IX. ART.
1810 - 1814
SECTION 2
Property Rights of a Partner
Article 1810. The property rights of a partner are:
(1) His rights in specific partnership property;
(2) His interest in the partnership; and
(3) His right to participate in the management (n)
Article 1811. A partner is co-owner with his partners of specific
partnership property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any
agreement between the partners, has an equal right with his
partners to possess specific partnership property for
partnership purposes; but he has no right to possess such
property for any other purpose without the consent of his
partners;
(2) A partner's right in specific partnership property is not
assignable except in connection with the assignment of rights
of all the partners in the same property;
(3) A partner's right in specific partnership property is not
subject to attachment or execution, except on a claim against
the partnership. When partnership property is attached for a
partnership debt the partners, or any of them, or the
representatives of a deceased partner, cannot claim any right
under the homestead or exemption laws;
(4) A partner's right in specific partnership property is not
subject to legal support under article 291. (n)
Article 1812. A partner's interest in the partnership is his share of the
profits and surplus. (n)
Article 1813. A conveyance by a partner of his whole interest in the
partnership does not of itself dissolve the partnership, or, as against
the other partners in the absence of agreement, entitle the assignee,
during the continuance of the partnership, to interfere in the
management or administration of the partnership business or affairs, or
to require any information or account of partnership transactions, or to
inspect the partnership books; but it merely entitles the assignee to
receive in accordance with his contract the profits to which the
assigning partner would otherwise be entitled. However, in case of
fraud in the management of the partnership, the assignee may avail
himself of the usual remedies.
In case of a dissolution of the partnership, the assignee is entitled to
receive his assignor's interest and may require an account from the
date only of the last account agreed to by all the partners. (n)
Article 1814. Without prejudice to the preferred rights of partnership
creditors under article 1827, on due application to a competent court by
any judgment creditor of a partner, the court which entered the
judgment, or any other court, may charge the interest of the debtor
partner with payment of the unsatisfied amount of such judgment debt
with interest thereon; and may then or later appoint a receiver of his
share of the profits, and of any other money due or to fall due to him in
respect of the partnership, and make all other orders, directions,
accounts and inquiries which the debtor partner might have made, or
which the circumstances of the case may require.
The interest charged may be redeemed at any time before foreclosure,
or in case of a sale being directed by the court, may be purchased
without thereby causing a dissolution:
 (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)
1. RIGHT TO SPECIFIC PARTNERSHIP PROPERTY
(1810)
(1) His rights in specific partnership property;
(2) His interest in the partnership; and
(3) His right to participate in the management.
Extent of property rights of a partner.
(1) Principal rights. — The property rights of a partner enumerated
under Article 1810 are as follows:
(2)
(a) His rights in specific partnership property (Art. 1811.);
(b) His interest in the partnership (Art. 1812.); and
(c) His right to participate in the management. (Art. 1803.)
(3) Related rights. — A partner has other rights which are related to
the above, namely:
(a) the right to reimbursement for amounts advanced to the
partnership and to indemnification for risks in consequence of
management (Art. 1796.);
(b) the right of access and inspection of partnership books (Art.
1805.);
(c) the right to true and full information of all things affecting the
partnership (Art. 1806.);
(d) the right to a formal account of partnership affairs under certain
circumstances (Art. 1809.); and
(e) the right to have the partnership dissolved also under certain
conditions. (Arts. 1830-1831.)
(f)
Property Rights of a Partner
(a) Example of “specific partnership property”: A and B each contributed
a car for the partnership. The two cars are specific partnership property.
(b) Example of “interest in the partnership” — the partner’s share of the
profits and losses (without mentioning any particular or specific
property).
(c) Note that the right to participate in the management is a very
valuable property right.
Co-Ownership in Specific Partnership Property - The law says “a partner
is co-owner with his partners of specific partnership property.” What
does this mean?
ANS.: Simply that they are co-owners (tenants in common with
proportional, sometimes equal) right thereto. However, the rules on co-
ownership do not necessarily apply; the rules on “co-ownership in
partnership” are applicable. Said rules are detailed in the subsequent
paragraphs.
