RELATIONS AND DEALINGS WITH THIRD PERSONS

A. Firm Name – 1815, 1816, SEC Memo Circular No. 13-2019

B. Partners as Agents –
1. Basis
2. Contractual Obligations
i. Acts within Apparent Authority - 1818 (1st par.), 1819
ii. Acts not within Apparent Authority – 1818 (2nd par), 1811(1)
iii. Acts Requiring Unanimous Consent – 1818(3rd par.), 1878
iv. Known Restrictions on Authority – 1818 (last par.)
3. Liability for Wrongful Acts or Omissions – 1822, 1823(1), 1823(2)
i. Tortious Acts
ii. Criminal Acts
4. Admissions or Representations - 1820
5. Notice or Knowledge - 1821
6. Partnership liability by Estoppel – 1769(1), 1825, 1815 (2nd par.)
C. Individual Liability of Partners for Partnership Acts
1. All Partners
i. For Contracts – 1816, 1817, 1797
ii. For Torts and Delicts - 1824
2. Partner by Estoppel – 1925 (1,2)
3. Incoming Partner - 1826
D. Suit by or against the Partnership – 46

Article 1815. Every partnership shall operate under a firm name, which may or may not include the name
of one or more of the partners
Those who, not being members of the partnership, include their names in the firm name, shall be subject
to the liability of a partner. (n)

 Meaning of word “firm.” — The word “firm” is defi ned as the name, title, or style under which a
company transacts business; a partnership of two or more persons; a commercial house. In its
common acceptance, the term implies a partnership. The term is also used as synonymous with
“company,” “house,” and “concern.”
 Importance of having a firm name. — A partnership must have a firm name under which it will
operate. A firm name is necessary to distinguish the partnership which has a distinct and separate
juridical personality (Art. 1768.) from the individuals composing the partnership and from other
partnerships and entities. Under the Business Name Law (Sec. 1, Act No. 3883, as amended.),
such firm name must be registered with the Bureau of Commerce (now with the Intellectual
Property Office created under R.A. No. 8293).
 Right of partners to choose fi rm name. — The partners enjoy the utmost freedom in the selection
of the partnership name. As a general rule, they may adopt any fi rm name desired. The fi rm
name of a partnership may be that of an individual partner, the surnames of all the partners, or the
surname of one or more of the members with the addition of “and Company,” or it may consist of
individual names wholly distinct from the names of any of the members, or it may be a name
purely fanciful or fictitious. But whatever the fi rm name may be, the signature of the fi rm name
is, in law, the signature of the several partners’ name.
 o Use of misleading name. — The partners cannot use a name that is “identical or
deceptively confusingly similar to that of any existing [partnership] or corporation or to
any other name already protected by law or is patently deceptive, confusing or contrary to
existing laws” (Sec. 18, Corporation Code.), as to mislead the public by passing itself off
as another partnership or corporation, or its goods or services as those of such other
company.
o Use of names of deceased partners. — The Supreme Court has ruled that a partnership
cannot continue to use in its fi rm name, the names of deceased partners for such use
“will run counter to Article 1815. It is clearly tacit in the above provision that names in a
fi rm name of a partnership must either be those of living partners and, in the case of
nonpartners, should be living persons who can be subjected to liability. In fact, Article
1825 prohibits a third person from including his name in the fi rm name under pain of
assuming the liability of a partner.” (In the Matter of the Petition for authority to continue
use of the fi rm name “SyCip, Salazar, etc.”/“Ozaeta, Romulo, etc.,” 92 SCRA 1 [1979].)
 This ruling must be considered abandoned in view of Rule 3.02 of the Code of
Professional Responsibility approved and adopted by the Supreme Court on June
21, 1988 which provides: “In the choice of a fi rm name, no false, misleading or
assumed name shall be used. The continued use of the name of a deceased
partner is permissible provided that the fi rm indicates in all its communications
that said partner is deceased.”
 Liability of Strangers Who Include Their Names Strangers (those not members of the
partnership) who include their names in the fi rm are liable as partners because of estoppel (Art.
1815, par. 2) but do not have the rights of partners for after all, they had not entered into any
partnership contract. The purpose of the law is to protect customers from being misled as to
whom they are dealing with. (See Sagal v. Fylar, 89 Conn. 293).
o NOTE: If a person misrepresents himself as a partner, and as a consequence thereof, a
stranger is misled, the deceiver is liable as a partner (without the rights of a partner) and
this is true, even if he did not include his name in the fi rm name.]
o NOTE: Under Art. 1846, if a limited partner includes his name in the fi rm name, he has
obligations, but not the rights of, a general partner.]
o NOTE: The mere fact that a partnership has assumed a fictitious or assumed name, other
than its real one, does not affect the validity of contracts otherwise validly entered into.
(38 Am. Jur., Name, Sec. 15, p. 15).]

