PARTNERSHIP l Atty.
Espedido l For the exclusive use of EH 404 2016-2017
CHAPTER 1. GENERAL PROVISIONS
INTRODUCTION
PURPOSE IN STUDYING BUSINESS ORGANIZATION
1. To understand what is business organization, for
partnership is one of the types of business organization. It
is important to first look at the nature of the business and
what is its relevance so that we can fully understand the
law.
There is a need to know what business is all about; what particular
business to engage in; to know how we can get into that business;
what vehicle do we take to be able to pursue that business.
When we are in business, we have nothing else in mind except
profit. We will not be engaging in business for charity. We dont
engage in business just to give away money and other assets.
Charitable institutions could be pursued but these charitable
institutions themselves rely on charity.
No one will invest in a charitable institution relying solely on its
assets, unless he wants to go solo and distribute his assets to the
marginalized sector. The state encourages businessmen to
somehow engage in charitable activities. That is why our Tax Laws
extend some incentives for these charitable activities.
2. To protect the assets of the business; to know how to
provide proper remedies under the law in order for them
to be properly recompensed with the injuries they may
suffer.
There could be ways that all our assets in the business will be
depleted by fraud or by other unlawful acts of the economic or
business community. We need to study some ways on how to
prevent those incidents and protect our assets.
3. To know how to regulate the business itself and the
business relations in our society.
A business could be legal or illegal so there is a need for us to
regulate the business itself.
There are negotiations between parties and there is a need for us
to know the rules in negotiating so that it will be fair to others. In
addition, business law governs the relationship between different
business entities in terms of their relationship with each other and
how they could facilitate in gaining profit which is the primary
purpose of engaging in business.
BUSINESS PLAYERS
1. Business owners themselves
2. Consumers
3. Suppliers
4. Employees
5. Banks
6. Investors
7. Other organizations
8. The State and
9. The public
Business law, therefore, imposes order in the business community. It
regulates the relationship among the various players.
BUSINESS RELATIONSHIPS
1. Between the consumer and the business
2. Between business owners and the government
3. Between investors and businessmen
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4. Among consumers themselves and
5. Among businessmen themselves
COMPLICATIONS ARISING IN RELATIONSHIPS
A. Between consumers and businessmen
Complication in terms of the price of commodities offered by the
businessmen.
When a consumer will purchase a commodity from a businessman,
there is a need to inspect the thing purchased, at its quantity and
quality. If there are violations in the agreement, complications may
arise.
B. Between the government and the businessmen themselves
In situations where businessmen do not properly submit the
documents needed for them to continue their operation. There are
licenses, permits and taxes required. For example if you are a
corporation, you have to register with the Securities and Exchange
Commission and there are reportorial requirements, otherwise,
theres a penalty.
It could also be that the businessmen have been diligently doing
their duties but it is the officials of the government who are not
doing their job.
C. Between the management and employees themselves.
Conflicts regarding the policies that the management has
implemented which the employees may not have appreciated. That
is why we have certain laws to resolve those conflicts, the Labor
Laws. The government is bent on uplifting the rights of employees
D. Within the management team
Conflicts on the way they manage the company or conflicts on the
vision of the company.
SOURCES OF CAPITAL
Capital is very important in businesses. One cannot engage in business
without capital.
1. Borrowings (loans from financial institutions e.g. banks)
2. Partners
3. Investments
Which to prefer among the three?
Depends on the situation. Depends on the capital. If the intention is only
a small scale business, only sole proprietorship. If medium scale,
perhaps partnership. If large scale, corporation.
If a person is planning for a big business, he should look for investors
or borrow from a bank. If he wants to engage in a business such as
professional partnership, it is better to look for a partner because
partnership is a better option as it is not taxable on itself but on the
partners.
Others may prefer partners or investors compared to borrowings
because in borrowings, it will cost you interests. In dealing with investors
and partners, you would share in the profit.
If one borrows money from a bank, the relationship is now changed to
debtor lender. You are a debtor and the bank is the lender. Lender
extends the loan as distinguished from an investor who releases money.
Distinctions between a lender and an investor.
1. An investor becomes a part of the business or company; the lender
will remain as creditor
2. An investor expects that the money released will be returned with
a bigger amount as a share of the profit; a lender only expects the
money to be returned plus the interest. In other words, a lender is
PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017

interested only to recover the money, while an investor expects a
share in the profits of the company as a result of his investment.
3. A lender is somehow more secure than the investor, because a
lender enters into a contract usually with securities. Thus, if the
debtor becomes insolvent, he can still recover from the security.
The same is not true with an investor. An investor somehow enters
into a gamble, such that when the business fails, his investment
fails with it.
Is the lender sure to recover the money?
Yes, because the lender, in a contract of loan, to make sure that he
recovers his credit, usually requires collateral or security which may be
in the form of property or personal guaranty. For property securities, we
usually have REM for real property and chattel mortgage for personal
property. For personal guaranties, we have guaranty contracts and
suretyship.
A guarantor pays the debt in case the principal debtor cannot in any way
satisfy the debt. In other words, the properties of the principal debtor
will have to be exhausted first before the guarantor can be held liable
because his liability is only secondary; A surety on the other hand is
solidarily liable with the principal debtor. He stands in the same footing
as the principal because he undertakes to pay in case the principal
debtor does not pay.
ART. 1767. PARTNERSHIP DEFINED
Article 1767. By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves. Two
or more persons may also form a partnership for the exercise of a
profession.
PARTNERSHIP
A contract between two or more persons who bind themselves to
contribute money, property or industry into a common fund, with the
intention of dividing the profits among themselves.
Contract
Meeting of the minds between two persons whereby one binds himself
with respect to the other to do something or render some service.
Elements of a Contract:
1. Consent
2. Object
3. Cause or consideration
PRINCIPLES APPLICABLE TO CONTRACTS
1. Principle of Liberality parties are free to enter into any
stipulation as long as they are not contrary to law, morals, public
policy, public order.
2. Principle of Consensuality contract is perfected by mere
consent.
Except: Formal contracts contracts which require formalities (i.e.
must be in writing; must be in a public instrument perfected upon
compliance with the formal requirements)
3. Principle of privity the contract only binds the parties thereto.
CHARACTERISTICS OF A CONTRACT OF PARTNERSHIP
1. Consensual
2. Principal
3. Onerous
4. Preparatory
5. Bilateral
6. Nominate
7. Commutative
What is the subject matter in a contract of partnership?
Contribution of each partner either money, property or industry
A. Industry services
B. Money in Philippine currency
C. Property real, personal, tangible, intangible
Real property
A. Real by nature cannot be carried from place to place, like lands,
roads, and trees
B. Real by designation attached to an immovable in a fixed manner
to be an integral part thereof, like buildings, walls or fences, trees,
statues, animal houses
C. Real by incorporation placed in an immovable for the utility it
gives to the activity carried thereon, such as machinery installed in
a building to meet the needs of an industry in the building, and
docks on a river
D. Real by analogy so classified by express provision of law because
it is regarded as united to the immovable property

Consent Personal property

Freely given by someone who is not suffering from any of the A. Consumable cannot be enjoyed without being consumed (i.e.
disqualifications mentioned; of sound mind, understands fully the food)
consequences of his undertaking
B. Non-consumable can be enjoyed even without being consumed
(i.e. land, table)
Who are incapacitated persons?
1. Minors
Intangible property
2. Deaf mutes who do not know how to read or write
A. Shares of stocks
3. Suffering from civil interdiction
B. Credit
4. Insane or demented person
C. Rights
5. Incompetents who are under guardianship
TN: Certificates of stocks are mere representations of the stocks. Thus,
Subject matter
stocks are still intangible property.
The object of the contract. The thing to be given or the service to be
rendered.
Personal right v. Real right
1. Personal right a right enforceable against a specific person
2. Real right a right enforceable against the whole world