Rights of a Partner in Specific Partnership Property - (Example: a car
contributed by one of the partners to the partnership)
(a) In general, he has an equal right with his partners to possess the car
but only for partnership purposes (not for other purposes, except if the
others expressly or impliedly give their consent).
(b) He cannot assign his right in the car (except if all the other partners
assign their rights in the same property).
[NOTE: If this rule is violated, the assignment is VOID, where the other
partners were able to recover what had been sold or assigned. The same
rule applies if the right is mortgaged. The assignee or purchaser does NOT
become a co-owner of the specific partnership property with the other
partners.]
(NOTE: Reason for rule of non-assignability: It is hard to determine how
much it exactly is until after liquidation.)
(c) His right in the car is not subject to the attachment or execution
(except on a claim against the partnership).
(NOTE: If there is a partnership debt, the specific property can be
attached. Here, the partners or any of them or the representatives of a
deceased partner cannot claim any right under the homestead or
exemption laws. This is because in a sense, the property is not
considered their individual or separate property.)
[NOTE: Reason why in general, the right of the partner in the car cannot
be attached by his separate or individual creditor: If he cannot make a
voluntary assignment, neither should his separate creditors be allowed an
involuntary assignment because “the beneficial rights of the separate
creditors of a partner in specific partnership property should be no
greater than the beneficial rights of their debtor.”
(d) His right in the car is NOT subject to legal support under Art. 291 (said
Article enumerates the people who are obliged to support each other).
2. INTEREST IN THE PARTNERSHIP (1812)
A Partner’s Interest in the Partnership - While in general, a partner’s interest in
specific partnership property cannot be assigned, cannot be attached, and is not
subject to legal support, a partner’s interest in the partnership (his share in the
profits and surplus) can in general be assigned, be attached, be subject to legal
support.
Nature of partner’s interest in the partnership.
A partner’s right in specific partnership property belonging to the firm to be used
for business purposes (supra.) is to be distinguished from a partner’s right to
share in the firm’s earned profits.
CHARGING ORDER -
“Art. 195. Subject to the provisions of the succeeding articles, the following are obliged to
support each other to the whole extent set forth in the preceding article:
(1) The spouses;
(2) Legitimate ascendants and descendants;
(3) Parents and their legitimate children and the legitimate and illegitimate children of the
latter;
(4) Parents and their illegitimate children and the legitimate and illegitimate children of the
latter; and
(5) Legitimate brothers and sisters, whether of full or half-blood. (291a)”
(1) Share of the profits and surplus. — The partner’s interest in the partnership
consists of his proportionale share in the undistributed profits during the life of
the partnership as a going concern and his share in the undistributed surplus
after its dissolution.
(a) Profit means the excess of returns over expenditure in a transaction or
series of transactions; or the net income of the partnership for a given
period of time. (see Webster’s 3rd Int. Dict., p. 1811.)
 (b) Surplus refers to the assets of the partnership after partnership debts
and liabilities are paid and settled and the rights of the partners among
themselves are adjusted. (see Art. 1839.) It is the excess of assets over
liabilities. If the liabilities are more than the assets, the difference
represents the extent of the loss.
(2) Extent of the partner’s interest. — 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, including the amount paid by the several
partners in liquidating firm debts or in making advances to the partnership, and
until that occurs, it is impossible to determine the extent of his interest.
This interest in the surplus alone which remains after the firm’s debts have been
paid and the equities between the partner and his co-partners have been
adjusted and the partner’s share has been ascertained and set apart, is available
for the satisfaction of the separate debts of the partners. (Art. 1814; 40 Am. Jur.
209-210; Fish vs. Wood, 158 S.W. 267.)
(3) Partner’s interest not a debt due from partnership. — A partner is not a
creditor of the partnership for the amount of his share. (The Leyte-Samar Sales
and K. Tomassi vs. S. Cea and O. Castrilla, 93 Phil. 100 [1953].)
The interest of a partner in a going partnership business where there has been
no settlement of his account is not a debt due to the partner by partnership and,
therefore, is not subject to attachment or execution on a judgment recovered
against the individual partner. (Northampton Brewery vs. Lande, 2A. 2d 553.)
