Parntership Handout

8/11/2019 Parntership Handout

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Definition:By the contract of partnership two or more persons bind themselves to contribute money, property, orindustry to a common fund, with the intention of dividing the profits among themselves (Art. 1767, 1stpar.,NCC).

Two or more persons may also form a partnership for the exercise of a profession (Art. 1767, 2ndpar., NCC).

Requisites:1. 2 or more persons bind themselves to contribute money, property or industry to a common fund; and2. Intention on the part of the partners to divide the profits among themselves (Tocao v. CA, 342 SCRA 20;

Art. 1767, NCC).

Note: The contribution to such fund need not be cash or fixed assets; it could be an intangible like creditor industry (Lim v. Phil. Fishing Gear Industries, Inc., G.R. No. 136448, Nov. 3, 1999).

Separate Personality:1. Partnership has a juridical personality separate and distinct from the partners (Art. 1768, NCC)EVEN IF:

a. It does not appear in a public instrument and its capital is more than P3,000.00 (Art. 1772; Art.1768, NCC).

b. It is not recorded in the SEC (Art. 1772; Art. 1768, NCC).

Note:The fact that there is no record in the SEC of a public instrument embodying the partnership did notcause the nullification of the partnership (Tocao v. CA, supra.). Mere failure to register the contract ofpartnership with the SEC does not invalidate a contract that has the essential requisites of a partnership.The purpose of registration of the contract of partnership is to give notice to third parties. Failure toregister the contract of partnership does not affect the liability of the partnership and of the partners tothird persons. Neither does such failure to register affect the partnerships juridical personality (Angeles v.Sec. of Justice, 465 SCRA 106).

2. However, associations whose articles are kept secret among the members, and wherein any one ofthe members may contract in his own name with third persons, shall have no juridical personality andshall be governed by the provisions relating to co-ownership (Art. 1775, NCC).

The secrecy is not directed to third persons but to some of the partners (Bautista, Partnership, 1978ed., 69).

Effects:a. As to the members in ter se: There is no partnership. They are governed by the rules relating to co-

ownership (Art. 1775, NCC)b. As to third persons: The absence of personality cannot be invoked against third persons for the

purpose of exempting themselves from complying with their obligations contracted pursuant to thestipulations kept secret among themselves. They cannot profit from their own wrongdoing.

Forms of Partnership Contract:1. General rule: It is valid and enforceable in any form (Art. 1356, NCC; Tocao v. CA, supra.).2. Exception: Whenever immovable property is contributed to the partnership, an inventory of said

property to be signed by the parties and attached to the public instrument is indispensable to the

PARTNERSHIP LAW PARTNERSHIP LAW


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validity of the partnership. If this requirement is not complied with, the partnership is void (Art. 1773,NCC).

Purpose or Object Must Be Lawful:1. If the purpose or object is unlawful, contract of partnership is void (Art. 1409[1], NCC).2. Effects upon partners in ter se:

a. The partners have no right to enforce claims which depend upon the validity of contract (Arbes v.Polistico, 53 Phil. 489). Hence, upon the dissolution of the partnership as decreed by the court,profits shall be confiscated in favor of the State (Art. 1770, NCC)and shall not enrich the partners.

b. But partners may recover their contributions from the manager or administrator because suchclaim does not depend upon the validity of the contract (Arbes v. Polistico, supra.).

3. Effects upon third persons:a. If the third person acted in good faith, he may recover indemnity from the partner who dealt with

him.b. If third person acted in bad faith, he cannot recover.

