Conveyance of property in partnership name

Art. 1774. Any immovable property or an interest therein may be acquired in

the partnership name. The title so acquired can be conveyed only in the
partnership name. (n)

Acquisition of Property Under the Partnership Name Though the

Article speaks only of immovable, same can apply also to personality
because the partnership is a juridical entity, capable of owning and
possessing property.

Alien Partners If the partnership has aliens, it cannot own lands, whether
public or private, or whether agricultural or commercial, except thru
hereditary succession (by the partners who in turn convey the same to the
partnership) or when 60% of the capital is owned by Filipinos
(or Americans during the duration of the Parity Amendment)

Limitations on Acquisition - A partnership, even if entirely of Filipino

capital may not:
(a) acquire, lease, or hold public agricultural lands in excess of 1,024
hectares.
(b) lease public lands adapted to grazing in excess of 2,000 hectares.

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.

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 or his assignee, is a holder for value, without knowledge.
Where the 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, a conveyance executed by a
partner in the partnership name, or 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 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. (n)

Conveyance of Real Property

(a) This is a particular elaboration of Art. 1818, but is applicable to real
property alone.
 (b) The Article was adopted to do away with the existing uncertainty
surrounding the subject of the conveyance of real property belonging
to the partnership
(c) It will be noticed that in some instances, what is conveyed is TITLE, and in
other instances, what is conveyed is merely the “EQUITABLE INTEREST.”An
equitable interest or title is one not only recognized by law, but also by the
principles of equity. Evidently, as used in Art. 1819, it refers to “all interest
which the partnership had, except TITLE,” that is, the beneficial interests like
use, fruits, but not the naked ownership.

(d) Art. 1819 speaks of “to convey” or a “conveyance.” Doubtless this

includes a sale or a donation.

Q: Does it include a mortgage? A: While under the rules of agency, a special

power to sell does not include the power to mortgage, and vice uersa (Art.
1879), still Art. 1819 has been interpreted in the U.S. to include under the
term “conveyance” the right to mortgage.

(e) Notice that real property may be registered or owned in the name of:
1) the partnership;
2) all the partners;
3) one, some, or not all the partners;
4) one, some, or not all the partners in TRUST for the partnership;
5) third person in TRUST for the partnership.

Notice also the act of conveyancing may be in the name of the registered
owner or in the name of the partners all together, or in the
name of one, some but not all of the partners, or in the name of the
partnership (the registration being apparently disregarded).

Bound by Notice to the partner.

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. (n)

Effect of Notice to a Partner

(a) In general, notice to a partner is notice to the partnership, that is, a
partnership cannot claim ignorance if a partner knew. But this rule has
restrictions and qualifications.
(b) Notice to a partner, given while ALREADY a partner, is a notice to the
partnership, provided it relates to partnership affairs.

Effect of Knowledge Although No Notice Was Given - It may be that no

notice has been given, but knowledge has been somehow acquired. (Thus, while
nobody made any notification, still the partner, perhaps because of analysis or
deduction, came to know of something.)

Q: Is this knowledge of a partner also to be considered knowledge of the

partnership?
A: Knowledge of the partner is also knowledge of the firm provided:
 (a) The knowledge was acquired by a partner who is acting in the particular
matter involved. (NOTE: The knowledge may have been acquired while
already a partner, or even PRIOR TO THAT TIME, provided he still remembers
the same, that is, “present to his mind.”)
(b) Or the knowledge may have been acquired by a partner NOT acting in the
particular matter involved. But here it is essential that “the partner having
‘knowledge’ had reason to believe that the fact related to a matter which had
some possibility of being the subject of the partnership business, and then
only if he was so situated that he could communicate it to the partner acting
in the particular matter before such partner gives binding effect to his act. The
words “who reasonably could and should have communicated it to the acting
partner accomplish this result.”

NOTE: Here, the knowledge must have been obtained while ALREADY a partner
because the phrase “then present to his mind” applies only to the partner
ACTING in the particular matter involved.

Service of Pleading on a Partner in a Law Firm - It has been held that

service of pleadings on the partner in a law firm is also service on the whole firm
and the other partners. (As a matter of fact, service on the firm, as evidenced by
the signature of the receiving clerk of the firm who received in behalf of the firm,
is indeed service on the law partners, and this is true whether or not the clerk
forgot to inform the partners.) It has also been held that service on a partner is
effectual not only to bind the party served but also to reach the assets of the
partnership.

