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Name: Class number: Date:

Section:
Schedule:

Lesson title: LAW ON Materials:

PARTNERSHIP Lesson Student Activity Sheets, Pen
Objectives
At the end of this module, I should be able to: References:
1. Apply payment when a person owes separate Soriano, F. R. (2016). Notes in Business Law.
demandable debts to the partnership and partner Manila: GIC Enterprises & Co., Inc.
authorized to receive payment.
2. Explain the obligations of the partnership.
3. Understand the rules on the conveyance of real
property by a partner or the partners
4. Describe the effect of admission or representation
of a partner and the effect of notice to and
knowledge of a partner.
5. Discuss the preference of partnership creditors in
partnership assets over private creditors of a
partner.

A. LESSON PREVIEW/REVIEW
1) Introduction

Hi, future accountant! Welcome to the fifth session of the law on partnership. The immediately
preceding module presented the right of partners to engage in business, the rules on sharing of
partnership liabilities to third persons, the requirement to operate under a firm name, and the rights and
obligations of partners. As a continuation, this module introduces the following topics: the application of
payment, the obligations of the partnership, the rules on the conveyance of real property by a partner or
the partners, the effect of admission or representation of a partner, the effect of notice to and
knowledge of a partner, and the preference of partnership creditors in partnership assets over private
creditors of a partner.
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2) Activity 1: What I Know Chart, part 1

Try answering the questions below by writing your ideas under the first column What I Know. It’s okay if
you write key words or phrases that you think are related to the questions.
What I Know Questions: What I Learned (Activity 4)
1. How will payment be
applied if the partner authorized to
receive payment issues his own
receipt?
2. What are the obligations of
the partnership to the partners and
third persons?
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B. MAIN LESSON
1) Activity 2: Content Notes

Application of payment when a person owes separate demandable debts to the partnership and
to the partner authorized to receive payment
1. If the partner authorized to receive payment issues the receipt for the partnership, payment shall
be applied to the partnership credit.
2. If the partner authorized to receive payment issues his own receipt, payment shall be applied to
the two credits proportionately. (Art. 1792). There shall be no proportionate application, i.e., payment
shall be applied to the partner's credit in its entirety in any of the following cases:
a. The debt is owed to a partner not authorized to receive payment.
b. The debt to the partnership is not yet due.
c. The debt owed to the partner authorized to receive payment is more onerous to the debtor and
the latter exercises his right to apply the payment to such debt.

Obligations of the partnership to the partners

1. To pay to the partner any amounts he may have disbursed for the partnership with interest from
the time the expenses were made.
2. To pay for the obligations which a partner may have contracted in good faith in the interest of
the partnership business.
3. To answer for risks in consequence of its management. (Art. 1796)

Obligations of partnership for wrongful acts of partner/s

The partnership shall be solidarity liable with all the partners in the following cases:
1. For loss or injury caused to a third person or any penalty is incurred by reason of the 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. (Art. 1822)
2. Where one partner acting within the scope of his apparent authority receives money or property
of a third person and misapplies it.
3 Where the partnership in the course of the business receives money or property of a third person and
such money or property is misapplied by any partner while it is in the custody of the partnership. (Art.
1823)

Note: The solidary liability as may be noted from the foregoing rules, applies only if the act of the
partner is done in the ordinary course of business, or with actual or apparent authority.
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Liability of partnership to third persons for acts of partners

a. If the partner is authorized to act for the partnership, the partnership is bound whether or not the
act is for apparently carrying on in the usual way the business of the partnership.
b. If the partner is not authorized to act for the partnership, the partnership is bound if:
1) The act is for apparently carrying on in the usual way the business of the partnership, and
2) The third person has no knowledge of the partner's lack of authority. (Art. 1818)

2. When partnership not bound

a. When, although the act is for apparently carrying on in the usual way the business of the
partnership, the partner is not authorized to act for the partnership and the third person has knowledge
of the partner's lack of authority. (Art. 1818)
b. When the partner is not authorized to act for the partnership and the act is not for apparently
carrying on in the usual way the business of the partnership. It is immaterial whether the third person
has knowledge or not of the partner's lack of authority.