Who Can Be A Partner:1. General rule: Anyone who is capable of entering into contractual relations.2. Exceptions:

a. In universal partnership (whether of all present property or all profits), persons who are prohibitedfrom giving each other any donation or advantage cannot enter into such kind of partnership (Art.1782, NCC).Hence, the following cannot become partners in a universal partnership:1. The spouses during their marriage (Art. 87, FC);2. Those cohabiting as husband and wife (Art. 87, FC); and3. Those who cannot donate to each other under Article 739 of the NCC.a. A corporation cannot become a member of a partnership in the absence of express

authorization by statute or charter (Mendiola v. CA, G.R. No. 159333, July 31, 2006; citing J.M.Tuason v. Bolanos, 95 Phil. 106 (1954); Esteban B. Bautista, Treatise on Philippine Partnership Law,1978 ed., citing 60 A.L.R.2d 917; 6 Fletcher, Cyclopedia of Corporations, Sec. 2520).

Note:Under Philippine law, a joint venture is a form of partnership and should thus be governed by thelaw of partnerships. The Supreme Court has recognized, however, a distinction between these two

business forms, and has held that although a corporation cannot enter into a partnership contract, it mayhowever engage in a joint venture with others (Aurbach, et. al. v. Sanitary Wares Manufacturing Corp., 180SCRA 130 (1989); citing Tuazon v. Bolaos, 95 Phil. 906).

Particular Partnership vs. Joint Venture: Usually, but not necessarily, a joint adventure is limited to asingle transaction, although the business of pursuing it to a successful termination may continue for anumber of years; a partnership generally relates to a continuing business of various transactions of acertain kind (Heirs of Tan Eng Kee v. CA, G.R. No. 126881, Oct. 3, 2000).

RULES IN DETERMININGEXISTENCE OF PARTNERSHIP

Requirement of Consent:

1. General rule: Persons who are not partners as to each other are not partners as to third persons (Art.1769[1], NCC).

2. Exception: Partnership by estoppel (Art. 1825, NCC).

Co-ownership or Co-possession:

1. Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners orco-possessors do or do not share any profits made by the use of the property (Art. 1769[2], NCC).

2. There must be a clear intent to form a partnership.


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Sharing of Gross Returns:1. The sharing of gross returns does not of itself establish a partnership, whether or not the persons

sharing them have a joint or common right or interest in any property from which the returns aredivided (Art. 1769[3], NCC).

2. There must be a clear intent to form a partnership, the existence of a juridical personality differentfrom the individual partners, and the freedom of each party to transfer or assign the whole property(Pascual v. CIR, supra.).

Sharing of Profits:1. Receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner

in the business (Art. 1769[4], NCC).2. In partnership, profits are shared because the partners are joint owners of them. If no profits, no

partner is entitled to any share. But with respect to gross returns, the share is independent of theexistence of profits, and may be taken even when there is a loss.

3. No such inference can be drawn if profits were received in payment as:a. Debt by installmentb. Wages of an employeec. Rent to a landlordd. Annuity to a widow or representative of a deceased partner

e. Interest on a loanf. Consideration for the sale of a goodwill of a business or other property by installment (Art. 1769[4],

NCC).

CLASSIFICATIONS OF PARTNERSHIP AND KINDS OF PARTNERS

CLASSIFICATIONS OF PARTNERSHIP

1. As to object:a. universal partnership; orb. particular partnership

2. As to liabilityof partners:a. general partnership; or

b. limited partnership3. As to duration:a. Partnership at will; orb. Partnership with a fixed period

4. As to legalityof existence:a. De jure partnershipb. De facto partnership

5. As to representationto others:a. Ordinary or real partnership; orb. Ostensible or partnership by estoppel

6. As to publicity:a. Secret partnershipb. Notorious or open partnership

7. As to purpose:a. Commercial or trading; orb. Professional or non-trading

UNIVERSAL PARTNERSHIP

Object: It may refer either to --

1. All present properties of partners; or2. All profits.


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Universal Partnership of All Present Property:

1. Concept --- That in which the partners contribute all the property which actually belongs to them to acommon fund, with the intention of dividing the same among themselves, as well as all the profitsthey may acquire therewith (Art. 1778, NCC).

2. What are included --- The property which belonged to each of the partners at the time of theconstitution of the partnership becomes the common property of all the partners, as well as all theprofits which may be acquired from said property (Art. 1779, NCC).