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PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017
Rights of an owner (see latin phrases)
1. Right to possess (jus possidendi)
2. Right to use (jus utendi)
3. Right to dispose (jus dispodendi)
4. Right to the fruits (jus fruendi)
ART. 1768. SEPARATE JURIDICAL PERSONALITY
Article 1768. The partnership has a juridical personality separate and
distinct from that of each of the partners, even in case of failure to
comply with the requirements of article 1772, first paragraph.
BUSINESS ORGANIZATIONS
These are the vehicles by which one can carry out a business. The
means by which one can make a business grow.
1. Sole proprietorship
2. Partnership
3. Corporations
TN: When asked about business organizations, just remember the Book
of Genesis.
A. Adam was born Sole proprietorship
B. When Eve was created Partnership
C. When they bore children Corporation
Advantages or disadvantages
1. Sole proprietorship
Advantage: more control of the business; all profits go to you alone
Disadvantage: less capital
2. Partnership
Advantage: more capital; share in the losses; more minds at work
Disadvantage: conflict of interest between partners, less profits
because they are shared; liability extends to properties of partners
3. Corporation
Advantage: more capital; more stable; liability is limited only to the
shares of the stockholders;
Disadvantage: Arduous process of creating a corporation;
management is limited to a group of people the Board.
SITUATION 1:
Girlfriend Pearl inherited a considerable amount of property so
she contributed a refurbished car, with curtains and a USB for
music playing Ave Maria. She asked her boyfriend Charles to
drive the car and in return shell give him P50,000 per month.
During the first two months, the funeral business was doing
well. On the third month, the business was not doing well so
Pearl was not able to give Charles the promised P50,000. Can
he ask for the P50,000 per month? Is there a partnership here?
A: No. Charles can demand the P50,000 since there was an agreement
for him to get the 50,000 per month for driving the car provided for by
his girlfriend. The amount is for his wage as a driver. He cannot also be
considered a partner because in the contract of partnership, if there are
no profits gained, then none is divided and to be distributed to the
partners.
Had Charles been a partner, he would not have been entitled to the
P50,000. Here, there was no agreement as to the sharing of the profits.
Instead, the agreement was for Charles to receive a fixed value of
50,000 pesos a month. There wasnt even any condition on how Charles
could get the P50,000 other than driving the car.
Even if there was poor business on the third month, Charles can still
demand the P50,000. Pearl cannot tell Charles that she will not pay
because she would suffer a loss if she paid him. The giving of the 50,000
was not conditioned on the earning of the funeral parlor.
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As a matter of fact, if Pearl earned on the third month P15 million pesos
revenue, Charles will only still earn P50,000 and cannot demand more
because of the fact that he is not a partner and there was no agreement
that when the profits are high, he can demand for a higher amount.
In short, Charles can demand the 50,000 pesos regardless of sales and
revenue. But if he was a partner, he could demand in proportion to the
revenue.
SITUATION 2:
When the business of Charles was no longer doing well, he was
already free. Tanya goes to Charles and tells him that she has
little money, a parcel of land and a building as inheritance from
her parents. She told Charles that she could use the money to
buy statues and a crucifix, and place it inside the building. She
tells Charles that his only job is to close and open the door and
to check if after kneeling and praying, people would drop their
money in the donation box. From time to time, he will sweep
the floor and dust the crucifix. Charles needs will be provided
for such as housing and food.
On the first and second Sunday, people were dropping money
into the donation box. For the successive days this happened
until there was a lot of money. At the end of December, can
Charles ask Tanya to divide the money from the donation box?
A: Charles cannot demand a share from the donation there is no
showing that they intended to divide the donation between themselves.
At best, Charles was merely an employee of Tanya. He is entitled on to
his wage. Tanya keeps all the money, no sharing with Charles. There
will only be sharing of profits if there was a partnership formed. Even
though Charles contributed his industry, it is not contribution in the
context of partnership because the most important element of
partnership is the sharing of profits and there was none in this case.
There was no mention at all of pursuing an activity for profit.
RELATIONSHIPS CREATED WHEN FORMING A PARTNERSHIP
1. Relationship between the partners and the partnership
2. Relationship among partners themselves
3. Relationship between the partners and third parties
4. Relationship between the partnership and the State
One cannot compel the State to establish a partnership because it
is not a right, rather a mere privilege. While we said that a
partnership, the moment it is created, is consensual in nature, but
there are relationships that could still be established.
Although it exists as a partnership, it has to comply with certain
regulations established by the State. For example, you have to
register yourself with SEC and therefore you have to comply with
the reportorial requirements issued by the SEC. Now when persons
engage in business as a partnership, they will have to involve
themselves with the BIR.
5. Relationship between the partnership itself and third
parties
The moment a partnership is formed, there will be at least 3
people: the partners and the partnership itself. Once partnership is
created, it is given a juridical personality, separate and distinct from
the members who constitute the partnership.
TN: This is the reason why we study business law to resolve the
relationship of players of the business world.
PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017
SITUATION 3:
In one raffle, Tanya won it with Floro - one house and lot. But
Tanya did not know what to do with the house and lot so she
had it rented out. The rentals are shared. Are the two partners?
Ans No. They cannot be considered as partners even if they share in
the rentals. The house and lot must be from the common fund the
parties contributed. They are co-owners in this case.
CLASSIFICATIONS OF PARTNERSHIP
AS TO SUBJECT
1. Universal
a. Universal Partnership of all Present Property
All properties a partner owns at the celebration of a contract.
Recall: Marriage What is yours is mine; what is mine is
yours.
This does not include properties acquired by donation or
inheritance. Why?
The donor may not have intended at all that the properties he
will bequeathed shall be owned or enjoyed by somebody else.
(E.g. it was farthest from the mind of the testator or the
deceased that the thing he will now give to his beloved
daughter will be enjoyed by someone else). The law simply
reflects the true intention of the previous owners. The law
tries to preserve the intention of the previous owners.
However, the keyword is subsequent. The prohibition applies
only to inheritance or donated properties subsequently
acquired. So that, if before you entered a partnership, you
already inherited or received properties through donation or
similar conveyances, then that is already yours. And if you
enter a partnership, those were entirely yours. Then, it forms
part of the partnership.
Fruits may be made part of the partnership contributions. The
prohibition does not apply to fruits. While a partner was able
to inherit after the existence of the partnership, perhaps
apartments, the apartment does not form part of the
partnership. But, rentals or civil fruits may form part of the
partnership.
Example: A carabao is contributed. If it was pregnant after
the partnership was organized, the young can form part of
the partnership if agreed; the milk
b. Universal Partnership of Profits
What comes out of your industry. Every afternoon, you
exercise & walk 5km to go to a lotto station & buy a ticket.
One day, you won the jackpot. Does it become part of the
partnership? We will ask that in the midterms.
AS TO LIABILITY
1. General
At least everyone is a general partner.
General partner one whose liability extends beyond his
contribution. His liability extends to his personal properties or
assets. E.g. if the partnership incurs a liability of P5M, and you have
an asset worth 5M, the creditors can go after you.
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2. Limited
Limited partner liability only limited to his contribution. E.g.
partnership incurs a liability of 5M but you only contributed 1M, a
limited partner cannot be obliged to share the unpaid balance.
Distinction between Partnership & Corporation
They differ with respect to liability:
Partnership Partner is liable even to the extent of their
personal assets (very dangerous)
Corporation Stockholders are liable only up their stocks (you
can sleep soundly)
TN: Because of this difference, the law invented the limited
partner. This is the compromise. The law however requires that
for it to be a limited partnership, there must be at least one
general partner. If there was none, there would be no difference
between the corporation & partnership. The law requires a
general partner (he will be the bravest of them all), who will
assume the liability beyond the assets of the partnership.
AS TO DURATION
1. At will
As long as the partnership is willing, the partnership remains
2. At fixed period
Exists only during the agreed period or as agreed by the parties.
Beyond that, it has to dissolve.
TN: It may happen however that a partnership with a period has
already expired, but instead of dissolving, the partners decide to
continue. This time, they have not agreed anymore on a period.
This is an instance of a partnership at will. It was a partnership
with a period, but became a partnership at will.
AS TO LEGALITY OF EXISTENCE
1. De jure partnership
Complies with all requirements
2. De facto partnership
There is an attempt to comply but has failed to fully comply. There
is an intention to pursue a partnership
AS TO REPRESENTATION
1. Ordinary or real partnership
One which actually exists among partners and also as third
persons.
2. Partnership by estoppel
Where two or more individuals represent themselves to third
persons that they are partners when in fact they are not
PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017
PARTNERSHIP V. CO-OWNERSHIP
Take note that a partnership is generally consensual, meaning it is
perfected by mere consent. We might be presented by facts that on its
face may indicate that there is a partnership, but actually, there is not.
Example: Children inherit a parcel of land as co-owners. The law created
their relationship. Or, it may also happen that two creditors extended
credit to the same debtor. When they go after the debtor and pursue
against his parcel of land and the court orders that the land be given to
the creditors, they are only co-owners. The receipt & division of rentals
for this land still does not make them partners. Persons who are not
partners to each other are not partners to third persons.
When co-ownership ripens into partnership
However, a co-ownership may easily ripen to a partnership. If they
agree to cultivate the land and co-operate the plantation, agreeing on
the profits, then they are now partners.
Partnership Co-ownership
Separate entity No separate entity
Not created by law, but by Created by law
agreement of the parties
Sharing of profits is merely
Sharing of profits
incidental
ARTICLE 1769. RULES IN EXISTENCE OF PARTNERSHIP
Article 1769. In determining whether a partnership exists, these rules
shall apply:
(1) Except as provided by article 1825, persons who are not partners
as to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such-co-owners or co-possessors do or do
not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint
or common right or interest in any property from which the returns
are derived;
(4) The receipt by a person of a share of the profits of a business is
prima facie evidence that he is a partner in the business, but no
such inference shall be drawn if such profits were received in
payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased
partner;
(d) As interest on a loan, though the amount of payment vary with
the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or
other property by installments or otherwise.
PRESUMPTION OF PARTNERSHIP
The law establishes a presumption to determine if there is a partnership
when the people receive shares of profits.
But this may be refuted by other circumstances. These are instances
when a partner shares profits, but the share is intended for something
else not as a share of a partner.
1. Payment of a salary
2. Creditor is paid through shares
3. Annuity of a widow it may refer to the existence of previous
partnership where a partner died, and there was an earlier
agreement that if one of the partners die, the widow should be
entitled to any share of the profit.
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Technically, when a partner dies, the partnership is dissolved
because the partnership is dependent on the fiduciary relationship
among partners. So, if the remaining partners decide to continue,
a new partnership is formed. The widow does not become a
partner.
TN: Difference between partnership & corporation no such
relationship is required because the relationship among
stockholders is not that that close. No such relationship between
trust & confidence exists in a corp.)
The death of a partner is the death of a partnership because there
is no right of succession, unlike in a corporation (death of a
stockholder does not affect the existence of a corporation even
because the stock holdings are passed on to the heirs).
4. As an interest on a loan
5. As the consideration for the sale of a goodwill of a
business it is possible that someone may be sharing profits as
payment for his goodwill. Goodwill is the value that is attached to
the good name of a business. E.g. big businesses like San Miguel
ART. 1770. LAWFUL OBJECT OR PURPOSE
Article 1770. A partnership must have a lawful object or purpose, and
must be established for the common benefit or interest of the partners.
When an unlawful partnership is dissolved by a judicial decree, the
profits shall be confiscated in favor of the State, without prejudice to
the provisions of the Penal Code governing the confiscation of the
instruments and effects of a crime.
ART. 1771 1773. FORMALITIES OF PARTNERSHIP
Article 1771. A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto, in
which case a public instrument shall be necessary.
Article 1772. Every contract of partnership having a capital of three
thousand pesos or more, in money or property, shall appear in a public
instrument, which must be recorded in the Office of the Securities and
Exchange Commission. Failure to comply with the requirements of the
preceding paragraph shall not affect the liability of the partnership and
the members thereof to third persons.
Article 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.
FORMALITIES OF PARTNERSHIP
While partnership is generally consensual, there are certain formalities
required which, if not complied with, may affect its existence or even its
relationships:
1. When the amount of contribution is more than P3,000 is
contributed must contain a public document duly notarized
TN: But this is intended for convenience, meaning if it was not
complied with, partnership continues to exist. For convenience
means that if you want to enjoy the credibility of the public,
register with the SEC.
2. When immovable properties are contributed, regardless
of value it must be contained in a public document duly signed
and an inventory must be attached.
PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017
TN: This affects existence when it is not complied with. This is
for purposes of protecting certain parties with whom parties may
enter into or establish relationships.
What must the document contain
The document must contain the value, nature, location, and
evidence of proofs of ownership of the property.
Effect of lack of inventory
Without an inventory, the partnership is void.
ART. 1774. ACQUISITION IN PARTNERSHIP NAME
Article 1774. Any immovable property or an interest therein may be
acquired in the partnership name. Title so acquired can be conveyed
only in the partnership name.
ART. 1775. SECRET ASSOCIATIONS
Article 1775. Associations and societies, whose articles are kept secret
among the members, and wherein any one of the members may
contract in his own name with third persons, shall have no juridical
personality, and shall be governed by the provisions relating to co-
ownership.
ART. 1776-1783. KINDS OF PARTNERSHIP AS TO OBJECT
Article 1776. As to its object, a partnership is either universal or
particular. As regards the liability of the partners, a partnership may be
general or limited.
Article 1777. A universal partnership may refer to all the present
property or to all the profits.
Article 1778. A partnership of all present property is that in which the
partners contribute all the property which actually belongs to them to
a common fund, with the intention of dividing the same among
themselves, as well as all the profits which they may acquire therewith.
Article 1779. In a universal partnership of all present property, the
property which belonged to each of the partners at the time of the
constitution of the partnership, becomes the common property of all
the partners, as well as all the profits which they may acquire
therewith. A stipulation for the common enjoyment of any other profits
may also be made; but the property which the partners may acquire
subsequently by inheritance, legacy, or donation cannot be included in
such stipulation, except the fruits thereof.
Article 1780. A universal partnership of profits comprises all that the
partners may acquire by their industry or work during the existence of
the partnership. Movable or immovable property which each of the
partners may possess at the time of the celebration of the contract
shall continue to pertain exclusively to each, only the usufruct passing
to the partnership.
Article 1781. Articles of universal partnership, entered into without
specification of its nature, only constitute a universal partnership of
profits.
Article 1782. Persons who are prohibited from giving each other any
donation or advantage cannot enter into universal partnership.
Article 1783. A particular partnership has for its object determinate
things, their use or fruits, or a specific undertaking, or the exercise of
a profession or vocation.
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SITUATION:
Three persons agree to form a partnership. One to contribute
20 boats, the other to contribute 20 hectares of land, and the
third to contribute 20 horses. Who becomes the owner of the
horses?
A: In the absence of any stipulation on whether the partnership is a
universal partnership of all present property or universal partnership of
profits, the presumption is that the one formed is a universal partnership
of profits. In universal partnership of profits, the owner-partners retain
the ownership of the properties they contributed.
In this case, there was no agreement on what kind of partnership will
