Q13

Sy and Me, partners under the name “SM.,” insured for P1,000,000 their goods. Later, the name was changed to “
Shoe and Mart.” The insured goods were subsequently burned. The insurance company refused to pay on the
ground that the partnership now had no juridical personality to sue and no insurable interest in the goods as a
consequence of changing its name. Is the Insurance Company correct?

Ans: No, The change of name is not important, not having been done to defraud the insurance company.
Moreover, the members remain the same. Therefore, the firm can collect the insurance indemnity

Q14
X, Y, and Z organized and registered a commercial regular general co-partnership with a capital of P10 million, X
contributing 50% of the capital, Y 30% and Z 20%. A certain creditor who has a claim of P20 million against the co-
partnership desired to file suit to collect his claim.
(a) Who should be made party defendant or defendants in the creditor’s suit?
(b) Whose assets are liable for the satisfaction of the creditor’s judgment? Explain the extent of liability of the
defendant or defendants.
Answer:
(a) The defendants should be the firm itself and the three partners. (Art. 1816). (NOTE — Since there are no more
commercial partnerships today, the new Civil Code provisions should be applied).

(b) First, the assets of the firm (P10 million) must be exhausted, then X, Y and Z will be liable pro rata in the
proportion of 50-30-20 for the remaining P10 million. (Art. 1860). Hence, X will pay from his individual assets P5
million; P3 million; and Z, P2 million. As among themselves the losses will be divided, in the absence of agreement
on losses or profits, in accordance with their contribution of 50%, 30%, and 20%. (Art. 1797).

Q15
A, B, and C, capitalist partners, each contributed P1 million. The firm’s indebtedness amounts to P9 million. It was
stipulated that A would be exempted from liability. Assuming that the capital of P3 million is still in the firm, what
would be the rights of the firm’s creditors?

ANS.: To get the P3 million and to get still P2 million each from the 3 partners (a total of P9 million). A will thus be
liable to the third persons for P2 million. How much, if any, can A recover from B and C? It is submitted that he can
recover P2 million from B and C (P1 million each) for as to liability as among them, he is exempted (Art. 1817) but
he cannot recover his original capital of P1 million. (Art. 1799).

Q16
In the articles of a general partnership, one of the partners is expressly exempted from personal liability for the
losses of the partnership. Is this agreement valid? Explain.
Ans:
(a) If the exempted partner is an industrial one — the agreement is valid as among themselves, but not insofar as
creditors are concerned.
(b) If the exempted partner is a capitalist one — the agreement is void as against creditors of the firm. As among
themselves, it is valid — regarding contributions in excess of the capital (Art. 1817); but void, regarding the original
contribution. (Art. 1799).

Q17
A and B are partners in buying and selling automobiles. A, by the partner’s agreement, was authorized to BUY
automobiles on a CASH basis, never on the INSTALLMENT plan. One day A bought on CREDIT or on the
INSTALLMENT PLAN a car from X, a client. X did not know of A’s lack of authority. A’s purchase was made on behalf
and in the name of the partnership.
a. Is the partnership bound?
 b. For apparently carrying on the business in the usual way, is a partner legally authorized to enter
into FORMAL contracts that would bind the firm?
c. How can we determine whether or not the transaction is within the scope of the partnership
business?
Ans:

a. Yes, the partnership is bound because although A was not really authorized, still for “apparently carrying on in
the usual way the business of the partnership” A is implicitly authorized and X was in good faith. Had X known of
A’s actual lack of authority, the answer would be different, that is, the partnership would not be bound. (See Smith,
Bell & Co. v. Azaar & CA, 40 O.G. 1882, citing 20 RCL, pp. 894-895: “Where a business of a partnership is to buy
and sell, a partner who purchases on credit in the name of the firm is acting within his implied powers, since it is
usual to buy and sell on credit.)

b. Yes. The words “including the execution in the partnership name of any instrument” avoid any possible doubt as
to whether a partner has authority, in the ordinary course of business, to enter into formal contracts for his
partnership, or to convey partnership property when the conveyance is the result of a sale in the ordinary course of
partnership business. (Commissioner’s Note, 7 ULA, Sec. 9, pp. 17-18). Indeed, it is as if he had full power of
attorney from all co-partners. (Rouse v. Pollard, 1941, 129 N.J. Eq. 47, 18 A.2d. 5).]

c. The “scope of business may be gauged by the usual manner in which it is carried out in the locality; but scope
may be broadened by actual conduct of business, as carried out with knowledge, actual or presumed, of the partner
(partners, or partnership) sought to be charged.” (Rouse v. Pollard, supra). If a partnership is engaged in “buying
and selling real estate” the act of a general partner in selling “three parcels of land” is within her powers as a general
partner. (Goquiolay v.Sycip, L-11840, Dec. 10, 1963).]