3. Not Included ---The inclusion of property which might thereafter be acquired by each of the partnersby way of donation, inheritance or legacy cannot be stipulated. However, the fruits thereof may beincluded in the partnership by agreement (Art. 1779, 2ndpar., NCC).

Universal Partnership of All Profits:

1. What are included-It comprises:a. All that the partners may acquire by their industry or work during the existence of the partnership;

andb. The usufruct of their present property (Art. 1780, NCC).

2. Not included---

a. Property owned by each at the time of perfection of contract (but the usufruct of said property isincluded);

b. Usufruct of future property acquired thru means other than their industry or work (but they mayagree to include said usufruct).

Presumption in Favor of All Profits:Articles of universal partnership entered without specification of its nature (whether it is universalpartnership of all present property or universal partnership of profits), is presumed to be a universalpartnership of profits only (Art. 1781, NCC).

PARTICULAR PARTNERSHIP

Object: Either1. Determinate things, their use or fruits;2. Specific undertaking; or3. Exercise of a profession or vocation (Art. 1783, NCC).

KINDS OF PARTNERS

1. As to nature of contribution:a. Capitalist-contributes money or property;b. Industrialist-contributes only his industry or service.

2. As to nature of liability:a. General partner--- He has control and management of the business and is personally liable for

partnership obligations with his separate properties.b. Limited partner --- He is not entitled to participate in the management and control of the

business, but is exempt from personal liability for the partnership obligations because his liabilityis limited only to his capital contribution.

3. As to management:a. Managing partner--- He is entitled to manage the business or affairs of the partnership.b. Silent or secret partner --- His connection to the partnership is concealed and he does not take

any active part in it (Art. 1834, NCC).c. Liquidating partner --- He takes charge of the winding of the partnership affairs upon

dissolution.


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4. As to exposure to public perception:a. Ostensible partner--- One whose name is made known and who appears or is held to the world

as a partner, whether or not in reality he is such. If in fact he is not a partner, he is a partner byestoppel.

b. Nominal partner--- He is held out to the world as a partner but he has no real interest in the firm.He then becomes a partner by estoppel.

c. Dormant or silent or secret partner--- His connection to the partnership is concealed and hedoes not take any active part in it (Art. 1834, NCC).

d. Partner by estoppel--- Although not an actual partner, he has made himself liable as such byholding himself out as a partner or allowing himself to be so held out (Art. 1825, NCC).

5. As to actual membership:a. Actual or real partner--- He is really a partner by agreement among the parties.b. Partner by estoppel --- He is not a real or actual partner but he becomes liable as a partner

because he holds himself out as a partner or allows himself to be so held out.6. As to timing of membership:

a. Original partner--- One who becomes a member of a partnership at the time of its organization.b. Incoming partner---- One who became as such as a new member of an existing partnership. As

to old obligations (incurred prior to his admission), his individual or separate property is not liable.His liability thereto is to be satisfied only out of partnership property unless he stipulatesotherwise (Arts. 1826 and 1840, 2ndpar., NCC).

7. As to continuation of business affairs after dissolution:a. Continuingpartner--- One who continues the partnership business after the dissolution of the

partnership due to reasons stated in Article 1840.b. Discontinuing partner --- One who does not participate in the partnership business after its

dissolution.

RIGHTS AND OBLIGATIONS OFPARTNERS INTER SE

Obligation to Contribute to Capital1. Proportion of capital due from partners:

a. That which is stipulated in the contract;b. In the absence of contrary stipulation, partners shall contribute equal shares to the capital of

partnership (Art. 1790, NCC);c. An industrial partner cannot be required to contribute capital without stipulation to that effect.

2. Debtor of partnership: Every partner is a debtor of the partnership for whatever he may havepromised to contribute thereto (Art. 1786, 1stpar., NCC).