Rules on conveyance of real property by a partner or the partners

1. Title to real property is in the name of the partnership and the conveyance is executed by a
partner in the name of the partnership without authority. (Art. 1819, par. 1)
a. Effect. The conveyance passes title to the transferee.
b. When the partnership may recover
1) If the act is not for apparently carrying on in the usual way of the business of the partnership,
or
2) The third person has knowledge of the partner's lack of authority.
c. When the partnership may not recover. When the real property has been conveyed by the
grantee to a holder for value without knowledge that the partner, in making the conveyance, had
exceeded his authority.
Example: Paul, Osmond, William, Elmo and Richard are partners in POWER Company. A parcel of land
in the name of POWER Company is sold by Paul without authority, in the name of POWER Company, to
Theodore. In this case, title to the property passes to Theodore. POWER Company may recover if:
1) It is not engaged in the buying and selling of land, or
2) Even if POWER Company is engaged in the buying and selling of land, but Theodore had
knowledge of Paul's lack of authority.
However, there can be no recovery if Theodore has sold the parcel of land to an innocent purchaser for
value who was not aware of Paul's lack of authority.

2. Title to real property is in the name of one or more but not all of the partners but the record does
not disclose the right of the partnership and the conveyance is executed without authority in the name
of the partner or partners in whose name the title stands (Art. 1819, par. 3)
a. The rules on effect, recovery and non-recovery are the same as in number 1.
Example: Assume that the parcel of land in the example in No. I is in the name of Paul and Osmond and
the title does not disclose the right of POWER Company. The parcel of land is sold by Paul and Osmond
in their own name without authority to Theodore, In this case, title likewise passes to Theodore. The rules
on recovery and non-recovery are the same as in the example in No. 1.
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3. Title to real property is in the name of the partnership and the conveyance is executed by a
partner in his own name without authority (Art. 1819, par. 2)

a. Effect. The transferee does not become the owner of the real property. However, equitable
interest passes to him if:
1) The act is for apparently carrying on in the usual way the business of the partnership, and
2) The third person has no knowledge of the partner's lack of authority.
b. Equitable interest does not pass to the transferee if:
1) The act is not for apparently carrying on in the usual way the business of the partnership, or
2) The third person has knowledge of the partner's lack of authority.
c. Equitable interest. Equitable interest means all the beneficial interests in the property like the
use thereof and its fruits, but not the title.
Example: Assume the same example in No. 1, where the title to the parcel of land is in the name of
POWER Company. Paul sells the land in his own name without authority to Theodore. In this case, title
does not pass to Theodore. Equitable interest in the property, however, passes if:
1) POWER Company is engaged in the buying and selling of land, and
2) Theodore was not aware of Paul's lack of authority.

4. 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 and the conveyance is executed by a partner in the name of the partnership or in his
name without authority (Art. 1819, par. 4)
a. Effect. Same as in number 3 above.
Example: In the same example in No. 1 except the parcel of land is in the name of Paul that and Osmond
in trust for POWER Company, Paul sells the land in the name of POWER Company or in his own name
without authority, to Theodore. Equitable interest passes to Theodore. The other effects are the same as
in the example in No. 3.

5. Title to real property is in the name of all the partners and the conveyance is executed by all the
partners in their names (Art. 1819, par. 5)
a. Effect. The conveyance passes all their rights in the property. This is so because all the partners
gave their consent to the transaction.
Example: If the parcel of land is in the name of Paul, Osmond, William, Elmo and Richard, and they sell
the property in their names, to Theodore, all their rights in the parcel of land are passed on to Theodore.

Effect of admission or representation of a partner

Such admission or representation is evidence against the partnership if the following requisites are
present:
1. The admission or representation must concern partnership affairs.
2. It must be made within the scope of the authority of the partner making the admission or representation.
3. It must be made during the existence of the partnership.
4. The existence of the partnership must be shown by evidence other than by such admission or
representation. (Art. 1821; Sec. 29, Rule 130, Revised Rules of Court)
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Effect of notice to and knowledge of a partner

1. Notice to a partner. Notice to any partner relating to partnership affairs is notice to the
partnership, (Art. 1821)
Thus, if summons is served upon a partner in a case against the partnership, the same is a notice to the
partnership and binding against it.

