General Provisions Art.

1768 – Partnership is a juridical person separate and distinct from each of

Art. 1767 – Definition:
GR: Partnership – a contract whereby 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, or in order to exercise profession.
(viewpoint of contract)
2 or more partners may form partnership as exercise of profession (General
professional partnership)
~ SEC
A partnership contract, in its essence, is a contract of agency
Art of Partnership must not be kept secret – or else, no legal personality and become
co ownership
the partners
Consequences:
1. can be adjudged insolvent even if the individual members be each financially
solvent; partner has no right to make a separate appearance in court, if the partnership
being sued is already represented, unless he is personally sued.
2. [✓] juridical personality - even if capital is 3k above is not in public instrument &
3. [ X ] juridical personality – if immovable property is not inventoried, signed, in
public instrument
**** One who enters into contract with a “partnership” as such cannot, when sued later
on for recovery of the debt, allege the lack of legal personality on the part of the firm,
even if it indeed had no personality ****

General professional partnership - not allowed for corporation bc personal

qualifications (age, gmrc, college deg) for practice cant be possessed by corporation Art. 1769 – Determinants for the Existence of a Partnership

Profession – a group of men pursuing a learned art as a common calling in the spirit GR: Determination in ambiguous cases
of public service – no less a public service because it may incidentally be a means of -may be questioned by affected partnership
livelihood; preparation or practice of wc acad learning is required for public service 1. Non partners to themselves can’t be partners to 3rd persons unless estoppel
art1825
Concept of Partnership a. Consent of becoming a partner
1. Association – 2 or more as coowners a business for profit b. Partners can’t avoid conseq of relation by denying as partners
2. Legal relation – expressed/implied agreement c. Parties’ belief does not matter to existence of partnership
3. Undertaking – share in profit or loss d. GR: P never exist as to 3rd pesons if no contract express/implied
4. Status – from contract of partnership except Estoppel – subject to liability
5. Organization – for production of income 2. Co ownership is not partnership even it share in profit from property
6. Entity – separate and distinct from members a. Element but not partnership itself
*form of business b. Profit from operation, not from property
3. Gross return sharing is not partnership ( profit dapat)
Characteristics of Partnership a. Coownership of business, not profit/property
1. Consensual – perfected by consent upon express/implied agreement b. Agreement to share in profit or loss tends to establish strong
2. Nominate – special name; civil code of ph existence of partnership, but mere fact in contract doesn’t in itself
3. Bilateral – 2 or more persons and rights are reciprocal establish partnership
4. Onerous – procure benefit requires giving something 4. Receipt of share in profit is prima facie that he is a partner EXCEPT when
5. Commutative- undertaking is equivalent of others received in payments of:
6. Principal – doesnt depend others for existence a. Debt by installment
7. Preparatory – means to end; ex. engage for profit b. Wages of employee/rent to landlord
c. Annuity to widow/representative of deceased
Essential Features of Partnership [VCLLOP] d. Interest on loan
1. [V]alid contract e. Consideration for sale of goodwill or property installment
- delectus personae
-may be incidental by acts but still customary written in Art of Partnership Test and incident of partnership
-no partnership by law, implication by law, operation 1. Reached agreement
-no religious soc, conjugal, community partn bc no express/implied 2. Incidents:
contract a. Share in profit and losses
2. [L]egal capacity to enter b. Equal rights even if diff contribution
-cant give consent: unemancipated minors(marriage, 18y/o), c. Every partner is agent
insane/demented, deafmutes, civil interdiction sufferers, incompetent under d. All partners are personally liable for debts of P
guardianship e. Fiduciary rel exists (trust)
- cant enter universal partnership – those prohibited from giving each f. Dissolution does not terminate P, continues until winding up
other donations (spouse married or unmarried living together who gives donation/grant of partnership is completed
is void, unless moderate gifts or on family rejoicing) *incidents are modified by stipulation and subject to rights of 3rd persons
- [✓] partnership enter partnership
- [ X ] corpo enter partnership except by law (bc corp will be bound by Ordinary Partnership (OP) vs. Co-Ownership (CoO)
acts of persons who aren’t its duly appointed officers and agents wc is inconsistent w/ Partnership Co-Ownership
“ corp shall manage own affairs separately&exclusively) creation created by contract only Generally, by law or
3. mutual [C]ontribution of money, property, or industry to a common fund- (express or implied) even w/ contract
- money : Ph currency and cash ONLY
- property: real, personal, tangible, intangible, promissory note(evidence of juridical has None, cannot sue or be
obligation), goodwill sued
-industry- in absence of two, law allows industry purpose profit Use of thing
*limited partnership- cant contribute industry/service duration No limit 10yrs, excess void
4. object must be [L]awful disposal of may not dispose or assign may assign
-otherwise, void (ab initio) interests except agreed by ALL
-general limitation: P may be organized for any purpose except wc law
power to act with Binding, except contrary Not binding
requires specific business org suchas: banking- gen banking law, only stock corps may
3rd persons
undertake
5. [P]rimary purpose must be to obtain profits and to divide
-main reason for existence: obtain profit, distinguish religious &social org effect of death dissolution Not necessarily
-principal purpose, not necessarily only purpose Others: profit Agreement-contribution ALWAYS Prorate shares
-profit: joint interest, not necessarily in equal shares, presumptive not
conclusive (pwedeng share in profit/loss but not partners) form Any except movable no public instrument
-loss:not necessary agree upon system if sharing agency Mutual representation No mutual rep
Conjugal PG- p. formed by marriage of husband and wife by virtue of which they place
a common fund the fruits and income from separate prop, and those acquired thru
efforts by chance, unless otherwise agreed in marriage settlement, divide equally upon
dissolution of the marriage or partnership the net gains or benefits obtained by either
both of them during marriage
*transfer of real prop to partnership must be registered in Registry of Property
Failure to be in comply--- void
Art. 1772 – Partnership with capital of Php 3,000 above
GR:3,000 above must be in public instrument & SEC registered

Ordinary Partnership (OP) vs. Conjugal Partnership of Gains (CPG) Effects:

Partnership Conjugal Partnership of 1. Failure to comply--- still a partnership/doesn’t affect liability to 3rd persons
Gains 2. Every partner has right by law to compel each other to execute contract in pulic
parties Voluntary agreement of 2 or Future spouses- man partnership
more woman 3. SEC Registration—necessary to prevent tax liability evasion, determine
membership & capital; recorded instrument and give notice to interested parties
law Stipulation, law subsidiary Law/created by law (not for juridical personality)

Art. 1773 – Where real property is contributed

Juridical has none; hence, it cannot
Rule: VOID when immovable prop isn’t inventoried, signed, in public instrument
personality sue or be sue as such
commencement Execution, unless contrary Celebration of marriage,
-personal prop need not include former
no contrary allowed
-intend to protect 3rd parties, “de facto” partnership/estoppel may exist
purpose profit Regulate prop relations -applies even if only real rights over real property, cash or personal property is
contributed
Distribution of Agreement-contribution Equally, unless contrary
profits Art. 1774 – Acquisition of property under the Partnership name
GR: immovable property or interest MAY BE ACQUIRED under partnershipname;
management Equally unless managing Both, but in title acquired can be conveyed only in partnership name(art1819)
partner disagreement—
husband’s decision
Disposition of shares Whole interest may be Can’t be disposed EVEN · Limitations on Acquisition
disposed without consent WITH CONSENT - a partnership, even if entirely of Filipino capital may not:
Others: dissolution many grounds for dissolution few grounds for 1. acquire, lease or hold public agricultural lands in excess of 1,024 hectares;
dissolution 2. lease public lands adapted to grazing in excess of 2,000
liquidation of profits division of profits even without o liquidation or giving of
dissolution profits till after Art. 1775 – Secret Partnership
dissolution GR: assoc and societies whose articles are secret to members, and any of
members contact 3rd persons in own name—has no juridical personality—and
Partnership (P) vs. Voluntary Association (V) governed by co ownership
Partnership Voluntary Association · Partnership needs publicity to prevent fraud/deceit, protect members & 3 rd
juridical has none persons
personality
Secret partnership transacted in own name
purpose profit lacking
contribution capital Fees, but no capital 1. personally bound to inccocent 3rd person,
Liability of as a rule, is the one liable in members are individually liable for 2. held liable as partner, or partnership liability by estoppels
members the first place for the debts the debts of the association, 3. **cannot sue as such, because it has no legal personality and therefore, cannot
of the firm authorized by them either expressly ordinarily be a party to a civil action;
or impliedly, or subsequently ratified 4. **therefore, insofar as innocent third parties are concerned, the partners can be
by them considered as members of a partnership; but as between themselves, or insofar
as third persons are prejudiced, only the rules on co-ownership must apply.
*assoc, societies, clubs aren’t partners even for gain; rights and legal liabilities of Same rule applies in the case of a partnership by estoppels
members depend themselves on rules/constitution 5. ** contracts entered into by a partner in his own name may be sued upon still by
him in his own individual capacity, notwithstanding the absence of partnership

Art. 1776 – Classification of Partnership

Art. 1770 – Lawful Object or Purpose a. As to object/subject matter

1. Universal Partnership- ALL the present property or to all the profits
GR: P. must have lawful object or purpose AND common benefit/interest of a. universal p. of all present property-art1778
partners b. universal p. of profits- art1780
When unlawful partnership is dissolved by judicial decree(utos court), profits 2. Particular Partnership - object are determinate things, their use or
are confiscated w/o prejudice of Penal code governing confiscation of fruits; a specific undertaking or the exercise of a profession or occupation
instruments and effects of crime
b. As to liability of partners
*lawful= moral and just, business engaged by corp only by law (gambling, smuggling, 1. General P- general partners;liable prorata and subsidiary, sometimes
monopolies, combinations, prosti leasing, prevent gov bidding contract) solidarily, with separate property for P. debts
*judicial decree is not necessary to dissolve unlawful partnership only for convenience
*several purposes, one of which is unlawful, the partnership can still validly exist so ( they are liable even with respect to their individual properties, in pro rata
long as the illegal purpose can be separated from the legal purpose after the assets of the partnership have been exhausted, for the contracts
Unlawful partnership which may be entered into in the name and for the account of the
1. Void, ab initio—never existed partnership, under its signature and by a person authorized to act for the
2. Profits confiscated by gov partnership)
3. Instrument or tools and proceeds of crime are forfeited in favour of gov
4. Contributions shall not be confiscated unless #3 2. Limited P- formed by 2 or more persons having as members one/more
general partners and one/more limited partners; not bound by the
Art. 1771 – Formalities of Partnership obligations of the partnership , written contract
GR: Partnership may be in ANY FORM(oral/written), except immovable/real
rights are contributed; must be in PUBLIC INSTRUMENT (necessary)
c. As to duration - one which comprises all that the partners may acquire by their industry or work
1. At will – terminated anytime by all, any; continued terminated fixed during the existence of the partnership and the usufruct of movable or immovable
term(1785) property which each of the partners may possess at the time of the celebration of the
2. At a fixed term contract.
- the term of existence has been agreed upon expressly or impliedly
- expiration = auto dissolution The following become common property of all the partners:
1. Property which belonged to each of them at the time of the construction
d. As to legality of existence of the partnership
1. De jure –complied all legal requirements 2. Profits which they may acquire from the property contributed
2. De facto-failed to comply all legal req
e. As to representation Limitations:
1. Ordinary/real –exist to partners and 3rd persons 1. GR: Future property cant be contributed (bc determinate, known, certain
2. Ostensible/ partnership by estoppels – not rly a partnership, but present only
considered by conduct (liable ung nanloko lang; sila lang liable partners) 2. Property which the subsequently by inheritance, legacy or donation
f. As to publicity cannot be included in stipulation to contrary VOID
1. Secret– partners unknown 3. Profits from other sources will become common propertyif thee’s
2. Open or notorious – known to public stipulation
g. As to purpose
1. Commercial/trading B. Universal property of all profits
2. Professional/non trading-service - comprises all that the partners may acquire by their industry or work during the
existence of the partnership
· Kinds of Partners -movable or immovable property wc each partner may possess at
celebration of contract shall pass to partnership as usufruct; retaining owenership
1. Capitalist Partners
- one who furnishes capital; Effects:
- not exempted from losses; can engage in other business provided there is no 1. Only profit or income and usufruct or use of property is passed to
competition between the partner and his business partnership; ownership is returned to partners upon dissolution
2. Profits acquired by chance without physical and itntellectual efforts aren’t
2. Industrial included(lottery)
- one who furnishes industry or labor; 3. Fruits of property subsequently acquired by partners doesn’t belong to
- can be a general partner but never a limited partner; partnership but profits can be by expressed stipulation
- exempted from losses, but not liability
- cannot engage in any other business w/o express consent of the partners, Art. 1781 – Presumption in favor of partnership of profits
otherwise, excluded from the firm (plus damage) OR benefits he obtains from the other Rule: If universal partnership is silent, then presumption is of profit
business can be availed of by the other partners (plus damages)
- less obligations bc ownership is preserved
3. General
- one who is liable beyond the extent of his contribution Art. 1782 – Persons prohibited by law to give donation- cannot enter into
- capitalist/industrial Universal Partnership, only Particular P.