Article 1816. All partners, including industrial ones, shall be liable pro rata with all their property and
after all the partnership assets have been exhausted, for the contracts which may be entered into in the
name and for the account of the partnership, under its signature and by a person authorized to act for the
partnership. However, any partner may enter into a separate obligation to perform a partnership contract.
(n)

 Partnership liability. — Partners are principals to the other partners and agents for them and the
partnership. They are liable to third persons who have dealt with one of them in the same way
that a principal is liable to third persons who have dealt with an agent.
o The general rule is that a partner has the right to make all partners liable for contracts he
makes for the partnership in the name and for the account of the partnership but only if
the partner was authorized, i.e., he had actual (or apparent) authority. The authority can
be expressly granted in the partnership agreement or by the other partners subsequently. A
 partner has implied authority to bind the partnership in transactions that are for the
purpose of “carrying on in the usual way the business of the partnership.’’
 Individual liability. — A partner, however, may assume a separate undertaking in his name with a
third party to perform a partnership contract or make himself solidarily liable on a partnership
contract. In such case, the partner is personally bound by his contract even if only the partnership
is shown to have derived benefits from it.
 While an industrial partner is exempted by law from losses (as between the partners), he is not
exempted from li ability (insofar as third persons are concerned). This means that the third person
can sue the firm and the partners, including the industrial partner. Of course, the partners will be
personally liable (jointly or pro rata) only after the assets of the partnership have been exhausted.
Even the industrial partner would have to pay, but of course he can recover later on what he has
paid, from the capitalist partners, unless there is contrary agreement.
 Article 1816 lays down the rule that the partners, including the industrial partner, are liable to
creditors of the partnership for the obligations contracted by a partner in the name and for the
account of the partnership. The debts and obligations of the partnership are, in substance, also the
debts and obligations of each individual member of the fi rm. Their individual liability to
creditors is pro rata and subsidiary.
o Pro rata. — As used in the law, the term must be understood to mean equally or jointly,
and not proportionately which is its literal meaning, because the pro-rating is based on
the number of partners and not on the amount of their contributions to the common fund,
subject to adjustment among the partners.
o Subsidiary or secondary. — It is subsidiary or secondary because the partners become
personally liable only after all the partnership assets have been exhausted. (see, however,
Arts. 1826, 1834 [par. 2], 1835 [par. 2, 1840], 2nd and last pars.) Thus, the partners are
liable as guarantors2 in favor of partnership creditors to the extent that the assets of the
firm are not sufficient to meet its obligations. They may be joined as party defendants in
the same action against the partnership subject to their right to prior exhaustion of
partnership property.
 A partner who withdraws is not liable for liabilities contracted after he has withdrawn, for then he
is no longer a partner. If his interest has not yet been paid him, his right to the same is that of a
mere creditor

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

 A stipulation among the partners contrary to the pro rata and subsidiary liability expressly
imposed by Article 1816 is void and of no effect insofar as it affects the rights of third persons. It
is valid and enforceable only as among the partners.
 Note that while in general “liability” refers to responsibility towards third persons, and “losses”
refers to responsibility as among the partners (Compania Maritima v. Muñoz, et al., 9 Phil. 326),
still Art. 1817, a new codal provision, can refer to “liability” as “among the partners.”
Article 1818. Every partner is an agent of the partnership for the purpose of its business, and the act of
every partner, including the execution in the partnership name of any instrument, for apparently carrying
on in the usual way the business of the partnership of which he is a member binds the partnership, unless
the partner so acting has in fact no authority to act for the partnership in the particular matter, and the
person with whom he is dealing has knowledge of the fact that he has no such authority.
An act of a partner which is not apparently for the carrying on of business of the partnership in the usual
way does not bind the partnership unless authorized by the other partners.
Except when authorized by the other partners or unless they have abandoned the business, one or more
but less than all the partners have no authority to:
(1) Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of
the partnership;
(2) Dispose of the good-will of the business;
(3) Do any other act which would make it impossible to carry on the ordinary business of a partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a partnership claim or liability;
(6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership.
No act of a partner in contravention of a restriction on authority shall bind the partnership to persons
having knowledge of the restriction. (n)

