QUIZ #2 IN ATP (Atty.

Risel Castillo-Taleon)

I. True or False

1) The law firm of Jara, Sarmiento and Delson experienced a windfall because Atty. Jara
won the case for his client. However, the law firm was charged with interest and
penalties by the BIR because Atty. Jara failed to effect the payment of the VAT on the
firm’s professional fees for winning the said case. Atty. Jara cannot be held by Attys.
Sarmiento and Delson to pay interest and penalties.

• FALSE. Under Art. 1794 of the New Civil Code (NCC), every partner is
responsible to the partnership for damages suffered by it through his fault. In this
case, Atty. Jara failed to effect payment therefore incurring interest and penalties
at the BIR. Though it is through Atty. Jara’s efforts that the law firm experienced a
windfall having been won the case for a client, the same Article provides that he
cannot compensate them with the profits and benefits he may have earned for
the partnership. Although, the courts may equitably lessen his responsibility if it
finds that through Atty. Jara’s extraordinary efforts in other activities of the
partnership, unusual profits have been realized.

2) Every partner can execute all acts of administration.

• TRUE. Provided that there is no agreement as to the management of the

partnership, it is vested in all of the partners pursuant to Art. 1803 of the NCC.
Should there be an agreement, it may pertain to one, or some or all of the
partners or even in a third person—either in the articles of partnership or after the
partnership has already been constituted, this pursuant to Art. 1800. Thus, the
two (2) kinds of appointment:

a) Appointment as manager in the articles of partnership

- appointed by common agreement
- can execute all acts of administration notwithstanding the
opposition of the other partners, unless he acts in bad faith.
- his power is revocable only upon just and lawful cause; upon the
vote of the partners representing the controlling interest.

b) Appointment as manager after the constitution of the partnership:

- can be revoked anytime for any cause
- merely a simple contract of agency.

Also, Art. 1801 provides that if two or more partners have been designated with
the management of the partnership each one may separately execute all acts of
administration provided that:

a) there is no specification of their respective duties or;

b) there is no stipulation that one of them shall not act without the consent
of all others.
 But if any of them should oppose the acts of the others, the decision of the
majority shall prevail. In case of a tie, the matter shall be decided by the partners
owning the controlling interest.

3) The managing partner can execute all acts of ownership without the consent of the
other partners.

• FALSE. Under Art. 1800 a partner who has been appointed manager in the
articles of partnership may execute all acts of administration, not all acts of
ownership, despite the opposition of his partner—unless there is bad faith.
Generally, a partner appointed as manager has all the powers of a general agent
as well as all incidental powers necessary to carry out the object of the
partnership in the transactions of its business, except when there is specific
restriction.

4) The powers of the managing partner appointed as such in the Articles of Partnership
can be revoked anytime.

• FALSE. Under Article 1800, the power of a managing partner appointed in the
Articles of Partnership is irrevocable without just or lawful cause. Thus, to remove
him for JUST cause, the controlling partners—those with controlling financial
interest, should vote to oust him. On the other hand, to remove him WITHOUT
JUST CAUSE, or for an UNJUST CAUSE, there must be unanimity (including his
own vote) as this represents a change in the will of the partners, a change in the
terms of the contract—a novation.

5) A partner may assign part of his share in a partnership and form a sub-partnership
with such third person with respect to said share.

• TRUE. Under Art. 1804, every partner may associate another person with him in
his share, but the associate shall not be admitted to the partnership without the
consent of all the other partners, even if the partner having an associate should
be a manager. This is because mutual trust is the basis of partnership and in that
case, there is a change in membership which is a modification or novation of the
contract. A CONTRACT OF SUBPARTNERSHIP is a contract of partnership
formed between a member of a partnership and a third person for the purpose
of dividing the profit.

6) A partner who redeemed a foreclosed property of the partnership using his own
money becomes the owner of said property and can compel the partnership and the
other partners to transfer the title to him.

• FALSE. Under Art. 1818 of the NCC, every partner is an agent of the partnership
for the purpose of its business. Furthermore, every partner becomes a trustee for
his co-partner with regard to any benefit or profit derived from his act as partner
in accordance with Art. 1807 of the NCC. Consequently, if a partner redeems a
 foreclosed partnership property using his own money, he merely becomes a
trustee and holds such property in trust for his co-partners. He is however,
entitled to demand from the latter their contribution to the price of redemption
even including legal interest.