Q18
A, B, and C are partners. A assigned the assets of the firm to X on the condition that X would pay the debts of the
firm. The assignment had the approval of B, but C had objected. Is the assignment valid?

Ans.The assignment is not valid. And this is true whether or not X knew of A’s actual lack of authority. For the act is
considered “unusual.” (See Art. 1818, 3rd paragraph, No. 1; see also Hapmorth v. Grieuson, 1939, N.Y.S. 2d 700;
and In Re Messenger, D.C. Pa. 1940, 32 Supp. 400 — which involved a truck owned by the partnership.)

Q19
A, B, and C are partners. X owes the firm P10 million. A, who is X’s friend, remitted or renounced, in behalf of the
firm, the claim. X did not know of A’s lack of authority. May the firm still collect from X?

Ans:Yes, for the act was not authorized, and is “unusual.” (See Art. 1818, 3rd par., No. 7).

Q20
A, B, C, and D are partners of the firm “Edimus.” A parcel of land registered under the name “Edimus” was sold by
A on behalf and in the name of the firm “Edimus,” but without express authority. The purchaser is X. Does X
become the owner?

ANS.: Ordinarily YES, but the firm may get back the land unless:
(a) the firm is engaged in the buying and selling of land (consequently, the act of A is “usual”);
(b) X had in turn sold the same land to Y for value and Y did not know of A’s actual lack of authority. (This is the
case even when the selling of the land was not for apparently carrying on the business in the usual ways.) Thus, in
the case presented, the fi rm cannot get back the land. Reason: Because the property has in turn been “conveyed by
the grantee (X) to a holder for value (Y) without knowledge that the partner, in making the conveyance, has exceeded
his authority.” (Art. 1819, 1st par.)

Q21
A, B, C, and D are partners of the firm “Edimus” engaged in the buying and selling of land. A parcel of land
registered in the name “Edimus” was sold by A in his own name. Does the buyer become the owner of the land? If
not, what right does the buyer have?

ANS.: The buyer does not become the owner of the land. However, he gets the “equitable interest” of the firm
insofar as the land is concerned, because after all the selling of land was in the “usual” course of business. Of
course, the buyer may later on ask for the reformation of the contract, so that now, the seller’s name would appear to
be that of Edimus, provided of course that the other partners would not object.
(They would object, of course, if indeed A did not have actual authority to sell, unless the buyer did not know of
such lack of authority.) If the contract be thus reformed, it is clear that the buyer has also been given TITLE.
(NOTE: If the partnership had not been engaged in the purchase and sale of land, the buyer would not even be
entitled to the “equitable interest.”)

Q22
A, B, C and D were partners in the real estate firm of “Edimus.” Although a certain parcel of land really belonged to
the firm, it was registered in the name of A and B. A and B sold, in their own name, the land to X.
a. May the firm get back the land?
b. Suppose that A and B had not been expressly disauthorized by the firm to sell land, would your
answers remain the same?

ANS.:
a. Since the fi rm is engaged in the real estate business, the act of selling the land was for carrying on in the usual
way the fi rm’s business. So, the fi rm cannot get back the land, for title thereto has been conveyed to X.

b. (a) If X had been in good faith, that is, he had no knowledge of the lack of authority, the answer would be the
same. (1st par., Art. 1818). (b) If X had been in BAD FAITH, the fi rm can get back the land unless X in turn had
sold the property to Y who is in GOOD faith. (Here the assignee Y of the purchaser X is a “holder for value without
knowledge.”)