3. CONVEYANCE OR ASSIGNMENT OF A PARTNER’S
INTEREST
Effects of Conveyance By Partner of His Interest in the Partnership (1813)
(a) If a partner CONVEYS (assigns, sells, donates) his WHOLE interest in the
partnership (his share in the profits and surplus), either of two things
may happen:
1) the partnership may still remain; or
2) the partnership may be dissolved.
(NOTE: However, such mere conveyance does NOT of itself dissolve the firm,
therefore in general the partnership remains.)
(b) The assignee (conveyee) does not necessarily become a partner. The assignor
is still the partner, with a right to demand accounting and settlement.
(c) The assignee cannot even interfere in the management or administration of
the partnership business or affairs.
(d) The assignee cannot also demand:
1) information;
2) accounting
3) inspection of the partnership books.
Rights of the Assignee
(a) To get whatever profits the assignor-partner would have obtained.
Question: Is he to be considered an outside creditor who would be
entitled to collect before the partners get their own profits?
ANS.: No, for he merely shares in the profits, the same as the assignor-
partner whose share he (the assignee) will now get. Hence, outside
creditors would have to be preferred.
(b) To avail himself of the usual remedies in case of fraud in the
management.
(c) To ask for annulment of the contract of assignment if he was induced to
enter into it thru any of the vices of consent (fraud, error, intimidation,
force, undue influence) or if he himself was incapacitated to give
consent (minor, insane).
 (d) To demand an accounting — (but only if indeed the partnership is
dissolved, but even then, the account can cover the period only from
the date of the last accounting which has been agreed to by all the
partners). (Art. 1813, 2nd paragraph).
Rule in Case of Mortgages - Does Art. 1813 cover also a case when the partner
merely mortgages his interest in the profits?
ANS.: Yes, but here said interest is not alienated; it is merely given as security,
and therefore the rules on securities for loans, etc. can properly apply.
DELEON NOTES:
Remedy of other partners.
At common law, the mere assignment of a partner’s interest dissolved the
partnership because it was conceived to give rise to a situation incompatible with
the prosecution of a partnership. The law has been changed under the Uniform
Partnership Act from which Article 1813 was taken.
(1) Dissolution of partnership not intended. — The new rule is preferable
for many partnership assignments are made merely as security for
loans, the assigning partner never intending to destroy the partnership
relation. Moreover, if the assigning partner neglects his partnership
duties after assignment, the other partners may dissolve the partnership
under Article 1830(1,C) which provides that “Dissolution is caused . . . by
the express will of all the partners who have not assigned their interests,
or suffered them to be charged for their separate debts, either before or
after the termination of any specified term or particular undertaking.”
(Teller, op. cit., p. 53.)
(2) Dissolution of partnership intended. — A partner’s conveyance of his
interest in the partnership operates as a dissolution of the partnership
only when it is clear that the parties contemplated and intended the
entire withdrawal from the partnership of such partner and the
termination of the partnership as between the partners. (Johnson vs.
Munsell, 104 N.W. 2d 314.)
4. RIGHT TO PARTICIPATE IN THE MANAGEMENT
Charging the Interest of a Partner
Example: A, B and C are partners. A personally owes X a sum of
money. X sues A, and obtains a final judgment in this favor. But A has
no money. What can X do?
ANS.: X may go to the same court (or any other court possessed of
jurisdiction) and ask that A’s interest in the partnership be “charged”
(attached, or levied upon) for the payment to him (X) of whatever has
not yet been paid him with interest thereon.
[NOTE: While a partner’s interest in the partnership (his share in the
profits or surplus) may be charged or levied upon, his interest in a
specific firm property cannot as a rule be attached.]
Preferential Rights of Partnership Creditors
The law says “without prejudice to the preferred rights of partnership
creditors under Art. 1827.”
What does this mean?
ANS.: This simply means that partnership creditors are entitled to
priority over partnership assets (including the partner’s interest in
the profits), that is, the separate creditors will get only after the firm
creditors have been satisfied.
