Act of a Partnership Theory

Art. 1817. Any stipulation against the liability laid down in the preceding article shall be void, except as among the partners. Stipulation eliminating liability. If there is a stipulation exempting any of the partners from liability to third persons, such stipulation is void as to third person but valid among the partners. Art. 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 the 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 goodwill 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 of contravention of a restriction on authority shall bind the partnership to persons having knowledge of the restriction. Mutual agency rule. Each partner is acting as a principal on his own behalf, and as an agent for his co-partners or the firm. Instances when a partnership is bound. a. )When he is expressedly or impliedly authorized. b. When he acts in behalf and in the name of the partnership. Art. 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.

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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 of his assignee, is a holder for value, without knowledge.

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. Registration of real property belonging to the partnership. a. )Partnership b. )All of the partners c. )One, some, or not all of the partners d. )One, some, or not all of the partners in trust for the partnership e. )Third person in trust for the partnership Effect of conveyance of real property of the partnership.

The effect of conveyance of real property owned by the partnership depends in whose name the property is registered and conveyed. The conveyance made by a partner in the name of the registered owner passes title to the property. However, if the conveyance is made in any other manner and not in the name of the registered owner, it is only the equitable interest of the partnership that is transferred provided the conveyance is in the ordinary course of business. In legal parlance, equitable interest of beneficial nterest refers to “all interest which the partnership had, except the title”. Art. 1820. An admission or representation made by any partner concerning partnership affairs within the scope of his authority in accordance with this Title is evidence against the partnership. Admission after dissolution. Admission made after dissolution of the partnership binds the partnership only if necessary to wind up the business. Where the admission is not for the winding up of partnership affairs, it does not affect the partnership.

An admission made by a former partner, made after he has retired from the partnership, is not an evidence against the firm. Art. 1821. Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the particular matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who reasonably could and should have communicated it to the acting partner, operate as notice to or knowledge of the partnership, except in the case of a fraud on the partnership, committed by or with the consent of that partner. Art. 1822.

Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefore to the same extent as the partner so acting or omitting to act. Liability of partnership for torts of partners. a. )The wrongful act or omission is committed in the ordinary course of the business of the partnership, or if not, the act or omission was made with the consent or authority of the other partner; b. That the loss or injury is caused to a person who is not a partner in the partnership. When the partnership and the other partners are not liable. a. )If the wrongful act or omission was not done within the scope of the partnership business and for its benefit, or with the authority of the co-partners. b. )Act or omission was not wrongful. c. )If the wrongful act or omission was committed after the partnership had been dissolved and the same was not in connection with the process of winding up. Art. 1823.

The partnership is bound to make good the loss: (1)Where one partner acting within the scope or his apparent authority receives money or property of a third person and misapplies it; and (2)Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership. Art. 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823. Art. 1825.

When a person, by words spoken or written or by conduct, represents himself, or consents to another representing him to anyone, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such person to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made: (1)When a partnership liability results, he is liable as though he were an actual member of the partnership; (2)When no partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the contract or representations as to incur liability, otherwise separately. When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. When all the members of the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation. Estoppel.

It is a preclusion in law, which prevents a man from alleging or denying a fact, in consequence of his own previous act, allegation or denial of a contrary tenor. Partners by estoppel distinguished from partnership by estoppel. When a person represents himself as a partner in an existing partnership without the knowledge or consent of the partners, and because of such misrepresentation a third person is misled and acts because of such misrepresentation, the deceiver is a partner by estoppel. If the partnership and the partners consented to the misrepresentation, and a partnership liability results, there is a partnership by estoppel, with the original members and the deceiver as partners.

If the partnership or the partners had not consented, no partnership liability results, but the deceiver is still considered a partner by estoppel with all the obligations but not the rights of a partner. Art. 1826. A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred, except that this liability shall be satisfied only out of partnership property, unless there is a stipulation to the contrary. Liability of newly admitted partner for obligations of the partnership. a. )Obligations incurred before admission. A newly admitted partner is liable for obligations of the partnership incurred before his admission to the firm.