4. Limited Reason: they should not be allowed to do indirectly what the law forbids directly
- Liability is limited to capital contribution; Or else.. void and null
- Special partner
- Doesn’t participate in management Ex. Spouses in P causes dissolution

5. Managing- one who manages actively the firm’s affairs appointed at articles of Legal provisions:
partnership or after constitution; aka general/real partner 1. Donation/gratitious advantage by spouses is void except moderate gifts to
6. Liquidating - one who liquidates or winds up the affairs of the firm after each other on family occasions
dissolution(1836) 2. Void donations:
7. Partner by estoppel/Quasi-partner/Nominal/Implication - one who is not a. Guilty of adultery or concubinage at time of donation (nullity
really a partner but liable in protection to 3rd persons;liable to ppl who in good faith by spouse or guilt proved by preponderance of evidence)
believed b. Between guilty on criminal offense
8. Continuing – continues after dissolution by admission of enw partner or c. Public officer, wife, descendants, ascendants of office
retirement, death, expulsion of partner
9. Surviving – remains after dissolution by death of partner Art. 1783 – Particular Partnership
10. Subpartner- not member but contracts partner’s share in P - it has for its object determinate things, their use of fruits, or specific
undertaking, or the exercise of a profession or vocation
· Other classifications
a. Ostensible partner- one whose connection with the firm is public and Ex. Acquisition of an immovable for purpose of reselling at profit and common
open;whether or not he has actual interest; if he is not actually a partner, subject to enjoyment; 2 or more accountants in practice7
liability by estoppel · Doctrine:
b. Secret- unknown partner, but participates in Profit and losses An agreement to undertake a particular piece of work or a single transaction or a
c. Silent- may be known partner but doesn’t participate in the management, limited number of transactions and immediately divide th esiting profits would seem to
though he shares in the profits or losses, withdrawal needs notice to persons who do fall within the meaning of “partnership” in law
business to escape liability in future
d. Dormant/sleeping- one who is both a secret and silent partner (not US Uniform Partnership Act – disagrees – defines partnership as “association” of 2 or
managing) “sleeping partner”; shares in profit or loss; withdrawal needs no notice then more persons as co-owners a business for profits” – business – commercial sense,
not liable anymore not joint venture but same rights and liabilities as joint ventures and partners
e. Original-member from time of org
f. Incoming- about to become If two (2) individuals form a particular partnership for a deal in reality, it does not
g. Retiring-withdrawing partner necessarily follow that all deals are for the benefit of the partnership. In the absence
of agreement, each particular deal results in a particular partnership. If one of them, on
*ALL ARE SUBEJCT TO LIABILITY FOR ALL PAR OBLIGATIONS his account, and using his own funds, should make transactions in the same business,
it is his own undertaking
Arts. 1777-80 – Universal Partnership

2 kinds of Universal Partnership

A. Universal property of all present property
 contract on the subject, however contracting parties may increase,
CHAPTER 2: diminish, suppress legal obligation – (reason why onerous contract)
Section 1: Obligations of the Partners among themselves b. vendor shall not be obliged to make good of proper warranty unless
summoned for eviction at instance of vendee
RELATIONS CREATED BY A CONTRACT OF PARTNERSHIP 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
1. Among the partners themselves actual delivery (no demand needed; autodefault)
2. The partners with the partnership 4. to preserve said property with the diligence of a good father of a family pending
3. The partnership with third persons delivery to the partnership; and
4. The partners with third persons 5. to indemnify the partnership for any damage caused to it by the retention of the
sane or by the delay in its contribution
Art. 1784 – When partnership begins note: cannot withdraw w/o consent of partners/partnership

General Rule: begins from the moment of the execution of the contract, unless
it is otherwise stipulated. Art. 1787 – Appraisal of Goods

Commencement : General rule: Contribution of goods must be appraised as prescribed by

- Consensual contract- exists at celebration contract, or experts chosen by partners & current prices
- Necessary to be present: essential requisites even if no actual
contributions, conditions, participation in P/L, nature have not yet fixed *Immovable property- appraised in inventory
(they’re incidental, not essential)
- Its registration in the SEC is not essential to give it juridical personality A. When contribution consist of goods
- The birth and life is predicated on the mutual desire and consent of the - appraisal of value is needed to determine how much has been contributed
parties
B. How appraisal is made
- as prescribed by the contract of partnership
Future partnership Agreement to create a partnership - in default of the first, experts chosen by the partners, and at current prices

- Partners may stipulate some - This is different from a C. Necessity of the Inventory Appraisal
other date for the partnership actually - proof is needed to determine how much goods or money had been contributed.
commencement of the consummated(agreed), if still Bec in absence of stipulation share in profits and losses is proportion to
partnership executory, nonexistent contribution so inventory is useful
- It can be in future time or partnership
based on happening of - This is still inchoate D. Risk of loss
some future - after goods have been contributed, the partnership bears the risk of
contingency/condition subsequent changes in their value
- It has no juridical personality
at the moment Art. 1788- Obligations with respect to contribution of money

General rule: failure to contribute money and pay liability to partnership(money

converted for personal use) from time should’ve complied/convert to own use is
subject to interest + damages
Art. 1785 – Duration of Partnership
Consequences:
General rule: Partnership at fixed term when continued after termination without 1. to contribute on the date due the amount he has undertaken to contribute to the
expressed agreement the rights and duties remain since no partnership;
liquidation/settlement of partnership affairs is a “prima facie” evidence of 2. to reimburse any amount he may have taken from the partnership coffers and
continuation converted to his own use;
3. to pay legal interest,
Partnership at fixed term – auto-dissolution – becoming at will (personal rel, no force of a. fails to pay his contribution on time accruing from time should’ve
continuance) complied, (commencement/future date) not from
Partnership- may be extended, renewed by express agreement, written or oral or extrajudicial/judicial demand
impliedly by continuance of fixed term– rights and duties remain b. takes any amount from the common fund and converts it for
his own use;
4. to indemnify for the damages caused to it by the delay in the contribution or
Art. 1786 – Duties of Parties the conversion of any sum for his personal benefit
Exception to GR: Justification for double responsibility
General rule: Every partner is a debtor of promised contribution, warranty in Indemnity for damages becomes only agreed interest or in absence of
case of eviction with specific and determinate things which he may have stipulation: 6% legal interest bc every partner is responsible to the
contributed to P. (vendor-vendee aspect), liable of fruits from time should’ve partnership for damages suffered by it through his fault
delivered, without need of demand

3 Important Duties of a partner Art. 1789 – Obligations of an Industrial Partner

1. to contribute what has been promised; General rule: Industrial partner cant engage in business for himself unless expressly
2. to warrant for cases of eviction only; permitted
3. to deliver the fruits of what should have been delivered
Remedies if without permission:
Obligations with respect to contribution of property o right to exclude him from the firm
1. to contribute at the beginning/stipulated time the money, property or industry o OR for capitalist/other industrial to avail of the benefits which he may have
promised contribution obtained.
a. failure makes him debtor even w/o demand; o PLUS DAMAGES
b. remedy: action for specific performance + damages + interest from
time should’ve complied) Prohibition to engage in other business
2. to warrant for eviction in case the partnership is deprived of the determinate o IP – cannot engage in any business for himself bc partnership has exclusive
property contributed; and right to avail itself of his industry; if not bc of other engagement, prejudicial to
a. eviction: final judgment (loses thing acquired) based on right prior to interest of partners (all his industry is supposed to be contributed to the firm to
sale or act imputable to vendor, vendee deprived of whole/part of prevent conflict of interest and to insure faithful compliance)
thing purchased even without tho nothing has been said in the
o CP – cannot engage in same or similar enterprise as that of his firm unless
contrary (possibility of unfair competition)
Art. 1790 - Contribution
General Rule: Partner shall contribute equal shares to the capital of the partnership
(for equal rights and obligations)
Exception: unequal shares is allowed if there’s stipulation
o Refers to capital partners; industrial partner only with capital
contribution
o Purpose: consistent with equal rights and obligations
Art. 1791 – Obligation of Capitalist Partner
General Rule:
- A capitalist partner is not bound to contribute to the partnership more than what
he agreed to contribute
- In case of imminent loss and no agreement, he is obliged to contribute
additional share to save the venture.
- Refusal: obliges him to sell his interest to the other partners bc of his lack of
interest to continuance (IF THERE’S NO AGREEMENT TO CONTRARY)
General rule: Partner guilty of negligence/fault in fulfilment of obligation is liable
for damages and cannot compensate with profits, but can be equitably lessen
thru extra ordinary efforts/unusual profits realized
*subject to 1173 & 1170
Why General Damages cannot be offset by benefits:
a. the partner has the duty to secure benefits for the partnership(right ng
partnership); on the other hand, he has the duty also not to be at fault
b. Compensation takes place when negligent partner be reciprocally debtors
and creditors of each other however the partner is both a debtor in his
industry and for repair for injury thru his fault
Remedy:
Partner may equitably mitigate liability if there are “extraordinary efforts” resulting
in unusual “profits”
Art. 1795 – Risk of Loss of things contributed
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.

Requisites when a capitalist partner is obliged to sell his interest to the other partners: If the things contribute are fungible, or cannot be kept without deteriorating, or if
1. There’s imminent loss of the partnership; they were contributed to be sold, the risk shall be borne by the partnership. In
2. Majority of capitalist partners are of opinion that additional contribution to the absence of stipulation, the risk of the things brought and appraised in the
common fund would save business inventory, shall also be borne by the partnership, and in such case the claim
3. Refusal to share (not bc of financial inability) shall be limited to the value at which they were appraised. (1687)
4. No agreement to the contrary

Note: industrial partner is exempted for he is already giving his entire industry Cases contemplated:
1. Determinate thing is not fungible and only use contributed – partner’s
Art. 1792 – Obligations of Managing Partner who collects debt 2. Determinate things = ownership transferred to the partnership – partnership’s
3. Fungible thing = detoriates = even if use only – partnership’s
General rule: If partner authorized to manage collects a demandable sum owed 4. Things contributed to be sold – partnership’s
to him and partnership then.. 5. Things brought and appraised in the inventory– partnership’s
*implied sale = price being represented by their appraised value
a. PRORATE amounts – if collection is for managing partner
b. FULLY APPLY – collection for partnership only
General rule:
o Purpose: GOOD FAITH = partnership>managing partner’s interest
a. ^^Must be an ACTUAL/CONSTRUCTIVE DELIVERY
para no subordination
b. Loss by partner’s fault = damages
c. 2nd par – debtor can choose payment to partner over partnership in case of
c. Before delivery, partner’s risk and loss
onerous/interest sake’s
Requisites:
a. at least two debts; Art. 1796 – Responsibility of partnership
b. both sums are demandable; and
c. collecting partner is authorized to manage and actually manages the The partnership shall be responsible to every partner for the amounts he may
partnership 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
When not applicable obligations he may have contracted in good faith in the interest of the
- If the partner collecting is not a managing partner (no undue partnership business, and for risks in consequence of its management.
advantage) there is no basis for the suspicion that the partner is in BAD
FAITH *applicable only if there’s no stipulation
*** manner of management not agreed (walang managing partner)– then all partners *Partner not personally liable, free from fault, if acted within scope
manage– all managing partner
Responsibility of partnership to partners:
1. Obligation to refund the amounts disbursed by the partner in behalf of the
Art. 1793 – Obligation of Partner who receives share in partnership credit, others partnership PLUS interest from the time the expenses WERE CONTRACTED
not (and not from the time of DEMAND)
o Loans and advances made to partnership; not the capital
General rule: In case of insolvency of the debtor, MUST bring such to the contributed by him
partnership capital if other partners have not yet collected their share (even if 2. To answer for the obligations contracted by the partner in GOOD FAITH in the
receipt was solely for him only) interest of the partnership business
3. Answer for the risks in consequence of its management
Purpose: “Community of interest” unfair not to share in loss
Art. 1797.
Requisites:
1. Partner received in whole/part his credit share
2. Others haven’t collected The losses and profits shall be distributed in conformity with the
3. Debtor became insolvent agreement. If only the share of each partner in the profits has 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 the profits