 This Article speaks of:

o the fact that the partner is an agent;
o the instances when he can bind the partnership;
o the instances when he cannot bind the partnership (in which case, should he enter into
the contract, he alone, and not the fi rm nor the partner would be liable)
 Power of partner as agent of partnership.
o As among themselves. — When a partner performs an act within the scope of his actual,
implied, or apparent authority, he is not only a principal as to himself, but is also for all
purposes, an agent as to his co-partners or to the partnership, considered as a group.
Thus, his act concerning partnership business and every contract signed in the
partnership name bind the firm. The general rules of law applicable to agents likewise
apply to partners. Each partner is a fiduciary of the other partners.
o As to third persons. — Limitations upon the authority of any one of the partners are not
binding upon innocent third persons dealing with the partnership (Art. 1818, par. 4.),
who have the right to assume that every general partner has power to bind the
partnership especially those partners acting with ostensible authority, by whatever is
proper for the transaction in the ordinary and usual manner of the business of the
partnership.
  Third persons are not bound, in entering into a contract with any of the
partners, to ascertain whether or not the partner with whom the transaction is
made has the consent of the other partners.
 There is a general presumption that each individual partner is an agent of the
firm and that he has authority to bind the fi rm in carrying on the partnership
transactions. The presumption is sufficient to permit third persons to hold the
firm liable on transactions entered into by any one of the members of the fi rm
acting apparently in its behalf and within the scope of his authority.

Liability of partnership for acts of partners.

 Acts for apparently carrying on in the usual way the business of the partnership (par. 1.). —
Every partner is an agent and may execute such acts with binding effect on the partnership even
if he has in fact no authority unless the third person has knowledge of such lack of authority
 In other words, there are two requisites in order that the partnership will not be liable:
o The partner so acting has in fact no authority; and
o The third person knows that the acting partner has no authority.
 Acts of strict dominion or ownership (pars. 2 and 3.). — For acts which are not apparently for
carrying on in the usual way the business of the partnership, the partnership is not bound,
unless authorized by all the other partners or unless they have abandoned the business. The
general rule is that powers not specifically delegated in a partnership agreement are presumed
to be withheld.
o Whatever acts are done by any partner in regard to partnership property or contracts
beyond the scope and objects of the partnership, must, in general, to bind the
partnership, be derived from such further authority, express or implied, conferred upon
such partner, beyond that resulting from his character as partner.
o Acts in contravention of a restriction on authority (par. 4.). — The partnership is not
liable to third persons having actual or presumptive knowledge of the restrictions,
whether or not the acts are for apparently carrying on in the usual way the business of
the partnership. For example, when a partnership is formed for a special purpose and is
limited, and a partner gives promissory notes in the name of the fi rm for his individual
obligation, the other partner is not liable, if the notes are issued without the latter’s
knowledge or consent, and the person receiving them is aware that they are not issued
for a fi rm debt.

Liability of partner acting without authority. As a general rule, the particular partner who undertakes to
bind his co-partners by a contract without authority is himself personally liable on such contract. Such
partner binds himself no matter in what name he contracts. The fact that he attempts to bind his co-
partners and does not succeed does not avoid his own act. He cannot be admitted to say that he was not
authorized to make a contract, as he is estopped to deny its effect or validity
Article 1819. Where title to real property is in the partnership name, any partner may convey title to
such property by a conveyance executed in the partnership name; but the partnership may recover such
property unless the partner's act binds the partnership under the provisions of the first paragraph of
article 1818, or unless such property has been conveyed by the grantee or a person claiming through
such grantee to a holder for value without knowledge that the partner, in making the conveyance, has
exceeded his authority. Where title to real property is in the name of the partnership, a conveyance
executed by a partner, in his own name, passes the equitable interest of the partnership, provided the
act is one within the authority of the partner under the provisions of the first paragraph of article 1818.
Where title to real property is in the name of one or more but not all the partners, and the record does
not disclose the right of the partnership, the partners in whose name the title stands may convey title to
such property, but the partnership may recover such property if the partners' act does not bind the
partnership under the provisions of the first paragraph of article 1818, unless the purchaser or his
assignee, is a holder for value, without knowledge. Where the title to real property is in the name of one
or more or all the partners, or in a third person in trust for the partnership, a conveyance executed by a
partner in the partnership name, or in his own name, passes the equitable interest of the partnership,
provided the act is one within the authority of the partner under the provisions of the first paragraph of
article 1818. Where the title to real property is in the name of all the partners a conveyance executed by
all the partners passes all their rights in such property. (n)