be formed. In the absence of which, it will be presumed as universal
partnership of profits. Therefore, the ownership of horses will still be
with the owner-partner who contributed the same.
What now belongs to the partnership?
A: Since it is presumed to be a universal partnership of profits, what will
be passed on to the partnership is the right to the fruits (as long as it is
acquired through the partners industry or work) and the use or usufruct
of the property contributed.
So, if there is no indication as to what kind of universal
partnership is entered into, who now owns these things?
A: In the absence of an agreement, the partners who owned the
properties contributed will still be the owners.
PRESUMPTION IN FAVOR OF UNIVERSAL PARTNERSHIP OF
PROFITS (Art. 1781).
Reason for the presumption:
The law prefers the obligation with the least transmission of rights. In
universal partnership of all present property, the ownership of the
properties contributed will be transferred to the partnership thereby,
vesting to the partnership all the rights of an owner.
Universal partnership of profits, on the other hand, limits the rights
transmitted to the use or usufruct only; the ownership being retained
by the owners who contributed the same.
This is also in consonance with the rules of interpretation of a contract
which stipulates that in case of ambiguity, that interpretation which
involves the least transmission of rights must be adopted.
What is the ambiguity in the given situation?
A: Ambiguity resulted from the issue on what kind of universal
partnership was formed whether it is universal property of all present
property or universal property of profits. Hence, absence the stipulation
of the nature, it will be presumed to be universal partnership of profits
because it involves the least transmission of rights.
SITUATION:
Three nephews were able to inherit the apartment building of
their deceased uncle. This apartment building has 3 units.
When the uncle died, he assigned apartment No. 1 to Nephew
A, No. 2 to Nephew B, and No. 3 to Nephew C. One month after,
they started collecting profits through rentals of these
apartments. Are they partners?
A: The mere collection of rentals does not constitute partnership.
Instead, the nephews will be governed by the rules on co-ownership.
PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017
Six (6) months after, they received a bill from VECO (electric
company in Cebu) demanding payment for the bills of the 3
apartment units amounting to P60,000. Who should pay the
P60,000?
A: The one who has collected the rentals may pay the P60,000 but he
is entitled to reimbursement from the other co-owners. The right to
reimbursement does not make them partners. One of the rights of co-
owners is the right to demand reimbursement for the payment of
expenses necessary to the preservation of the co-owned property.
Although one may advance payment, thereby entitling him to
reimbursement, this does not mean that they are partners. They are still
co-owners because it was not established that there was an agreement
to create partnership. By contract of partnership, the parties bind
themselves to contribute money, property or industry to a common fund
with the intention of dividing the profits among themselves.
Does the situation fall under the exceptions on presumption on
partnership?
Yes. It falls under the payment of debt in the form of reimbursement for
necessary expenses.
Then, a typhoon hit the apartment and the entire roof was
blown away. Who will now repair the roofs?
A: The repair of the roof will constitute as a necessary expense which
should be shouldered by the three nephews as co-owners.
After the typhoon, another calamity came and this time it was
fire and the entire apartment was gone. Do they now have to
rebuild the apartment?
A: There is no obligation to rebuild the apartment but they can if they
want to. When the apartment was gone, the co-ownership was
extinguished because the subject matter of the co-ownership was
already lost.
MODES FOR EXTINGUISHMENT OF OBLIGATION
In obligations and contracts, an obligation is extinguished through the
following modes: (PA-LO-RE-ME-CO-NO)
1. Payment
2. Loss of the thing
3. Remission or Condonation
4. Merger or Confusion
5. Compensation
6. Novation
TN: The loss of the subject matter of co-ownership extinguishes co-
ownership.
How about the parcel of land where the apartment stood?
Ans They are still co-owners. Only the co-ownership as to the
apartment was extinguished but the co-ownership in the parcel of land
is still subsisting.
If they agree to rebuild the apartment and they share in the
rentals of the apartment, are they partners?
A: Yes. The relationship is presumed to be that of partners. Initially,
they were co-owners but when the apartment was totally gone, the co-
ownership (as to the apartment) was extinguished. When they
contributed to rebuild the apartment with intent to share the rentals, it
can be presumed that there was partnership considering that the
sharing of the fruits in this situation does not fall under any of the
exceptions which preclude presumption of partnership.
SITUATION:
Three persons agree to form a partnership. One to contribute
20 goats, the other to contribute 20 hectares of land, and the
third to contribute 20 horses. Who owns the horses? Goats?
Land?
7|U N I V E R S I T Y O F S A N C A R L O S
A: The owner-partners own them because there was no indication what
kind of universal partnership was entered into and in the absence of
indication, the presumption is universal partnership of profits.
Two (2) months after, the 20 goats delivered 20 kids each. So,
there are 420 goats in total. Who owns the kids?
A: The partnership owns the kids because in universal partnership of
profits, the fruits acquired through the industry or work of the partners
(during the existence of the partnership, Art. 1780), will form part of the
properties of the partnership. The industry or work rendered can refer
to the feeding of the mother-goats, including their care and
management which resulted in their multiplication.
Who owns the mother-goats?
A: The owner-partner who contributed the 20 goats.
SITUATION:
Five (5) years ago, the 20 hectares of land contributed to the
partnership was isolated. Now, to the right of the 20 hectares
is a condominium and to the left is a mall. In other words, the
value of the 20 hectares has multiplied (or increased). While it
was only worth P5 million before, now it is P20 million an
increase of P15 million. Who shall now be entitled to the P15
million?
A: The P15 million increase in the value of the 20 hectares is still owned
by the owner-partner who contributed the land. What is acquired by the
partnership in universal partnership of profits is any fruit gained through
the industry or work of the partners. In a case where the value of the
property contributed has increased, independent from any industry or
work, such improvement or fruit must go to the owner-partner. In the
given situation, the increase in the value of the property has nothing to
do with the use of the same by the partners. It simply increased due to
the development of the area.
Summary:
Fruits Owner
Kids (result of industry or work)
Partnership
Increase in value of land due to
development of the area Owner-Partner
(increase not attributable to
industry or work)
In universal partnership of profits, what is contributed is the right to use
or usufruct only. Therefore, the fruits, as long as not acquired through
the industry or work of the partners, will still belong to the owner. And
once the partnership is terminated, the properties belonging to the
owner, including the fruits not produced by industry or work of the
partners will be returned to the owner.
Recall:
Universal partnership may either be:
1. Of all present property contribution includes the following:
a. Property which belong to each of the partners at the time of
the constitution of the partnership
b. Profits which they may acquire from the property contributed
2. Of profits contribution includes the following:
a. Any profit the partners may acquire through their industry or
work
b. The usufruct of the property contributed
PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017
Prohibition on spouses engaging in universal partnership
May husbands and wives enter into a universal partnership?
A: No. Universal partnership partakes of a donation. Since husbands and
wives are prohibited by law to donate to each other, allowing them to
enter into universal partnership would actually permit them to do
indirectly what the law expressly prohibits. However, they can still enter
into particular partnership.
Reason for the prohibition to donate:
To prevent them from defrauding their creditors.
Example: The wife may have incurred debts and she was adjudged liable
to pay her creditor. To prevent the creditor from attaching her property,
she might donate it to her husband. Once the husband has the property
and the creditor pursues its right to be paid, the creditor can no longer
go after the property.
CHAPTER 2 OBLIGATIONS OF THE PARTNERS
OBLIGATIONS OF PARTNERS AMONG THEMSELVES
ART. 1784. WHEN PARTNERSHIP BEGINS
Article 1784. A partnership begins from the moment of the execution
of the contract, unless it is otherwise stipulated.
ART. 1785. PARTNERSHIP FOR A FIXED TERM, ETC.
Article 1785. When a partnership for a fixed term or particular
undertaking is continued after the termination of such term or
particular undertaking without any express agreement, the rights and
duties of the partners remain the same as they were at such
termination, so far as is consistent with a partnership at will. A
continuation of the business by the partners or such of them as
habitually acted therein during the term, without any settlement or
liquidation of the partnership affairs, is prima facie evidence of a
continuation of the partnership.
ART. 1786. PARTNER IS A DEBTOR TO THE PARTNERSHIP
Article 1786. Every partner is a debtor of the partnership for whatever
he may have promised to contribute thereto. He shall also be bound
for warranty in case of eviction with regard to specific and determinate
things which he may have contributed to the partnership, in the same
cases and in the same manner as the vendor is bound with respect to
the vendee. He shall also be liable for the fruits thereof from the time
they should have been delivered, without the need of any demand.
OBLIGATIONS OF A PARTNER
1. To contribute at the beginning of the partnership or at the
stipulated time the money, property, or industry which he may
have promised to contribute
2. To answer for eviction in case the partnership is deprived of the
determinate property contributed
3. To answer to the partnership for the fruits of the property the
contribution of which he delayed, from the date they should have
been contributed up to the time of actual delivery
4. To preserve the property said property with the diligence of a good
father of a family pending delivery to the partnership
5. To indemnify the partnership for any damage caused to it by
retention of the same or by the delay in its contribution
8|U N I V E R S I T Y O F S A N C A R L O S
ILLUSTRATIONS:
1. Once the partnership is formed, the partner must make the
contribution on the agreed date.
From the time the promise to contribute is made until the actual
delivery, the partner is considered a debtor of the partnership.
SITUATION:
You promised to deliver your delivery truck or van to the
partnership today. Your business is engaged in construction
supply. The partnership was expecting your contribution so it
made commitments and scheduled today the delivery of 500
bags of cement to Toledo, to be loaded to the truck which you
promised to deliver today. However, you failed to do as
expected because on your way to deliver the truck, something
happened. This prompted the business to hire another truck for
the delivery and incurred a cost of P5,000. Can the partnership
demand the P5,000 from you because your truck did not arrive?
A: Yes because the partner is liable for the delay of the contribution.
2. To provide warranty against eviction just like a vendor and vendee
relationship
SITUATION:
The following day, your truck was finally delivered to the
partnership and there was a scheduled delivery of another 500
bags of cement to Bogo. However, somewhere in Danao, the
truck was flagged down by police officers saying that the truck
was covered by an order of confiscation because it is a
carnapped truck from Danao. So the truck was confiscated. The
partnership had to hire another truck to make the delivery,
spending again P5,000. Would you still be liable?
A: Yes. Because the partner has to answer for eviction in case the
partnership is deprived of the property contributed. Therefore, I have to
pay for the P5,000.
How about the truck?
A: Since I promised to contribute a truck and I have to answer for
eviction, the partners can compel me to provide a
substitution/replacement of the truck. This is the obligation to protect
or provide the partnership with warranty in case of eviction.
3. To answer for the fruits of the property the contribution of which he
delayed.
SITUATION:
The reason you failed to deliver on the day agreed was because
you were hired by someone else from whom you were able to
collect P10,000. So when the partnership demanded the P5,000
reimbursement, you gave them P5,000. So you earned P5,000
(P10,000-5,000). Will you keep it?
A: No. There is an obligation to give the fruits of the property to the
partnership, the contribution of which he delayed. These fruits are:
1. Natural fruits it comes into natural existence
2. Industrial fruits it results from work or industry
3. Civil fruits result of a contract; arising from civil relationship
PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017
ART. 1787. APPRASAL OF GOODS
Article 1787. When the capital or a part thereof which a partner is
bound to contribute consists of goods, their appraisal must be made in
the manner prescribed in the contract of partnership, and in the
absence of stipulation, it shall be made by experts chosen by the
partners, and according to current prices, the subsequent changes
thereof being for account of the partnership.
APPRAISAL OF PROPERTY CONTRIBUTED
SITUATION:
You contributed your flower farm. You supply the flowers and
the other will contribute his car (brand new BMW). You are
engaged in the business of organizing weddings. You supply
the flowers, the bridal car and even the wedding gown. It is
important that you know the value of your contributions
because the sharing of profits and losses may depend on the
contributions. What is needed to determine the value?
A: To determine the value, you need to have the properties appraised.
If the owner of the flower farm would say that the worth of her
contribution is P25,000, can the other partner simply say that
he leave it up to her to decide on the worth of his car as
contribution? Can you now proceed in the valuation of the
property?
A: There are steps in the appraisal of the value of the goods contributed.
1. First, it must be made in the manner prescribed by the contract of
partnership.
2. In the absence of any stipulation, the partners may choose experts
in appraisal and according to current prices.
Since I am shy in determining the value of your car, lets bring
it to the Archbishops palace and request a very honest man to
determine the value of the car (BMW). That very honest man is
Jose Palma. Jose Palma agreed but said that before he
determines the value, they first have to hear mass so that he
will be guided. After the mass, Archbishop Palma said that the
value of the car is P75,000 brand new BMW, model 2017.
What do you think?
A: What is required is an expert in appraisal. Though the Archbishop is
a very honest man, he has no expertise required for the valuation of the
car. It is the expertise and not the honesty or integrity which would
qualify someone to appraise the property.
When would you ask for appraisal?
A: You should be smart. Have it appraised when prices are high, during
a time when flowers are very much needed and expensive, as in
Valentines day.
ART. 1788. WHEN LIABLE FOR INTEREST AND DAMAGES
Article 1788. A partner who has undertaken to contribute a sum of
money and fails to do so becomes a debtor for the interest and
damages from the time he should have complied with his obligation.
The same rule applies to any amount he may have taken from the
partnership coffers, and his liability shall begin from the time he
converted the amount to his own use.
9|U N I V E R S I T Y O F S A N C A R L O S
1789. PROHIBITION ON INDUSTRIAL PARTNER
Article 1789. An industrial partner cannot engage in business for
himself, unless the partnership expressly permits him to do so; and if
he should do so, the capitalist partners may either exclude him from
the firm or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to damages in either
case.
Capital Partners
One who contributes money or property to the common fund.
Industrial Partners
One who contributes work, industry or service to the partnership.
SITUATION:
Someone proposed to you to be an industrial partner and
engage in the business of auto repair shop. He knows how to
repair cars and you can provide the capital. Both of you will look
for a space and ask the insurance companies to have the
damaged cars repaired in your shop. So, you agreed. What kind
of partner are you?
A: Capital partner. The other one is an industrial partner.
SITUATION:
You started opening up the shop and the industrial partner
stays there every morning and making repairs, bringing old
cars to the shop because there are no customers yet. The
business is not yet known. Until two weeks after, no single
car/customer. So, the industrial partner got bored and he
noticed that nearby were other shops and no one was offering
snacks. So, the industrial partner put up a barbeque stand just
beside the gate of the shop. He started to cook banana
barbeque. So when you (capital partner) visited the shop, you
saw a long queue of buyers of banana while the shop was
empty. What do you think?
A: An industrial partner is prohibited by law to engage in another
business because what he can contribute to the partnership is his entire
services. As a capital partner, I have 2 remedies:
1. Exclude industrial partner from the firm, plus damages; or
2. Avail themselves of the benefits which the industrial partner may
have obtained, plus damages
Reason for prohibiting industrial partner to engage in another
business:
The services of industrial partner is exclusive to the partnership to
prevent any conflict of interest between the industrial partner and the
partnership and to ensure faithful compliance by said partner with his
prestation.
Would the industrial partner still be prevented from engaging
in another business if he will start only after the operation of
the auto repair shop which is from 8am-5pm?
A: The prohibition is absolute and even if he will engage in the business
after 5pm, he is still not allowed because he might be tired the next day.
This will prejudice the operation of the auto repair shop.
SITUATION:
Mr. Belarmino (the industrialist partner) is very good in
dancing, and after working hours, he goes to the bar. Of course,
matrons approach him for bookings. So, Belarmino earned a lot.
What can Tanya do?
A: She has 2 remedies. A capitalist partner may:
1. Exclude industrial partner from the firm, plus damages; or
2. Avail themselves of the benefits which the industrial partner may
have obtained, plus damages
PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017