Art. 1827 reads: “The creditors of the partnership shall be preferred to
those of each partners as regards the partnership property. Without
prejudice to this right, the private creditors of such partner may ask the
attachment and public sale of the share of the latter in the partnership
assets.”
NOTE:
(a) Partnership creditors have preference in partnership assets.
(b) Separate or individual creditors have preference in separate or individual
properties (not those included in the firm).]
Receivership
(a) When the charging order is applied for and granted, the court MAY
(discretionary) at the same time or later appoint a receiver of the
partner’s share in the PROFITS or other MONEY due him. (Art. 1814).
(b) The receiver appointed is entitled to any RELIEF necessary to
conserve the partnership assets for partnership purposes. Thus, he may
nullify all efforts to assign specific partnership property.
(c) Suppose the other partners owe the firm some money, may the
receiver be authorized to demand that such amount be collected? HELD:
Yes, for such credit forms part of the partnership assets.
Redemption of the Interest Charged
(a) “Redemption” here merely means the extinguishment of the charge
or attachment on the partner’s interest in the profits.
(b) How is this “redemption” made?
ANS.:
1. The “charge” may be “redeemed” or bought at any- time
BEFORE foreclosure.
2. AFTER foreclosure, it may still be “bought,” with separate
property (by any one or more of the partners); or with
partnership property (with consent of all the other partners).
(NOTE: The consent of the delinquent partner is not needed.)
Exemption Laws - Regarding a partner’s interest in the partnership, may
the partner still avail himself of the exemption laws?
ANS.: Yes, because in a sense, this is his private property.
[NOTE: He cannot however avail himself of the exemption laws insofar as
his interest in specific partnership property is concerned. (Art. 1811, No.
3).]
DE LEON NOTES
Rights and obligations with respect management
Unless the partnership agreement provides otherwise, each partner in a
general partnership has a right to an equal voice in the conduct and
management of the partnership business.
This right is not dependent on the amount or size of the partner’s capital
contribution or services to the business. Of course, the partners may
select a managing partner or make such allocation of functions as the
needs of the business dictate especially in a large partnership.
Article 1800 speaks of two distinct cases of appointments.
(1) Appointment as manager in the articles of partnership. — The
partner appointed by common agreement in the articles of
partnership may execute all acts of administration (not those of
strict ownership such as those enumerated in Art. 1818, par. 3.)
notwithstanding the opposition of the other partners, unless he
should act in bad faith. His power is revocable only upon just and
lawful cause (see Art. 1920.) and upon the vote of the partners
representing the controlling interest.
 The reason for this principle is that the revocation represents a Compensation for services rendered.
change in the terms of the contract. The law presumes that the
(1) Partner generally not entitled to compensation. — In the
appointment thus constituted is, in effect, one of the conditions
absence of an agreement to the contrary, each member of the
of the contract and it is only logical that such appointment should
partnership assumes the duty to give his time, attention, and skill
not be revoked without the consent of all the partners, including
to the management of its affairs, so far, at least, as may be
the partner thus appointed. It is an elementary rule that no party
reasonably necessary to the success of the common enterprise;
to a contract can violate the law of the contract without the
and for this service a share of the profits is his only
consent of the others. (11 Manresa 380.)
compensation.
In case of mismanagement, the other partners may avail of the
Each partner in taking care of the joint property, managing the
usual remedies allowed by law, including an application for
partnership affairs, and directing the partnership business is
dissolution of the partnership by a judicial decree. (see Art. 1831.)
practically taking care of his own interest or managing his own
business. He is not, in the absence of a contract, express or
(2) Appointment as manager after the constitution of the
implied, entitled to compensation beyond his share of the profits
partnership. — But the management granted by the partners
for services rendered by him to the partnership business,
after the partnership has been constituted independently of the
although the services rendered by him may be greater in
articles of partnership may be revoked at any time for any cause
proportion than the services rendered by other members of the
whatsoever.
partnership, by reason of having assumed the position of
managing partner, or even by reason of extra services
The reason for this provision is that in such case, the revocation
necessitated by his partner’s illness and consequent inability to
is not founded on a change of will on the part of the partners, the
render his own just share of the services. (40 Am. Jur. 213.)
appointment not being a condition of the contract. It is merely a
simple contract of agency, which may be revoked at any time.