Art. 1794 – Obligation of partner for damages to partnership
and losses shall be in proportion to what he may have contributed, but the
industrial partner shall not be liable for the losses. As for the profits, the
industrial partner shall receive such share as may be just and equitable under
the circumstances. If besides his services he has contributed capital, he shall
also receive a share in the profits in proportion to his capital. (1689a)
Profit: Loss: GR: A partner who has been appointed a MANAGER in the ARTICLES OF
(in order) PARNTERSHIP may EXECUTE ALL ACTS of administration despite the
a. AGREEMENT a. AGREEMENT opposition of his co-partners (provided he is in GF)
-stipulations excluding a partner is void b. Profit sharing ratio EXPN: But if he acts in BAD FAITH and there is an opposition, he may not execute
b. Capital contribution c. Capital contribution such acts
based on presumed will of the parties
Rules on revocation: The power (to execute all acts of admin) may not be revoked
o IP: satisfied first before CP divide share; UNLESS:
o o Industial P- not liable for 1. There is JUST OR LAWFUL CAUSE and
o share is not fixed because it is very hard losses (even if there’s 2. The vote of the partners representing the CONTROLLING INTEREST is
to ascertain the value of one’s services; stipulation to contrary) had
o share must be just and equitable; except if has contributed Exception: Powers granted AFTER THE CONSTITUTION OF THE PARTNERSHIP
capital may be revoked at any time at any cause with controlling interest

o Profit/Loss- determined by Modes of Appointing a Manager

all transactions had, not
only one 1. Appointment as manager in the ARTICLES OF PARNTERSHIP
- Here, the partner appointed as managing partner by common agreement
in the Articles of Partnership may execute all acts of administration (and
Art. 1798. – Designation of Profit or Loss by 3rd person not acts of strict of ownership under Art. 1818 par. 3)
- He may execute such acts of admin EVEN WITH the opposition of the
GR: If the partner has entrusted to a 3rd person the designation of share in P/L(by other partners
common consent), the same may be impugned only IF IT IS MANIFESTLY Exception: Unless he acted in bad faith
INEQUITABLE. - His appointment as manger may be REVOKED ONLY IF:
o There is just and lawful cause
In no case may such decision be impugned if: o The vote of the partners constituting the controlling interest is
1. The partner has BEGUN the execution of the designation had
2. He did not impugn the designation in the sharing of the profits within Because the revocation is deemed to be a CHANGE IN THE TERMS OF
a period of 3 months from the time he had knowledge thereof THE CONTRACT. The appointment made is considered as one of the
NB: The designation of the profits and losses cannot be left to any of the partners for conditions of the contract and can therefore be changed only with the
impartiality consent of ALL the partners including the appointee.

*Designation of 3rd person is binding unless manifestly inequitable
*Partner guilty of estoppels or give consent or ratification to designation
*3mos to forestall paralysation of operations
Art. 1799.
A stipulation which excludes one or more partners from any share in the profits
or losses is void.
1. Stipulation excluding a partner from share in profit is VOID, but
partnership exists. Profit or losses apportioned as if there were no
stipulation on the same.
2. Stipulation, may be a factor in determining that no partnership exist
a. there shall be no liability for losses,
b. OR from the nature of the contract, it is clear that a party did not
intend to share in the losses,
*Unequal shares in profit/loss even if equal contributions is valid if there’s
stipulation: unless inequality is so gross that in effect, a simulated form to
attempt to exclude a partner from any share in profits, stipulation is VOID.
EXP: Industrial partner not subject to loss bc he cant withdraw labor unlike
capitalist partner withdrawing capital; failure to realize profit is also his share in
loss
Art.1800 - Rights and Obligations of a Managing Partner
General rule: Managing partner may execute all admin acts even if opposed by
partners except in bad faith, and power is irrevocable without lawful cause.
Revocation of power needs vote of partners representing controlling interest.
A power granted after the partnership has been constituted may be revoked at
any time.
*Equal voice in management of partnership even if diff capital contribution except
when agreement to contrary
*May select managing partner or make allocation functions
*refers to partners only, not 3rd persons. No compensation other than share in income.
Rights and obligations with respect to management:
2. Appointment as manager AFTER the constitution of the partnership
- If a partner is designated as a MANAGER after the articles of partnership
is constituted, then, the appointment may be revoked at ANY TIME, FOR
ANY CAUSE
- Reason: Because in this case, the appointment is not a condition of the
contract and therefore, the revocation is not founded on a CHANGE OF
THE WILL OF THE PARTNERS. There is merely a CONTRACT OF
AGENCY which may be revoked anytime
- But, for there to be revocation, there should be a vote of a majority of the
partners, having the CONTROLLING INTEREST
SCOPE OF THE POWER OF THE MANAGING PARTNER
GR: the managing partner has ALL THE POWERS OF A GENERAL AGENT and
those INCIDENTAL POWERS necessary to carry out the object of the
partnership
Unless expressly withheld:
a. Minor power to issue receipt is included in the gen. powers of the
manager as this is in keeping with present day business dealings
b. Manager of a partnership engaged in buy and sell is clothed with
sufficient authority even w/o approval of the other partners to purchase on
credit as it is usual or customary to buy and sell credit
c. Managing partner has authority to dismiss an employee particularly when
there’s justifiable cause for dismissal after complying with the
requirements prescribed by law
EXPN: When the power of the managing partner is restricted/expressly withheld
Unless expressly granted:
a. Partner designated as one of managers to take care of “selling fish in
manila and the purchase of supplies” has no authority to purchase for the
partnership “barge, a truck and machine” bc they are no supplies
b. Neither can managing partner of partnership formed for the purpose of
operating a tailoring shop, sell or convey tailoring shop which is
partnership property without consent of all partners
c. Managing partner may not bind the partnership contract wholly foreign to
its business. No authority to execute mortgage on firm’s property to
secure debt of a 3rd person
Compensation for services rendered:
GR: He is NOT entitled to an additional compensation BEYOND his share in the
profits of the business unless contrary:
Reason: because EACH PARTNER (in the absence of an agreement)
assumes the duty to give his TIME, ATTENTION and SKILL to manage
the affairs of the partnership. In his managing the partnership, he in effect
is taking care of his own interest and property. Thus, even if his services is
greater in proportion than the rest because he is the managing partner; or
because his co-partners are ill, his only compensation is his share in the
PROFITS
EXPN:
1. The law may IMPLY a contract for compensation
a. When the partner is made to do something NOT in the
fulfillment of his duties in the partnership or not related to the
partnership business
b. When the partner employs his co-partner for him to do
something for him OUTSIDE OF AND INDEPENDENT of the
partnership business
c. When the partner is guilty of EXTRAORDINARY
NEGLIGENCE in which case, the burden of management is
shifted to the other partner (the latter shall be entitled to
compensation)
d. Where the partner is EXEMPT from rendering services in
which case, he may demand payment for services he
rendered OR WHERE THE SERVICES rendered were
EXTRAORDINARY
e. When the managing partner is OVERBURDENED with work
because he devotes all his time and attention to the
partnership while his co-partners are busy with their individual
business in which case, an UNUSUAL CONDITION presents
itself and he may thus demand compensation
f. Where there is WILFUL failure on the part of the managing
partner to fulfill his duty in which case the other partners are
burdened to perform such
2. The parties may agree that there would be payment of compensation
* If there is no PROHIBITION AS THIS REGARD in the Articles of Partnership, then,
compensation may be agreed to be given to a GENERAL PARTNER
Art. 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 act without the consent of all the others,
each one may separately execute all acts of administration, but if any of them
should oppose the acts of the others, the decision of the majority shall prevail.
In case of a tie, the matter shall be decided by the partners owning the
controlling interest. (1693a)
Requisites:
1. 2 or more managers
2. No specification of duties
3. No stipulation that one of them shall act without consent
GR: If 2 or more partners were instructed with the management of the partnership BUT
there was no SPECIFICATION of their duties or WITHOUT stipulation that ONE OF
THEM shall not act WITHOUT THE CONSENT of the others, then they may
SEPARATELY execute all acts of administration
EXPN: However if any of them (other managing partners) should oppose the acts of
the others:
1. The decision of a majority shall prevail
2. In case of tie, the decision of the partners owning the controlling interest
shall prevail
Q; WHAT DECISION WILL PREVAIL IN CASE OF OPPOSITION?
1. First, the matter shall be decided by the MAJORITY of the managing
partners
2. In case of a tie, the matter shall be decided by the partners having the
controlling interest (more than 50% of the capital investment)
*If there is no specification as re the respective duties of the partners, then, one may
not have MORE POWERS than the other managing partners in the conduct and
management of the partnership
*But if there is a SPECIFICATION OF DUTIES, then, the partner’s (in charged)
decision will prevail over the others
Art. 1802.
In case it should have been stipulated that none of the managing
partners shall act without the consent of the others, the concurrence of all shall
be necessary for the validity of the acts, and the absence or disability of any one
of them cannot be alleged, unless there is imminent danger of grave or
irreparable injury to the partnership. (1694)
GR: In case where there is a stipulation that no MANAGING PARTNER may act
without the consent of ALL the partners, the CONCURRENCE OF ALL shall be
necessary for the validity of their acts
Gen rule 2: And the ABSENCE or DISABILITY of the partner may not be alleged
as an excuse or justification
Exception:
1. The same may be an excuse or justification if there is an IMMINENT
DANGER OF GRAVE OR IRREPARABLE INJURY to the partnership
2. Where the partnership is engaged in the BUY AND SELL BUSINESS
where it is USUAL AND CUSTOMARY TO BUY AND SELL ON CREDIT –
Smith, Bell and Co. v. Aznar
NB:
1. The partners may stipulate in their ARTICLES OF PARTNERSHIP that no
managing partner may act without the consent of all the other managing
partners
Q; WHAT THEN IS REQUIRED IN SUCH CASE?
The UNANIMOUS consent of all the managing partners is
necessary for the validity of their acts
Q; WHAT IS THE EFFECT OF SUCH REQUIREMENT OF UNANIMITY
OF CONSENT?
The consent of ALL THE MANAGING PARTNERS are so
INDISPENSABLE such that the absence or disability of the
partners may not be interposed as an excuse or justification
to dispense with such a requirement
Exception: Where there is IMMINENT DANGER of GRAVE OR
IRREPARABLE INJURY TO THE PARNTERSHIP then one managing
partner may act EVEN without the consent of the ABSENT OR DISABLED
without prejudice to his liability under Art. 1794
2. The EXCEPTION under Art. 1802 will not apply where there is an
OPPOSITION on the part of the other managing partners
Reason: One of the essential conditions of the authority conferred on the
managing partner is that the MANAGEMENT should be with the consent
of ALL THE PARTNERS
Q; WHAT IF SUCH CONSENT IS WANTING?
If such unanimous consent is wanting, then, the proposed act is
OUTISIDE HIS AUTHORITY
Art. 1803.
When the manner of management has not been agreed upon, the
following rules shall be observed:
(1) All the partners shall be considered agents and whatever any one
of them may do alone shall bind the partnership, without prejudice to
the provisions of Article 1801.
(2) None of the partners may, without the consent of the others,
make any important alteration in the immovable property of the
partnership, 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 partnership, the court's intervention may be
sought. (1695a)
The standing of the partners in case they failed to indicate the manner of management
- In case of their failure to indicate either in the Articles of Partnership or
subsequent contract WHO SHALL MANAGE the affairs of the partnership,
then ALL THE PARTNERS shall have EQUAL RIGHTS in the conduct
and management of the partnership affairs. ALL OF THEM shall be
MANAGERS AND AGENTS and any act done by them alone shall BIND
THE PARTNERSHIP subject, however to the provision of Art. 1801 in
case of TIMELY OPPOSITION on the part of any partner in which case,
the MAJORITY VOTE shall be had for the PRESUMED INTENT OF THE
PARTIES is that they shall all manage REGARDLESS of their capital
contribution. In case of a tie, then, the CONTROLLING INTEREST’S
decision will prevail
Q: HOW MANY PARTNERS SHOULD CONCEDE AS RE THE IMPORTANT
ALTERATION OF IMMOVABLE PROPERTY?
Unanimous consent is necessary so that ANY IMPORTANT ALTERATION to
the immovable property may be made.
Q: HOW SHOULD THE CONSENT BE GIVEN?
 The consent need not be express. It may be implied from the fact that ACTUAL
KNOWLEDGE was acquired and no opposition from the other partners was
made
Q: DOES THE PROHIBITION APPLY TO MOVABLE PROPERTY?
No, it only applies to immovable property because of the greater importance of
this kind of property
Q: IS ANY ALTERATION CONTEMPLATED?
No, it must be an IMPORTANT ALTERATION in immovable property. Any
important alteration constitutes an act of STRICT DOMINION.
Q: MAY THE MANAGING PARTNER MAKE ANY IMPORTANT ALTERATION IN THE
IMMOVABLE PROPERTY?
No, even the managing partner may not make any important alteration in the
immovable property WITHOUT THE CONSENT of the other partners
Exception: If the refusal of consent by any partner is MANIFESTLY
PREJUDICIAL to the interest of the partnership, then, the intervention of the
court may be sought so that important alterations to the immovable property
may be made.
NB: The consent may be presumed from the failure to make any opposition
Q: WHAT IF THE ALTERATION IS NECESSARY FOR THE PRESERVATION?
The law speaks of alteration that is useful to the partnership. Hence, when the
alteration is necessary for its preservation, then, the consent of the other
partners is not necessary
Q: A, B AND C FORMED A PARTNERSHIP FOR A TRANSPORTATION BUSINESS.
THERE WAS NO AGREEMENT AS RE THE MANNER OF MANAGEMENT. A
CONTRACTED A DEBT FOR SUPPLIES. ARE THE PARTNERSHIP AND THE
PARTNERS LIABLE FOR THE INDEBTEDNESS?
Yes. Where there was no agreement was re the manner of management, each
partner is considered as an AGENT of the partnership. A must be deemed to
have an authority to contract the debt in as much as he incurred the same in the
prosecution of the partnership business – Bachrach v. La Protectora
Q: IN THE ARTICLES OF PARTNERSHIP, THE PARNTERS ARE NOT GIVEN THE
AUTHORITY TO ENTER INTO CONTRACTS. IT IS THE DEPARTMENT THRU A
RESO OF 6 MEMBERS THAT COULD SO ENTER INTO SUCH CONTRACT. A 3 RD
PERSON SEEKS ENFORCEMENT OF A CONTRACT ENTERED INTO BY ONE OF
THE PARTNERS. IS THE PARTNERSHIP BOUND?
No. The partners may be empowered to contract in the name of the partnership
ONLY if there is no provision as re the management of the partnership. In this
case, the articles did so provide. The partners are not empowered to enter into
contracts. Hence, the department cannot be bound without a resolution adopted
by it in a meeting – Council of Red Men v. Veterans Army
Art. 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. (1696)
GR: Every partner may ASSOCIATE another person with him in his share BUT such
associate shall NOT be admitted into the partnership without the consent of ALL THE
OTHER PARTNERS, even if the partner having an associate may be the MANAGER
Q: WHAT IS THE RULE PROVIDED FOR UNDER ART. 1804?
That every partner may associate with another person, known as the
SUBPARTNER, as re his share (partner’s share) even without the consent of
the other partners
Q: WHAT IS THE PARTNERSHIP FORMED BETWEEN A MEMBER OF A
PARNTERSHIP AND A 3RD PERSON?
A SUBPARTNERSHIP. The manner by which the profits are to be divided
between the members of the subpartnership or that one of the members shall
receive the entire profits is immaterial as re the formation of the subparntership
Q: IS THE SUBPARTNERSHIP = MAIN PARTNERSHIP?
No. it could be said that it is a partnership within a partnership. It is a distinct and
separate partnership from that of the main partnership
Q: DOES A SUBPARTNER AUTOMATICALLY BECOME A MEMBER OF THE
PARTNERSHIP?
No. A subpartnership agreement does not in any wise AFFECT the composition,
existence and operations of the firm. But the subpartners are partners INTER
SE but the subpartner does not become a member of the firm WITHOUT the
mutual assent of all the partners EVEN if they know of the existence of the
subpartnership agreement
Q: DOES THE SUBPARTNER ACQUIRE THE RIGHTS OF A PARNTER AS WELL
AS THEIR OBLIGATONS?
NO. Not being a member of the partnership, then, he does not acquire the rights
of the partners and neither does he become indebted for the partnership’s debts
Art. 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. (n)
GR: The partnership books shall be kept
1. In the place agreed upon by the partners
2. In the absence of agreement, at the PRINCIPAL PLACE of business of
the partnership
GR: Every partner shall have AT A REASONABLE HOUR access to and may
INSPECT AND COPY any of them
Q: WHO HAS THE OBLIGATION OF KEEPING THE BOOKS OF THE
PARTNERSHIP?
The managing or the active partner has the obligation to keep a TRUE
AND CORRECT books of accounts and such books shall at all times be
open for inspection by the other partners
Q; WHAT COULD BE PRESUMED AS RE THE BOOKS?
1. The partners have knowledge of the contents of the books
2. The books state accurately the state of accounts of the partnership
Q: WHAT ARE THE RIGHTS OF THE PARTNERS AS RE THE PARTNERSHIP
BOOKS?
Generally, the partnership books should be kept at the principal place of
business (subject to an agreement to the contrary) so that the partners may:
1. Access
2. Inspect
3. Copy any of them
Q: WHY ARE THEY GIVEN SUCH RIGHT?
1. Each partner has a right to a TRUE AND FULL INFORMATION of the
partnership accounts and activities
2. Each partner is a CO-OWNER of the partnership properties, including the
partnership books, and they also have EQUAL RIGHTS in the
management of the partnership affairs so that the books should not be
kept under the sole control and custody of just one partner
NB: The books should not be transferred without the consent of the other
partners
Q: IS THE RIGHT TO THE BOOKS OF THE PARTNERSHIP ABSOLUTE?
No. It may be restrained. Hence, it may be used only for partnership
purposes
Q; MAY THE PARTNERS ACCESS THE BOOKS AT ANY HOUR
No. they may access it at any REASONABLE HOUR ONLY. This phrase
has been interpreted to mean that it may be accessed at any
REASONABLE HOUR ON ANY BUSINESS DAY THROUGHOUT THE
YEAR and not merely on ARBITRARY DAYS chosen by the managing
partners
Art. 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. (n)
DUTY TO RENDER INFORMATION
GR: The partners shall render ON DEMAND TRUE AND FULL INFORMATION of all
things affecting the partnership to any PARTNER, OR THE LEGAL
REPRESENTATIVE of a deceased partner or of a partner under LEGAL DISABILITY
Q: WHAT IS THE REASON FOR THE DUTY TO RENDER INFORMATION?
 Mutual trust and confidence requires that there be no CONCEALMENT GR: During the existence of the partnership, a partner is NOT entitled to a formal
AMONG PARTNERS. Hence, there is a duty to render true and full account of partnership affairs
information of all things affecting the partnership
Reason:
Q: LIMITATION? 1. This right is already protected by Art. 1805 and Art. 1806
The information must be used only for the partnership purpose 2. This may cause much inconvenience and unnecessary waste of time

