JULY 15, 2013

LIABILITY FOR THE TORTIOUS ACTS OF PARTNER Q: what is a tort? Is it the same with an offense or a felony? TORT is a class of civil wrongs consisting of the provisions of the civil code in human relations, nuisance and quasi-delict, the requisite being that there should be no pre-existing contract and no criminal intent as a general rule. In defining it, it is almost but not quite a crime. You just dont limit its definition to an act or omission because an act or omission which causes injury to another can also be a crime. There should be an additional phrase, WHICH DOES NOT RESULT TO A CRIME OR A FELONY DEFINED UNDER THE REVISED PENAL CODE. But, it results to some damage to a person. Q: what is the general rule with respect to a tortious act committed by a partner against a 3 person? Can the third person claim against the partnership or the other partners who was not the actor-partner? YES. Basis: 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 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 therefor to the same extent as the partner so acting or omitting to act. LIABILITY OF THE PARTNERSHIP FOR FRAUDULENT ACTS OF PARTNERHSIP Q: what about acts of a partner employing deceit or fraud? Acts tainted with fraud which is carried out by the partner in the ordinary course of partnership transactions? What is the rule on fraudulent acts of a partner acting within the scope of partnership business? The fraudulent acts are provided in 1823: Article 1823. The partnership is bound to make good the loss: (1) Where one partner acting within the scope of 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. (n) Nature of Liability of the partnership: SOLIDARY Article 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under articles 1822 and 1823. Q: What do you mean by solidary liability? This means that the party injured can collect the whole sum from any of the parties in the partnership and not only to the erring partner. That is one nature of a solidary liability. However, the erring partner must reimburse the rest of the innocent partners. LIABILITY OF PARTNERSHIP FOR CIVIL LIABILITIES Q: What if the 3 of you are in partnership, in a buy and sell of high-end cars. Then Ms. A acting accordingly in behalf of the ordinary course of partnership affairs bought from me a Mercedes Benz on credit. So I told her, you can get the item but you should pay me by the end of the month but at the end of the month, I did not receive a payment from Ms. A or from the partnership, so I sent a demand from the partners for the return of vehicle plus damages. Can I validly do that? Can I validly claim from just Ms. A and even from the rest of the partners?
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Q: Is your liability the same with the liability of the partner who committed the tortious act? So the solidary liability of the partner extends to all kinds of obligations of a partner? Be it fraudulent, tortious? So its all the time solidary? NO. the liability is only PRO-RATA. REMEMBER: We have already established the rule as to TORTIOUS and FRAUDULENT acts that the third person can hold the partnership SOLIDARILY liable. When we say solidary, the party injured can collect the whole sum from any of the partners subject to reimbursement of the erring partner to the other partners However, is this the same of situation I mentioned a while ago when Partner A, acting in the ordinary course of business, bought a car and the same resulted to non-payment. Can I just collect from partner A, who was the person who transacted with me? Is the level of liability the same as that of the ACTING partner? But what about if partner B is just an industrial partner? If the creditor 3 person collects, can he collect from the industrial partner? Since you said the obligation is solidary, the same with that of fraudulent and tortious acts? ANSWER: 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. The NATURE of the transaction I mentioned earlier is a CONTRACTUAL OBLIGATION (transactions in the ordinary course of business). The extent of liability of the partners is only PROPROTIONATE TO THEIR SHARE or in the absence of an agreement, the LIABILITY IS PRO-RATA. The obligation of the partnership is JOINT. The determining factor in a joint obligation is their COTNRIBUTION. You cannot be held liable to the full amount because you will only be held liable to the amount of your contribution or in the absence of an agreement, only PRO-RATA. As contradistinguished with that of tortious or fraudulent actions, those are obligations arising from tort or fraud. When the tortious/fraudulent acts are committed, the other partners can be held SOLIDARILY liable. In a solidary obligation, even if you are not the erring partner, you can still be held liable for the FULL amount. Q: What makes the difference between the obligation for tortious/fraudulent acts and that of contractual obligations? Which is heavier? Which is more burdensome? What makes the difference for the liabilities in these 2 instances? PUBLIC POLICY. The law protects those persons injured by reasons o f the partners tortious acts. Unlike that of a contractual obligation, it imposes less liability to the partnership. Q: in that scenario, the Mercedes Benz facts. And I already sent the 3 of you love letters for collection. Partner B replied, saying that he cannot be liable for the act of Partner A because as per practice in the company, that with respect for purchases to be made, all 3 of us would have to be signatories. The act was not a consented act by partner A so you cannot collect from me. ( case refers to ULTRA VIRES acts of a partner) By the operation of a MERE INTERNAL AGREEMENT, would the third person be prevented from claiming the amount due from the partnership? Can the third person still claim or not? THIRD PERSON CAN STILL CLAIM. The third person will not be prejudiced by the internal agreement between the partners. The law protects him who acts in good faith. 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, xxxxxx Q: Would the rule still be the same when the transaction entered into by one partner is NOT in the ordinary course of business? Will the partnership be held liable still?
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NO. General rule: Partnership will not be held liable if the act was done not in the ordinary course of business Exception: when the partners knew the act and they consented to the same. 1818 further provides that xxxxx 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 partner Q: back to my example: sale of Mercedes Benz. Is it in the ordinary course of partnership business? YES because we are in the business of buying and selling of cars. In that kind of transaction, what will be considered NOT IN THE ORDINARY COURSE OF BUSINESS? If you entered into a transaction such as when you contracted a loan from a financier and you used as collateral for the loan the land and the building where the principal place of business is located where the same was in the name of your company. Upon executing that REM, the acting partner cannot hold the partnership liable as it was a transaction done in the ordinary course of business. When can I hold the partnership liable? When the transaction was authorized and consented to by the other partners. Also, when they had knowledge of the unauthorized transaction and they did nothing to repudiate the same. (estoppel applies)