Q23
A, B, C, and D were partners in the real estate firm of “Edimus.” A certain parcel of land was in the name of “A, in
trust for the firm Edimus.
a. If A sells the land to X in the name of Edimus, will X become the owner?
b. If A sells the land to X in his (A’s) own name, will X become the owner?
Ans
a. No. What X gets will only be the equitable interest of the fi rm.
b. No. What X gets will also be only the equitable interest of the fi rm.
Reason: It is clear in both instances that under the registry records A is only the trustee.

Q24
A, B, C and D were partners in the real estate firm of “Edimus.” A certain parcel of land was registered, not in the
name of the firm, but in the name of A, B, C and D. If A, B, C, and D will sell the land to X, will X become the owner,
or will he have only the equitable interest?

Ans: X will get the title. Consequently, he becomes the owner, for the law says that “where the title to real property
is in the names of all the partners, a conveyance executed by all the partners passes all their rights in such property.”
(Art. 1819, par. 5). The phrase “all their rights” includes “ownership” because under Art. 1811 — “A partner is co-
owner with his partners of specific partnership property.”

Q25
Trillana owed a distillery partnership the sum of P5,000, but when sued for the debt, he put up the defense of
payment. As proof thereof, he introduced as evidence a declaration made by the former managing partner to the
effect that Trillana owed the partnership nothing. The declaration was made however AFTER the declarant had
ceased to be a partner. Is the declaration evidence against the partnership?
Ans. No, it cannot be used against the fi rm because it was made by a person no longer a partner at the time of
declaration. Trillana’s debt therefore still exists.

Q26
A, B, and C were partners. While acting within the scope of the firm’s business, A committed a tort against X, a
third person. Is the firm liable?

ANS.: Yes. (Art. 1822). Moreover A, B, and C, as well as the fi rm itself, are liable in solidum. (Art. 1824). Note that
even the innocent partners are civilly personally liable (Baxter v. Wunder, 1927, 89 Pa. Super. Ct. 585), without
prejudice of course to their right to recover from the guilty partner. (See Art. 1217). (See also Fairman v. Darney,
1919, 73 Pa. Super. Ct. 238, where the court held that a wrongful refusal to return a customer’s machine rendered
ALL the partners personally liable.)

Q27
A and B are partners. A misappropriates a sum of money belonging to a customer X but which was already in the
custody of the partnership. Whom can X hold liable?

ANS: X can hold liable either the fi rm or A or B, and the liability is for the whole amount because it is solidary.
However, if B is made to pay the full amount, he can recover the whole amount, plus the interest from A later on
instead of only A’s share, for the simple reason that it is only A who is guilty.

Q28
A is engaged in business all by himself. With a view to obtaining a better financial standing in the community, A
pretended to friends and clients that B was his partner. The misrepresentation was with B’s consent. Who would
be preferred later on as to the assets of the business-creditors who trusted only A or creditors who relied on the
alleged partnership of A and B?

ANS.: While partnership creditors are preferred over separate creditors (See Art. 1827), still in this particular case,
there was no real partnership, and therefore neither partnership assets nor partnership creditors properly exist.
Therefore, also no preference is given to creditors who relied on theexistence of the fictitious firm. Inasmuch as NO
partnership liability results, it follows that deceived creditors may only hold both A and B as jointly liable. (See
Commissioner’s Note, 7 ULA, Sec. 16, pp. 24-25).

Q29
A, B, and C are partners. D is admitted as a new partner. Will D be liable for partnership obligations contracted
PRIOR to his admission to the partnership?

Yes, but his liability will extend only to his share in the partnership property, not to his own individual properties.

Q30
P acquired some knowledge about S’s credit before P became a partner. Later P became a partner, and one day S
had a transaction with the firm. P never conveyed the information he knew to the firm although he could have
done so. Another partner R was the person who dealt with S’s transaction. Nobody else in the firm knew what P
already knew. Is P’s knowledge also the knowledge of the partnership?

ANS.: No, because P was not the partner acting in th particular matter involved. He had acquired the knowledge
BEFORE he became a partner, not afterwards. The words “present to his mind” (remembered) do not apply, for they
apply only to the person ACTING in the particular matter. Thus, the Commissioners have said: “Where the
knowledge or notice has been received by the partner before he became a partner, and his partners are ignorant of
this, and he is not the partner acting in the particular matter, there is no doubt that there has been neither knowledge
of nor notice to the partnership.”(Commissioner’s Note, 7 ULA, Sec. 12, pp. 20-21).