Chapter 2: Obligations of the Partners with Regards to Third Persons

Question 1

What liability do individuals who are not members of the partnership face if they include their names in the firm name?

Answer 1

Individuals who are not actual partners but include their names in the firm name shall be subject to the liability of a partner, meaning they can be held responsible for the partnership’s debts and obligations.

Question 2

What is the general rule regarding the naming of a partnership?

Answer 2

GENERAL RULE: The partners may use any firm name desired and this will be the name of that juridical person.

Question 3

What is the exception to the general rule about choosing a firm name?

Answer 3

The partnership cannot use an identical or deceptively similar name to that of any existing partnership or corporation, nor can it use any name that is protected by law or is patently deceptive or contrary to existing laws.

Question 4

What is the liability of all partners, including industrial partners, for contracts entered into in the name of the partnership?

Answer 4

All partners are jointly and severally liable for the debts and obligations arising from contracts entered into on behalf of the partnership. They are collectively responsible for the entire obligation.

Question 5

What does “pro rata” liability mean in the context of partnerships?

Answer 5

Pro rata liability means that partners are liable in proportion to their interest or share in the partnership. Each partner’s liability corresponds to their ownership stake in the partnership.

Question 6

All parties involved are collectively responsible for the entire obligation or debt. Each party is liable for the full amount, and the creditor can pursue any one of them for the entire debt.

Answer 6

Joint liability

Question 7

Each party is responsible for an equal share of the debt or obligation. This is a specific type of pro rata liability where the division is equal among all parties.

Answer 7

Equal liablity

Question 8

Can an industrial partner be held liable for partnership debts?

Answer 8

Yes, all partners, including industrial partners, are liable for partnership debts and obligations arising from contracts entered into in the name of the partnership

Question 9

When can personal properties of the partners be used to cover partnership debts?

Answer 9

Partners’ personal properties can only be used to cover partnership debts after the partnership assets have been exhausted or if the partnership’s assets are insufficient to meet the obligation.

Question 10

Who is liable when a partner enters into a contract in his own name?

Answer 10

Only that partner is liable and not the partnership

Question 11

What is the effect of a stipulation against the liability of partners in relation to third persons?

Answer 11

Any stipulation against the liability of all partners for contracts entered into in the name of the partnership is void as to third persons but is valid among the partners.

Question 12

Is a stipulation against liability valid among the partners themselves?

Answer 12

Yes, a stipulation against liability is valid among the partners, allowing them to agree on how to handle liability internally.

Question 13

A method of resolving disputes outside of court.

Answer 13

Arbitration

Question 14

Under what condition does an act of a partner not bind the partnership?

Answer 14

An act does not bind the partnership if the partner acting has no authority and the third party is aware of that lack of authority.

Question 15

What type of actions require authorization from all partners?

Answer 15

Actions that require unanimous consent from all partners includes:
- Assigning partnership property in trust for creditors
- Disposing of the goodwill of the business
- Confessing a judgment
- Entering into compromises concerning partnership claims
- Any actions that would prevent the partnership from carrying on its usual business.

Question 16

What occurs if a partner exceeds their authority and the other party is aware of it?

Answer 16

If a partner acts beyond their authority with the other party’s knowledge, the partnership is not bound by those actions.

Question 17

What authority do partners have in relation to binding the partnership?

Answer 17

Each partner acts as an agent of the partnership and can bind it in usual business activities, provided the actions are performed in the partnership’s name.

Question 18

What is required for actions outside the ordinary course of business, such as selling major assets?

Answer 18

uthorization from all partners is required for actions that are not in the ordinary course of business, including selling major assets or settling legal claims.

Question 19

Can a partner sell the partnership’s goodwill without the consent of all partners?

Answer 19

No, selling or otherwise disposing of the partnership’s goodwill requires the consent of all partners to be valid.

Question 20

Can a partner assign partnership property to a trustee without the consent of all partners?

Answer 20

No, partners cannot assign partnership property to a trustee or based on promises to pay off partnership debts without obtaining approval from all partners.

Question 21

What is required if a partner wants to renounce a partnership claim?

Answer 21

Renouncing a partnership claim must be authorized by all partners.

Question 22

Who can convey title to real property held in the partnership’s name?

Answer 22

Any partner may convey title to such property by executing a conveyance in the partnership’s name.

Question 23

What is necessary for a partner to submit a partnership claim or liability to arbitration?

Answer 23

Approval from all partners is necessary for submitting a partnership claim or liability to arbitration.

Question 24

What is the rule regarding the transfer of property titled in the partnership’s name?

Answer 24

If the property is under the partnership’s name, any partner has the authority to transfer the title of that property.

Question 25

Under what circumstances can’t a partnership reclaim property conveyed by one of its partners?

Answer 25

The partnership can reclaim the property unless:
- The partner’s act binds the partnership
- The property has been conveyed to person who is unaware of the partner’s lack of authority.

Question 26

If a partner conveys property in their own name, what happens to the partnership’s equitable interest?