JULY 17 Partnership may be held liable to acts done by a partner in a transaction not in the ordinary course of business when they have RATIFIED the same or CONSENTED to the same. There are acts which are expressly or impliedly defined by law as transactions which are indicative of acts made by the partner not in the ordinary course of partnership business. Thus, the CONSENT OF ALL PARTNERS must be secured. What are these? Article 1818 providesxxx 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. Liability of partnership for acts of partners The acts of a partner mentioned in Article 1818 may be grouped into three: 1.) 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 affect on the partnership even if rd he has in fact no authority unless the 3 person has knowledge of such lack of authority. There are two requisites in order that the partnership will not be liable: a.) The partner so acting has in fact no authority; and rd b.) The 3 person knows that the acting partner has no authority. Usual way: usual for the particular partnership or usual for similar partnerships. Actually, the acts mentioned in No. 1 refer only to acts of administration.

2.) Acts of strict dominion (pars. 2 and 3) For acts which are not apparently for carrying on in the usual way of 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. Paragraph 3 gives instances of acts generally outside the implied power of a partner and constitute limitations to the authority to bind partnership. 3.) 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. On the other hand, persons not having such notice have a right to assume that the authority of a partner is coextensive with the business transacted by the firm. 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. CASES LITTON v. CERON Business of the partnership was buying and selling of shares Litton transacted with Ceron and this was for the purchase and selling of shares. Issue: May utang ang paratnerhsip. Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid balance of P720, and unable to collect this sum either from Hill & Ceron or from its surety Visayan Surety & Insurance Corporation, Litton filed a complaint in the Court of First Instance of Manila against the said defendants for the recovery of the said balance. Ruling of the RTC: The court, after trial, ordered Carlos Ceron personally to pay the amount claimed and absolved the partnership Hill & Ceron, Robert Hill and the Visayan Surety & Insurance Corporation. (ceron was held personally liable) Ruling of the CA: Affirmed RTC decision. Ceron did not intend to represent and did not act for the firm Hill & Ceron in the transaction involved in this litigation. Ruling of the SC: the transaction made by Ceron with the plaintiff should be understood in law as effected by Hill & Ceron and binding upon it. The kind of business in which the partnership Hill & Ceron is to engage being thus determined, none of the two partners, may legally engage in the business of brokerage in general as stock brokers, security brokers and other activities pertaining to the business of the partnership. Ceron, therefore, could not have entered into the contract of sale of shares with Litton as a private individual, but as a managing partner of Hill & Ceron. There is a general presumption that each individual partner is an authorized agent for the firm and that he has authority to bind the firm in carrying on the partnership transactions. The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into by one of members of the firm acting apparently in its behalf and within the scope of his authority MUNASQUE V. CA A & B are into a partnership and into a construction business. They wer able to get a contract for the construction of Damosa Fairlanes. They executed a contract with C (land owner) to build a house for the latter. The agreement was that it will be a 3 million contrac.t upon signing of the contract, downpayment of 1M will be paid and the remaining balance will be paid monthly. Assuming that the construction works were nd rd only for 3 months, the next 2 months will be the 2 and 3 payment necessarily. The landowner asked now A & B if he can pay check. Partners agreed. Upon signing, C issued a check payable to A. then A endorsed said check and gve to B so that B can enchash it and deposit the same so he can start buying the nd rd construction materials needed. The 2 and 3 checks, the same procedure was followed but B, instead of buying the construction materials bought a car for his personal use. A now asked from B the construction materials. What A did is that he incurred loans from his friends so he can start with construction (nangutang nd xa) A continued with construction. On the other hand, what B did is that..C issued the 2 check made payable to A. upon knowledge, B went to C asking C to make the check be payable to B or partnership nd rd instead of A. so si C, he named the check in the name of company. B encashed it, both the 2 and 3 checks. A now was asking for the payment of the balance. He incurred several debts because B did not give