Q: MAY THERE BE A DUTY TO RENDER INFORMATION ONLY WHERE THERE IS EXPN:

DEMAND 1. He is wrongfully excluded from the partnership
No. It does not mean that there may not be an obligation to render 2. If it exist under any agreement
VOLUNTARY DISCLOSURE of material facts affecting or relating to the 3. Provided under Art. 1807
partnership affairs. 4. Whenever circumstances render it just and reasonable

Q; WHEN WILL THERE BE NO DUTY TO RENDER INFORMATION? Q: To whom does the obligation to account rests?
Where the information already appears in the partnership books because MANAGING OR ACTIVE PARTNER and a special task of the
it is open to inspection SURVIVING PARTNER

NB: good faith not only requires that there be no FALSE STATEMENT. It also requires Q: When does prescription begins to run?
that there be no concealment among partners – Poss v. Gottlieb It will run from the time of the DISSOLUTION OF THE PARTNERSHIP
when the final accounting is done
Art. 1807.
Every partner must account to the partnership for any benefit, and Q: What kind of action is an action for accounting?
hold as trustee for it any profits derived by him without the consent of the other It is an ACTION IN PERSONAM because it is an action against a person
partners from any transaction connected with the formation, conduct, or for the performance of a personal duty on his part. It is only incidental that
liquidation of the partnership or from any use by him of its property. (n) part of the assets of the partnership subject to accounting or under
liquidation happen to be real property.
GR:
1. Every partner must account to the partnership FOR ANY BENEFIT
2. And hold as TRUSTEE for the partnership any PROFITS derived by him SECTION 2: Property Rights of a Partner
in any transaction connected with the FORMATION, CONDUCT or
LIQUIDATION OF THE PARNTERSHIP or FROM ANY USE BY HIM of Art. 1810.
his property The property rights of a partner are:
(1) His rights in specific partnership property;
Q: WHAT IS THE NATURE OF THE RELATIONSHIP BETWEEN AND AMONGST (2) His interest in the partnership; and
PARTNERS? (3) His right to participate in the management. (n)
Fiduciary relationship, that is, of trust and confidence. Each partner is
considered in law to be the CONFIDENTIAL AGENT of the others EXTENT OF PROPERTY RIGHTS OF A PARTNER