Answer 26

The partnership’s equitable interest in property conveyed by a partner in their own name remains intact if the partner was acting within their authority. If the partner exceeded their authority, the partnership retains its interest and can challenge the validity of the transfer.

Question 27

Legal evidence of a person’s ownership rights in property; an instrument (such as deed) that constitutes such evidence.

Answer 27

Title

Question 28

The right or claim a person has to benefit from or gain value from a property, even if they don’t hold the legal title to it.

Answer 28

Equitable Interest

Question 29

Real property may be registered or owned in the name of:

Answer 29

• The partnership
• One or more or all the partners
• One or more or all the partners; or in a third person in trust for the partnership
• All the partners

Question 30

What if the title to real property is held by some partners but not all, and there’s no record of the partnership owning it?

Answer 30

If the property title is under some (but not all) partners and does not show that it is owned by the partnership (with no record of partnership ownership), those partners can transfer the property. However, the partnership can recover it if the conveyance wasn’t authorized, unless the buyer has no knowledge of the lack of authority.

Question 31

How is the equitable interest of the partnership affected if the title is held by a third person in trust for the partnership?

Answer 31

A partner can transfer the equitable interest in the property, either in the partnership’s name or their own, as long as they are acting within their authority.

Question 32

What must happen to transfer the full rights in real property held in the names of all partners?

Answer 32

All partners must agree and sign the conveyance to transfer full rights in such property.

Question 33

What is the consequence if a partner conveys property without the authority to do so?

Answer 33

If the partner’s act does not bind the partnership and the conveyance does not comply with the authority requirements, the partnership may recover the property.

Question 34

Under what conditions can an admission made by a partner be used as evidence against the partnership?

Answer 34

An admission by a partner can be used as evidence against the partnership if:
- The admission concerns partnership affairs.
- The admission is made within the scope of the partner’s authority.

Question 35

A statement in which someone admits that something is true or that he or she has done something wrong.

Answer 35

Admission

Question 36

Is an admission made by a former partner after retirement admissible as evidence against the partnership?

Answer 36

No, an admission by a former partner, made after he has retired from the partnership, is not evidence against the firm.

Question 37

How could a partner’s admission affect the liability of the other partners within the partnership?

Answer 37

A partner’s admission can create liability for the partnership as a whole. If a partner admits to a debt or obligation, that admission can be used against the partnership, meaning all partners may be held accountable for that liability based on the partner’s statement.

Question 38

What might happen if a partner makes an admission regarding partnership affairs that exceeds their authority?

Answer 38

If a partner makes an admission that exceeds their authority, that statement may not be binding on the partnership. In such cases, the partnership may argue that the admission should not be held against them, particularly if the other party is aware that the partner lacked the authority to make that statement.

Question 39

What is the general rule concerning notice to partners and the partnership?

Answer 39

GENERAL RULE: Notice to a partner is notice to the partnership.

If any partner is informed about something related to the partnership’s business, or if they have knowledge of it while they are a partner, this information is considered as notice or knowledge for the entire partnership.

Question 40

Instances where knowledge of a partner is considered knowledge of the partnership:

Answer 40

• Knowledge of the partner acting in the particular matter acquired while a partner
• Knowledge of the partner acting in the particular matter then present to his mind
• Knowledge of any other partner who reasonably could and should have communicated it to the acting partner

Question 41

If a partner gains knowledge about a partnership matter while they are still a partner, this knowledge is attributed to the entire partnership.

Answer 41

Knowledge acquired while a partner

Question 42

If the partner has knowledge about a matter and is actively considering it or is aware of it while dealing with a specific issue, this is also deemed as knowledge of the partnership.

Answer 42

Knowledge Present to the Partner’s Mind

Question 43

If another partner knows about a matter and reasonably should have communicated this information to the acting partner (or any partner involved in the matter), then this knowledge is also considered as knowledge of the partnership.

Answer 43

Knowledge of Other Partners

Question 44

When does the exception regarding fraud apply in relation to knowledge and notice in a partnership?

Answer 44

If the knowledge relates to fraud that a partner is involved in or consents to, that knowledge doesn’t automatically bind the partnership.

Question 45

Includes actions such as negligence or fraud, or failing to act while fulfilling the partner’s duties for the partnership or with the authority of the other partners.

Answer 45

Wrongful act or omission

Question 46

Who is affected by the wrongful acts or omissions of a partner?

Answer 46

Any person who is not a partner in the partnership, including clients, customers, or other third parties who might be affected by the partner’s actions.

Question 47

What does it mean for a partnership to be liable “to the same extent” as the acting partner?

Answer 47

It means that the partnership is responsible for covering the loss or penalty incurred as a result of the partner’s wrongful act or omission, to the same degree as the partner would be personally liable for those actions.

Question 48

In what circumstances does a partnership become liable for a partner’s actions?

Answer 48

• When the partner acts within the ordinary course of business
• With the authority of their co-partners
• Those actions result in loss, injury, or a penalty to someone who is not a partner.