any materials. C now was evading liability because he already paid to B (daw). So A filed a collection suit against partner B and client C. in the course of the case, hardware X and hardware Y intervened (may utang pa kayo! Magbayad na kayo ) so both hardwares were claiming for the payment of the construction materials taken from them. Should acts of B bind partner A? Contention of C: I should not pay again coz I have already paid the partnership. It was partner B who purported to act in behalf of the partnership who was paid with the amount. So the said amount must bind A. How would you resolve the case? 1. Can A collect from client C? NO. Payment made by C is already payment to the partnership. Netiher A or B may claim from C. Be that as it may, in the course of the transaction, liabilities were incurred by partner A for the construction. The liabilities of A are considered as liabilities also of the partnership, such that any amount due from that transaction will be answered or chargeable to the partnership. The act of A in procuring that loan is a valid act of partnership. FROM THE CASE: No error was committed by the appellate court in holding that the payment made by Tropical to Galan was a good payment which binds both Galan and the petitioner. Since the two were partners when the debts were incurred, they, are also both liable to third persons who extended credit to their partnership. In the case of George Litton v. Hill and Ceron, et al, (67 Phil. 513, 514), we ruled: There is a general presumption that each individual partner is an authorized agent for the firm and that he has authority to bind the firm in carrying on the partnership transactions. (Mills vs. Riggle,112 Pan, 617). The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into by one of members of the firm acting apparently in its behalf and within the scope of his authority. 2. What about the liability of the erring partner B? With respect to B, it is between A and B as to how they will agree. For example, the liability incurred by the partnership for the procurement of the construction materials, the partnership property may be held chargeable. If it is not sufficient, B will have to take the consequences. FROM THE CASE: At any rate, the issue raised in this petition is the contention of Muasque that the amounts payable to the intervenors should be shouldered exclusively by Galan. We note that the petitioner is not solely burdened by the obligations of their illstarred partnership. The records show that there is an existing judgment against respondent Galan, holding him liable for the total amount of P7,000.00 in favor of Eden Hardware which extended credit to the partnership aside from the P2, 000. 00 he already paid to Universal Lumber. We, however, take exception to the ruling of the appellate court that the trial court's ordering petitioner and Galan to pay the credits of Blue Diamond and Cebu Southern Hardware" jointly and severally" is plain error since the liability of partners under the law to third persons for contracts executed in connection with partnership business is only pro rata under Art. 1816, of the Civil Code. While it is true that under Article 1816 of the Civil Code,"All partners, including industrial ones, shall be liable prorate with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into the name and fm the account cd the partnership, under its signature and by a person authorized to act for the partner-ship. ...". this provision should be construed together with Article 1824 which provides that: "All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823."

In short, while the liability of the partners are merely joint in transactions entered into by the partnership, a third person who transacted with said partnership can hold the partners solidarily liable for the whole obligation if the case of the third person falls under Articles 1822 or 1823. Articles 1822 and 1823 of the Civil Code provide: Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partner-ship 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 therefor to the same extent as the partner so acting or omitting to act. Art. 1823. The partnership is bound to make good: (1) Where one partner acting within the scope of 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 t he money or property so received is misapplied by any partner while it is in the custody of the partnership. The obligation is solidary, because the law protects him, who in good faith relied upon the authority of a partner, whether such authority is real or apparent. That is why under Article 1824 of the Civil Code all partners, whether innocent or guilty, as well as the legal entity which is the partnership, are solidarily liable. In the case at bar the respondent Tropical had every reason to believe that a partnership existed between the petitioner and Galan and no fault or error can be imputed against it for making payments to "Galan and Associates" and delivering the same to Galan because as far as it was concerned, Galan was a true partner with real authority to transact on behalf of the partnership with which it was dealing. This is even more true in the cases of Cebu Southern Hardware and Blue Diamond Glass Palace who supplied materials on credit to the partnership. Thus, it is but fair that the consequences of any wrongful act committed by any of the partners therein should be answered solidarily by all the partners and the partnership as a whole However. as between the partners Muasque and Galan,justice also dictates that Muasque be reimbursed by Galan for the payments made by the former representing the liability of their partnership to herein intervenors, as it was satisfactorily established that Galan acted in bad faith in his dealings with Muasque as a partner.