In the absence of any prohibition in the articles of partnership for
(Art. 1920.) It is believed that the vote for revocation must also
the payment of salaries to general partners, there is nothing to
represent the controlling interest.
prevent the partners to enter into a collateral verbal agreement
to that effect.
It should be noted that Article 1800 refers to a partner, not a
stranger, who has been appointed manager. As a rule, a partner is
(2) Exceptions. — In proper cases, however, the law may imply a
not entitled to compensation for his services other than his share
contract for compensation. Thus:
of the profits.
(a) A partner engaged by his co-partners to perform services not
required of him in fulfillment of the duties which the
partnership relation imposes and in a capacity other than that
of a partner (e.g., to perform clerical services in carrying on
the business of the firm) is entitled to receive the
compensation agreed upon therefor.
(b) A contract for compensation may be implied where there is
extraordinary neglect on the part of one partner to perform
his duties toward the firm’s business, thereby imposing the
entire burden on the remaining partner.
(c) One partner may employ his co-partner to do work for him
outside of and independent of the co-partnership, and
become personally liable therefor.
(d) Partners exempted by the terms of partnership from
rendering services to the firm may demand pay for services
rendered.
(e) Where one partner is entrusted with the management of the
partnership business and devotes his whole time and
attention thereto, at the instance of the other partners who
are attending to their individual business and giving no time
or attention to the business of the firm, the case presents
unusual conditions, is taken out of the general rule as to
compensation and warrants the implication of an agreement
to make compensation. In such cases, the amount of the
compensation depends, of course, upon the agreement of
the parties, express or implied, as well as upon the particular
circumstances of the case. (40 Am. Jur. 213-216.)
It has also been held that the way to deal with such a
situation or where a partner willfully fails to perform the
services which he agreed to perform, as a result of which the
other partners are burdened with greater work, is to calculate
the value of the unperformed services, make it an asset of
the partnership chargeable against the defaulting partner,
and divide among all the partners (including the defaulting
partner) as any other partnership profit. (Teller, op. cit., p. 77,
citing Olivier vs. Uleberg, [N.D.] 23 N.W. [2d] 39.)
(f) The rule requiring services of partners without compensation
does not also apply where, by the contract of partnership,
one partner is exempted from the duty of rendering personal
services to the concerned, if he afterwards does render such
service at the instance and request of his co-partners (Ibid.,
citing Lewis vs. Moffett, 11 Ill. 392.), or where the services
rendered are extraordinary. Thus, in a case, the surviving
partner who discovered a firm claim more than thirteen years
after the liquidating partner’s death, and prosecuted it for
four years to a successful conclusion was allowed, because of
the exceptional situation, extra compensation. (Ibid., citing
Zell’s Appeal, 126 Pa. 329.)
X. ART. 1815 – 1827
SECTION 3
Obligations of the Partners with Regard to Third Persons
Article 1815. Every partnership shall operate under a firm name, which
may or may not include the name of one or more of the partners.
Those who, not being members of the partnership, include their names
in the firm name, shall be subject to the liability of a partner. (n)
Article 1816. All partners, including industrial ones, shall be liable pro
rata with all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into in the
name and for the account of the partnership, under its signature and by
a person authorized to act for the partnership. However, any partner
may enter into a separate obligation to perform a partnership contract.
(n)
Article 1817. Any stipulation against the liability laid down in the
preceding article shall be void, except as among the partners. (n)
Article 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.
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)
Article 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)
Article 1820. An admission or representation made by any partner
concerning partnership affairs within the scope of his authority in
accordance with this Title is evidence against the partnership. (n)
Article 1821. Notice to any partner of any matter relating to partnership
affairs, and the knowledge of the partner acting in the particular matter,
acquired while a partner or then present to his mind, and the
knowledge of any other partner who reasonably could and should have
communicated it to the acting partner, operate as notice to or
knowledge of the partnership, except in the case of fraud on the
partnership, committed by or with the consent of that partner. (n)
Article 1822. Where, by any wrongful act or omission of any partner
acting in the ordinary course of the business of the partnership or with
the authority of his co-partners, loss or injury is caused to any person,
not being a partner in the partnership, or any penalty is incurred, the
partnership is liable therefor to the same extent as the partner so
acting or omitting to act. (n)
Article 1823. The partnership is bound to make good the loss:
(1) Where one partner acting within the scope of his apparent
authority receives money or property of a third person and
misapplies it; and
(2) Where the partnership in the course of its business receives
money or property of a third person and the money or property
so received is misapplied by any partner while it is in the
custody of the partnership. (n)
Article 1824. All partners are liable solidarily with the partnership for
everything chargeable to the partnership under articles 1822 and 1823.