4. Contribution of money:a. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor

for the INTEREST AND DAMAGES from the time he should have complied with his obligation(Art. 1788, NCC).

b. Note that no demand is necessary. The interest and damages accrue ipso jure.c. In case of default by a partner, the non-defaulting partner cannot resort to rescission under Article

1191 of the NCC, for the law has established a special rule for partners (Sancho v. Lizarraga, 55Phil. 601).

5. Contribution of property:a. The partner shall also be liable for the fruits of the specific and determinate things which he may

have promised to contribute from the time they should have been delivered, without the need ofany demand (Art. 1786, 2ndpar., NCC).

b. He shall also be bound for warranty in case of eviction with regard to specific and determinatethings which he may have contributed to the partnership (Id.).

6. Contribution of additional capital to save venture:a. In case of imminent loss of the business of the partnership, the partners can be compelled to

contribute an additional share to the capital to save the venture, except an industrial partner (Art.1791, NCC).


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b. Effect of refusal to contribute: The partner who refuses to contribute shall be obliged to sell hisinterest to the other partners, except if there is an agreement to the contrary (Art. 1791, NCC).

Obligation to Observe Good Faith1. Private use of partnership money - If a partner uses partnership money for his own use, he is liable to

pay interest and damages to the partnership from the time he converted said amount to his own use(Art. 1788, 2

ndpar., NCC).

2. Individual transactions in connection with partnership affairs or involving use of firm property:a. Every partner is required to account to the partnership any benefit derived by him without the

consent of the other partners from any transaction connected with the formation, conduct orliquidation of the partnership or from any use by him of its property (Art. 1807, NCC).

b. He is holding any such profit only as a trustee for the partnership (Art. 1807, NCC).

1. Payment collected from debtor of both managing partner and the partnership:

a. Situation: The managing partner collects a credit from a debtor who owes him and thepartnership, and both debts being demandable.

b. Rules:(i) The sum collected shall be applied to both credits, in proportion to their amounts, even though the

managing partner may have given a receipt for his own credit only (Art. 1792, 1st par., NCC). In

short, he may not apply all of it to his own credit.(ii) But he may apply the whole of it to the credit owed to the partnership (Art. 1972, 1stpar., NCC).(iii) If the credit is more onerous to the debtor, the latter may, however, exercise the right to declare,

at the time of making the payment, that the same be applied entirely or in a greater part to theindividual credit of the managing partner (Art. 1972, 2ndpar., NCC).

1. Amounts collected as share in the firm credit ahead of co-partners:a. Situation: One of the partners receives, wholly or partly, his share of the credit without the

knowledge and consent of the other, and the firm fails to collect the full balances of the creditbecause the debtor becomes insolvent.

b. Rule: The partner who receives his share is obliged to return to the firm what he has received fordivision among all, even though he may have given receipt for his share only (Art. 1793, NCC).

1. Engagement in individual business:a. By an industrial partner:1. Prohibition: Prohibited from engaging in any kind of business, unless expressly permitted by

all partners (Art. 1789, NCC).2. Effect of violation: The capitalist partner may either: (i) exclude the industrial partner from

the firm OR (ii) avail themselves of the benefits which he may have obtained in violation ofthe prohibition, with a right to damages in either case (Art. 1789, NCC).

B. By a capitalist partner:1. Prohibition: Prohibited from engaging in business of same nature as that of partnership,

unless there is a stipulation to the contrary (Art. 1808, 1stpar., NCC).2. Effect of violation: He is required to bring to the common funds any profits derived by him

from his transactions. But he shall personally bear all the losses (Art. 1808, 2ndpar., NCC).

1. Equal knowledge of partnership affairs:

2. Right to examine partnership books: Every partner shall at any reasonable hour have access toand may inspect and copy the partnership books (Art. 1805, NCC).

3. Matters affecting partnership: Partners shall render ON DEMAND true and full information of allthings affecting the partnership to any partner or the legal representative of any deceased partner orof any partner under legal disability (Art. 1806, NCC).

Obligation for Damages Suffered By Partnership Thru His Fault


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2. Relation of sub-partner: The sub-partners are partners inter se. However, the sub-partner does notbecome a member of the original partnership in the absence of the assent of all the other partners],even if the partner having an associate should be a manager (Art. 1804, NCC).