Can Tanya demand 50 - 50? ART. 1790. SHARING OF CONTRIBUTION

A: Yes, she can demand 50-50
Article 1790. Unless there is a stipulation to the contrary, the partners
Can Belarmino complain against the demand of Tanya? shall contribute equal shares to the capital of the partnership.
A: No, because as an industrialist partner, Joshua is prohibited from
engaging in any other business other than that of the partnership
ART. 1797-1798. SHARING OF LOSSES AND PROFITS
Why?
Article 1797. The losses and profits shall be distributed in conformity
A: An industrialist partner only contributes industry, so his contribution
with the agreement. If only the share of each partner in the profits has
will be affected in the presence of another business
been agreed upon, the share of each in the losses shall be in the same
proportion. In the absence of stipulation, the share of each partner in
SITUATION:
the profits and losses shall be in proportion to what he may have
Back to the contribution of a truck where the truck was not
contributed, but the industrial partner shall not be liable for the losses.
delivered on time because the owner engaged in another
As for the profits, the industrial partner shall receive such share as may
business, and thus earned P10,000. The Partnership incurred
be just and equitable under the circumstances. If besides his services
expense of P5,000 because it had to find another truck. What
he has contributed capital, he shall also receive a share in the profits
are the rights involved?
in proportion to his capital.
A: The owner of the truck has to reimburse the P5,000. The partnership
has right over the remaining P5,000 since its entitled to fruits of the RULES:
thing from time it was supposed to be delivered until actual delivery
Capitalist partner Industrial partner
When should the extra P5,000 be delivered?
A: Right when he earned it. Rule 1
Agreement
What if he delivers 5 years after? Contribution His entire industry
A: He will be liable for interests and damages Rule 2
If none, equal
SITUATION: contributions
Tanya (capitalist partner) is also a good baker so she put up a
bake shop beside the auto repair shop. Can Belarmino
complain? Rule 1
Agreement as
A: No, a capitalist partner may engage in another business so long as it to profits Whatever is fair and
is not in competition with the partnerships business Profit equitable
Rule 2
What if Tanya puts up a bicycle repair shop? If none, in
A: Still not prohibited, Joshua cannot complain. proportion to their
contributions
What is the prohibition to constitute competition?
A: Business must be of the same kind. Bicycle shops do not involve
machines.
Rule 1
Agreement as
What is the difference between an industrialist partner and a
to losses
capitalist partner in terms of the prohibition in engaging in
another business?
Rule 2
If none, apply Exempted from
A. Capitalist partner - RELATIVE prohibition
Losses agreement as to losses
(only prohibited if engaged in the same business in competition
profits
with the partnership business)
Rule 2
B. Industrialist partner -ABSOLUTE prohibition
If none, in
proportion to their
contributions

10 | U N I V E R S I T Y O F S A N C A R L O S
PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017
ART. 1798. DESIGNATION OF SHARES BY THIRD PERSON
Article 1798. If the partners have agreed to intrust to a third person
the designation of the share of each one in the profits and losses, such
designation may be impugned only when it is manifestly inequitable.
In no case may a partner who has begun to execute the decision of
the third person, or who has not impugned the same within a period
of three months from the time he had knowledge thereof, complain of
such decision. The designation of losses and profits cannot be intrusted
to one of the partners.
SITUATION:
If A, B, and C agreed to contribute 20%, 30% and 50% and
agreed to share profits in 50%, 30% and 20%, respectively,
can a partner impugn the sharing of profits and if so, within
what period?
A: No partner can impugn the sharing of profits.
In a contract of partnership, we have the principle of liberality of
contracts, wherein parties may stipulate any provision as long as it is
not contrary to law, morals, good customs, public order or public policy.
Under Article 1798 of the Civil Code, a partner may only impugn the
sharing of profits if the parties agreed to intrust to a third person the
designation of the share of profits, and such designation is manifestly
inequitable. The partner concerned may impugn within a period of 3
months from the time he had knowledge thereof.
In the case at bar, no partner may impugn for there was no designation
to a third person. The sharing of profits was based on the agreement of
the parties.
ART. 1799. VOID STIPULATION
Article 1799. A stipulation which excludes one or more partners from
any share in the profits or losses is void.
SITUATION:
Pearls father proposed that they set up a partnership. Her
father will contribute money. [P200,000 under his name, then
he will put P200,000 under the name of Pearl (as a donation)].
Pearl agreed to this arrangement without contributing
anything. Moreover, they agreed that Pearl will be exempted
from the sharing of losses. For profits, Pearl was entitled to
50%. Is the stipulation of exempting Pearl from the losses
valid?
A: A stipulation which excludes one or more partners from any share in
the losses is VOID but the partnership still subsists. There is nothing
wrong in the act of the father in putting the P200,000 in the name of
his daughter as her daughters contribution. Nothing prevents a father
from donating to his daughter.
Now, there are losses and the father has no money. Can he
compel Pearl to share in the losses, despite their agreement
that Pearl shall be exempted from the losses?
A: No, the father cannot compel Pearl to share in the losses. The
stipulation exempting a partner from losses is valid since it is binding
between both parties under the principle of liberality of contracts. But
as to 3rd parties, that stipulation is void.
If these losses constitute debts to 3rd parties and these debts
are due and demandable, can the creditors go after Pearl?
A: Yes, because as to 3rd parties, the stipulation exempting a partner
from losses is void.
11 | U N I V E R S I T Y O F S A N C A R L O S
On the other hand, if there were no 3rd parties, may Pearls
father compel her to share in the losses?
A: No. As between Pearl and her father, their stipulation is binding.
There is no need to amend the law since the law already provides for
this. The law needs to merely be interpreted.
INTERPRETATION OF ART. 1799 CC:
Any agreement exempting a partner from sharing in the losses is binding
between and among partners, but void in so far as 3rd persons are
concerned.
ART. 1791. CONTRIBUTION OF ADDITIONAL CAPITAL
Article 1791. If there is no agreement to the contrary, in case of an
imminent loss of the business of the partnership, any partner who
refuses to contribute an additional share to the capital, except an
industrial partner, to save the venture, shall he obliged to sell his
interest to the other partners.
SITUATION:
Albano and Partners are in Auto Dealership. Albano learned
that City Hall was inviting bidders for companies which could
supply a fleet of 50 cars. However one of the requirements was
that the bidder must have a capitalization of at least
P50,000,000 but Albano and Partners only had P40,000,000.
Therefore, Albano could not participate.
But Albano really wanted to get this opportunity so she asked
her partners to contribute P5,000,000 each so that they could
qualify. But one of the partners refused because he would
rather use his P5,000,000 to buy lottery tickets since he
thought he would get better chances there. What should
Albano do?
A: Albano cannot oblige the other partners to contribute P5,000,000
because they can only be obliged to make an additional contribution if
there was an IMMINENT LOSS of the partnership business. In this
situation, there was only a loss for potential profits.
The need for additional contribution is for the survival of the partnership.
However, if there was only a loss of potential profit, the other partners
are NOT obliged to give additional contribution.
SITUATION:
Albano finally wanted to switch to a new business. She told her
partners that funeral business is now profitable. Albano wanted
an industrial partner and she thought of Songalia. She offered
Songalia to be her industrial partner. All Songalia had to do was
to push the coffin out of the car when it arrives. So one Sunday,
3 funeral cars were there but Songalia was nowhere to be
found; she was watching TV. Songalia refused to do her
contribution despite Albano telling her. The families of the dead
were threatening to sue Albano and her partners so Albano
called the police to compel Songalia to contribute her industry
as per agreement. Can Albano compel Songalia?
A: Albano cannot compel Songalia to perform her contribution because
this will amount to involuntary servitude.
In an alternate situation, Songalia was diligent in contributing
her industry, but Albanos car, which she promised to
contribute, broke down on the way to the destination with the
coffin inside. Songalia was waiting in the place of destination
but the car was 100 meters away. What can Songalia do?
A: Songalia can tell Albano to look for another car otherwise the
partnership will incur a loss or Songalia can hire another car and have
Albano indemnify the partnership for the amount Songalia spent for
hiring the car, which will make Albano a debtor to the partnership.
Furthermore, the partner is obliged to answer for the warranty of
PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017

eviction when the partnership is deprived of a determinate property he later shows up and becomes insolvent, then A and B will have the above-
or she contributed. If the partnership is deprived of its right to use and mentioned right.
enjoy the thing contributed, the partner should reimburse any expense
incurred by the partnership. ART. 1795. RISK OF LOSS