(n)
Article 1825. When a person, by words spoken or written or by
conduct, represents himself, or consents to another representing him
to anyone, as a partner in an existing partnership or with one or more
persons not actual partners, he is liable to any such persons to whom
such representation has been made, who has, on the faith of such
representation, given credit to the actual or apparent partnership, and if
he has made such representation or consented to its being made in a
public manner he is liable to such person, whether the representation
has or has not been made or communicated to such person so giving
credit by or with the knowledge of the apparent partner making the
representation or consenting to its being made:
(1) When a partnership liability results, he is liable as though he
were an actual member of the partnership;
 (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)
Article 1826. A person admitted as a partner into an existing
partnership is liable for all the obligations of the partnership arising
before his admission as though he had been a partner when such
obligations were incurred, except that this liability shall be satisfied only
out of partnership property, unless there is a stipulation to the contrary.
(n)
Article 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)
1. LIABILITY FOR CONTRACTUAL OBLIGATIONS
(1815)
Firm Name
(a) This is the name of the juridical entity.
(b) Under Art. 126 of the Code of Commerce, the name of at least one of
the general partners in the general partner- ship should appear with the
words “and company” (in case not all the partners were included). The
rule has now been changed. Thus, under the Civil Code, the firm name
may or may not include the name of one or more of the partners.
(c) Suppose the firm name is changed in good faith but the members
remain the same, will the partnership under the new name retain all the
rights it had under the old name?
ANS.: Yes.
Liability of Strangers Who Include Their Names - Strangers (those not
members of the partnership) who include their names in the firm are
liable as partners because of estoppel (Art. 1815, par. 2) but do not have
the rights of partners for after all, they had not entered into any partner-
ship contract. The purpose of the law is to protect customers from being
misled as to whom they are dealing with.
[NOTE: If a person misrepresents himself as a partner, and as a
consequence thereof, a stranger is misled, the deceiver is liable as a
partner (without the rights of a partner) and this is true, even if he did not
include his name in the firm name.]
[NOTE: Under Art. 1846, if a limited partner includes his name in the firm
name, he has obligations, but not the rights of, a general partner.] [NOTE:
The mere fact that a partnership has assumed a fictitious or assumed
name, other than its real one, does not affect the validity of contracts
otherwise validly entered into.
(1816)
Liability Distinguished from Losses While an industrial partner is
exempted by law from losses (as between the partners), he is not
exempted from liability (insofar as third persons are concerned). This
means that the third person can sue the firm and the partners, including
the industrial partner. Of course, the partners will be personally liable
(jointly or pro rata) only after the assets of the partnership have been
exhausted. Even the industrial partner would have to pay, but of course
he can recover later on what he has paid, from the capitalist partners,
unless there is contrary agreement.
Liability of a Partner Who Has Withdrawn - A partner who withdraws is
not liable for liabilities contracted after he has withdrawn, for then he is
no longer a partner. If his interest has not yet been paid him, his right to
the same is that of a mere creditor.
Unequal Contribution of Capitalist Partners - Suppose capitalist partners
had contributed unequally to the capital, will their liability to strangers be
equal or proportionate to their contributions?
ANS.: Proportionate for the law says “pro rata” (proportionate). (See Art.
1815).
Effect of Stipulation Exempting Liability to Third Persons - Suppose it is
stipulated that all the industrial partners and some of the capitalist
partners would be exempted from liability insofar as third persons are
concerned, would the stipulation be valid?
ANS.: The stipulation would be null and void.