Such liability is limited to his capital contribution, unless otherwise agreed. b. )Obligations incurred after admission. If the obligation incurred after his admission, all partners, the original and the new partner shall be liable to the extent of their separate property in satisfying such obligation of the partnership. Creation of a new partnership. The admission of a new partner in an existing partnership dissolves the old firm and creates a new one. However, the creditors of the old firm shall continue to be creditors of the new firm. Art. 1827. The creditors of the partnership shall be preferred to those of each partner as regards the partnership property.

Without prejudice to this right, the private creditors of each partner may ask the attachment and public sale of the share of the latter in the partnership assets. CHAPTER 3 DISSOLUTION AND WINDING UP Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. Dissolution, winding-up, termination defined. Dissolution – is the change in the relation of the partners caused by any partner ceasing to be associated in carrying out the business. Winding-up – is the process of settling business affairs after dissolution. Termination – is the point in time after all the partnership affairs have been settled. Art. 1829.

On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. Effect of dissolution. After dissolution, the authority of a partner to bind the partnership is thereby terminated, except those necessary to wind-up partnership affairs The Civil Code expressly provides that upon dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business, culminating in its termination. Art. 1830. Dissolution is caused: (1)Without violation of the agreement between the partners: (a)By the termination of the definite term or particular undertaking specified in the greement; (b)By the express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified; (c)By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaking; (d)By the expulsion of any partner from the business bona fide in accordance with such a power conferred by the agreement between the partners; (2)In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time; (3)By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership; (4)When a specific thing, which a partner had promised to contribute to the partnership, perishes before the delivery; in any case by the loss of the thing, when the partner who contributed it having reserved the ownership thereof, has only transferred to the partnership the use or enjoyment of the same; but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has acquired the ownership thereof. (5)By the death of any partner; (6)By the insolvency of any partner or of the partnership; (7)By the civil interdiction of any partner; (8)By decree of court under the following article. (1700 and 1701a) Art. 1831.

On application by or for a partner, the court shall decree dissolution whenever: (1)A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind; (2)A partner becomes in any other way incapable of performing his part of the partnership contract; (3)A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business; (4)A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him; (5)The business of the partnership can only be carried on at a loss; (6)Other circumstances render a dissolution equitable; On the application of the purchaser of a partner’s interest under Article 1813 or 1814: (1)After the termination of the specified term or particular undertaking; (2)At anytime if the partnership was a partnership at will when the interest was assigned or when the charging order was issued. Art. 1832.

Except so far as may be necessary to wind up partnership affairs or to complete transactions begun but not then finished, dissolution terminates all authority of any partner to act for the partnership: (1)With respect to the partners, (a)When the dissolution is not by the act, insolvency or death of a partner; or (b)When the dissolution is by such act, insolvency or death of a partner, in cases where Article 1833 so requires; (2)With respect to persons not partners, as declared in Article 1834. Effects of dissolution. When the partnership is dissolved, the authority of a partner to bind the partnership is thereby terminated, except those necessary to wind up partnership affairs.

Hence, contracts and obligations previously entered into, whether the firm is the creditor or debtor, remain to exist. Art. 1833. Where the dissolution is caused by the act, death or insolvency of a partner, each partner is liable to his co-partners for his share of any liability created by any partner acting for the partnership as if the partnership had not been dissolved unless: (1)The dissolution being by act of any partner, the partner acting for the partnership had knowledge of the dissolution; or (2)The dissolution being by the death or insolvency of a partner, the partner acting for the partnership had knowledge or notice of the death or insolvency. Art. 1834.

After dissolution, a partner can bind the partnership, except as provided in the third paragraph of this article: (1)By any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution; (2)By any transaction which would bind the partnership if dissolution had not taken place, provided the other party to the transaction; (a)Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the dissolution; or (b)Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution, and, having no knowledge or notice of dissolution, the fact of dissolution had not been advertised in a newspaper of general circulation in the place (or in each place if more than one) at which the partnership business was regularly carried on.