2. Knowledge of a partner
a. Knowledge of a partner acting on the particular matter. Such knowledge is also knowledge of
the partnership if he acquired the same:
1) While already a partner, or
2) Before his admission to the partnership, provided the same was still present to his mind,
i.e., he still remembered it.
b. Knowledge of any other partner (or a partner not acting on the particular matter). Such
knowledge is also knowledge of the partnership provided the following requisites are present:
1) He acquired the same while already a partner, and
2) He could and should have reasonable communicated the same to the partner acting on
the particular matter. (Art. 1821)

3. When notice or knowledge not binding on the partnership. Notice to or knowledge of a partner is
not notice or knowledge of the partnership in case of fraud on the partnership:
a. Committed by the partner having notice or knowledge.
b. Consented to by such partner having notice or knowledge. (Art. 1821)

Preference of partnership creditors in partnership assets over private creditor of a partner

In the payment of the liabilities of the partnership and those of the private debts of a partner, preference
shall be as follows:
1. Partnership creditors shall be paid first out of partnership assets. (Art. 1827)
2. Thereafter, a partner's separate creditor shall be paid out of the share of the partner owing him if
there is an excess (i.e., partnership assets are more than the partnership liabilities). The separate
creditor may ask for the attachment and public sale of the share of the partner in the partnership assets
for his claim but without prejudice to the preferential right of partnership creditors thereto. (Art. 1827)
3. If the share of the debtor partner in the remaining assets is not enough to settle his private
debts, his private creditor can go after the partner's separate assets over which he (private creditor) has
preference. (See Art. 1839.)
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2) Activity 3: Skill-building Activities

PROBLEM-SOLVING. Write answers in the space provided.

PROBLEM NO. 1. Dino owes Chino P20,000.00. He also owes P20,000.00 to ABC and Company of
which Chino is the managing partner who is authorized to collect the credits of the partnership. Both
debts are already due. Dino pays Chino P20,000.00 informing Chino that the amount is in payment of
Dino's debt to him. Accordingly, Chino issues his own receipt.
1. How much is applied to Dino’s debt to Chino? to ABC and Company?
Chino ABC and Company
2. Using the same information, but the debt of Dino to Chino is more onerous, how much is applied
to Dino’s debt to Chino? to ABC and Company?
Chino ABC and Company
3. Using the same information, except that only the debt of Dino to Chino is already due, how
much is applied to Dino’s debt to Chino? to ABC and Company?
Chino ABC and Company
4. Using the same information, except that Chino is not the manager or the partner authorized to
collect the debts due to the partnership, how much is applied to Dino’s debt to Chino? to ABC and
Company?
Chino

PROBLEM NO. 2. Rona, Ina, Salome, and Edit are partners in RISE Company whose business is
trading in grains such as rice, corn, etc. The partners appointed Rona to manage the partnership.
During the year, the partners also authorized Salome to buy a company’s car for the partnership.

ENCIRCLE the letter/s with the correct statement/s.

A. Any sale or purchase of grains by Rona is binding against RISE Company because she is the
duly appointed manager.
B. The purchase of company’s car by Salome will not bind RISE Company because it is not
connected with the trading of grain products even if she is authorized to perform that act.
C. If Edit who is not authorized at all to act for RISE Company sells grains to Tony, a customer, RISE
Company will not be bound by the sale even if Tony is not aware of Edit’s lack of authority since the
sale made by Edit is apparently for carrying on in the usual way the business of the partnership.
D. If Edit who is not authorized at all to act for RISE Company sells grains to Tony, a customer, RISE
Company will be bound by the sale even if Tony was aware that Edit had no authority to sell the
products of the partnership even if such act is apparently for carrying on in the usual way the business
of the partnership.
E. RISE Company will be bound even if it is Ina who purchases a company’s car and not Salome. It is
immaterial whether the seller of the car was aware or not of Ina’s lack of authority because the
purchase of the car is not for apparently carrying on in the usual way the business of the partnership.
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Check your answers against the Key to Corrections found at the end of this SAS. Write your score on
your paper.

3) Activity 4: What I Know Chart, part 2

It’s time to answer the questions in the What I Know chart in Activity 1. Log in your answers in the third
column.

4) Activity 5: Check for Understanding

MULTIPLE CHOICE. Select the best answer by writing the letter of your choice before each number.

