Solidary Obligations

2011 – 11613 (Pro)

The general rule according to De Leon is that partners are liable to third persons in the same way that an individual is liable to a third person who has dealt with his agent. The doctrine of a partner’s relation to a third party is founded on mutual agency. Therefore, a partner’s transaction with a third party will bind all other partners. De Leon also states that any third person without the knowledge that the powers of a transacting partner are ostensible should not bind said person.

        If partners are solidarily liable, any one of the partners can wholly perform the obligation of the other to answer for damages. Since partners are bounded by the doctrine of mutual agency, this only serves to reinforce the argument. One partner could answer for the other. If one is allowed to conduct business under the partnership name, the thinking is that all the partners have vested authority and properly assessed the capabilities of the said partner. Therefore, whatever he does, be it wrongful, under the name of the partnership, is the business of the other partners as well so that these partners can also answer for his wrongful act as if it were theirs.

        For a individuals carrying on a said enterprise, it would be beneficial; moreover, efficient. For example, A, B, and C are partners who are solidarily liable to each other. Due to the natural course of business, C becomes liable to D for damages. If C cannot oblige himself to answer for his damages to D as of the moment, and A and B can perform the said obligation; then A and/or B can oblige himself to pay D, and ask for recompense from C later on. This solves the problem on liability, eases business transactions and makes everything simpler.

        Another argument leading to the conclusion that partners who are solidarily liable simplifies such cases is that when the obligation incurred by the partnership is grave and it is difficult to assign the fault to any one of the debtors (or partners), having the obligation of suit for damages complied with would easier as opposed to assigning the burden of compliance to the individual who has committed the biggest fault or more impossibly so, quantifying a debt and dividing the it proportionately.

        For example, A, B and C are partners again. The partnership promises to deliver goods to D but before the goods were delivered, the manufacturing plant catches fire and it was later found that it was arson by one of the partners. Any one of A, B or C can answer to D wholly if he is able to. This extinguished the liability of the partnership and the partners can therefore return to the normal conduct of their affairs provided they settled that arson case already. It eliminates the confusion of having to associate responsibility since each debtor is a debtor to the whole and a debtor for his share of debt.

        Moreover, adapting the creditor’s perspective, one could argue that in the eyes to the creditor, there is only one debt. Therefore, the creditor can ask for recompense from any other partner as if he were the principal debtor. To a third party, the amount of responsibility or proportion by which the debtors share the liability is none of his concern as a long as the debt will be complied with.

        This principle can also shield the creditor. In general, before the creditor can pursue the other debtor, the principal debtor must first be in default. But in a liability that is solidary, the creditor can pursue any one of the partners for their debt. He will not be involved in painstakingly long settlements and the likes. In other obligations, the creditor cannot invoke this right. But for all intents and purposes, it is the fulfillment of the obligation which is the interest of all involved that should govern these dealings. D, a creditor, can go after A or B if he fears or is informed already that C cannot comply with the obligation in the date asked for.

        Another idea of law reform asks for solidary liability to be replaced by proportionate liability. However, it is argued that there is no such thing as an apportionable claim as well.

        Considering all of these, overall, the best argument to be made can go back to the notion of mutual agency. In going into a partnership, it is assumed that a partner has a fiduciary relation to other partners and are bound to others in good faith. Therefore whatever a partner does under the business of the partnership is bounding on all the others. Partners share in all profits are not limited to profits only but also to loss. This should extend in claims against the partnership and whatever this claim is is also a claim against an individual partner. Solidarity is assumed for this kind of enterprise because it is for efficiency and simplicity. In doing business, the claim of one shall not the impede the going ons of everyday transactions because there shall be many claims from others as well (as what can be seen in an ordinary business based on history). Therefore, a partner who is able should answer to this claim for his partner because it is in his interest to do so and because the claim has also been made under his name.

References

[1] http://lawjournal.mcgill.ca/userfiles/other/3588842-Cumyn.pdf

[2] http://www.jura.kg.ac.rs/gp/8/l/clanci/miladinovic.htm

[3]http://www.claytonutz.com/publications/news/200606/01/in_whose_interest_identifying_the_issues_in_proportionate_liability_litigation.page

2012 – 78599 (Anti)

Solidary liability explained

To be solidary liable, some or all of the debtors is bound to render the entire compliance of that liability. This means that creditors can demand to any one or some of the debtors’ full compliance of the said liability. The inability of one or more debtor to pay the liability would mean that those debtors who can should pay for the whole liability.

Partnership operating under "one" firm name

According to Art. 1815, every partner shall operate under a firm name and this shall be registered to distinguish the partnership as a distinct and separate juridical entity. The firm is that name, title or style under which a company transacts business. This name of the partnership should only be one and that each partners who agreed upon to be part of that one firm name should transact business under that one firm name.

Notice to or knowledge of ONE assumes notice to or knowledge of ALL

If a partner engages in a business transaction, the whole partnership is assumed to have notice to or knowledge of that business transaction. Likewise, if a third person will communicate a certain business transaction/agreement, the third person need not to communicate that transaction to all other partners of that partnership. Notice to or knowledge of one partner has already assumed notice to or knowledge of partnership regardless whether that one partner communicates that business transaction/agreement to other partners of partnership. Acting partner's knowledge is knowledge of partnership.