Right of Partners to Engage in Business;Rules on Sharing of Partnership Liabilities to Third Persons

An industrial partner, whose contribution is industry or service, is generally prohibited from engaging in any business for themselves, regardless of whether it's similar or different from the partnership's business. This is because the partnership exclusively owns their services. The only exception is if the partnership expressly permits the industrial partner to do so.

If an industrial partner engages in business without express permission, capitalist partners have two options: either exclude the industrial partner from the partnership with a right to damages, or avail themselves of the benefits obtained from the industrial partner's separate business, also with a right to damages.

A capitalist partner, who contributes money or property, can engage in a business different from the partnership's business. However, they are generally prohibited from engaging in the same kind of business as the partnership without a specific stipulation allowing it. This prohibition prevents unfair competition due to the capitalist partner's access to internal information.

If a capitalist partner engages in the same kind of business without an authorizing stipulation, any profits accruing from that business must be brought to the common fund of the partnership. Conversely, any losses incurred in that separate business must be borne personally by the capitalist partner.

Partners are liable for partnership liabilities to third persons, both pro rata (equally) and subsidiarily. This means all partners, including industrial partners, share equally in the liability. After partnership assets are exhausted, individual partners become liable with their separate property for the remaining balance.

A stipulation exempting a partner from pro rata and subsidiary liability is void concerning third persons (creditors). However, such a stipulation is valid among the partners themselves. The process for paying liabilities involves exhausting partnership assets first, then all partners equally paying the remaining balance, and finally, partners not exempted from liability reimbursing those who are exempted.

An example demonstrates the distribution of liabilities among partners, including an industrial partner and a capitalist partner with an exemption stipulation. Initial partnership assets are used. The remaining balance is equally divided among all partners. Then, the actual share of liability is recalculated based on the profit and loss sharing agreement or capital contribution ratio, leading to reimbursements among partners to balance their actual contributions to the liability.