1. B owes C P10,000.00. He also owes P10,000.00 to BTS Company, a partnership. Both debts
are due. B gives C P10,000.00 informing C that the amount is in payment of his debt to the latter.
However, C issues a receipt of BTS Company in partial payment of its credit. To which credit will the
payment be applied?
A. To the credit of C.
B. To the credit of BTS Company.
C. To the credit of C and that of BTS Company proportionately at P4,000.00 and P6,000.00 respectively.
D. To the credit of C and that of BTS Company equally at P5,000.00 each.

2. Aragon owed RING Company, a partnership composed of partners Reyes, Inucencio and
NGINA, the sum of P3, 000.00. The partners agreed that each one may collect individually his share of
P1,000.00 of the credit from Aragon. Reyes was able to collect his share of P1,000.00. When Inocencio
and NGINA were demanding payment of their respective shares, Aragon was already insolvent. In this
case:
A. Reyes must bring to the partnership the amount of P1,000.00 that he collected from Aragon so
that Inocencio and Ngina may be able to share in it.
B. Reyes is not obliged to bring to the partnership the amount he collected because the partners
had an agreement that each one must each bear his loss.
C. Inocencio and Ngina must each bear his loss.
D. The amount collected by Reyes shall be considered as an advance return of his capital
contribution by the partnership.

3. PRIMO Company is owned by partners Palermo, Redondo, Interno, Mario, and Owen. Owen is
the manager of the company whose business is importation and trading of optical equipment. During
the year, the partners authorized Palermo to buy a delivery van for the partnership. No other authority
was given to the other partners. The following are transactions entered into by the partners for the year:
I. Importation of optical equipment by Owen.
II. Sale of optical equipment by Redondo to ABC Visions Company whose owner, Juan Dela Cruz,
was not aware that Redondo has no authority.
III. Purchase of a delivery van by Interno from XO Motors whose owner, Richard Gomez, was not
aware that Interno had no authority.
IV. Purchase of a delivery car by Palermo.
Which of the above transactions are binding on PRIMO Company?
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A. I and II.
B. I and IV.
C. I, II and IV.
D. I, III and IV.
4. A parcel of land in the name of HI-tech Company, a partnership engaged in the sale and service
of computers, was sold by Ana, one of the partners, in the name of HI-tech Company, without express
authority, to Yap, who was not aware of Aa’s lack of authority.
A. The conveyance by Ana to Yap passed the title to the parcel of land to Yap.
B. HI-tech Company cannot recover the parcel of land from Yap.
C. Both (a) and (b) are incorrect.
D. The conveyance by Ana to Yap passed only the equitable interest in the property to Yap.

5. The following statements concerning notice and knowledge of a partner:

I. Notice to any partner.
II. Knowledge of a partner acting on a particular matter obtained by him while already a partner.
III. Knowledge of a partner not acting on the particular matter obtained by him before he became a
partner.
Which of the above notice/knowledge is not a notice to or knowledge of the partnership?
A. I only
B. I and III.
C. II and III.
D. I, II and III.

6. I. The ownership of real estate is prima facie that is indicated by the certificate of title.
II. The presumption is that the property purchased with partnership funds belongs to the partnership unless a
contrary intent is shown
A. Only I is true
B. Only II is true
C. Both are true
D. Both are false

7. B, T and S are partners in a partnership known as BTS Company. B sola a parcel of land registered in the name
of BTS Company to X without express authority. Which is true?
A. The conveyance passes title to X, but BTS can recover the property if the conveyance was not in the usual
way of business
B. The conveyance passes title to X, but BTS can recover the property if the D had knowledge of the fact that B
had no authority even though the conveyance was made in the usual way of business
C. The partnership may recover, if X had in turn, conveyed the property to Y who had no knowledge of B’s lack
of authority in making the conveyance to X.
D. All of the above is correct
E. Only A and B is correct
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8. A parcel of land in the name of HI-tech Company, a partnership engaged in the sale and service of
computers, was sold by Ana, one of the partners, in the name of HI-tech Company, without express
authority, to Yap, who was not aware of Aa’s lack of authority.
A. The conveyance by Ana to Yap passed the title to the parcel of land to Yap.
B. HI-tech Company cannot recover the parcel of land from Yap.
C. Both (a) and (b) are incorrect.
D. The conveyance by Ana to Yap passed only the equitable interest in the property to Yap.