Question 49

What types of wrongful acts might lead to partnership liability?

Answer 49

Wrongful acts that might lead to partnership liability include negligence and fraud committed by a partner while acting in their official capacity or with the authority of the other partners.

Question 50

If a partner causes a loss while acting outside their authority, is the partnership still liable?

Answer 50

Generally, if a partner acts outside their authority, the partnership may not be liable for those actions unless the third party was unaware of the lack of authority and relied on the partner’s actions.

Question 51

A type of fraud or deceit that results in financial loss to another person.

Answer 51

Estafa

Question 52

What happens if a partner misapplies funds received from a third party while acting within their apparent authority?

Answer 52

If a partner, acting within the scope of their apparent authority, receives money or property from a third party and misapplies it, the partnership is responsible for making good the loss. The partnership is responsible for covering the loss incurred by that third party.

Question 53

Under what circumstances is a partnership liable for the misapplication of funds or property?

Answer 53

A partnership is liable for the misapplication of funds or property when it receives money or property from a third party during the course of its business, and any partner misapplies that money or property while it is still in the partnership’s custody

Question 54

Each partner is individually responsible for the entire amount of the liability, not just a share.

Answer 54

Solidary Liability

Question 55

Can a partner be held personally liable for the misapplication of partnership funds?

Answer 55

Yes, while the partnership is responsible for making good the loss, the individual partner may also face personal liability, especially if the misapplication is found to be fraudulent or criminal, such as in cases of estafa.

Question 56

According to Article 1822, under what circumstances are partners liable for wrongful acts or omissions?

Answer 56

Partners are liable for wrongful acts or omissions that cause loss or injury to third parties if these actions occur in the ordinary course of business or with the authority of their co-partners.

Question 57

What does Article 1823 state about partners’ liability for losses?

Answer 57

Article 1823 states that partners are liable for losses resulting from the misapplication of money or property received from third parties by a partner acting within apparent authority or when the property is in the partnership’s custody.

Question 58

What is the liability of a person who represents themselves as a partner in an existing partnership?

Answer 58

If a partnership liability results, that person is liable as if they were an actual member of the partnership, they are responsible for the partnership’s debts and obligations. They are liable to those who rely on this representation. This applies even if the representation is made publicly.

Question 59

How does liability differ when a partnership liability results versus when it does not?

Answer 59

When a partnership liability results, the person is liable as if they were an actual partner. When no partnership liability results, they are liable pro rata with other consenting individuals, or separately if no others are involved.

Question 60

What happens if all actual partners consent to a representation?

Answer 60

If all actual partners consent to the representation, it results in a partnership act or obligation, meaning the entire partnership is bound by that representation.

Question 61

What occurs when not all partners consent to a representation?

Answer 61

When not all partners consent, the act or obligation is considered a joint obligation of the person making the representation and those who consented to it, rather than an obligation of the partnership as a whole.

Question 62

Can partnership by estoppel be applied if the third person is not deceived?

Answer 62

Partnership by Estoppel does not apply when the third person is not deceived.

Question 63

How does the liability of a new partner relate to pre-existing partnership debts?

Answer 63

The new partner is responsible for the debts and liabilities incurred by the partnership before they joined, treating them as if they had been a partner at that time.

Question 64

How is the liability of a new partner generally satisfied?

Answer 64

The liability of a new partner is generally satisfied out of the partnership property, meaning that any obligations incurred before their admission are covered by the partnership’s assets rather than the new partner’s personal assets.

Question 65

What is the exception to the liability rule for new partners?

Answer 65

If the partnership agreement includes specific stipulations regarding liability, such as a clause that requires new partners to personally guarantee pre-existing debts, then that agreement takes precedence. This means the new partner would be personally liable for those debts as per the terms outlined in the agreement.

Question 66

Who has priority over the assets of a partnership when it comes to settling debts?

Answer 66

Creditors of the partnership have priority over the creditors of individual partners, the partnership’s assets are first used to satisfy debts owed to partnership creditors before addressing any personal debts of the individual partners.

Question 67

What rights do the private creditors of individual partners have regarding partnership assets?

Answer 67

The private creditors of individual partners can seek to attach and publicly sell the partner’s share in the partnership assets to satisfy the partner’s personal debts, but this is done only after the partnership creditors have been satisfied.

Question 68

Arises if all partners consented to the misrepresentation of a third person who is not a real partner. This creates a partnership obligation. This can happen if they represent themselves as a partner or allow others to do so, leading third parties to reasonably believe that a partnership exists.

Answer 68

Partnership by Estoppel

Question 69

A person who represents himself, or consents to another or others representing him to any one, as a partner either in an existing partnership or in one that is fictitious or apparent. While not actual partners in a legal sense, are treated as partners due to their conduct or representations that suggest partnership status.

Answer 69

Partners by Estoppel

Question 70

In what order are creditors paid from a partnership’s assets?

Answer 70

• Partnership creditors
• Personal creditors of individual partners.