s bound to warrant vs. eviction

b. to indemnify the partnership for damages caused to it by delay in contribution of property 

Liability for undelivered fruits: if the property is fruit-producing, and the fruits weren’t delivered at the execution of the contract or any specified time, the partner will be liable for the value of these fruits. No demand is necessary. -Warranty is not applicable where the contribution is personal services. He is liable for damages if he does not render personal services. But he cannot be compelled by specific performance. (involuntary servitude) -Obligation of Warranty may be modified (increase, diminish or suppress) -Enforceability of Warranty: until a final judgment is rendered.

Art. 1787 Appraisal of goods or property contributed

Rule when contribution is in goods: the amount must be determined by proper appraisal at the time of contribution. a.Comply if mode of appraisal is agreed upon b. no agreement – by experts chosen by partners Subsequent changes in value: will be for the firm’s account

Art. 1788 Obligation with respect to contribution  of money, and money converted to personal use 8


Sanctions: a.partner becomes the firm’s debtor for interest and damages from the time of his failure to contribute or from time of conversion b. payment of 12% interest as interest on forbearance of money

Exception: Unless there is unequal contribution -profits & losses shall be in proportion to the contribution

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When money or property have been received by a partner for a specific purpose and he later misappropriated it, such partner is guilty of estafa. (Liwanag v CA)

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1789

General Rule: Industrial Partner is not allowed to engage in any business for himself Exception: Unless he is expressly allowed by other partners

Art. 1791 Obligation of capitalist partner to contribute additional capital

To contribute additional capital in case of imminent loss, requisites: a. There is an imminent loss of the business b. The majority of the capitalist partners are of the opinion that an additional contribution to the common fund would save the business c. Capitalist partner refuses deliberately to contribute an additional share d. There is no agreement to the contrary If refused to contribute: the partner must sell his interest in the partnership to the other partners Industrial partner is exempt from sanction

-Sanctions for this Rule: 1. exclude from partnership w/ damages 2. recover the benefits which the industrial partner gained from the business w/c he engaged for himself w/ damages

-Capitalist- industrial- same rule w/ industrial partner -Capitalist- not allowed to engaged in a similar business unless expressly allowed to do so 

Art. 1790 Equal contribution by general partners:

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Art. 1792 Obligation of collecting managing partner

Requisites: a. 2 separate credits, both demandable, b. one credit is owed to the partnership, c. the other to the collecting partner who’s a managing partner. Managing partner should: a. If issued receipt for own account only apply the sum to the 2 credits in proportion to their amounts b. Issued receipt for partnership’s account apply whole sum to partnership’s credit  -If the collecting partner is not a managing partner, this law wil l not apply

General Rule: capitalist partners shall contribute equal shares to the capital of the partnership 9


inventory 

Art. 1793 Obligation of partner who receives share of partnership credit

Receipt of share in partnership credit: if a debtor made a partial payment of his debt to the partnership, where a partner received his share of the credit and the others haven’t, and the debtor later becomes insolvent, the partner who received his share shall bring to the partnership capital what he received though the receipt he issued covered only his share Cf. 1792: in 1793 there’s only 1 debt where the partnership is the creditor.

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Art. 1796  (REA) 3 obligations of the partnership: 1. refund disbursements with legal interest at the time of payment 2. answer for obligations contracted in good faith in the partnership’s interest 3. answer for risks Partner = agent. Being a mere agent, he isn’tn personally liable as long as he’s not at fault and acted within the scope of his authority. But unlike an ordinary agent, the paying partner doesn’t have the right of retention if he isn’t paid.

Art. 1794 Liability for damages by reason of fault of the partner 

Liability for damages due to partner’s fault: the damages can’t be compensated with the profits & benefits he may have earned for the partnership by his industry. Compensation is inapplicable as its requisites are absent.

Art. 1797 Distribution of Profits & losses

W/ agreement W/o agreement

Mitigation of liability: if through his extraordinary efforts in other activities unusual profits have been realized 

-When faulting partner has died, recovery may be had against his estate. 