Q: NATURE OF THE DUTY OF THE PARNTERS? A. Principal Rights

Analogous to the duties of the TRUSTEE 1. His rights in specific partnership property
2. His interest in the partnership
Q: WHAT IS THE DUTY OF EACH PARTNER WHEN HE TRANSACTS ANY 3. His right to participate in the management
PARTNERSHIP BUSINESS? B. Related Rights
He should always act for the COMMON BENEFIT in all transactions 1. Right to reimbursement for amounts advanced to the partnership
affecting the partnership affairs. He cannot use or apply exclusively for his and to indemnification for risks in consequence of management
own benefit the PARTNERSHIP ASSETS and the results of the 2. Right of access and inspection of partnership books
knowledge gained for his individual benefit 3. Right to true and full information of all things affecting the
partnership
NB: The managing partner has the fiduciary duty to inactive partners 4. Right to a formal account of partnership affairs under certain
circumstances
Q: TRANSACTION? 5. Right to have the partnership dissolved under certain circumstances
Doing or performing something. It was given a broad meaning – more of
the justice of the case demanded rather than
Q: What is the difference between partnership property and partnership capital?
Art. 1808. PARTNERSHIP PROPERTY IS VARIABLE, its value may vary
The capitalist partners cannot engage for their own account in any PARTNERSHIP CAPITAL IS CONSTANT, and is not affected by
operation which is of the kind of business in which the partnership is engaged, fluctuations although it may be increased or diminished by unanimous
unless there is a stipulation to the contrary. consent of the partners.
Any capitalist partner violating this prohibition shall bring to the
common funds any profits accruing to him from his transactions, and shall Partnership property not only includes the original capital contributions
personally bear all the losses. (n) but all the PROPERTY SUBSEQUENTLY ACQUIRED BY THE
PARTNERSHIP with the use of the partnership funds, including
Q: When is capitalist partner PROHIBITED from engaging in other business? partnership came and the goodwill of the partnership. Partnership capital
When he is engaged in any business which is the same or similar to the represents the AGGREGATE OF THE INDIVIDUAL CONTRIBUTIONS
business in which the partnership is engaged made by the partners.
Q: What is the obligation of the partner that violates this prohibition?
1. Bring to the common fund any profits he derived from his transactions
Q: What are the rules regarding the OWNERSHIP of certain property?
2. If there are losses, the partner should bear it alone
Art. 1809.
1. GR: The PROPERTY USED BY THE PARTNERSHIP constitutes
Any partner shall have the right to a formal account as to partnership
partnership property
affairs:
EXPN: Express agreement to the contrary
(1) If he is wrongfully excluded from the partnership business or
*The partner may only contribute the use of the property not the
possession of its property by his co-partners;
ownership
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
2. GR: Property ACQUIRED BY A PARTNER with the use of partnership
(4) Whenever other circumstances render it just and reasonable. (n)
funds is PRESUMED PARTNERSHIP PROPERTY
 EXPN: If it is acquired AFTER DISSOLUTION BUT BEFORE WINDING
UP of the partnership affairs it would be considered his but is liable to
account to the partnership for the funds used
3. Property carried in the partnership books is strongly inferred as
partnership property
4. The fact that the income generated by the property is received by the
partnership or the taxes are paid by the partnership is evidence that the
partnership is the owner of the said property
Art. 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. (n)
NATURE OF A PARTNER’S RIGHT IN SPECIFIC PARTNERSHIP PROPERTY
- A partner does not own any part of the partnership property although he
does have rights in specific partnership assets
- Art 1811 contemplates tangible property
- None of the partners can possess and use the specific partnership
property other than for “partnership purposes” without the consent of other
partners
- If any partner made use of the partnership property he must account to
the others the profits or benefits he derived from such use
- On the death of a partner, his rights in specific partnership property is
vested in the surviving partners not the legal representatives of the
deceased partner except when he was the last surviving partner
- A partner cannot separately assign his right to specific partnership
property but all of them can assign their rights in the same property
o He cannot assign individually because it is impossible to
determine the extent of his beneficial interest in the property
until after the liquidation of partnership affairs
o It also prevents interference by outsiders in partnership
affairs, protects the rights of other partners and partnership
creditor to have partnership assets applied to firm debts
- The law allows a retiring partner to assign his rights in partnership
property to the partner or partners continuing the business
- Specific partnership property is not subject to attachment, execution,
garnishment, or injunction without the consent of all partners except on a
claim against the partnership
- Specific partnership property is also not subject to legal support but the
partner’s interest in the partnership is subject to legal support
Art. 1812.
A partner's interest in the partnership is his share of the profits and
surplus. (n)
NATURE OF PARTNER’S INTEREST IN THE PARTNERSHIP
- The partner’s interest in the partnership consists of his proportional share
in the undistributed profits during the life of the partnership and his share
in the undistributed surplus after its dissolution
o Profit – excess of returns over expenditure in a transaction or
series of transactions, the net income of the partnership for a
given period of time
o Surplus – assets of the partnership of after partnership debts
and liabilities are paid and settled and the rights of the
partners among themselves are adjusted; excess of assets
over liabilities
- Nothing is to be considered as the share of a partner but his proportion of
the residue or balance after an account has been taken of the debts and
credits
- A partner is not a creditor of the partnership for the amount of his share
Art. 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. (n)
EFFECT OF ASSIGNMENT OF PARTNER’S WHOLE INTEREST IN PARTNERSHIP
GR1: A partner’s RIGHT IN SPECIFIC PARTNERSHIP PROPERTY is not assignable
GR2: He may assign his INTEREST IN THE PARTNERSHIP to any of his co-partners
or to a third person without the consent of other partners
EXPN: agreement to the contrary
*The assignment will not divest the assignor of his status and rights as a partner nor
operate as dissolution of the partnership
The assignment made to the third person does not grant the assignee the right:
1. To interfere in the management
2. To require any information or account
3. To inspect any partnership books
RIGHTS OF THE ASSIGNEE
1. To receive in accordance with his 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 assignor’s interest in case of dissolution
4. To require an account of partnership affairs, but only in case the
partnership is dissolved
Art. 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:
(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. (n)
REMEDIES OF SEPARATE JUDGMENT CREDITOR OF A PARTNER
- While a separate creditor of a partner cannot attach or levy upon specific
partnership property for the satisfaction of his credit because partnership
assets are reserved for partnership creditors, he can secure a judgment
on his credit and then apply to the proper court for a CHARGING ORDER,
subjecting the interest of the debtor partner in the partnership
- By virtue of the charging order, any amount or portion thereof which the
partnership would otherwise pay to the debtor-partner should instead be
given to the judgment-creditor
- This is an exclusive remedy so writ of execution will not be proper
REDEMPTION OR PURCHASE OF INTEREST CHARGED
- The interest of the debtor-partner so charged may be redeemed or
purchased with the separate property of any one or more of the partners,
or with partnership property but with the consent of all the partners whose
interests are not so charged or sold
- The redeeming non-debtor partner does NOT ACQUIRE ABSOLUTE
OWNERSHIP over the interest but HOLDS IT IN TRUST for him
consistent with principles of fiduciary relationship
Section 3: Obligations of the Partners with Regard to Third Persons
Art. 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. (n)
REQUIREMENT OF A FIRM NAME
Firm – the name, title, or style under which a company transacts business
Importance:
1. It is necessary to distinguish the partnership which has a distinct and
separate juridical personality from the individuals composing the
partnership
2. To distinguish it from other partnerships
GR: The partners may adopt any firm name desired
Provided:
1. It is not misleading
o Partners cannot use a name that is to mislead the public by
passing itself off as another partnership or corporation, or its
goods or services as those of such other company
2. Use of name of deceased partners is allowed as long as it is indicated that
said partner is already deceased
LIABILITY FOR INCLUSION OF NAME IN FIRM NAME
- Persons who not being partners, include their name in the firm name do
NOT ACQUIRE THE RIGHTS OF A PARTNER but is SUBJECT TO
LIABILITY of a partner in so far as THIRD PERSONS WITHOUT NOTICE
are concerned
Art. 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. (n)
LIABILITY FOR CONTRACTUAL OBLIGATIONS OF THE PARTNERSHIP
GR: After all the partnership assets have been exhausted, all the partners, including
the industrial ones, shall be liable for all the contracts which may have been entered
into in the name, for the account of the partnership and under its signature and by a
person authorized to act for the partnership
EXPN: Any partner MAY ENTER INTO A SEPARATE OBLIGATION to perform a
partnership contract
Q: WHO SHALL BE LIABLE FOR CONTRACTUAL OBLIGATIONS OF THE
PARTNERSHIP?
GR: the partnership shall shoulder the obligations
Q: MAY 1 PARTNER MAKE ALL THE PARTNERS LIABLE FOR THE OBLIGATION
OF THE PARTNERSHIP?
Yes, a partner may, by entering into a contract in the name and for the
account of the partnership hold ALL THE PARNTERS liable for the
partnership obligation.
Reason: A partner is a PRINCIPAL WITH RESPECT TO HIS CO-PARNTERS
and at the same time an AGENT OF THE OTHERS AND OF THE
PARNTERSHIP. If he contracts with a 3rd person, he binds not only the
partnership but also the partners, JUST LIKE AN OBLIGATION CONTRACTED
BY AN AGENT – the principal shall be liable
Q: MAY A PARTNER BE “PERSONALLY” BE LIABLE?
Yes. He may assume an undertaking in his own name or bind himself
solidarily with the partnership to fulfill the obligation to a 3rd person.
NATURE OF THE INDIVIDUAL LIABILITY OF THE PARTNERS
1. All the debts and obligations of the partnership are also the DEBTS AND
OBLIGATIONS of each individual member of the firm
2. NATURE OF THE LIABILITY:
a. Pro rata – equally or jointly (not proportionately) – Basis of pro-
rating: No. of the members of the firm and NOT the amount of their
contributions
 b. Subsidiary – because they become PERSONALLY LIABLE ONLY
after the partnership assets have already been EXHAUSTED
- They are held as the GUARANTORS of the partnership
creditors to the EXTENT that the partnership assets won’t be
sufficient to cover the debts (Art. 2047 – By guaranty, a
person called the guarantor binds himself to the CREDITOR
to fulfill the obligation of the principal debtor in case he fails to
do so)
- They may be JOINED as PARTY DEFENDANTS in the same
action against the partnership SUBJECT to the right of the
partners to PRIOR EXHAUSTION
c. Personal – NB: under Art. 127 of the Code of Commerce, all
members of the GENERAL PARTNERSHIP shall be PERSONALLY
AND SOLIDARILY LIABLE with their properties (the Code
Commission did not subscribe to the solidary liability because it is
the source of the fear and reluctance for the formation of the
partnership
NB: Sec. 21, Corporation Code (BP 68) – All persons (NOT
STOCKHOLDERS/MEMBERS) who act as a CORP knowing it to be without authority
to do so shall be liable AS GENERAL PARTNERS for the DEBTS, LIABILITIES and
DAMAGES incurred as a result thereof
Q; MAY THE INDUSTRIAL PARTNER BE RELIEVED FROM SHARING IN THE
LIABILITY?
No. He is generally exempt from contributing for the LOSSES of the
partnership BUT NOT FOR THE LIABILITIES. The EXEMPTION from
losses relates exclusively to the SETTLEMENT OF THE PARTNERSHIP
affairs among the partners AND not to their LIABILITY TO 3RD PERSONS
for the debts of the partnership
(Compania Maritima v. Munoz)
Except when authorized by the other partners or unless they have
abandoned the business, one or more but less than all the partners have no
authority to:
(1) Assign the partnership property in trust for creditors or on the
assignee's promise to pay the debts of the partnership;
(2) Dispose of the good-will of the business;
(3) Do any other act which would make it impossible to carry on the
ordinary business of a partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a partnership claim or
liability;
(6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership.
No act of a partner in contravention of a restriction on authority shall
bind the partnership to persons having knowledge of the restriction. (n)
GR: Every partner is AN AGENT OF THE PARTNERSHIP for the purpose of its
business and EVERY ACT of the partner, including the execution in the
partnership name of any instrument FOR APPARENTLY CARRYING ON IN
THE USUAL WAY THE BUSINESS OF THE PARTNERSHIP, BINDS the
partnership
EXPN:
1. The partner so acting has IN FACT no authority to act for the partnership
in the particular matter
2. The person with whom he is dealing with has KNOWLEDGE of the fact
that he has no such authority

NB: The industrial partner may seek reimbursement from the capitalist partners for the GR 2: An act of the partnership WHICH IS NOT APPARENTLY FOR CARRYING OUT
share that he has given THE BUSINESS OF THE PARTNERSHIP shall NOT bind the partnership
Exception: Agreement to the contrary Exception: When he is AUTHORIZED by the other partners

*In a partnership, gains and losses are balanced. But as re the industrial partner, what GR 3: ALL the partners MAY BE THE ONLY ONES who may do the following acts:
matters is the FINAL ADJUSTMENT OF THE LOSSES AND THE ASSETS of the 1. Assign the partnership property in trust for the creditors or on the
partnership (so that, if there are still properties remaining, the PRIMARY AND DIRECT assignee’s promise to pay the debts of the partnership
RESPONSIBILITY of the partnership shall preclude any recourse against any of the 2. Dispose of the goodwill of the business
partners) 3. Do any other act which would make it impossible to carry on the ordinary
business of the partnership
Q; IS THERE A CONFLICT BETWEEN ART. 1797 AND ART. 1816? 4. Confess judgment
None. Art. 1816 refers to LIABILITIES while Art. 1797 refers to LOSSES. 5. Enter into a compromise concerning partnership claim or liability
The mere fact that a company was unable to pay its debts on time does 6. Submit partnership claim or liability to arbitration
not mean that it is operating at a loss. It may be expecting credits in the 7. Renounce a claim of the partnership
future which may be MORE than the losses – Pacific Commercial Co. v. EXPN:
Aboitiz and Martinez 1. Unless authorized by the other partners
2. The other partners ABANDONED THE BUSINESS
Art. 1817.
Any stipulation against the liability laid down in the preceding article GR 4: No act of the partner in CONTRAVENTION of a restriction on authority WITH
shall be void, except as among the partners. (n) THE KNOWLEDGE of the persons whom he is dealing with SHALL BIND the
partnership
GR: Any STIPULATION against any liability provided under Art. 1816 shall be VOID
EXPN: Stipulation against liability as AGAINST THEMSELVES

Points to remember: POWER OF PARTNER AS AGENT OF PARTNERSHIP

1. Any stipulation contrary to the PRO RATA AND SUBSIDIARY LIABILITY
provided under Art. 1818 in so far as it affects 3rd persons shall be VOID and of
no effect
2. It is VALID AN ENFORCEABLE among the partners
Art. 1818.
Every partner is an agent of the partnership for the purpose of its
business, and the act of every partner, including the execution in the
partnership name of any instrument, for apparently carrying on in the usual way
the business of the partnership of which he is a member binds the partnership,
unless the partner so acting has in fact no authority to act for the partnership in
the particular matter, and the person with whom he is dealing has knowledge of
the fact that he has no such authority.
An act of a partner which is not apparently for the carrying on of
business of the partnership in the usual way does not bind the partnership
unless authorized by the other partners.
GR: All partners have EQUAL RIGHTS with re to the management and conduct of the
business of the partnership
EXPN: Where there is an agreement to the contrary
a. As to THEMSELVES
- If the act of the partner is within the scope of his actual, implied or
apparent authority, he is not only a PRINCIPAL as to himself but also
an AGENT to his co-partners or partnership as a whole. Hence, his act
BINDS the partnership
- Basis: LAW ON AGENCY (applies to law on partnership). The latter is
a branch of the former
b. As to 3rd PERSONS
GR: Any LIMITATION ON THE AUTHORITY of the partner will NOT bind
INNOCENT 3RD PERSONS who have the right to assume that the
GENERAL PARTNER whom he is dealing with has AUTHORITY to
bind the partnership with respect to its business (especially the
ostensible partner)