7) All the property rights of a partner are assignable.

• FALSE. Under Art. 1810, the following are the property rights of a partner:
a) Rights in specific partnership property;
b) Interest in the partnership; and
c) Right to participate in the management.

And among these rights, only the property rights pertaining to the interest in the
partnership is assignable pursuant to Art 1813 of the NCC. Furthermore, Art.
1811 also provides that a partner’s right in specific partnership property is not
assignable except in connection with all the assignment of rights of all the
partners in the same property.

8) The partnership’s firm name must always contain the name of at least one partner.

• FALSE. Art. 1815 provides that 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 liability of a partner. The rule under the Code of
Commerce, Art. 126—which required the name of at least one of the general
partners has already been repealed.

9) The partners’ agreement that the industrial partner shall not be subject to any liability
is valid.

• FALSE. Under Art. 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 contracts which may be entered into for the partnership. And in
relation to Art. 1817, any stipulation against liability laid down in Art. 1816, shall
be void. Except as among the partners, in which case it is valid.

10) Nars, Michael, Nancy and Cres decided to form a partnership with a capital of
P100,000.00. Nars contributed P50,000.00, Michael P20,000.00, Nancy P30,000.00,
while Cres will manage the business. In the course of the business, Cres bought
supplies and equipment in the amount of P200,000.00, which the partnership could no
longer pay. True or false:

a. Cres is the only one liable to pay the indebtedness because he is the one who
purchased the supplies.

• FALSE. Assuming Cres, as the managing partner bought supplies and equipment
for the business of the partnership. The firm itself shall be liable and the partners.
 Under Artilcle 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 all 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. While an industrial partner is exempted by law from losses (as
between partners), he is not exempted from liability (insofar as third persons are
concerned). In this case, the assets of the firm must first be exhausted (which is
P100k), then the partners—including Cres the industrial partner, will be
personally liable pro rata for the remaining balance of P100k. This is of course,
without prejudice to Cres’ right to recover on what he has paid from the capitalist
partners unless there is a contrary agreement.

b. The partnership’s separate juridical personality shield’s the partners from any liability
beyond their contribution.

• FALSE. The partners cannot avoid liability by setting up the defense of separate
juridical personality of the firm. Pursuant to Art. 1816, after the assets of the
partnership have been exhausted, the partners are personally liable pro rata with
all their property for contracts which may be entered into in the name and for the
account of the partnership.

Regardless of your answer in A and B, and assuming that the court ruled all the partners
to pay the amount of P200,000.00, each of the four (4) partners will pay P50,000.00
each.

• TRUE. The distribution of the liability among the partners, including the industrial
partner shall be pro rata—or equally divided among the partners.

11) The partnership is bound by the representation made by or in behalf of a partner by

estoppel.

• TRUE. Provided that the following are present: 1) The partner by estoppel
represented himself to be a partner in an existing partnership; 2) That the person
to whom he represented himself to be a partner was misled of such
representation; 3) That the partnership represented consented to the
misrepresentation—thus a partnership by estoppel, with the members of the firm
and the deceiver as partners. If the partnership did not consent to the
misrepresentation, the partnership cannot be bound but the partner by estoppel
is liable as a partner to the deceived, without the rights of a partner. This
pursuant to Art. 1825.

12) Nars, Michael, Nancy and Cres decided to form a partnership with a capital of
P100,000.00. Each contributed P25,000.00. The partnership incurred debt amounting to
P50,000.00. Thereafter, Nancy sold her share of the partnership to Linda. Linda can be
held liable for the partnership’s debt.

• FALSE. The conveyance of share made by Nancy to Linda did not automatically
 admit the latter into the partnership pursuant to Art. 1813. Thus, Linda did not
necessarily become a partner in the partnership. The consent of the other
partners are needed in order to admit Linda. Consequently, it is only after Linda’s
admission into the partnership that Art. 1826, which states that a person admitted
as a partner into an existing partnership is liable for all the obligations of the
partnership arising before his admission, applies. Assuming Linda was indeed
admitted as a new partner, her liability shall be satisfied only out of her share
in the partnership property—not out of her ownindividual property unlike the
original partners, unless there is a contrary stipulation.