Art. 1795 Risk of loss of things contributed

Specific & determinate things, not fungible where only usufruct is contributed Specific & determinate things, partnership is transferred to the partnership

Risk is borne by the owner

Fungible things (Consumable) Things to be sold Things brought and appraised in the

partnership partnership partnership

partnership

Of profits According to agreement 1. Share of capitalist partner is in proportion to his capital contribution 2. Share of purely industrial partner is not fixed -as may be just and equitable under the circumstanc es

Of Losses According to agreement losses shall be borne according to capital contribution 3.Purely industrial partner not liable for losses

For capitalist-industrial partner: wrt his capital contribution, he shall, in addition, receive a share in the profits in proportion to the amount of his capital contribution. 10


Industrial partner not liable for l osses Art. 1798 Designation of shares: by agreement, may be entrusted to a 3rd person. Designation made by the 3rd person is binding on partners, unless it is manifestly inequitable or unreasonable. When the designation of a 3rd person can no longer be impugned: 1. the partner has begun to execute the decision 2. he hasn’t questioned it within 3 months from knowledge of it

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Art. 1799 Prohibited Stipulation of Exclusion

-A stipulation w/c excludes one or more partners in any share of profits or losses is void. -Stipulation is void but the partnership may still exist. 

Art. 1800 Appointed managing partner’s (MP) power:

execute all acts of administration despite his partners’ opposition unless he acts in bad faith He has the powers of a general agent and all incidental powers essential for the carrying on of the firm’s purposes. If MP appointed in the articles of partnership: power is irrevocable Except: 1. with just, lawful cause 2. upon the vote of the partners representing the controlling interest If power granted after constitution of partnership : revocable any time, for any

 Art. 1801In case of conflict: if – 1. 2/more partners are appointed MPs, 2. there’s no specification of their respective duties, 3. there’s no stipulation that 1 of them shall not act without the others’ unanimous consent,

Then – each MP may separately execute all acts of administration. If any MPs oppose the others’ acts – the issue shall be decided by the majority of the MPs. In case of tie – the issue shall be decided by the partners owning the controlling interest 

Art. 1802

Joint management: if there’s a stipulation that none of the MPs shall act without the others’ consent. Unanimity is required, even if an MP is absent/ incapacitated unless there’s imminent danger of grave or irreparable injury 

Art. 1803 If without agreement on manner of mgt:

1. all partners are considered agents 2. Important changes in the firm’s realty require unanimity

Judicial intervention to get total consent: if the important alteration is necessary & unanimous consent can’t be obtained (Action for specific performance) 

Art. 1804 . Associate another person

Subpartnership: partnership of a partner with another person wrt the former’s share. The subpartner isn’t a part of the partnership. Requisite so subpartner is part of the main partnership: consent of all 11


Art. 1805 Access partnership books  Partnership books: open to inspection of all the partners at a reasonable hour Where kept: 1. place agreed upon 2. if without agreement, at principal place of business Reasonable hours on business days throughout the year, not merely during some arbitrary period of a few days chosen by the managing partners 

Art. 1806 Render full information

Duty to give info: on demand, to give true & full info relating to partnership affairs

Art. 1807  Partner shall hold as trustee for partnership any profits: 1. derived without the others’ consent from any transaction connected to the – a. formation, b. conduct, or c. liquidation of the partnership. 2. derived from the use of the partnership’s funds or property

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Art. 1808

General Rule: A Capitalist Partner cannot engage in a business similar with the partnership’s business Exception: Unless there’s a contrary stipulation Sanctions:

1. 2.

partnership shall get all the profits he derived from other transactions he shall bear all the losses

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Art. 1809

Obtain formal account Gen. rule: a partner isn’t entitled to a formal account, save in dissolution Basis: his right of access to the books Except: 1. if he’s wrongfully excluded from the business/possession of the property by his co- partners 2. if the right exists by agreement 3. as provided in Art. 1807 4. whenever other circumstances render it just & reasonable (Art. 1809, CC) The right of a partner to demand an accounting exists as long as the partnership exists. The prescription period begins to run only upon the dissolution when the final accounting is done (Fue Leung v. IAC). 