1. The 3rd person has NO DUTY TO MAKE INQUIRIES AS TO

ACTING PARTNER’S AUTHORITY
 - 3rd person is not bound to make inquiries whether the partner
with whom he is dealing with has the authority of the other
partners
- The public is not required to inquire as re the agreements had
between the partner
- The regular business procedure does not require the 3rd
person to inquire from time to time if the partner has the
authority and bears the consent of the other partners
- His KNOWLEDGE THAT HE IS A PARNTER is ENOUGH
2. There is a PRESUMPTION that the acting partner has the authority
to BIND the partnership
General presumptions:
a. Every partner is an AGENT OF THE FIRM
b. That he has the AUTHORITY to bind the firm
- This PRESUMPTION is enough for the 3rd person to hold the
firm liable for the transactions entered into by a member
acting in its behalf and within his authority – Litton v. Hill and
Ceron
3. The 3RD PERSON has NO RIGHT TO ASSUME THAT THE
ACTING PARTNER HAS AN UNLIMITED AUTHORITY
LIABILITY OF PARTNERSHIP FOR ACTS OF PARTNERS
1. Acts for apparently carrying in the usual way the business of the
partnership
GR: Since a partner is AN AGENT OF THE PARTNERSHIP, he has the
power to do such acts with BINDING EFFECT even if he in fact has
no authority
EXPN: The partnership will not be liable ONLY if: (the 2 requisites below
are met)
a. The partner so acting has no authority, AND
b. The 3rd person has knowledge of the fact that the partner he
is dealing with has no authority
*NB: Usual way – usual for a PARTICULAR PARTNERSHIP or for similar
partnership
Par. 1 refers to Acts of ADMINISTRATION ONLY
2. Acts of strict dominion or ownership
GR: Any power not expressly delegated to a partner is presumed to be
WITHHELD
Q: IN CASE THE ACT IS NOT FOR THE CARRYING IN THE USUAL WAY THE
BUSINESS OF THE PARTNERSIP, IS THE LATTER BOUND?
GR: No
EXPN:
1. When the acts are AUTHORIZED by ALL the
other partners
2. If the partners HAVE ABANDONED the business
Points:
1. Par. 3 enumerates the acts WHICH ARE BEYOND the
implied powers of each partner
2. It shows the LIMITATIONS on the authority of the partners to
bind the partnership
Q: IF THE PARTNER WOULD LIKE TO ENTER INTO A
CONTRACT BEYOND THE SCOPE OR ONJECT OF THE
PARTNERSHIP OR IN RE TO THE PARTNERSHIP
PROPERTY, WHAT MUST HE DO?
There must be another conference of authority,
express or implied, apart from the authority which
is derived from his character of being a partner
(2nd par. of At. 1818)
e.g. Where the partnership is engaged in selling
mangoes, the act of the partner in selling dresses will
not bind the partnership or ANY CONTRACT entered
into after such business is concluded
3. If the purposes or object of the firm is LIMITED OR SPECIAL,
the 3rd person has no right to obtain credit on the faith of the
firm in relation to an object that is foreign to its business
3. Acts in contravention of the restriction on authority
GR: the partnership will not be liable to the 3rd person if the latter has
ACTUAL OR PRESUMPTIVE KNOWLEDGE of the RESTRICTION
on the authority of the partner WHETHER OR NOT the act is for the
carrying in the usual way of the business
DEFENSES OF AN ERRING PARTNER
o When a partner enters into a contract without AUTHORITY:
 With respect to 3rd persons, that partner as well as the partnership
shall be liable because the 3rd person has no obligation to make an
inquiry
 With respect to the partnership, the erring partner is PERSONALLY
LIABLE even if he used the partnership name to enter into the
contract
o He cannot argue that:
 He merely ATTEMPTED TO BIND THE PARTNERSHIP but he
failed (so as to avoid his act)
 He cannot argue against the 3rd person that he has no authority as
HE IS ESTOPPED from denying such authority
Art. 1819.
Where title to real property is in the partnership name, any partner
may convey title to such property by a conveyance executed in the partnership
name; but the partnership may recover such property unless the partner's act
binds the partnership under the provisions of the first paragraph of article 1818,
or unless such property has been conveyed by the grantee or a person claiming
through such grantee to a holder for value without knowledge that the partner,
in making the conveyance, has exceeded his authority.
Where title to real property is in the name of the partnership, a
conveyance executed by a partner, in his own name, passes the equitable
interest of the partnership, provided the act is one within the authority of the
partner under the provisions of the first paragraph of Article 1818.
Where title to real property is in the name of one or more but not all
the partners, and the record does not disclose the right of the partnership, the
partners in whose name the title stands may convey title to such property, but
the partnership may recover such property if the partners' act does not bind the
partnership under the provisions of the first paragraph of Article 1818, unless
the purchaser or his assignee, is a holder for value, without knowledge.
Where the title to real property is in the name of one or more or all
the partners, or in a third person in trust for the partnership, a conveyance
executed by a partner in the partnership name, or in his own name, passes the
equitable interest of the partnership, provided the act is one within the authority
of the partner under the provisions of the first paragraph of Article 1818.
Where the title to real property is in the name of all the partners a
conveyance executed by all the partners passes all their rights in such property.
(n)
Par. 1: Title over the property under the partnership + conveyance is made by a
partner in the PARTNERSHIP NAME
GR: The partnership may recover the property
EXPN:
1. When the act of the partner binds the partnership in acc with par. 1 of Art.
1818
2. When the grantee or any person claiming thru such grantee has already
passed the property to a HOLDER FOR VALUE without knowledge that
the partner, in making the conveyance has exceeded his authority
Par. 2: Title over the property in the firm’s name + conveyance made by the partner in
his NAME
GR: The conveyance will convey the EQUITABLE INTEREST in the partnership
PROVIDED that the partner acted within the scope of his authority
Q: EQUITABLE INTEREST/TITLE
One that is not recognized in law but only in EQUITY
One that is IIMPERFECT OR UNENFORCEABLE in law but because of
equitable principles, may be converted into a legal title or interest
Par. 3: Title is in the name of ONE or MORE but NOT ALL the partners, and the
records do not disclose the right of the partnership + The conveyance made by the
partners (in whose name the title over the property is)
GR: The partnership may recover the property
EXPN:
1. When the act of the partner binds the partnership in acc with par. 1 of Art.
1818
2. When the grantee or any person claiming thru such grantee has already
passed the property to a HOLDER FOR VALUE without knowledge that
the partner, in making the conveyance has exceeded his authority
Par. 4: Title in the name of ONE or MORE or ALL of the partners or 3rd person in
TRUST for the partnership + CONVEYANCE made either in the name of the firm or in
the name of the partners
GR: The conveyance will convey the EQUITABLE INTEREST in the partnership
PROVIDED that the partner acted within the scope of his authority
Par. 5: Title in the partners name + conveyance made by ALL the partners
GR: Their interest over the property will be conveyed
Points:
1. Ownership over the property – that which is shown in the MUNIMENT OF TITLE
2. The real property is usually in the PARTNERSHIP name if it belongs to the
partnership
NB: But in one way or another, the partnership may not hold the title but
the partners know that it is a partnership property
3. Any property purchased thru partnership funds = partnership property
(presumption) UNLESS a contrary intention appears
4. Art. 1819 – legal effects of the conveyance of partnership property depending
on:
a. In whose name the property is registered
b. Who made the conveyance
Q: IN WHOSE NAME MAY THE PROPERTY BE REGISTERED
a. Partnership
b. One or more but not all the partners
c. One or more or all of the partners or in the 3rd person in trust for the
partnership
d. All the partners
5. Par. 1, 3 and 5 – conveys title or ownership
Par. 2, and 4 – only EQUITABLE INTEREST
6. Conveyance – includes the power to MORTGAGE (unlike in the rule on agency
where the special power to sell does not include the power to mortgage) –
Santiago Syjuco, Inc. v. Castro
7. INNOCENT PURCHASERS WITHOUT NOTICE
GR: the innocent purchasers should be protected NOTWITHSTANDING THE
FACT that the partner making the conveyance has no authority to do so
a. LEGAL TITLE (partner) while the EQUITABLE TITLE (partnership) – the
buyer in good faith and for value without notice will acquire title because it
is safe to PRESUME that the possession or interest of the partnership is
SUBORDINATE TO and CONSISTENT with the record of title
b. Where A (partner who has no authority to sell the land) conveyed the land
to B and the latter sold it to C
- Here, even if A does not have the authority to sell, under par. 1, the
partnership may not recover the property from C who has no notice or
knowledge that A has no authority to convey the land
- If the land is not yet sold, hence, still with B, B has a right to retain the
title (being the grantee) UNLESS he knows that A has no authority to
sell
c. The buyer need not have the ACTUAL OR CONSTRUCTIVE
KNOWLEDGE of the trust or any condition limiting the authority of the
partner concerned
- Notice of the interest of the partnership in a property is not had by a
knowledge of the fact that legal title is in the name of the member of the
partnership. The buyer will be protected
8. AUTHORIZATION OR RATIFICATION OF CONVEYANCE
GR: A partner may be authorized by the others to convey the real property of the firm
or even if the partner conveyed the property without authority, the partners may
ratify the act of the partner
Q: HOW SHOULD THIS AUTHORITY OR RATIFICATION BE PROVED?
GR: Convincingly because this will not be presumed (so, this will be used by the
partner so that he won’t PERSONALLY be liable)
EXPN:
a. After the lapse of so many years after the act of conveyance, the authority
will be presumed
Q; HOW SHOULD THE AUTHORIZATION BE MADE?
a. Varied opinions – some say in writing however there are instances where
partners become bound because of PAROL authority given (e.g. Hey
sherry you may sell this land!-oral)
b. When a partner executes a deed of sale IN THE PRESENCE of his co-
partners under a PAROL AUTHORITY – held: Execution of the deed by
ALL the partners
c. IMPLIED from the partnership business – e.g. where the partnership is
engaged in the buy and sell of real estate, the contract executed to sell
the property is presumed valid
Q: HOW MAY RATIFICATION BE MADE
a. When A executed a deed of sale, and B thereafter, ADOPTED the act
b. Knowingly deriving benefits from the contract
c. Inferred from the fact that they are present during the execution and
delivery
d. Acting under the contract
Art. 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. (n)
GR: An ADMISSION OR REPRESENTATION made by a partner concerning the
partnership affairs and within the scope of his authority shall be an EVIDENCE
AGAINST THE PARTNERSHIP
Points:
1. GENERALLY, a person shall not be BOUND by the ACT, ADMISSION,
STATEMENT or AGREEMENT made by another WITHOUT HIS KNOWLEDGE
OR CONSENT
Exception: But he may be bound by virtue of the existing RELATION
between them
2. GR: Admissions by a party and testified to by a 3rd person will be an EVIDENCE
AGAINST THE FORMER
Exception: An admission made by a party may be received against ANOTHER if
the former is acting as an AGENT for the latter
NB: This is the basis for the rule under Art. 1820 that when a partner
makes an admission during the existence of the partnership, the latter as
well as the co-partners will be bound by the admission if the admission:
a. Pertains to the partnership affairs
b. The admission is within the authority of the partner making
the admission
3. But where the admission is made by a party on his behalf alone, then, the same
shall only be used against him
Q: MAY THE ADMISSION MADE BY A PARTNER AFTER THE DISSOLUTION BE
RECEIVED AGAINST THE OTHER PARTNERS?
Yes, provided that the admission has something to do with the winding up
of the partnership affairs
Points:
For the admission of the partner to bind the partnership, the following must concur:
1. The partner making the admission must be acting within the scope of his
authority at the time of making the declaration
2. The statement is made in the COURSE OF, RELATED TO AND MATERIAL TO
THE TRANSACTION OF THE BUSINESS OF THE PARTNERSHIP
3. The partnership relation must be shown before the partnership can be charged
with the admission of a partner under Art. 1820
4. The proof of such relation must be established by an evidence OTHER THAN
THE ADMISSION itself
e.g. If C denies the existence of a partnership, then B, in the above example