The liability of a partner under the first paragraph, no. 2, shall be satisfied out of partnership assets alone when such partner had been prior to dissolution: (1)Unknown as a partner to the person with whom the contract is made; and (2)So far unknown and inactive in partnership affairs that the business reputation of the partnership could not be said to have been in any degree due to his connection with it. The partnership is in no case bound by any act of a partner after dissolution: (1)Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is appropriate for winding up partnership affairs; or (2)Where the partner has become insolvent; or 3)Where the partner has no authority to wind up partnership affairs; except by a transaction with one who – (a)Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his want of authority; or (b)Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of his want of authority, the fact of his want of authority has not been advertised in the manner provided for advertising the fact of dissolution in the first paragraph, no. 2 (b). Nothing in this article shall affect the liability under Article 1825 of any person who after dissolution represents himself or consents to another representing him as a partner in a partnership engaged in carrying on business. Art. 1835.

The dissolution of the partnership does not of itself discharge the existing liability of any partner. A partner is discharged from any existing liability upon dissolution of the partnership by an agreement to that effect between himself, the partnership creditor and the person or partnership continuing the business; and such agreement may be inferred from the course of dealing between the creditor having knowledge of the dissolution and the person or partnership continuing the business. The individual property of a deceased partner shall be liable for all obligations of the partnership incurred while he was a partner, but subject to the prior payment of his separate debts. Art. 1836.

Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal representative of the last surviving partner, not insolvent, has the right to wind up the partnership affairs, provided however, that any partner, his legal representative or his assignee, upon cause shown, may obtain winding up by the court. Art. 1837. When dissolution is caused in any way, except in contravention of the partnership agreement, each partner, as against his co-partners and all persons claiming through them in respect of their interests in the partnership, unless otherwise agreed, may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners.

But if dissolution is caused by expulsion of a partner, bona fide under the partnership agreement and if the expelled partner is discharged from all partnership liabilities, either by payment or agreement under the second paragraph of Article 1835, he shall receive in cash only the net amount due him from the partnership. When dissolution is caused in contravention of the partnership agreement the rights of the partners shall be as follows: (1)Each partner who has not caused dissolution wrongfully shall have: (a)All the rights specified in the first paragraph of this article, and (b)The right, as against each partner who has caused the dissolution wrongfully, to damages for breach of the agreement. 2)The partners who have not caused the dissolution wrongfully, if they all desire to continue the business in the same name either by themselves or jointly with others, may do so, during the agreed term for the partnership and for that purpose may possess the partnership property, provided they secure the payment by bond approved by the court, or pay to any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damages recoverable under the second paragraph, no. 1 (b) of this article, and in like manner indemnify him against all present or future partnership liabilities. (3)A partner who has caused the dissolution wrongfully shall have: (a)If the business is not continued under the provisions of the second paragraph, no. , all the rights of a partner under the first paragraph, subject to liability for damages in the second paragraph, no. 1 (b), of this article. (b)If the business is continued under the second paragraph, no. 2, of this article, the right as against his co-partners and all claiming through them in respect of their interests in the partnership to have the value of his interest in the partnership, less any damage caused to his co-partners by the dissolution, ascertained and paid to him in cash, or the payment secured by a bond approved by the court, and to be released from all existing liabilities of the partnership; but in ascertaining the value of the partner’s interest the value of the goodwill of the business shall not be considered. Art. 1838.