ART. 1792. PARTNER AND PARTNERSHIP DEBT
Article 1792. If a partner authorized to manage collects a demandable
sum which was owed to him in his own name, from a person who owed
the partnership another sum also demandable, the sum thus collected
shall be applied to the two credits in proportion to their amounts, even
though he may have given a receipt for his own credit only; but should
he have given it for the account of the partnership credit, the amount
shall be fully applied to the latter. The provisions of this article are
understood to be without prejudice to the right granted to the other
debtor by article 1252, but only if the personal credit of the partner
should be more onerous to him.
SITUATION:
Belarmino owed the partnership P15,000 and owed X, a partner
P5,000. He paid X P3,000. How may X apply the P3,000
payment?
Article 1795. The risk of specific and determinate things, which are not
fungible, contributed to the partnership so that only their use and fruits
may be for the common benefit, shall be borne by the partner who
owns them. If the things contribute are fungible, or cannot be kept
without deteriorating, or if they were contributed to be sold, the risk
shall be borne by the partnership. In the absence of stipulation, the
risk of the things brought and appraised in the inventory, shall also be
borne by the partnership, and in such case the claim shall be limited
to the value at which they were appraised.
SITUATION:
Partner Charles proposes a lucrative funeral business with
Caressa. Charles said hell take care of the car and Caressa
agreed to take care of the place. On day of business, Charles
came with a car. Business started. Until a week after, on his
way to his usual destination, the car caught fire. What happens
to the business? Who bears the loss?

A: Check first if the requisites of Art. 1792 are met: A: Charles can be compelled to contribute another car since his promise
1. Both debts must be due and demandable at the start of the partnership was to contribute A CAR. He committed
2. Partner collecting must be a managing partner and authorized to contribute the car, whether he will lease that car and allow the
to collect the debt partnership to use it; whether he has his own car (he may have 5 cars),
but he contributed the use of 1 of them. If his first car got burned, he
Absent these requisites the whole 3,000 shall be applied to the can be compelled to bring another car.
partners credit (as when the partner was not allowed to collect the debt)
If Charles committed to contribute his Jaguar, color yellow
If requisites are met it depends: sports car (chassis no.: XXX YYY plate number) and on its way
to its usual destination, it exploded, can Charles be compelled
to bring another car?
Application of payment
A: Charles no longer has the obligation to contribute another car. The
If official receipt was issued in Entire debt is applied to the
obligation to contribute has been extinguished since there is a loss of
the name of the partnership partnership
specific and determinate thing.

Debt is divided in proportion to the What if the other partners want to pursue its business? What
If official receipt was issued in
debt of the partner and the can you do?
name the partner
partnership
A: The partnership shall buy another car since they bear the loss in this
instance. Charles can no longer be compelled.
Right of debtor to application of payment
This is without prejudice to the right of the debtor to prefer payment of
Who bears the risk of loss?
the credit of the partner if it should be more onerous to him.
Things lost Who bears loss Reason
ART. 1793. DUTY TO SHARE PARTNERSHIP CREDIT
Specific and
Article 1793. A partner who has received, in whole or in part, his share determinate things
which are not fungible, Partner owner Partner remains
of a partnership credit, when the other partners have not collected the owner
theirs, shall be obliged, if the debtor should thereafter become where only the use is
insolvent, to bring to the partnership capital what he received even contributed
though he may have given receipt for his share only.
Specific and
determinate things the
SITUATION: ownership of which is Partnership Partnership is the
Its Christmas time. The partners wanted to derive a little bit of transferred to the owner
money. A, B, and C are partners. They decided to share the partnership
credit due from X in the amount of P300,000. They agreed each
of them would get P100,000. C, being a gambler, went to X and
secured his P100,000 first. When the other partners went to Fungible things or Partnership is the
find X, X was nowhere to be found. A and B asked C that the things which cannot be Partnership owner since use is
latter should share the profit with them. Can C be compelled to kept without impossible without
share? deteriorating even if the things being
they are contributed consumed or
A: No. Only when the debtor becomes insolvent can the other partners only for the use of the impaired
compel C to bring the P100,000 to the partnership and later on divide it partnership
among them. In this case, there can be no such compulsion. Each
partner is required to practice due diligence in claiming his share. If X

12 | U N I V E R S I T Y O F S A N C A R L O S
PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017
Partnership is the
Things contributed to Partnership owner; otherwise
be sold partnership could
not effect the sale
Partnership is the
owner; intention
Things brought and Partnership was to contribute
appraised in inventory to the partnership
the price of the
things contributed
with the appraisal
in the inventory
ART. 1794. DAMAGE SUFFERED THRU PARTNERS FAULT
Article 1794. Every partner is responsible to the partnership for
damages suffered by it through his fault, and he cannot compensate
them with the profits and benefits which he may have earned for the
partnership by his industry. However, the courts may equitably lessen
this responsibility if through the partner's extraordinary efforts in other
activities of the partnership, unusual profits have been realized.
ART. 1796. PARTNERSHIP LIABILITY
Article 1796. The partnership shall be responsible to every partner for
the amounts he may have disbursed on behalf of the partnership and
for the corresponding interest, from the time the expense are made; it
shall also answer to each partner for the obligations he may have
contracted in good faith in the interest of the partnership business, and
for risks in consequence of its management.
SITUATION:
Natu-el is a partner in a real estate company. He is about to
close a deal worth P50 million. He took the potential buyers out
to a karaoke bar. He got the most expensive room and spent
P50,000 for the entire night on drinks and women. He drove
home inebriated and hit a pedestrian. The car that he was
driving was the company car. The heirs of the pedestrian who
died sued the company as owner of the car and as employer of
Natu-el. The company was adjudged to pay. Expenses for the
claim of the victim was P50,000 and expenses for the karaoke
adventure was P50,000. Who pays for the expenses?
A. Expenses for damages to pedestrian Natu-el pays (Art. 1796).
Since Natu-el was negligent and it was this negligence that caused
the expenses, the partnership cannot be made to shoulder it.
B. Expenses to karaoke adventure Partnership pays (Art 1796).
Partner only entitled to reimbursement if the expenses were
related to the partnership business (transaction)
Ratio between cost and profit is reasonable. It was contracted in good
faith by the partner (legitimate expense).
There is no formula to what can be considered reasonable. Each case
must be decided based on its own set of facts and circumstances.
Damages shall be borne by the guilty partner but losses incurred in
connection to the exercise of the business shall be shouldered by the
partnership.
13 | U N I V E R S I T Y O F S A N C A R L O S
The company wants Natu-el to pay for the karaoke adventure
because having 6 GROs is excessive. Is the company correct?
A: No. Given that Natu-el acted in good faith and spent P50,000 for a
possible P50 million profit, it can be considered a legitimate expense.
Natu-els first karaoke adventure was not fruitful, so he took
the client out again and spent another P50,000, bringing the
total to P100,000. In the end, the deal was not closed. The
client bought another property. May Natu-el now be asked to
pay for the P100,000?
A: No. Natu-el took a risk, as in all business ventures, but he did so in
good faith. The losses will now be borne by the partnership according
to the distribution scheme applicable.
What if Natu-el will give the potential buyer 2 brand new cars
worth P5 million (instead of the karaoke trip)?
A: In this situation, the P5 million expenses will still be considered
reasonable: Considering the P45 million difference between P5 million
expense and the possible P50 million profit. Expense was made in
relation to the business deal.
When can you say that the expenses are no longer legitimate?
A: Theres no hard and fast rule, otherwise the law would have provided
for one. Its always situational. What may be high for some, may not be
high for others.
TN: In determining whether a partner can be held accountable for the
expense, determine if it is reasonable and use these 2 factors in
determining:
1. The ratio between the expected profit and cost
(the higher the difference, the more reasonable the expense)
2. That the expense was a legitimate expense, used in relation to
the business (the partner acted in good faith)
What if Natu-el spent P100,000 in the karaoke bar instead, then
the buyer didnt buy the property. The deal was not closed.
Accountant now claims they suffered loss. The partnership is
demanding payment for losses from him. Will he be still liable?
A: He is still not liable. It is a legitimate expense. Partners will share the
losses
How will they share the losses?
A: Based on their stipulated agreement. In the absence of the
agreement, in accordance with their profit sharing ratio. In the absence
of such, in proportion to their contributions
Can you say that these are now damages (what they lost
because of the unclosed deal)?
A: No, this was a legitimate expense - a loss incurred in good faith
Differences between damages and losses
Damage Loss
Opposite of profit;
Usually the result of the Revenue lower than expenses;
negligence or fault of the Must be contracted in Good faith by
partners the partners; incurred in the
pursuance of the business
Partner is liable in all Partner liable only if not from a
instance legitimate expense
Liability
Can arise from both damages and losses. They arise when the
partnership needs to pay an external or 3rd person.
PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017

SITUATION: RULES:
Natu-el, being engaged in a real estate business, was able to
sell to a matron. The matron/buyer paid the price of the If none is If one (1) is If 2 or more are
property. After paying, she learned that it was the birthday of appointed as appointed as appointed as
Natu-el. The matron gave Natu-el a new car as an expression managing managing partner managing
of gratitude for the good manners Natu-el has shown. Who now partner partners
owns the car?
If appointed in
A. The partnership owns the car. Any benefit you enjoy as a partner
the articles of If acts require
should redound to benefit of the partnership as long as it can be
Partnership: unanimity:
traced to the partnership business.
May execute all acts Consent of all
Natu-el came to know of the buyer because of the partnership
of administration partners must be
business. Had it not been for the partnership dealings between Natu-
All partners are despite the obtained before a
el and the matron, there could have been no relationship formed
deemed managing opposition of his managing act can be
between them. Trust and fiduciary relationship is dominant in the
partners partners, unless he done
partnership business.
should act in bad
faith Except: If there is
ART. 1800-1803. MANAGEMENT OF PARTNERSHIP imminent danger or
Managing power irreparable injury to
Article 1800. The partner who has been appointed manager in the may be revoked: the partnership
articles of partnership may execute all acts of administration despite
the opposition of his partners, unless he should act in bad faith; and (a) Just and lawful
his power is irrevocable without just or lawful cause. The vote of the cause
partners representing the controlling interest shall be necessary for (b) Decision of the
such revocation of power. A power granted after the partnership has partners having
been constituted may be revoked at any time. controlling
interest
Article 1801. If two or more partners have been intrusted with the
management of the partnership without specification of their
respective duties, or without a stipulation that one of them shall not If appointed after If acts do not
act without the consent of all the others, each one may separately the constitution of require unanimity
execute all acts of administration, but if any of them should oppose the the partnership:
acts of the others, the decision of the majority shall prevail. In case of There is no
a tie, the matter shall be decided by the partners owning the controlling Managing power specification for
interest. may be revoked: each managing
partner as to their
Article 1802. In case it should have been stipulated that none of the (a) Decision of the respective duties:
managing partners shall act without the consent of the others, the partners having
concurrence of all shall be necessary for the validity of the acts, and controlling To each his own.
the absence or disability of any one of them cannot be alleged, unless interest
there is imminent danger of grave or irreparable injury to the (b) For any cause If there is conflict:
partnership. at anytime
(a) The decision of
(Just and lawful the MAJORITY
Article 1803. When the manner of management has not been agreed
cause not necessary) prevails
upon, the following rules shall be observed:
(b) In case of tie
(1) All the partners shall be considered agents and whatever any one
vote of the
of them may do alone shall bind the partnership, without prejudice to
partners having
the provisions of article 1801.
the controlling
(2) None of the partners may, without the consent of the others, make
interest shall
any important alteration in the immovable property of the partnership,
prevail
even if it may be useful to the partnership. But if the refusal of consent
by the other partners is manifestly prejudicial to the interest of the
There is a
partnership, the court's intervention may be sought.
specification for
each managing
What are managers supposed to do? partner as to their
A: Managers are supposed to do acts of administration. Anything short respective duties:
of ownership is administration such as: procurement of supplies and The decision of the
suppliers, and maintenance of the assets of the business. But the partner concerned
manager cannot sell assets of the partnership. shall prevail provided
it is done in good
How is Partnership managed? faith
See rules.