9. The following statements concerning notice and knowledge of a partner:

IV. Notice to any partner.
V. Knowledge of a partner acting on a particular matter obtained by him while already a partner.
VI. Knowledge of a partner not acting on the particular matter obtained by him before he became a
partner.
Which of the above notice/knowledge is not a notice to or knowledge of the partnership?
D. I only
E. I and III.
F. II and III.
D. I, II and III.

10. I. The ownership of real estate is prima facie that is indicated by the certificate of title.
II. The presumption is that the property purchased with partnership funds belongs to the partnership unless a
contrary intent is shown
A. Only I is true
B. Only II is true
C. Both are true
D. Both are false

11. B, T and S are partners in a partnership known as BTS Company. B sola a parcel of land registered in the
name of BTS Company to X without express authority. Which is true?
A. The conveyance passes title to X, but BTS can recover the property if the conveyance was not in the usual
way of business
B. The conveyance passes title to X, but BTS can recover the property if the D had knowledge of the fact that B
had no authority even though the conveyance was made in the usual way of business
C. The partnership may recover, if X had in turn, conveyed the property to Y who had no knowledge of B’s lack
of authority in making the conveyance to X.
D. All of the above is correct
E. Only A and B is correct
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12. The real property may be registered or owned in the name of:
I. The partnership
II. One or more but not all the partners
II. One or more or all the partners, or in a third person in trust for the partnership
VII. All the partners

A. I and II only
B. I, II and III only
C. I, II, III and IV
D. I, III, and IV

13. I. As a general rule, a person is not bound by the act, admission, statement or agreement of another of
which he has no knowledge or to which he has not given his consent except by virtue of a particular relation
between them
II. Admissions by a party as testified to by a third person are admissible in evidence against him in litigation
II. When partner makes admissions for himself only without purporting to cat for the partnership he alone shall
be chargeable with his admission
Which is/are false?

A. I and II only
B. Only I
C. Only II
D. I , II, and III
E. I and III
F. None of the choices

14. I. Notice to or knowledge of any partner of any matter relating to partnership affairs operates as a notice to
or knowledge of the partnership except in case of fraud
II. If notice is delivered to a partner, that is in effective communication to the partnership, notwithstanding the
failure of the partner to communicate such notice or knowledge to his co-partners

A. Only I is false
B. Only II is false
C. Both are false
D. Both are true
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15. I. Capitalist partners are not bound to contribute additional capital

II. Industrial partner excluded from loss sharing agreement is Void

A. Only I is true
B. Only II is true
C. Both are true
D. Both are false
E.
*Activity 5: Check for Understanding is a GRADED QUIZ.

C. LESSON WRAP-UP
1) Activity 6: Thinking about Learning

Congratulations for finishing this module! Shade the number of the module that you finished.

Did you have challenges learning the concepts in this module? If none, which parts of the module
helped you learn the concepts?

Some question/s I want to ask my teacher about this module is/are:

FAQ
1. What are the acts that the partners are not authorized to do?
The following are acts which are not for apparently carrying on in the usual way the business of the partnership
and may not be performed by a partner unless he is authorized by all the other partners, or the other partners
have abandoned the business:
1) Assignment of partnership property in trust for creditors or on the assignee's promise to pay the debts of
the partnership.
2) Disposition of the goodwill of the business.
3) Acts which would make it impossible to carry on the ordinary business of the partnership.
4) Confession of judgment.
5) Entering into a compromise concerning a partnership claim or liability.
6) Submission of a partnership claim or liability to arbitration.
7) Renunciation of a claim of the partnership. (Art. 1818)
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*KEY TO CORRECTIONS*

Answers to Skill-Building Exercises

PROBLEM NO. 1
1.

2.

3.

4.

PROBLEM NO. 2
A, correct
B, incorrect, it will bind the company because she was authorized to perform the act
C, incorrect, it will bind the company because tony is in good faith
D, incorrect, it will not bind the company because tony is in bad faith
E, incorrect, it will not bind the company because Ina is not authorized to perform the act

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