II. Define the following:

1) Joint Management
• A joint management is that which takes place when unanimity is required in the
execution of the intended act of a managing partner. Only managing partners are
supposed to concur pursuant to Art. 1802 of the NCC.

2) Solidary Management
• A solidary management is that which takes place when each managing partners
may separately execute acts of administration under Art. 1801 of the NCC.
Should there be opposition from fellow manager, the decision of the majority shall
prevail and in case of a tie, the same shall be resolved by managing partners
owning the controlling interest.

3) Principle of Delectus Personarum

• Delectus Personarum meaning “choice of person/s”; such principle states the

authority of one partner to bind another by contract or otherwise. It involves trust
and confidence between the partners. Thus, no one can become a member of
the partnership association without the consent of all the other associates.

4) Charging Order upon a partner’s interest

• It is a remedy available to a judgment creditor of a debtor partner to charge the

interest of the latter in the partnership by means of court order for the purpose of
satisfying the amount of the judgment. A receiver of the debtor partner’s share of
the profits may even be appointed. This charging order, however, is always
subject to the preferred rights of partnership creditors. (Art. 1814, NCC)

5) Partner by Estoppel

• A person not a partner who becomes liable to third persons as if he was a partner
when by words or by conduct he:
a) Directly represents himself to anyone as a partner in an
existing partnership or in a non-existing partnership (with one
or more persons not actual partners); or
b) Indirectly represents himself by consenting to another
 representing him as a partner in an existing partnership or in a
non-existing partnership.

6) Partner’s Interest in the Partnership

• Under Art. 1812 of the NCC, a partner’s interest in the partnership is his share of
the profits and surplus.

III. Enumeration

1) When may a partner demand for a formal accounting of partnership affairs?

• Art. 1809 provides that any partner shall have the right to a formal account as to
partnership affairs:
1) If he is wrongfully excluded from the partnership business or
possession of its property by his co-partners;
2) If the right exists under the terms of any agreement;
3) As provided by Art. 1807 (if a partner has derived profits from any
transaction connected connected with the formation, conduct, or
liquidation of the partnership or from any use by him of its property);
4) Whenever other circumstances render it just and reasonable.

2) What are the effects of conveyance by a partner of his whole interest in the
partnership?

• Under Art. 1813:

1) The partnership may still remain or may be dissolved. However, the
mere conveyance does not of itself dissolve the firm. Thus, in general,
the partnership remains.
2) The assignee (conveyee) does not necessarily become a partner. The
assignor is still the partner, with a right to demand accounting and
settlement.
3).The assignee cannot even interfere in the management or
administration of the partnership business or affairs.
4).The assignee cannot demand information, accounting and inspection of
the partnership books.

IV. Essay

1) Does the phrase “every partner is an agent of the partnership” mean that the partner
or partners, without the consent of the other partners, can do any and all acts for and on
behalf of the partnership? Support your answer by stating your legal basis.

• NO. Art. 1818 of the NCC speaks of the fact that a partner is an agent, the
instances wherein he can bind the partnership and the instances wherein he
cannot bind the partnership. It has been truthfully said that a partnership is a
contract of mutual agency, each partner acting as a principal on his own behalf,
and as an agent for his co-partners or the firm. But under Art. 1818, a partner can
bind the partnership only when the following requisites are present:

1) When the partner is expressly or impliedly authorized;

2) When he acts in behalf and in the name of the partnership.

There is an implied authorization when the other partners do not object, although
they have knowledge of the act; or when the act is for apparently carrying on in
the usual way the business of the partnership—this is binding on the firm even if
the partner was not really authorized, provided that the third party is in good faith.

On the other hand, the following are acts which does not bind the partnership:

1).When, although for “apparently carrying on in the usual way the

business of the partnership” still the partner has in fact, no authority,
and the third person is in bad faith.
2) When the act is not for “apparently carrying on in the usual way” of the
partnership and the partner has no authority, whether or not the third
person knows about the lack of authority.

Furthermore, Art. 1818 provides seven (7) kinds of acts which are not for
“apparently carrying on in in the usual way the business of the partnership”. In
these instances, the authority must be unanimous (from all partners) except if the
business has been abandoned, in order to bind the firm. The following are
the seven (7) acts:

✓ assign the partnership property

✓ dispose of the goodwill
✓ do any other act which would make it impossible to carry on
✓ confess judgment
✓ compromise
✓ arbitration
✓ renounce a claim