must show the existence of the partnership other than by the admission made
by A to him. Otherwise, such admission will not bind C.
Exception: The ADMISSION made by a partner may be used to establish the
partnership relations if the party to be charged by such admission is present at
the time of the making of the declaration
e.g. If A made a statement to the effect that he and C are partners, and C did
not react (as in fact he is present), then, the admission made by A that
partnership X and Co exists may be admitted to show that A and C are partners
5. Any admission made by a partner at the time when HE WAS NO LONGER A
PARNTER will not be admissible in evidence against the partnership – Congco
v. Triliana
Art. 1821.
Notice to any partner of any matter relating to partnership affairs, and the
knowledge of the partner acting in the particular matter, acquired while a
partner or then present to his mind, and the knowledge of any other
partner who reasonably could and should have communicated it to the
acting partner, operate as notice to or knowledge of the partnership,
except in the case of fraud on the partnership, committed by or with the
consent of that partner. (n)
GR: Notice to or KNOWLEDGE of any partner of any matter relating to the partnership
affairs operates as notice to or knowledge of the partnership
EXPN: Except in case of fraud on the partnership committed by or with the consent of
that partner
Points:
1. A 3rd person desiring to notify the partnership as regards any matter
relating to the partnership affairs need NOT notify ALL the partners
2. It is enough that he notifies 1 or ANY of the partners.
- This is an effective communication even if the partner to whom the
information was communicated to FAILED or NEGLECTED to
communicate such knowledge or notice to the other co-partners
Q: CASES OF KNOWLEDGE UNDER ART. 1821?
1. Knowledge of a partner acting on a particular matter ACQUIRED while a
partner
2. Knowledge of a partner acting on a particular matter then PRESENT to his
mind
3. Knowledge of ANY OTHER PARTNER who could and should have
communicated it to the acting partner
Art. 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 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. (n)
Art. 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. (n)
Art. 1824.
All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823. (n)
GR: The partners are merely PERSONALLY AND SUBSIDIARILY liable
Points:
1. LIABILITY ARISING FROM PARTNER’S TORT OR BREACH OF TRUST
a. Art. 1822-1824 establishes the SOLIDARY liability of the partners and the
partnership for the WRONGUL ACT OR OMISSION (tort) or BREACH OF
TRUST by any partner ACTING within the SCOPE OF THE PARTNERSHIP
BUSINESS OR WITH AUTHORITY FROM THE OTHER PARTNERS
NB:
1. If the partner acts BEYOND the scope of the partnership
business, the latter is not bound by said act by virtue of Art.
1818 unless authorized by the other partners
2. If the partner is NOT authorized by the other partners, then, the
partnership will not be liable – supplied by me
b. This is TRUE even if the partners DID NOT PARTICIPATE IN, RATIFY OR
HAD NO KNOWLEDGE of the said act or omission
c. Remedy: This is without prejudice to the co-partners’ right to ask for
reimbursement from the guilty partner
2. Art. 1816 v. Art. 1822-1824
a. Art 1816 – the liability is SUBSIDIARY
Art. 1822-1824 – the liability of the partners is SOLIDARY
b. Art. 1816 – the liability of the partners is FOR THE CONTRACTUAL
PARTNERSHIP OBLIGATIONS to 3rd persons
Art. 1822-24 – the liability of the partners arises from the LIABILITY OF
THE PARTNERSHIP for the wrongful act or omission of any partner
NB: It is called TORT if the act or omission does not constitute a crime or
felony punishable by law
Q: WHAT IS THE NATURE OF THE LIABILITY OF THE PARNTERS IN CASE OF
WORKMEN’S COMPENSATION CASES?
Liwanag and Reyes v. Workmen’s Compensation Commission – it should
be solidary
Q: WHAT IS THE REASON FOR THE IMPOSITION OF A WIDER LIABILITY IN
CASE OF TORT AND BREACH OF TRUST?
Public policy. The principle of RESPONDEAT SUPERIOR or rule on
vicarious liability equally applies in the case of a partnership as it applies
to the law on agency
Q: WHAT IS THE REASON FOR THE SOLIDARY LIABLITY?
Because the law protects a person who IN GOOD FAITH, relied on the
authority of the partner, whether that authority is REAL OR APPARENT.
Hence, under Art. 1824, whether guilty or innocent, the other partners
shall be solidarily liable – Munasque v. CA
Q: WHO MAY BE IMPLEADED BY THE AGGRIEVED PARTY
Since the liability is SOLIDARY, the partner has his ELECTION to:
1. Sue the partnership
2. Sue just ONE partner – even the one who has no knowledge
of the tort or breach
3. Sue one or more partners
Q: REQUISITES FOR THE LIABILITY UNDER ART. 1822?
1. The partner must be guilty of any WRONGUL ACT OR OMISSION
2. That partner must be acting IN THE ORDINARY COURSE OF BUSINESS or
with the AUTHORITY of the other co-partners EVEN if the act is not RELATED
to the business
Q: MAY A NON-ACTING PARTNER BE HELD CRIMINALLY LIABLE FOR THE
CRIMINAL ACTS OF HIS CO-PARNTER?
No.
Q: WHEN THEN MAY HE BE HELD CRIMINALLY LIABLE?
In case where the partnership is engaged in an unlawful business
and he knows of it or consents thereto
3. LIABILITY UNDER ART. 1822 as a RULE does not include CRIMINAL
LIABILITY
Reason: this is personal and individual in character
e.g. Where a partner is guilty of embezzlement, the other partner cannot be disbarred
or disciplined if he has no KNOWLEDGE, DID NOT CONSENT TO, OR
PARTICIPATED in the criminal act
Exception: There may be criminal responsibility in case where the crime is
STATUTORY and where the penalty is FINE rather than imprisonment
e.g. A partner is also held criminally liable because of his co-partner’s illegal blasting
MISAPPLICATION OF MONEY OR PROPERTY OF A 3RD PERSON
Cases contemplated under Art. 1823
1. The partnership shall be liable for the losses suffered by a 3rd person
whose money or property was misappropriated by a partner who received
it within the scope of his authority
2. Or by ANY OTHER PARTNER AFTER the money or property has been
received by the partnership and while in its custody
Art. 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;
(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. (n)
Q: ESTOPPEL/EFFECTS THEREOF
- Estoppel 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, either
EXPRESS OR IMPLIED
- Through estoppel, an admission or representation is rendered
CONCLUSIVE with respect to the person making it and cannot be
denied or disapproved as against the person relying thereon
Q: MAY A PERSON BE HELD LIABLE AS A PARTNER EVEN IF HE IS NOT A
PARTNER IN FACT?
GR: Persons who are not partners to each other are not partners as to 3rd
persons. Hence, one may not be liable or claim any right as a
partner UNLESS he consent to his being a partner
EXPN: Art. 1825 (because of the doctrine of estoppel)
Q: HOW MAY A PERSON BE HELD LIABLE AS A PARTNER BY ESTOPPEL?
A person, not otherwise a partner may be held liable as a partner by
estoppel and thus may be held liable to 3rd persons relying on such
representation when:
1. He DIRECTLY REPRESENTS himself as a PARTNER of an
EXISTING PARTNERSHIP or of a NON-EXISTING
PARTNERSHIP (with one or more person who are not actual
partners)
2. He INDIRECTLY REPRESENTS himself by consenting to
another representing him as a partner in an existing
partnership or in a non-existing partnership
Therefore, he may become a partner by estoppel by:
1. Representing himself as a partner
2. By consent or knowledge
Q: HOW TO HOLD A PERSON LIABLE AS A PARTNER BY ESTOPPEL
1. Prove the misrepresentation
2. Prove that because of such BONAFIDE (GF) RELIANCE, he
suffered injury thereby
Q: WHEN WILL PARTNERSHIP LIABILITY RESULT?
When ALL the ACTUAL PARTNERS consent to the representation by a
person that he is a partner or in a case where the latter consents to his
being represented as such, the LIABILITY incurred by such person as well
as that of the ACTUAL PARTNERS – partnership liability.
NB: This gives rise to a PARTNERSHIP BY ESTOPPEL. The person will be
considered as an AGENT OF THE PARTNERSHIP and his act or obligation shall be
that of the partnership (note that the partnership shall be responsible for all the
expenses incurred by the partner)
- So, in this case, the PARTNERSHIP WILL BE LIABLE. Thereafter, the partners
will be liable with their separate properties (JOINT and SUBSIDIARY)
Q: WHEN IS THE LIABILITY CONSIDERED AS PRO RATA?
a. In case where THERE IS NO ACTUAL OR EXISTING
PARTNERSHIP – all those represented as partners and those who
made such representation shall be liable jointly or pro rata (e.g. A,
B, C and D are not partners. A and B represented C and D as their
alleged partners. C and D contracted P1000). Here, A, B, C and D
shall each be held liable for P250
b. In case where NOT ALL OF THE PARTNERS of an EXISTING
PARTNERSHIP consented to the representation – then, the partner
by estoppel and the partners who made or consented to such
representation by the former will be held liable pro rata or jointly
(e.g. A, B and C are partners in an existing partnership. A
consented to D’s representation of himself as a partner. D
contracted a loan of P1000. In this case, A and D shall each be
liable for P500. B and C will not be liable as well as the partnership
because they did not consent to the representation by D)
Q: WHEN IS THE LIABILITY SEPARATE
a. When there is no existing partnership AND not ALL BUT ONLY
SOME of the persons consented to the representation
o Then, only those who represented themselves or
consented to such representation will be liable
o As well as those who made or consented to such
representation
b. In case of an EXISTING PARNTERSHIP AND none of the partners
consented to such representation
o Then, only those who represented themselves or
consented to such representation will be liable
o As well as those who made or consented to such
representation
Q: DOES ESTOPPEL CREATE A PARTNERSHIP?
No. estoppels does not create a partnership. A contract, express or
implied is necessary in order to form a partnership
NB: The law only considers them as partners and the association as a partnership in
so far as it is favorable to the 3rd person by reason of the equitable principle of
ESTOPPEL – Mcdonald v. National City Bank of NY
NB: Therefore, ACTUAL PARTNERSHIP is one thing and LIABILITY as partners is
another thing. The LIABILITY (as partners) is created merely in favor of persons who
in good faith relied on such representation and EXTENDED credit to the ACTUAL OR
APPARENT PARTNERSHIP
Q: MAY LIABILITY AS A PARTNER ARISE CONTRARY TO THE INTENTION OF
THE PARTIES?
Yes.
The partnership LIABILITY (of a person who holds himself out or who permits others to
represent him as a partner) arose because of:
a. Estoppel
b. Principle of law to prevent fraud upon those persons who lend their money
upon reliance to the credit of those persons who held themselves as
partners
Points:
1. One may be held liable as a partner even if this is contrary to his intention
2. One WHO HAS RECEIVED BENEFITS OR PROFITS in lieu of a
partnership transaction CANNOT deny that there is no partnership
because the agreement is void
NB: Partnership liability does not depend upon the contract between
the parties but whether or not the 3rd person has a right to rely
on their joint credit
3. One who incurs partnership liability does not acquire the rights of a
partner
Q: WILL THE DOCTRINE OF ESTOPPEL APPLY IN THE CASE OF ACTUAL
PARTNERS?
No. The doctrine will not apply between and among them because they
become partners not because of ESTOPPEL but because of their
CONTRACT.
It is true that a single or more partners may become liable for a GREATER EXTENT
than that allowed in the partnership agreement, but this is only:
a. A ground as amongst the partners to DISSOLVE THE PARNTERSHIP
b. ESTOPPEL will only apply with respect to a 3rd person in order to protect
his interest (because the representations were detrimental to him)
Q: WHEN DOES THE DOCTRINE OF ESTOPPEL APPLY THEREFORE?
With respect to 3rd persons who relied on the representation of another as
a partner to their detriment. The law will not allow the denial of such
representation because this will prejudice the 3rd person
NB: There is a dictum to the effect that where the representation is so PUBLIC and
OPEN such that a PRESUMPTION is created that the 3rd person in fact relied upon it
Q: HOW TO PROVE THAT A PERSON HELD HIMSELF OUT AS A PARTNER
It is a question of fact and must be established by evidence. It is a case to
case basis
Points:
1. No one can be held liable as a partner where the acts imputed are NOT
his own or where such acts came from persons whom he did not so
authorize or he DOES NOT KNOW
2. Mere SUPPOSITION, BELIEF OR UNDERSTANDING that a person is a
partner (generally held, supposed and believed and understood as such)
is not sufficient proof that he is a partner
NB: Art. 1834 v. Art. 1825 – Under Art. 1834, there is NO PARTNERSHIP BY