Management of Partnership

No agreement as to manner of management:1. All the partners shall be considered agents and whatever any one of them may do alone shall bind

the partnership (Art. 1803[1], NCC).2. But if any of them should oppose the acts of the others, the decision of the majority shall prevail, and

in case of a tie, the matter shall be decided by the partners owning the controlling interest (Art. 1803, inrelation to Art. 1801, NCC).

3. In case of alteration of immovable property, unanimous consent is required even if the same is usefulto partnership (Art. 1803[2], NCC).

When manner of management has been agreed upon:

1. When a managing partner has been appointed:

a. Appointment is made in the articles of partnership (Art. 1800, NCC)

1. Power is irrevocable without just or lawful cause;2. To remove him for JUST cause, vote of partners having controlling interest is necessary;3. To remove him without just cause, unanimous vote is necessary, including his own vote.4. If he acts in good faith, he may execute all acts of administration despite the opposition of his

partners.2. Appointment was made after the constitution of partnership ---

a. Power of administration may be revoked at any time;b. If he acts in good faith, he may execute all acts of administration despite the opposition of his

partners.

3. When 2 or more managing partners have been entrusted with management:a. Without specification of their respective duties, or without stipulation that one of them shall not act

without the consent of all the others.

1. Each one may execute all acts of administration;2. But if any of them should oppose the acts of the others: (1) Decision of majority prevails;

and (2) In case of tie, matter shall be decided by partners owning the controlling interest(Art. 1801, NCC).

4. With stipulation requiring unanimous consent ---1. Unanimous consent is required for the validity of the acts2. Except: when there is imminent danger of grave or irreparable injury to the partnership (Art. 1802,

NCC).

PROPERTY RIGHTS OF A PARTNER

Property Rights of a Partner:1. his rights in specific partnership property;2. his interest in the partnership; and3. his right to participate in the management (Art. 1810, NCC).

Rights in Specific Partnership Property (Art. 1811, NCC):1. Nature of right--- A partner is co-owner with his partners of specific partnership property.2. Right to posses--- Has equal right to possess specific partnership property for partnership purposes

(without the consent of others); but has no right to possess for any other purpose without the consentof his partners.


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3. Cannot be assigned, except in connection with the assignment of rights of all the partners in the sameproperty.

4. Not subject to attachment or execution, except on a claim against the partnership.5. Not subject to legal support.

Partners Interest in Partnership:1. Concept: A partners interest in the partnership is his share of the profits and surplus (Art. 1812,

NCC). This is personal property.2. A partners interest in the partnership can be subjected to attachment or execution by his judgment

creditor.

Procedure for enforcement:a. Charging Order: Any judgment creditor of a partner may apply in court for a charging order. In said

order, the court may charge the interest of the debtor partner with payment of the unsatisfiedamount of such judgment debt with interest thereon (Art. 1814, 1stpar., NCC).

b. Redemption of interest charged: The interest charged may be redeemed at any time beforeforeclosure, or in case of a sale being directed by the court, may be purchased without therebycausing a dissolution:1. with separate property, by any one or more of the partners; or2. with partnership property, by any one or more of the partners with the consent of all the

partners whose interests are not so charged or sold (Art. 1814, 2ndpar., NCC).

Preferred rights of partnership creditors:The creditors of the partnership shall be preferred to those of each partner as regards the partnershipproperty (Art. 1827, NCC).