Rights of creditors
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 for the attachment and public sale of
the share of the latter in the partnership assets. (n)

Reason for the Preference of Partnership Creditors - After all, the

partnership is a juridical person with whom the creditors have contracted.
Moreover, the assets of the partnership must first be exhausted.

Reason Why Individual Creditors May Still Attach the Partner’s Share -
After all, the remainder (after paying partnership obligations) really belongs to
the partners.

(NOTE: The purchaser at the public sale does not necessarily become a partner.)

Sale by a Partner of His Share to a Third Party - If a partner sells his share
to a third party, but the firm itself still remains solvent, creditors of the
partnership can- not assail the validity of the sale by alleging that it is made in
fraud of them, since they have not really been prejudiced.

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 or 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. (n)

Rules for Settling Accounts

(a) Commissioner’s Comment on No. (1) subdivision (b) “the contributions of the
partners necessary for the payment of all liabilities . . .”

“The adoption of this clause will end the present (under the old law) confusion as
to whether the contribution of the partners toward the
losses of the partnership are partnership assets or not. The Commissioners
believe that the opinion that such contributions are assets is
supported by the better reasoning.”

(b) Art. 1839 speaks of the methods of settling the accounts of the partnership,
that is to say — its LIQUIDATION.
NOTE: Before liquidation is made, no action for accounting of a partner’s share
in the profit or for a re- turn of his capital assets can
properly be made, since it is essential to first pay-off the creditors. Thus, a
partner who has retired must first ask for the liquidation before he can recover
his proportionate share of the partnership assets.
 NOTE: The managing partner of a firm is not a debtor of the other partners for
the capital embarked by them in the business; thus, he can only be made
liable for the capital, when upon liquidation of the business, there are found to
be assets in his hands applicable to the capital
account.

(c) Art. 1839 can apply only if there is a contrary agreement. Of course, such
agreement cannot prejudice innocent third parties.

The Assets of the Partnership

(a) The partnership property (including goodwill).
(b) The contributions of the partners, which are made to pay off the
partnership liabilities.

Order of Payment of Firm’s Liabilities

(a) First give to creditors (who are strangers), otherwise they may be
prejudiced.
(b) Then give to partners who are also creditors (they should be placed in a
subordinate position to outside creditors for otherwise they may prefer
their own interests).

NOTE: Example of credits owing to partners which are neither capital nor
profits, are those for reimbursement of business
expenses.

(c) Then give to the partners their capital.

NOTE: Capital should be given ahead of profit for it is only the surplus
profit over capital that should be considered as the gain or
the profit of the firm.)

NOTE: An industrial partner, who has not contributed money or property at

all is, in the absence of stipulation, not entitled to
participate in the capital. He shares in the profits, however.

(d) Lastly, the profits must be distributed.

NOTE: If, during the liquidation of a firm, the profits for a certain period of
time cannot be exactly determined because no evidence or insufficient
evidence thereof is available, the court should determine the profit for the
period by finding the average profits during the period BEFORE and AFTER
the period of time in question.

New Contributions
If the partnership assets are insufficient, the other partners must contribute more
money or property. Who can enforce these contributions?
(a) In general, any assignee for the benefit of the creditor; or any person
appointed by the court (like a receiver).

Reason: Said enforced contributions may be considered as partnership

assets, and should therefore be available to the creditors
 (b) Any partner or his legal representative (to the extent of the amount which
he has paid in excess of the share of the liability).

Preference With Respect to the Assets - Suppose both the partnership

property and the individual properties of the partners are in the possession of the
court for distribution, who should be preferred? It depends:
(a) Regarding partnership property, partnership creditors have preference.
(b) Regarding individual properties of the partners, the individual creditors are
preferred.

Rule if Partner is Insolvent – If a partner is insolvent, how will his individual

properties be distributed?
(a) First, give to the individual or separate creditors.
(b) Then, to the partnership creditors.
(c) Then, those owing to the other partners by way of contribution.

NOTE: Insolvency here of the partner or his estate does not necessarily mean no
more money or property; it is enough that the assets are less than the liabilities.
NOTE: A person who alleges himself to be a partner of a deceased individual has
the right to intervene in the settlement of the decedent’s estate, particularly in
the approval of the executor’s or administrator’s account for after all it may be
that he (the alleged
partner) was indeed a partner to whom the deceased partner owed something.
Administrators and executors, instead of opposing the intervention of interested
parties, should welcome the participation of the same for their own protection. Of
course, mere intruders should not be allowed.