ESTOPPEL. There is merely a PARTNERSHIP LIABILITY which continues because of
lack of termination
Q: DOES ESTOPPEL APPLY BETWEEN ACTUAL PARTNERS?
No. Because they become as such by agreement.
NB: Note however that a single partner or 2 or more partners may become liable to 3rd
persons TO A GREATER EXTENT than that provided in the partnership agreement.
(this only goes to show that estoppels applies only between a PARTNER and a 3RD
PERSON)
Q: WHAT THEN IS THE SIGNIFICANCE OF ESTOPPEL BETWEEN ACTUAL
PARTNERS
Should a partner agree with a 3rd person to be liable for a greater liability,
this will be a ground for DISSOLUTION of the partnership.
Q: HOW ABOUT AS TO 3RD PERSONS?
3rd persons may use estoppels as a defense in order to get their claim.
NB: A person or persons may be a partner (or partners) by representing themselves to
be such or by allowing others, with their consent and knowledge to be represented as
such.
Basis: The law will not permit a DENIAL OF SUCH REPRESENTATION (as a partner)
where 3rd persons have relied on the same (in the exercise of reasonable diligence) to
their detriment
Q: HOW DO YOU PROVE THAT ONE HAS RELIED ON THE REPRESENTATION
OF ANOTHER?
There is a dictum to the effect that the holding out as a partner may be so
PUBLIC AND OPEN and this creates the presumption that the 3rd person
relied upon it.
Q: HOW TO PROVE THAT ONE HAS REPRESENTED HIMSELF OUT OR
ALLOWED SOMEONE TO REPRESENT HIM AS SUCH
This is a QUESTION OF FACT and each case depends upon its own
merits
Points: (on how to prove that one is a partner by estoppel)
1. One cannot be a PARTNER BY ESTOPPEL if the acts relied upon is NOT
his or that of the others who are not authorized by him or known to him
2. NOT SUFFICIENT EVIDENCE: The mere fact that it is generally
SUPPOSED, BELIEVED OR UNDERSTOOD that he is a PARTNER
3. Art. 1834 last par – not a PARTNERSHIP BY ESTOPPEL but
PARTNERSHIP LIABILITY (for lack of termination)
Q: ARE THE PROVISIONS OF THE CIVIL CODE APPLICABLE TO A DE FACTO
PARTNERSHIP?
Yes. Note that the law RECOGNIZES a defectively organized partnership
as DE FACTO for purposes of 3rd persons. Hence, although the de facto
partnership HAS NO LEGAL PERSONALITY OR JURIDICAL
EXISTENCE, the Civil Code provisions on partnership apply. Hence, it
must also have the attribute of DOMICILE.
Note:
1. A de facto partnership has no JURIDICAL PERSONALITY but the law
RECOGNIZES its DE FACTO EXISTENCE (as 3rd persons will be
prejudiced)
2. It also has domicile, hence, the Civil Code provisions on partnership apply
Q: WHERE IS THE DOMICILE OF A DE FACTO PARTNERSHIP?
Where it conducts its business.
NB: Registration of a chattel mortgage in its place of business is valid – Peralta v.
Manalang
Q: WHAT ARE THE ELEMENTS NECESSARY TO ESTABLISH LIABILITY OF A
PARTNER BY ESTOPPEL?
1. Proof by the plaintiff that he is INDIVIDUALLY AWARE of the
representations made by the defendant or the representations made of
him
2. There should be RELIANCE on such representations
3. LACK OF DENIAL OR REFUTATIONS OF THE STATEMENTS by the
defendant
NB: It is not necessary that the denial precede the reliance of the plaintiff
(if the denial should come promptly after it was heard)
Q: IS IT NECESSARY TO PROVE THAT THE DEFENDANT IS FINANCIALLY
CAPABLE?
No.
NB: Sole reliance is not necessary with respect to dealings involving the one
representing or represented
LIABILITY AS GENERAL PARTNERS OF PERSONS WHO ASSUME TO ACT AS A
CORPORATION
Q: WHAT DOES THE LAW SAY OF THE LIABILITY OF PERSONS WHO ASSUMT
TO ACT AS A CORPORATION KNOWING IT TOBE WITHOUT AUTHORITY TO DO
SO?
Under Sec . 21 of BP Blg. 68: All persons WHO ASSUME TO ACT
as a corporation KNOWING it to be without authority to do so shall be
liable as GENERAL PARTNERS on all DEBTS, LIABILITIES AND
DAMAGES incurred or arising thereon.
Q; IS IT A DEFENSE FOR THE CORPORATIO TO STATE THAT IT HAS NO
CORPORATE PERSONALITY?
No. Under the same section, it was provided that: “provided however that
when any such OSTENSIBLE CORPORATION is sued on any of its
transaction or on any tort committed by it, it shall not be allowed to
interpose the defense of lack of corporate personality
Q: WHAT THEN IS THE LIABILITY OF PERSONS WHO ATTEMPT BUT FAIL TO
FORM A CORPORATION?
Their liability shall be that of a GENERAL PARTNER. In this case, a DE
FACTO PARTNERSHIP is formed among them
Q: WHO SHALL BE LIABLE AS GENERAL PARTNERS?
Only the ACTIVE MEMBERS of the attempted corporation.
NB: Under Sec. 21, it was stated that the persons WHO ASSUME TO ACT as a
corporation shall be liable as GENERAL PARTNERS
Q: HOW ABOUT THE STOCKHOLDER?
There shall be NO PERSONAL LIABILITY because he has not
participated in the corporation
Art. 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. (n)
GR: A person admitted INTO AN EXISTING PARTNERSHIP shall be liable for ALL
THE OBLIGATIONS of the partnership BEFORE HIS ADMISSION as though he had
been a partner when such obligation was incurred, EXCEPT that his liability shall be
satisfied only out of the partnership property
Exception: When there is a stipulation to the contrary
Q: DOES A PERSON WHO IS ADMITTED AS A PARNTER INTO AN EXISTING
PARTNERHIP BECOME LIABLE FOR THE DEBTS CONTRACTED BY THE LATTER
BEFORE HE ENTERED?
Yes. As expressly provided under Art. 1826
Q: WHAT IS THE CATCH?
GR: His liability therefore is limited only to his share in the partnership
property
Exception: When there is a STIPULATION (that his other properties may
be attached for that purpose) to the contrary
NB: Hence, the newly accepted partner’s credit may not be garnished in order to
satisfy the credit of the old creditors
Q: IS THE LIABILITY OF THE PARTNERS LIMITED TO THEIR PARTNERSHIP
PROPERTY ONLY?
No. We need to qualify.
1. For obligations contracted and existing at the time that they are
already partners, they shall be liable with:
 a. Their partnership property, AND
b. Separate property
2. For obligations already existing at the time when a person is
admitted as a partner, his liability is limited to his PARTNERSHIP
PROPERTY. However for subsequent obligations contracted (after
he has become a partner), he shall also be liable with his
partnership property AND separate property
NB: Such obligation may have been incurred thru a contract entered into before he
becomes a partner
Q: WHAT THEN ARE THE RIGHTS OF THE EXISTING AND SUBSEQUENT
CREDITORS?
We must qualify.
1. As to persons who are already PARTNERS AT THE TIME THE
OBLIGATION WAS CONTRACTED – existing and subsequent
creditors EQUAL RIGHTS to BOTH the SEPARATE PROPERTY
AND PARTNERSHIP PROPERTIES (of the previously existing
partners)
2. As to those who are newly-admitted partners – ONLY subsequent
partners have RIGHTS to the separate properties of newly admitted
partners
NB: Art. 1826 should be read with Art. 1840
Q: WHAT HAVE THE 2 PROVISIONS ACCOMPLISHED?
Art. 1826 and Art. 1840 are based on the principle that WHERE THERE
IS ONE CONTINUING BUSINESS, the mere fact that NEW PARTNERS
ARE ADMITTED or that SOME PARTNERS ceased to be partners should
not cause (as before) the CONFUSION as re the claims of creditors with
re to the PROPERTIES EMPLOYEDIN THE BUSINESS.
Hence, regardless of the TIME when the creditors became partners and
the exact combinations of the partners, THE CREDITORS shall have
EQUAL RIGHTS with respect to the partnership property
Q: IF AN INCOMING PARTNER HAS ASSUMED THE OBLIGATION OF THE
RETIRING PARTNERS, DO THE OLD CREDITORS HAVE A CAUSE OF ACTION
AGAINST THE FORMER?
Yes, if the assumption is that the contract is made for the benefit of the
creditors
Basis: Art. 1311 par. 2 of the Civil Code which provides that if a contract should
contain a stipulation IN FAVOR OF A 3RD PERSON, he may demand its fulfillment
provided that he has communicated his acceptance to the obligor before its
revocation. Mere incidental benefit or interest is not sufficient. The contracting parties
must have CLEARLY AND DELIBERATELY conferred a favor in favor of 3 rd persons
Q: ISN’T ART. 1826 HARSH?
No. This is so because the newly admitted partners will partake of the
benefits of the partnership property and the ESTABLISHED BUSINESS.
He may in fact obtain FULL KNOWLEDGE of the debts of the partnership
and he may therefore protect himself by demanding its settlement or
liquidation.
NB: This is not afforded to the creditors
Q: WHAT IS THE LIABILITY OF THE RETIRING OR WITHDRAWING PARTNER
WITH RESPECT TO OBLIGATIONS CONTRACTED?
It depends ON THE TIME WHEN THE CONTRACT was executed –
whether while he was still a partner or after the notice of his retirement
was served
1. If the retiring partner serves the notice of his withdrawal AND
THEREAFTER, the partnership incurs an obligation – the
RETIRING PARTNER SHALL NOT BE LIABLE therefore
NB: His liability for existing obligations (incomplete) will remain
2. If the contract was executed AT THE TIME WHEN HE WAS STILL
A PARTNER and AFTER HE RETIRES OR AFTER THE SERVICE
OF HIS NOTICE OF RETIREMENT, THE GOODS WERE
DELIVERED – the retiring partner shall be LIABLE
NB: In short, if the CONTRACT was entered into while he is still a partner,
it is immaterial whether the goods are delivered AFTER his retirement
Q: HOW ABOUT THE INCOMING PARTNER?
GR: An incoming partner shall NOT be PERSONALLY LIABLE (with his
separate properties) for the obligations existing BEFORE he
becomes a partner.
EXPN: Where the contract was entered into BEFORE he became a
partner but the goods were delivered AFTER he already becomes a
partner, he shall be liable therefore
NB: Hence, the creditor may sue both the RETIRING PARTNER AND THE
INCOMING PARTNER for the goods delivered AFTER the former retires and AFTER
the latter becomes a partner, the CONTRACT entered into being in effect at the time
when the RETIRING PARTNER has not yet tendered his notice of retirement and AT
THE TIME when the incoming partner is NOT yet a partner
Art. 1827.
The creditors of the partnership shall be preferred to those of each
partner as regards the partnership property. Without prejudice to this right, the
private creditors of each partner may ask the attachment and public sale of the
share of the latter in the partnership assets. (n)
GR: The CREDITORS of the PARTNERSHIP shall be preferred to those of each of the
partners AS REGARDS THE PARTNERSHIP PROPERTY
Without prejudice to this right, the PRIVATE CREDITORS of each partner may ask for
the ATTACHMENT AND PUBLIC SALE of the share of the partners in the partnership
assets
Q:WHO WILL BE PREFERRED WHEN THE PARTNERSHIP PROPERTY IS TO BE
DISPOSED?
GR: The CREDITORS OF THE PARTNERSHIP shall be preferred over
that of the partners’ or the partners’ claims
Reason: The partnership being a separate and distinct legal entity shall be
deemed to apply its properties in the payment of its OWN debts rather than first
defraying the debts of the partners
NB: This rule applies only in the disposition of the partnership assets
Q: WHO MAY BE SUED BY THE CREDITORS OF THE PARTNERSHIP?
Both the partnership and the partners may be sued in ONE ACTION but
note that the PRIVATE PROPERTIES of the partners may not be taken
UNTIL AND UNLESS the properties of the partnership have first been
exhausted.
Q: WHAT THEN IS THE REMEDY OF THE PRIVATE CREDITORS OF THE
PARTNERS?
Art. 1827 provides that “without prejudice to the RIGHT TO
PREFERENCE of the partnership creditors, the creditors of the partners
may ask the ATTACHMENT AND PUBLIC SALE of the latter’s share in
the partnership assets
Art. 1827.
The creditors of the partnership shall be preferred to those of each
partner as regards the partnership property. Without prejudice to this right, the
private creditors of each partner may ask the attachment and public sale of the
share of the latter in the partnership assets. (n)
GR: The CREDITORS of the PARTNERSHIP shall be preferred to those of each of the
partners AS REGARDS THE PARTNERSHIP PROPERTY
Without prejudice to this right, the PRIVATE CREDITORS of each partner may ask for
the ATTACHMENT AND PUBLIC SALE of the share of the partners in the partnership
assets
Q:WHO WILL BE PREFERRED WHEN THE PARTNERSHIP PROPERTY IS TO BE
DISPOSED?
GR: The CREDITORS OF THE PARTNERSHIP shall be preferred over that of the
partners’ or the partners’ claims
Reason: The partnership being a separate and distinct legal entity shall be deemed
to apply its properties in the payment of its OWN debts rather than first defraying
the debts of the partners
NB: This rule applies only in the disposition of the partnership assets
Q: WHO MAY BE SUED BY THE CREDITORS OF THE PARTNERSHIP?

Both the partnership and the partners may be sued in ONE ACTION but
note that the PRIVATE PROPERTIES of the partners may not be taken
UNTIL AND UNLESS the properties of the partnership have first been
exhausted.

Q: WHAT THEN IS THE REMEDY OF THE PRIVATE CREDITORS OF THE

PARTNERS?

Art. 1827 provides that “without prejudice to the RIGHT TO

PREFERENCE of the partnership creditors, the creditors of the partners
may ask the ATTACHMENT AND PUBLIC SALE of the latter’s share in
the partnership assets