Effect of conveyance of his whole interest in partnership (Art. 1813, NCC):a. Right to convey Since a partners interest in the partnership is his personal property, he can

convey the same.b. Such conveyance does not necessarily effect a dissolution of the partnership. However, the

purchaser of a partners interest may secure from the court a decree of dissolution in two instances:1. After the termination of the specified term or particular undertaking; or2. In case of partnership at will, when the interest was assigned or when the charging order was

issued.C. The assignee does not become a partner without the concurrence of the other partners. Hence, he

does not acquire, during the continuance of the partnership:1. the right to interfere in the management or administration of the partnership business or affairs;2. the right to require any information or account of partnership transactions; or3. the right to inspect the partnership books (Art. 1813, NCC).4. However, in case of fraud in the management of the partnership, the assignee may avail himself

of the usual remedies.a. During the continuance of the partnership, the assignee is entitled to receive in accordance

with his contract the profits to which the assigning partners would otherwise be entitled.b. In case of dissolution of partnership, the assignee is entitled to receive his assignors interest

and may require an account from the date only of the last account agreed to by all thepartners.

OBLIGATIONS OF PARTNERS TO THIRD PERSONS

Use of Partnership Name:1. Requirement of firm name: Every partnership is required to operate under a firm name (Art. 1815,

NCC).2. Name to be adopted:

a. It can adopt any name, which may or may not include the name of one or more of the partners(Art. 1815, NCC).


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b. In case of limited partnership, it is required that the word limited be included in the name of thepartnership (At. 1844[1][a], NCC).

3. Use of Name of Non-Partner: Article 1825 of the Civil Code prohibits a third person from includinghis name in the firm name under pain of assuming the liability of a partner (In re: Petition for Authority toContinue Use of the Firm Name Sycip, July 30, 1979).Those who, not being members of the partnership,include their names in the firm name, shall be subject to the liability of a partner (Art. 1815, 2ndpar.,NCC).

Liability For Contractual Obligations:1. Rule--- All partners, including industrial ones, shall be liable pro ratawith their property and after all

the partnership assets have been exhausted, for partnership obligations arising from contract (Art.1816, NCC).

2. Stipulation against liability--- Any stipulation against the foregoing liability is:a. Void, in so far as third persons are concerned;b. Valid, as among the partners (Art. 1817, NCC).

1) Nature of liability--- Only secondary or only after exhaustion of partnership assets.2) Extent of liability --- Only pro rata(or in proportion to his interest in the partnership). Hence, he is

not solidarily liable.3) Separate obligation by a partner --- If a partner undertakes in his individual capacity and on his

individual credit to perform a partnership contract, he becomes primarily (not secondarily) liable forthe same (Art. 1816, NCC).

Right of Representation/To Bind PartnershipGeneral rule: Every partner is an agent of the partnership and his act binds the partnership if it is forapparently carrying on in the usual way the business of the partnership, unless:1) the partner so acting has in fact no authority to act for the partnership in the particular matter; and2) the person with whom he is dealing has knowledge of the fact that he has no such authority (Art. 1818,

NCC).

Partnership is not bound by act of a partner if:1) Act is not apparently for the carrying on of business of the partnership in the usual way, unless

authorized by other partners (Art. 1818, 2ndpar., NCC).

2) Although the act is for apparently carrying on in the usual way the business of the partnership, thepartner so acting has no authority to act in the particular matter and the person with whom he dealtwith had knowledge of such fact (Art. 1818, 1stpar., NCC).

3) Act is in contravention of a restriction on authority and the person he dealt with had knowledge of therestriction (Art. 1818, last par., NCC).

Acts Requiring Unanimous Consent of All Partners (if business has not been abandoned):1) Assignment of partnership property in trust for creditors or on the assignees promise to pay the debts

of the partnership;2) Disposition of goodwill of the business;3) Doing any other act which would make it impossible to carry on the ordinary business of partnership;4) Confession of judgment;5) Entering into a compromise concerning partnership claim or liability;6) Submission of partnership claim or liability to arbitration; and7) Renunciation of a partnership claim (Art. 1818, 3rdpar., NCC).

Conveyance of Real Property

Where title is in partnerships name:1) Rule: Can be conveyed only in the partnership name (Art. 1774, NCC).2) Effect of conveyance by a single partner:

a) If conveyance is in the usual course of business, the same is within the scope of the partnersapparent authority, therefore binding upon the principal.