14 | U N I V E R S I T Y O F S A N C A R L O S
PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017
SITUATION:
Katherine, as designated managing partner, visits the office
and doesnt like the color of the office. She ordered two pints
of black paint and paints everything black. The partners do not
like it. Can anyone stop her or at least question her act of
painting the office black?
A: If Katherine was appointed as a managing partner after the
constitution of the partnership, then the other partners can revoke her
power, for any reason, provided those who oppose have the controlling
interest. If she was appointed as a managing partner in the articles of
partnership the other partners can only oppose her if they have a just
and lawful cause, and provided further that they have the controlling
interest in the partnership
Was there just cause in this example?
A: In this case the act of painting of the walls black is not in itself a just
and lawful cause, but it is the effect of possible loss of customers when
the walls are painted black that makes it a lawful and just cause to
revoke the power of the managing partner.
SITUATION:
Suppose Taran, Daitia, Cheung and Villamor are the partners in
the previous example. Daitia and Cheung opposed the painting
of the wall. Villamor did not vote for the ouster of Taran. Whose
decision will prevail?
A: Controlling interest does not mean majority and does not correspond
to the number of partners, controlling interest means contribution the
partners having the greatest contributions (interest) in the partnership
shall prevail. If Villamor has the controlling interest over 2 or more
partners, the former shall prevail
SITUATION:
If the Operations Manager wants to hire an IT expert but the
Personnel Manager wants to hire a beautiful lady (without the
qualifications), whose decision will prevail?
A: The decision of the Operations Manager shall prevail. If there is
specification as to each managing partners duties (operations
management on one hand and personnel management on the other),
the rule on conflict does not apply. The decision of the managing partner
having been designated for that specific duty should be respected. The
operations manager is the one who needs the IT expert.
Applicability of the three rules and in relation to each other:
If five partners have not appointed their managing partner that means
all of them are managing partners. If there is conflict among them, we
apply Rule 3 since in this case there will be 2 or more managing partners
and their acts depend on the existence of a unanimity stipulation or the
absence of such and the absence of a special designation for each
managing partner.
When there is a rule on the unanimity in the partnership, then there
comes imminent danger or irreparable injury to the partnership, the act
of a partner due to the danger can still be exercised despite the
opposition of another partner.
But what if there is also a rule on unanimity expressed in the
articles of partnership? What will then prevail? each his own
or unanimity?
A: The articles of partnership (uniformity) will prevail, it being the
contract to which the partners have entered into. The articles of
partnership will be binding between/among the partners. Basically, since
2 or more are appointed as managing partners and unanimity is
required, then consent of all must be obtained.
15 | U N I V E R S I T Y O F S A N C A R L O S
ART. 1804. SUBPARTNERSHIP
Article 1804. Every partner may associate another person with him in
his share, but the associate shall not be admitted into the partnership
without the consent of all the other partners, even if the partner having
an associate should be a manager.
SITUATION:
You are playing Tong-its. You have someone at your back
betting on your game. We call him abay (associate).
What is an associate / subpartner?
A: An associate shares in the contribution of a partner. He does not
become a partner without the consent of all others.
(a mere stranger to the partnership; an investor)
RIGHTS OF A SUBPARTNER:
1. Share in the profit up to the extent to the partner he is associated
with
2. Share in the loss up to the same extent
3. He is not liable for creditors against the partnership
ART. 1805-1807; 1809. RELATIVE RIGHTS
Article 1805. The partnership books shall be kept, subject to any
agreement between the partners, at the principal place of business of
the partnership, and every partner shall at any reasonable hour have
access to and may inspect and copy any of them.
Article 1806. Partners shall render on demand true and full information
of all things affecting the partnership to any partner or the legal
representative of any deceased partner or of any partner under legal
disability.
Article 1807. Every partner must account to the partnership for any
benefit, and hold as trustee for it any profits derived by him without
the consent of the other partners from any transaction connected with
the formation, conduct, or liquidation of the partnership or from any
use by him of its property.
Article 1809. 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 article 1807;
(4) Whenever other circumstances render it just and reasonable.
ART. 1808. PROHIBITION ON CAPITALIST PARTNER
Article 1808. The capitalist partners cannot engage for their own
account in any operation which is of the kind of business in which the
partnership is engaged, unless there is a stipulation to the contrary.
Any capitalist partner violating this prohibition shall bring to the
common funds any profits accruing to him from his transactions, and
shall personally bear all the losses.
PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017
PROPERTY RIGHTS OF A PARTNER
ART. 1810. PROPERTY RIGHTS OF A PARTNER
Article 1810. The property rights of a partner are:
(1) His rights in specific partnership property;
(2) His interest in the partnership; and
(3) His right to participate in the management
PRINCIPAL RIGHTS (3)
1. His rights in specific partnership property
2. His interest in the partnership
3. His right to participate in the management
(Right to manage is a consequence of ownership.)
RELATED RIGHTS (5)
1. Right to reimbursement for amounts advanced to the partnership
and to indemnification for risks in consequence of management
2. Right of access and inspection of partnership books
3. Right to true and full information of all things affecting partnership
4. Right to a formal account of partnership affairs under certain
circumstances
5. Right to have the partnership dissolved under certain conditions
ART. 1811. RIGHTS IN SPECIFIC PARTNERSHIP PROP
Article 1811. A partner is co-owner with his partners of specific
partnership property. The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any
agreement between the partners, has an equal right with his partners
to possess specific partnership property for partnership purposes; but
he has no right to possess such property for any other purpose without
the consent of his partners;
(2) A partner's right in specific partnership property is not assignable
except in connection with the assignment of rights of all the partners
in the same property;
(3) A partner's right in specific partnership property is not subject to
attachment or execution, except on a claim against the partnership.
When partnership property is attached for a partnership debt the
partners, or any of them, or the representatives of a deceased partner,
cannot claim any right under the homestead or exemption laws;
(4) A partner's right in specific partnership property is not subject to
legal support under article 291.
ART. 1812. INTEREST IN THE PARTNERSHIP
Article 1812. A partner's interest in the partnership is his share of the
profits and surplus.
ART. 1814. CHARGING ORDER; REDEMPTION
Article 1814. Without prejudice to the preferred rights of partnership
creditors under article 1827, on due application to a competent court
by any judgment creditor of a partner, the court which entered the
judgment, or any other court, may charge the interest of the debtor
partner with payment of the unsatisfied amount of such judgment debt
with interest thereon; and may then or later appoint a receiver of his
share of the profits, and of any other money due or to fall due to him
in respect of the partnership, and make all other orders, directions,
accounts and inquiries which the debtor partner might have made, or
which the circumstances of the case may require. The interest charged
may be redeemed at any time before foreclosure, or in case of a sale
being directed by the court, may be purchased without thereby causing
a dissolution:
16 | U N I V E R S I T Y O F S A N C A R L O S
(1) With separate property, by any one or more of the partners; or
(2) With partnership property, by any one or more of the partners with
the consent of all the partners whose interests are not so charged or
sold. Nothing in this Title shall be held to deprive a partner of his right,
if any, under the exemption laws, as regards his interest in the
partnership.
SITUATION:
Charles is engaged in a funeral business.
One Sunday, he called up their office and learned that the car
will be used in the afternoon for business purposes. So, in the
morning, exercising his right to possess and use partnership
property as a co-owner, he brought all his children to the beach
using the funeral car; played loud music; had fun.
Charles then received a statement from the office for the use of
the car, half day, amounting to P2,500. Charles was surprised.
Can he be compelled to pay?
A: Yes, he can be compelled to pay. A partner has the right to use the
partnership property only for purposes related to partnership
business/transactions. Going to the beach is not related to the funeral
business.
Exception: If the other partners will give their consent.
Charles borrowed money from the bank. To secure payment, he
offered his right as a co-owner of the funeral car. Charles said
that if he could not pay, the bank will become a co-owner of
that car. Can he do this?
A: No. He cannot make it as a collateral. The car is a partnership
property. For if the law should Charles to make it as a collateral and if
he cannot pay, the property will be foreclosed by the bank. The bank
may become a co-owner which defeats the fiduciary nature of
partnership, involving trust and confidence among partners.
SITUATION:
Greta is a co-owner of a parcel of land with an entire area of
5,000 square meters. She owns half of it. She then borrowed
money from the bank. To secure payment, she offered her co-
ownership of the parcel of land, presenting her title and the
titles of the other co-owners. Can she offer one-half of her
interest in that parcel of land?
A: Yes. A co-owner has a right to dispose her share of the property.
TN: Disposal of share A co-owner can dispose of his share without the
consent of the others with the transferee automatically becoming a co-
owner, while a partner, unless authorized, cannot do so and substitute
another as a partner in his place.
PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017
What is the difference in the situation of Charles and Greta?
Difference between co-ownership in a co-owned property as to co-
ownership in a co-owned partnership property:
Co-Ownership Partnership
Limited and qualified form of
No limitation, as long as it ownership; use is limited to the
pertains to your share. consent of the partners and only
for partnership purposes.
Relationship with the co-owned Relationship with the co-owned
property is direct. partnership property is indirect.
Partner, even if co-owner and has
Co-owner can offer as collateral the right to use and possess,
his portion of the property. cannot offer as collateral his
portion in the partnership
property.
SITUATION:
Charles has a personal creditor. Somebody sued Charles for
collection and that somebody was able to get a favorable
judgment. He now pursues the portion of Charles as a co-owner
and co-possessor of the property. Can the creditor pursue
against partnership property?
A: No. A creditor of a partner cannot go after the Specific Partnership
Property for it belongs to the partnership. Partnership assets are
reserved for partnership creditors. However, the creditor can go after
Charles interest in the partnership. If the creditor has an enforced
judgment, he can apply to the proper court for a charging order to
subject Charles interest in the partnership to pay off his debts to the
creditor.
SITUATION:
One day, a woman came to the office of the company, carrying
a baby. She was looking for Charles because there was no more
milk to feed the baby. Do you think the mother can go after the
right of Charles over partnership property? Can she demand
that the property be sold so the portion belonging to Charles
should be used to feed the baby?
A: No. The mother cannot go after the property of Charles in the Specific
Partnership Property. The right of the partners to Specific Partnership
Property is NOT subject to legal support. The property belongs to the
partnership and NOT to the partners. However, she can have the
interest of Charles in the partnership.
ART. 1813. CONVEYANCE OF WHOLE INTEREST
Article 1813. A conveyance by a partner of his whole interest in the
partnership does not of itself dissolve the partnership, or, as against
the other partners in the absence of agreement, entitle the assignee,
during the continuance of the partnership, to interfere in the
management or administration of the partnership business or affairs,
or to require any information or account of partnership transactions, or
to inspect the partnership books; but it merely entitles the assignee to
receive in accordance with his contract the profits to which the
assigning partner would otherwise be entitled. However, in case of
fraud in the management of the partnership, the assignee may avail
himself of the usual remedies. In case of a dissolution of the
partnership, the assignee is entitled to receive his assignor's interest
and may require an account from the date only of the last account
agreed to by all the partners.
RIGHTS OF AN ASSIGNEE:
1. To receive in accordance with this contract the profits accruing to
the assigning partner
2. To avail himself of the usual remedies provided by law in the event
of fraud in the management
3. To receive the assignors interest in case of dissolution
17 | U N I V E R S I T Y O F S A N C A R L O S
4. To require an account of partnerships affairs, but only in case the
partnership is dissolved, and such account shall cover the period
from the date only of the last account agreed by all partners
OBLIGATIONS OF PARTNERS TO THIRD PERSONS
ART. 1815. FIRM NAME
Article 1815. 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 the liability of a partner.
In partnership, what is the importance of a NAME?
A: Firm name is important because it carries with it credibility and
goodwill. It is necessary to distinguish the partnership which has a
distinct and separate juridical personality from the individuals composing
the partnership and from other partnerships and entities. More
importantly, if a persons name is in a partnership name, that person
shall be subject to the liability of a partner.
Moral Lesson: Do not include your name in the partnership name,
otherwise you can be held liable. Note that even if you are not a partner,
you can still be held liable as a partner if your name is in the partnership
name.
ART. 1816-1817. LIABILITY OF PARTNERS
Article 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 the 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. However, any partner
may enter into a separate obligation to perform a partnership contract.
Article 1817. Any stipulation against the liability laid down in the
preceding article shall be void, except as among the partners.
SITUATION:
Capangpangan Mountain Resort. X, Y and Capangpangan are
partners. They all agreed to contribute P50,000 each, a total of
P150,000. Capangpangan excused herself to pay P25,000 since
she had to pay her tuition first. She only contributed P25,000.
Therefore, the assets amounted only to P125,000. The other
partners consented to it. In one transaction, the partnership
incurred a liability of P200,000. Now, there is a loss of P75,000.
If there is a partnership creditor, to whom can the creditor
collect?
A: The creditor can:
1. Pursue the partnership assets - the entire P125,000. There is a
need to exhaust first the partnership assets. This leaves a balance
of P75,000.
2. Capangpangan needs to pay her balance of P25,000.
3. Partners are liable pro rata for the remaining P50,000.
TN: In this case, we are talking of liabilities, not losses.
LIABILITY v. LOSS
Liability
Inability of a partnership to pay debt to third party
Loss
Liabilities of partnership exceed assets; relates exclusively to the
settlement of the partnership affairs among the partners themselves and
has nothing to do with liabilities of the partners to third persons.
PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017