Art. 1810 Property rights

1.in the specific partnership property 2.interest in the partnership, and 3.to participate in the management 

Art. 1811

Partners are co-owners of specific partnership property: the incidents are – 1. a partner has an equal right with his co- partners to possess specific property for partnership purposes  if excluded from this, can seek a formal accounting or judicial dissolution 12


2. a partner’s right in specific property can’t be assigned except when all partners assign their rights in that property

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Art. 1813 Conveyance of partner’s entire interest:

-doesn’t, of itself, dissolve the partnership 3. a partner’s right in specific property isn’t subject to attachment/execution except on a claim against the partnership 4. a partner’s right in specific property isn’t subject to support payment

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Art. 1812 Partner’s Interest in the Partnership

-his share in the profits & surplus Profit- excess of revenues over expenses for a transaction -synonymous with net income for the period. -it is gain realized from business or investment over & above expenditures Surplus-remains of the fund appropriated for a particular purpose -residue or excess of assets after liabilities, including capital, have been deducted. Loss- difference that results when the liabilities of the partnership are more than the assets

-This may be assigned, attached, & subject to payment of support as there was already a liquidation of the partnership affairs. The assignee does not become a partner in the partnership. He is only entitled to the profits assigned. -The interest of the partner in the on-going partnership where there has been no settlement of his account is not a debt due to the partner by the partnership. -The partner isn’t a creditor of the partnership for the amount of the shares .(Leyte-Samar Sales v. Cea).

Rights of the transferee or assignee To receive in accordance with his contract the profits accruing to the assigning partner To avail of the usual remedies provided by law in the event of fraud in the management To receive the assignor’s interest in case of dissolution and may require an account from the date only of the last account agreed by the partners

What assignees cannot do Interfere in the management;

Require any information or account

Inspect any of the partnership books

Art. 1814 Enforcement of a judgment vs. a debtor-partner’s interest  the judgment creditor may – 1. apply for an order charging the partner’s interest with payment of the unsatisfied amount of the final judgment with interest 2. have a receiver appointed Redemption: a partner or more may redeem the interest with – 1. their separate property 2. with partnership property, with the consent of all partners whose interests aren’t charged/sol -The above remedies are w/o prejudice to the preferred rights of the partnership creditors under Art. 1827. Claims of partnership creditors must be satisfied first before separate creditors of the debtor partner. 

Art. 1815 Operate under firm name

Required: every partnership shall operate under a firm name, which may or may not include the name of one or more partners, to distinguish the partnership from other entities & from the individual partners. 13


Non-members whose names were used: don’t have the rights of a partner but are liable to 3 rd persons without notice, as partners (Art. 1815, CC). They become partners by estoppel (PNB v. Lo). Employment of a firm of Fictitious Name/ Assumed name: does not affect the validity of the contract otherwise entered into Misleading names cannot be used No corporate name may be allowed registration by SEC if the proposed name is identical or similar to that to that of any existing corporation or to any other name protected by law. When a change of name in the corporate name is approved, Commission shall issue an amended cert. of incorporation under the amended name. Use of deceased partner’s name in law firm: permissible as long as it’s indicated in the firm’s communications that the partner is deceased (Rule 3.02, CPR)

Partner acting in his own name: A partner may enter into a separate obligation to perform a partnership contract. He is acting in his own name for the befit of partnership. He is solely liable.

Art. 1817  Gen. rule: stipulation against pro rata liability is void Except: such stipulation is valid by & among the partners Art. 1817 vs. 1799: it is permissible to stipulate among partners that a capitalist partner will be exempted from liability in excess of the original capital contributed; but won’t be exempted insofar as his capital is concerned (Paras). The dismissal of the complaint to favor 1 of the general partners doesn’t increase the remaining partners’ liability. (Island Sales v.United Pioneers)

Art. 1816 Liability of partnership & partners for partnership contracts : pro rata, with all their property (Art. 1816, CC). To enforce the liability of the partners for partnership debts and obligations, the action should be filed both against the partnership & individual partners. However, the private property of the partners can’t be seized for satisfaction of partnership debts until all the partnership assets have been exhausted. Industrial partner is exempted from losses but not from liability. The exemption of an industrial partner from paying losses relates exclusively to the settlement of the partnership affairs among the partners themselves, and not with the partners’ liabilities to 3rd persons. (La Compania Maritima v Munoz). While the liability of the partners are joint in transactions entered into by the partnership, a 3 rd person who transacted with the partnership can hold partners solidarily liable for the whole obligation if the 3rd person’s case falls under Arts. 1822-1823 (Muñasque v. CA).

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Partnership Notes

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