Where a partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled: (1)To a lien on, or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities to third persons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advances contributed by him; (2)To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the partnership for any payments made by him in respect of the partnership liabilities; and (3)To be indemnified by the person guilty of the fraud or making the representation against all debts and liabilities of the partnership. Art. 1839. In settling accounts between the partners after dissolution, the following rules shall be observed, subject to any agreement to the contrary: (1)The assets of the partnership are: a)The partnership property (b)The contributions of the partners necessary for the payment of all the liabilities specified in no. 2. (2)The liabilities of the partnership shall rank in order of payment, as follows: (a)Those owing to creditors other than partners. (b)Those owing to partners other than for capital and profits. (c)Those owing to partners in respect of capital. (d)Those owing to partners in respect of profits. (3)The assets shall be applied in the order of their declaration in no. 1 of this article to the satisfaction of the liabilities. (4)The partners shall contribute, as provided by Article 1797, the amount necessary to satisfy the liabilities. 5)An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contributions specified in the preceding number. (6)Any partner on his legal representative shall have the right to enforce the contributions specified in no. 4, to the extent of the amount which he has paid in excess of his share of the liability. (7)The individual property of a deceased partner shall be liable for the contributions specified in no. 4. (8)When partnership property and the individual properties of the partners are in possession of a court for distribution, partnership creditors shall have priority on partnership property and separate creditors on individual property, saving the rights of lien or secured creditors. 9)Where a partner has become insolvent or his estate is insolvent, the claims against his separate property shall rank in the following order: (a)Those owing to separate creditors; (b)Those owing to partnership creditors; (c)Those owing to partners by way of contribution. Share of industrial partner out of surplus. A partner who contributes no capital, but only services is not entitled to any share in the firm capital on dissolution, but is limited to his share in profits as compensation for his services. Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business: (1)When any new partner is admitted into an existing partnership, or when ny partner retires and assigns (or the representative of the deceased partner assigns) his rights in partnership property to two or more of the partners, or to one or more of the partners and one or more third persons, if the business is continued without liquidation of the partnership affairs; (2)When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others; (3)When any partner retires or dies and the business of the dissolved partnership is continued as set forth in nos. and 2 of this article, with the consent of the retired partners or the representative of the deceased partner, but without any assignment of his right in partnership property; (4)When all the partners or representatives assign their rights in partnership property to one or more third persons who promise to pay the debts and who continue the business of the dissolved partnership; (5)When any partner wrongfully causes a dissolution and the remaining partners continue the business under the provisions of Article 1837, second paragraph, no. 2, either alone or with others, and without liquidation of the partnership affairs; (6)When a partner is expelled and the remaining partners continue the business either alone or with others without liquidation of the partnership affairs. The liability of a third person becoming a partner in the partnership continuing the business, under this article, to the creditors of the dissolved partnership shall be satisfied out of the partnership property only, unless there is a stipulation to the contrary.

When the business of a partnership after dissolution is continued under any conditions set forth in this article the creditors of the dissolved partnership, as against the separate creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business, on account of the retired or deceased partner’s interest in the dissolved partnership or on account of any consideration promised for such interest or for his right in partnership property. Nothing in this article shall be held to modify any right of creditors to set aside any assignment on the ground of fraud. The use by the person or partnership continuing the business of the partnership name, or the name of a deceased partner as part thereof, shall not of itself make the individual property of the deceased partner liable for any debts contracted by such person or partnership. Art. 1841. When any partner retires or dies, and the business is continued under any of the conditions set forth in the preceding article, or in Article 1837, second paragraph, no. , without any settlement of accounts as between him or his estate and the person or partnership continuing the business, unless otherwise agreed, he or his legal representative as against such person or partnership may have the value of his interest at the date of dissolution ascertained, and shall receive as an ordinary creditor an amount equal to the value of his interest in the dissolved partnership with interest, or at his option, or at the option of his legal representative, in lieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership; provided that the creditors of the dissolved partnership as against the separate creditors, or the representative of the retired or deceased partner, shall have priority on any claim arising under this article, as provided by Article 1840, third paragraph. When right to accounting accrues. The right to an accounting accrues on the date of dissolution in the absence of contrary agreement. Persons entitled to accounting. a. )Any partner. b. )Legal representative of a partner. Against whom right is exercised. a. )Winding up partner. b. )Surviving partner. c. )The person or partnership continuing the business.

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