If there is an industrial partner? A: Each creditor is entitled to the entire P9,000. Hence can demand
A: He is still liable and the creditor can go after him, subject to P3,000 from each debtor.
reimbursement from capitalist partners.
SITUATION:
Distinction A, B and C are solidary debtors.
A. When it comes to liability, industrial partner is liable, subject to X, Y and Z are solidary creditors.
reimbursement from capitalist partners. Discuss how much each creditor can demand from each debtor.
B. When it comes to losses, industrial partner shall be exempted.
A: Any of the creditors may demand the full amount of P9,000 from any
What does pro rata mean? of the debtors.
A: Pro rata means equally or jointly. It is based on the number of
partners and not on the amount of their contributions to the common ART. 1818. PARTNER IS AN AGENT OF THE PARTNERSHIP
fund.
Article 1818. Every partner is an agent of the partnership for the
NATURE OF LIABILITY (in contractual obligations): purpose of its business, and the act of every partner, including the
execution in the partnership name of any instrument, for apparently
Joint and Subsidiary carrying on in the usual way the business of the partnership of which
A. Joint partner is only liable to extent of his share he is a member binds the partnership, unless the partner so acting has
B. Subsidiary a partner is personally liable only after all the in fact no authority to act for the partnership in the particular matter,
partnership assets have been exhausted. and the person with whom he is dealing has knowledge of the fact that
he has no such authority.
Joint v. Solidary obligation
An act of a partner which is not apparently for the carrying on of
Joint obligation Solidary obligation business of the partnership in the usual way does not bind the
Concurrence of two or more Each debtor is liable for the partnership unless authorized by the other partners.
debtors or two or more creditors entire obligation and each
on the same obligation; creditor creditor is entitled to demand Except when authorized by the other partners or unless they have
can only compel a debtor to pay the whole obligation. abandoned the business, one or more but less than all the partners
to the extent of his respective have no authority to:
share
Joint debtor Solidary debtor (1) Assign the partnership property in trust for creditors or on the
liable only for his respective share can be compelled to pay the assignee's promise to pay the debts of the partnership;
in the obligation entire amount of obligation (2) Dispose of the good-will of the business;
Joint creditor Solidary creditor (3) Do any other act which would make it impossible to carry on the
entitled to collect his portion of can collect the total amount of ordinary business of a partnership;
the obligation obligation (4) Confess a judgment;
(5) Enter into a compromise concerning a partnership claim or
SITUATION: liability;
A, B and C are joint debtors for the amount of 9,000. X, Y and Z (6) Submit a partnership claim or liability to arbitration;
are joint creditors. Discuss how much each creditor can (7) Renounce a claim of the partnership.
demand from each debtor.
No act of a partner in contravention of a restriction on authority shall
A: Each creditor can claim P3,000 as their share in the P9,000. Since bind the partnership to persons having knowledge of the restriction.
there are 3 joint debtors, the creditor therefore can ask P1,000 from
each of them to complete the P3,000. SITUATION:
Atty. Espedidos classmates mother gave his classmate P10,
X can claim P1,000 from A, another P1,000 from B and another P1,000 but asked the classmate to only spend P0.20. How much should
from C. the son spend?
A: Only Php 0.20 because that is the extent of the authority given.
Y and Z may do the same.
So when you are authorized to do something, what are you
SITUATION: supposed to observe?
A, B and C are solidary debtors. A: Once you are given authority, you must act strictly within that
X, Y and Z are joint creditors. authority. It is a basic principle in agency. An agent must first be given
Discuss how much each creditor can demand from each debtor. authority, and that agent is supposed to act strictly within the bounds
of that authority given.
A: Each creditor is entitled to P3,000 and he may demand the full
amount from any of the debtors. Authority need not be expressed. It can also be presumed. Your
sister let you borrow her sweater. What did that imply?
X can claim the entire amount from A or B or C. A: The act constitutes a presumed authority to use.

Y and Z can also do the same. What did we learn in partnership in connection with authority?
A: If you are a partner, it is presumed that you have the authority to act
SITUATION:
in behalf of the partnership. Each partner is an agent of the partnership,
A, B and C are joint debtors.
so you may act in behalf of the partnership. This presumption may be
X, Y and Z are solidary creditors.
express or implied.
Discuss how much each creditor can demand from each debtor.

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PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017

Kinds of authority in partnership:
1. Express authority
2. Presumed authority if the acts were performed in the ordinary/
usual course of business, there is a presumption that the partner
acted with authority.
If you are a partner in a grocery store, what is the presumption?
A: It is presumed that I am authorized to sell items from the store. If
somebody buys 1 kilo of rice from that store, that buyer cannot ask if I
have the authority to sell.
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 name of all the partners a
conveyance executed by all the partners passes all their rights in such
property.
There are certain situations that even if the partnership owns the
property, it may be registered under the name of someone else.

Can you sell the cart of the grocery store? FIRST SITUATION:
A: No, it is not in the ordinary course of business. I do not have the
presumed authority to do so, much more that I do not have the express Registered in Conveyed in Effect
authority. name of name of
Only equitable interest
UNANIMITY REQUIRED One of the partners
Partnership is passed on to the
There are instances when the UNANIMOUS consent of all the partners buyer
is needed in certain actions relating to the partnership. They are:
1. Assign the partnership property in trust for creditors or on the What do we mean by equitable interest?
assignee's promise to pay the debts of the partnership; A: Buyer is entitled to the use and to the fruits of the property. He does
2. Dispose of the goodwill of the business; not acquire legal title over the property.
3. Do any other act which would make it impossible to carry on the
ordinary business of a partnership; TN: Equitable interest = interest not recognized by law, but in equity
4. Confess a judgment; alone. This right is unenforceable, but may be convertible to a legal title.
5. Enter into a compromise concerning a partnership claim or liability;
6. Submit a partnership claim or liability to arbitration; Equitable interest v full ownership
7. Renounce a claim of the partnership. A. Equitable interest - right to the use and to the fruits of the property
B. Full ownership - have all the rights of the owner (disposes, possess,
What is confession of a judgment? use, fruits, etc)
A: It is admitting liability, without putting up defenses.
TN: Full ownership (title) = naked ownership + equitable interest
Why cant a partner submit a partnership claim or liability to
arbitration without unanimity? What can the buyer do to get the title (remedy of buyer)?
A: Partnership may be prejudiced since it may receive judgment not A: Ask all partners to ratify the conveyance so you can be the full owner
favorable to it. of the property

Renounce a claim of the partnership, why with consent of all? SECOND SITUATION:
A: It will prejudice the partnership since it involves the giving up of some
right or claim against another. Registered in Conveyed in Effect
name of name of
ART. 1819. CONVEYANCE OF REAL PROPERTY Partnership Partnership Legal title passes

Article 1819. Where title to real property is in the partnership name, Can the partnership recover the title passed?
any partner may convey title to such property by a conveyance A: Yes, if:
executed in the partnership name; but the partnership may recover 1. Conveyance was not made in the usual course of business.
such property unless the partner's act binds the partnership under the 2. Partner had no authority and
provisions of the first paragraph of article 1818, or unless such property 3. Buyer of the property had knowledge of the partners lack of
has been conveyed by the grantee or a person claiming through such authority, even if conveyance was made in the usual way of
grantee to a holder for value without knowledge that the partner, in business.
making the conveyance, has exceeded his authority.
THIRD SITUATION:
Where title to real property is in the name of the partnership, a
conveyance executed by a partner, in his own name, passes the Registered in Conveyed in
equitable interest of the partnership, provided the act is one within the Effect
name of name of
authority of the partner under the provisions of the first paragraph of
article 1818. Partner in whose
One, more, but not Legal title passes
name the title stands
all partners
Where title to real property is in the name of one or more but not all may convey
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 Can the partnership recover the title passed?
if the partners' act does not bind the partnership under the provisions A: Yes, if:
of the first paragraph of article 1818, unless the purchaser or his 1. Conveyance was not made in the usual course of business.
assignee, is a holder for value, without knowledge. 2. Partner had no authority and
3. Buyer of the property had knowledge of the partners lack of
Where the title to real property is in the name of one or more or all the authority, even if conveyance was made in the usual way of
partners, or in a third person in trust for the partnership, a conveyance business.
executed by a partner in the partnership name, or in his own name,