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b) If conveyed in partnership name but not authorized, the partnership may recover the propertyunless the same has been conveyed by the grantee to a holder for value without knowledge thatthe partner has exceed his authority (Art. 1819, 1stpar., NCC).

c) If conveyed in his own name and the act is one within the authority of the partner pursuant toArticle 1818, it passes the equitable interest of the partnership (Art. 1819, 2ndpar., NCC).

Where title is in name of one or more but not all the partners and the record does not disclose theright of the partnership:1) The partners in whose name the title stands may convey title to such property.2) But the partnership may recover such property if the partners act does not bind the partnership under

the provisions of Article 1818, unless the purchaser or his assignee, is a holder for value, withoutknowledge (Art. 1819, 3rdpar., NCC).

Where title is in name of one or more or all partners, or in a third person in trust for thepartnership:A conveyance executed by a partner in the partnership name, or in his own name, passes the equitableinterest of the partnership, provided the act is one within the authority of the partner under the provisionsof the first paragraph of Article 1818 (Art. 1819, 4thpar., NCC).

Where title is in names of all partners:A conveyance executed by all the partners passes all their rights in such property (Art. 1819, 5thpar., NCC).

Effect of Admission and Representation By A Partner: It binds the partnership when ---1) Concerns partnership affairs; and2) It is within the scope of his authority (Art. 1820, NCC).

When Notice To A Partner Binds Partnership:

1) When Binding: In the following cases ---a) If notice is on any matter relating to partnership affairs acquired while transacting business for the

firm and relating thereto;b) Knowledge acquired by a partner acting in that particular matter;c) Knowledge of any other partner who reasonably could and should have communicated it to the

acting partner (Art. 1821, NCC).

2) When Not Binding: In case of fraud on the partnership, committed by or with the consent of thatpartner (Art. 1821, NCC).

Liability Arising From Partners Tort or Breach of Trust: 1) Instances giving rise to liability:

a) Where a partner, by any wrongful act or omission and acting in the ordinary course of thebusiness of the partnership or with the authority of his co-partners, causes loss or injury to a non-partner (Art. 1822, NCC).

b) Where a partner acting within the scope of his apparent authority receives money or property of athird person and misapplies it (Art. 1823[1], NCC).

c) Where the partnership in the course of its business receives money or property of a third personand the money or property so received is misapplied by any partner while it is in the custody ofthe partnership (Art. 1823[2], NCC).

2) Who shall be liable:a) The partnership is liable to the same extent as the partner so acting or omitting to act (Art. 1822,

1823, NCC).b) But all the partners are liable solidarily with the partnership for everything chargeable to the

partnership in the above-mentioned instances (Art. 1824, NCC).

PARTNERSHIP BY ESTOPPEL


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When partnership by estoppel exist: It exists when a non-partner, by words spoken or written or byconduct, represents himself, or consents to another representing him to anyone, as a partner in anexisting partnership or with one or more persons not actual partners (Art. 1825, NCC).

Requisites for liability: In order for estoppel to apply, it is necessary that the third person must haveknowledge of the representation and acted in reliance upon the same.

Who shall be liable:1) A partnership liability results when all members of the existing partnership consent to the

representation, in which case, the partner by estoppel (or ostensible partner) is liable as though hewere an actual member of the partnership (Art. 1825, NCC).

2) When no partnership liability results because not all the members of an existing partnership consentto the representation ---a) The person acting and persons consenting to the representation shall all be liable as partners to a

third person who deal with them upon the faith of such representation, the transaction beingconsidered their joint act or obligation.

b) The partner by estoppels is liablepro rata with the other persons so consenting to the contract orrepresentation, if any (Art. 1825, NCC).

Liability of Incoming Partner for Obligations Arising Prior to His Admission:1) He is liable as though he had been a partner when such obligations were incurred.2) But his obligations shall be satisfied only out of partnership property.3) His own property shall not be liable, unless there is a stipulation to the contrary (Art. 1826, NCC).

Documents

Parntership Handout