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PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017
FOURTH SITUATION:
Registered in Conveyed in Effect
name of name of
One, more, or all Only equitable
partners, or a 3rd Partnership name/ interest passes
person in trust for the partner himself (right to use and right
partnership to the fruits of the
property)
What can the buyer ask the partners to do?
A: He can have his title perfected by signature/ratification of all the
partners, to which he can demand. It is his right.
FIFTH SITUATION:
Registered in Conveyed in Effect
name of name of
All partners All partners Legal title passes
TN: This cannot be recovered anymore. This is a PERFECT TRANSFER.
ART. 1820. ADMISSION/ REPRESENTATION BY A PARTNER
Article 1820. An admission or representation made by any partner
concerning partnership affairs within the scope of his authority in
accordance with this Title is evidence against the partnership.
SITUATION:
Rolly is HR Manager of the partnership company. The company
was sued by the BIR and Rolly testifies regarding accounting
procedure & matters of the partnership. Can the partnership be
bound by Rollys testimony?
A: No, since an HR manager does not have knowledge on accounting
matters and thus, cannot testify regarding the same.
For an admission to bind the partnership and be considered as
evidence against partnership, the three requisites must be
complied with:
1. Admission of matters relating to the partnership.
2. He was acting within the scope of his authority.
3. Admission must refer to something that occurred while he was still
a partner.
ART. 1821. NOTICE OR KNOWLEDGE OF PART AFFAIRS
Article 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 fraud on the
partnership, committed by or with the consent of that partner.
When knowledge of partner considered as knowledge of
partnership?
A: General Rule: Knowledge to partner is knowledge to partnership
1. Knowledge of the partner acting in the particular matter acquired
while a partner;
2. Knowledge of the partner acting in the particular matter then
present to his mind; and
3. Knowledge of any partner who reasonably could and should
have communicated it to the acting partner
Exception: In the case of fraud on the partnership committed by or
with the consent of that partner.
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ART. 1822-1824. WRONGFUL ACT OR OMISSION
Article 1822. Where, by any 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, loss or injury is caused to any person,
not being a partner in the partnership, or any penalty is incurred, the
partnership is liable therefor to the same extent as the partner so
acting or omitting to act.
Article 1823. The partnership is bound to make good the loss:
(1) Where one partner acting within the scope of his apparent
authority receives money or property of a third person and
misapplies it; and
(2) Where the partnership in the course of its business receives
money or property of a third person and the money or property
so received is misapplied by any partner while it is in the custody
of the partnership.
Article 1824. All partners are liable solidarily with the partnership for
everything chargeable to the partnership under articles 1822 and 1823.
SITUATION:
To make matters worse, Ms. Capangpangan was so mad that
she was asked to pay the P25,000 alone. On her way to carbon
market, she hit a pedestrian. The pedestrian died. The father of
the pedestrian agreed to settle for P50,000. How much is the
total liability of the partnership? And who is liable?
Total liability is now P100,000. P50,000 previous contractual liability
divided pro rata. All partners solidarily liable for entire P50,000 for the
tort liability (involving the pedestrian)
What is the difference with the creditor liability earlier?
Source of liability Liable
Partnership assets and properties.
Liability from contract If not sufficient, partners are liable
pro rata. (Joint and Subsidiary)
Liability from tort or
Solidary Liability
quasi-delict
Sources of obligations
1. Law
2. Contracts
3. Quasi-contracts
4. Delict
5. Quasi-delict
ART. 1825. PARTNER/PARTNERSHIP BY ESTOPPEL
Article 1825. When a person, by words spoken or written or by conduct,
represents himself, or consents to another representing him to anyone,
as a partner in an existing partnership or with one or more persons not
actual partners, he is liable to any such persons to whom such
representation has been made, who has, on the faith of such
representation, given credit to the actual or apparent partnership, and
if he has made such representation or consented to its being made in
a public manner he is liable to such person, whether the representation
has or has not been made or communicated to such person so giving
credit by or with the knowledge of the apparent partner making the
representation or consenting to its being made:
(1) When a partnership liability results, he is liable as though he were
an actual member of the partnership;
PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017

(2) When no partnership liability results, he is liable pro rata with the
other persons, if any, so consenting to the contract or representation
as to incur liability, otherwise separately.
When a person has been thus represented to be a partner in an existing
partnership, or with one or more persons not actual partners, he is an
agent of the persons consenting to such representation to bind them
to the same extent and in the same manner as though he were a
partner in fact, with respect to persons who rely upon the
representation. When all the members of the existing partnership
consent to the representation, a partnership act or obligation results;
but in all other cases it is the joint act or obligation of the person acting
and the persons consenting to the representation.
ESTOPPEL
It is a bar which precludes a person from denying or asserting anything
contrary to that which has been established as the truth by his own deed
or representation.
ART. 1826. INCOMING PARTNERS
Article 1826. A person admitted as a partner into an existing
partnership is liable for all the obligations of the partnership arising
before his admission as though he had been a partner when such
obligations were incurred, except that this liability shall be satisfied only
out of partnership property, unless there is a stipulation to the
contrary.
During the partnership, can a new partner be admitted?
A: Yes, when the partners give their consent to it. This may happen
when additional capital is needed.
Extent of liability of a new partner:
A. For obligations existing before his admission, his liability is limited
to his share in the partnership property
B. For subsequent obligations, his liability extends to his separate
property

Is partnership by estoppel and partner by estoppel is one and CLASSIFICATION OF PARTNERS AS TO LIABILITY
the same?
1. General Partner one whose liability to third persons extends to
A: No, partner by estoppel happens when one misrepresents himself to his separate property (the focus of our discussion)
be a partner of an existing or non-existing partnership without the
consent of the partnership. On the other hand, a partnership by 2. Limited Partner one whose liability to third persons is limited
estoppel happens when persons represent themselves to be partners to his contribution
to third persons and there is a consent from the partnership.
What kind of a partner can a new partner become?
SITUATION: A. Limited Partner for debts prior to their admission
A, B and C are partners. B. General Partner for debts after their admission
X approached Lleve and represented himself as partner of A, B
and C. They entered into contract where Lleve delivered ART. 1827. PREFERENCE OF PARTNERSHIP CREDITORS
construction materials to X. Can Lleve ask payment from the
partnership? Article 1827. The creditors of the partnership shall be preferred to
those of each partner as regards the partnership property. Without
A: No, this is a partner by estoppel. Only the partner is estopped. The prejudice to this right, the private creditors of each partner may ask
partnership didnt misrepresent or consent to such misrepresentation. the attachment and public sale of the share of the latter in the
partnership assets.
What if the partnership consented to the representation of X?
A: Partnership now becomes liable. This is a partnership by estoppel. SITUATION:
There are 2 groups of creditors:
PARTNERSHIP BY ESTOPPEL v. PARTNER BY ESTOPPEL First group = creditors of a partner
Second group = creditors of the partnership
With Consent Without consent Who is entitled to the partnership assets?
A person who A person who represents
represents himself as himself as a partner of an A: It depends on whose properties are concerned.
a partner of an existing partnership, but Partnership properties partnership creditors are preferred
existing partnership, the partners did not Personal properties of the partners partners creditors are
and the partners consent preferred
Existing consented
partnership DISSOLUTION AND WINDING UP
Partnership Liability Person alone is liable
(Partnership by (Partner by estoppel) ART. 1828 - 1829. DISSOLUTION
estoppel)
Article 1828. The dissolution of a partnership is the change in the
relation of the partners caused by any partner ceasing to be
A person who A person who represents
associated in the carrying on as distinguished from the winding up of
represents himself as himself as a partner of a
the business.
a partner of a non- non-existing partnership,
Non-existing existing partnership, and the other persons did Article 1829. On dissolution the partnership is not terminated, but
partnership and the other persons not consent continues until the winding up of partnership affairs is completed.
consented
Is the dissolution of a partnership the death of said
Liability is pro-rata Person alone is liable
partnership?
with other persons
A: No. Dissolution of the partnership only pertains to the change in
who consented
relation of the partners. It does not terminate the partnership since the
partnership continues until the winding up of the partnership affairs is
completed.

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PARTNERSHIP l Atty. Espedido l For the exclusive use of EH 404 2016-2017

Three stages before death of a partnership:

1. Dissolution Expulsion of the partner
2. Winding up When the partners themselves exclude the partner from the partnership
3. Termination when all the affairs of the partnership are completely
settled Why is this a ground for dissolution?
A: It jeopardizes the privilege of the creditor to collect. Usually, when
the partnership properties are not sufficient to answer for the
ART. 1830. GROUNDS FOR DISSOLUTION
partnerships liabilities, creditors may go after the personal properties of
Article 1830. Dissolution is caused: the partners. When one is no longer a partner, the creditors can no
longer go after the assets of the expelled partner. Expulsion limits the
(1) Without violation of the agreement between the partners: chances of creditors to recover because the assets it can go after is also
reduced.
(a) By the termination of the definite term or particular undertaking
specified in the agreement
What if the partners expel him with no proper ground?
(b) By the express will of any partner, who must act in good faith,
A: Partnership is still dissolved. Partner expelled will be entitled to
when no definite term or particular is specified
damages against the partners who expelled him.
(c) By the express will of all the partners who have not assigned their
interests or suffered them to be charged for their separate debts,
SITUATION: (already cited in previous discussions)
either before or after the termination of any specified term or
Charles promised to contribute a funeral car. On the way to its
particular undertaking;
destination, it exploded. Will the partnership be dissolved
(d) By the expulsion of any partner from the business bona fide in
because of the loss of the car?
accordance with such a power conferred by the agreement
between the partners
Loss before Loss after the delivery
(2) In contravention of the agreement between the partners, where delivery
the circumstances do not permit a dissolution under any other
provision of this article, by the express will of any partner at any time; Considered as a loss of the
(3) By any event which makes it unlawful for the business of the partnership being the owner,
partnership to be carried on or for the members to carry it on in so the partners can agree to
partnership; If Charles contribute additional funds to
promised to Dissolves the buy another car, or loan from
(4) When a specific thing which a partner had promised to contribute
contribute a partnership the bank to buy another car,
to the partnership, perishes before the delivery; in any case by the loss
specific car (specific thing) or the partners can decide to
of the thing, when the partner who contributed it having reserved the
rent a car.
ownership thereof, has only transferred to the partnership the use or
enjoyment of the same; but the partnership shall not be dissolved by
If there is no other option,
the loss of the thing when it occurs after the partnership has acquired
the partners can choose to
the ownership thereof;
dissolve because it can no
(5) By the death of any partner; longer carry on the business.
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner; If only the
(8) By decree of court under the following article. use of the
specific car Dissolves the Dissolves the partnership
was promised partnership
How may a partnership be dissolved? to be
1. Dissolution by non-violation or non-contravention of the articles of contributed:
the partnership
2. Dissolution by violation or contravention of the articles of the
partnership
3. Dissolution by operation of law Considered as a loss of the
4. Dissolution by judicial decree partnership being the owner,
Charles can be so the partners can agree to
Grounds for dissolution: If, however, compelled to contribute additional funds to
A: Art 1830 (Enumerate all) Charles contribute buy another car, or loan from
promised to another car the bank to buy another car,
FIRST GROUND: contribute a (generic thing) or the partners can decide to
Dissolution by non- violation or non- contravention of the articles of the car rent a car.
partnership
(a) By the termination of the definite term or particular undertaking If there is no other option,
specified in the agreement; the partners can choose to
(b) By the express will of any partner, who must act in good faith, dissolve because it can no
when no definite term or particular is specified; longer carry on the business.
(c) By the express will of all the partners who have not assigned their
interests or suffered them to be charged for their separate debts,
either before or after the termination of any specified term or
particular undertaking;
(d) By the expulsion of any partner from the business bona fide in
accordance with such a power conferred by the agreement
between the partners;

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