Comment of the Code Commission - “The basic rule (formulated in Art.
1698 of the old Code for civil partnerships) on the personal but subsidiary
liability of the partners pro rata for the obligations of the partnership has
been retained. The Commission considers the solidary liability laid down
in the Code of Commerce (for commercial partnerships) as inadvisable,
such liability being the cause for the reluctance and fear with which the
formation of business partnerships has been regarded by all.”
Partner Acting in His Own Name -Note that under Art. 1816, any partner
may however “enter into a separate obligation to perform a partnership
contract.” (Here, he does not act in behalf of the partner- ship; he acts in
his own name, although for the benefit of the partnership.)
(1817)
Stipulation Eliminating Liability
Query: As among the partners, is it permissible to stipulate that a
capitalist partner be exempted from liability?
ANS.: The answer is YES, under Art. 1817. And yet under Art. 1799, a
stipulation which excludes one or more partners (capitalist) from any
share in the profits or losses is VOID. How can these two articles be
reconciled? It would seem that the only way to harmonize the two
articles (insofar as capitalist partners are concerned) is this: it is
permissible to stipulate among them that a capitalist partner will be
exempted from liability in excess of the original capital contributed; but
will not be exempted insofar as his capital is concerned.
Example: A, B, and C, capitalist partners, each contributed P1 mil- lion.
The firm’s indebtedness amounts to P9 million. It was stipulated that A
would be exempted from liability. Assuming that the capital of P3 million
is still in the firm, what would be the rights of the firms creditors?
ANS.: To get the P3 million and to get still P2 million each from the 3
partners (a total of P9 million). A will thus be liable to the third persons
for P2 million. How much, if any, can A recover from B and C? It is
submitted that he can recover P2 million from B and C (P1 million each)
for as to liability as among them, he is exempted (Art. 1817) but he
cannot recover his original capital of P1 million. (Art. 1799).
‘Liability’ and ‘Losses’ Distinguished- Note that while in general “liability”
refers to responsibility towards third persons, and “losses” refers to
responsibility as among the partners, still Art. 1817, a new codal
provision, can refer to “liability” as “among the partners.”
2. LIABILITY ARISING FROM PARTNER’S TORT OR
BREACH OF TRUST
(1818)
When A Partner Can Bind or Cannot Bind the Firm - This Article speaks of:
(a) the fact that the partner is an agent;
(b) the instances when he can bind the partnership;
(c) the instances when he cannot bind the partnership (in which case, should he
enter into the contract, he alone, and not the firm nor the partner would be
liable).
Agency of a Partner
It has been truthfully said that a partnership is a con- tract of “mutual agency,”
each partner acting as a principal on his own behalf, and as an agent for his co-
partners or the firm.
When Can a Partner Bind the Partnership
A partner binds the partnership when the following requisites are present:
A) when he is expressly authorized or impliedly authorized;
B) when he acts in behalf and in the name of the partner- ship. Instances of
implied authorization:
a. when the other partners do not object, although they have
knowledge of the act;
b. when the act is for “apparently carrying on in the usual way the
business of the partnership.” (This is binding on the firm even if
the partner was not really authorized, provided that the third
party is in GOOD FAITH.)
When Will the Act of the Partner Not Bind the Partnership
(a) When, although for “apparently carrying on in the usual way the business of
the partnership,” still the partner has in fact NO AUTHORITY, and the 3rd party
knows that the partner has no authority. (This is to penalize customer or client in
bad faith.)
(b) When the act is NOT for “apparently carrying on in the usual way” of the
partnership and the partner has NO AUTHORITY.
(NOTE: Here, whether or not the 3rd party knows of the LACK of AUTHORITY is
NOT IMPORTANT. As long as there was really no authority, the firm is not
bound.)
[NOTE: The 7 kinds of acts enumerated in Art. 1818 are instances of acts which
are NOT for “apparently carrying on in the usual way the business of the
partnership.” In those seven instances, the authority must be UNANIMOUS (from
ALL the partners) except if the business has been abandoned.]
Reasons Why the 7 Acts of Ownership are “Unusual”
(a) “assign the partnership property” — the firm will virtually be dissolved
(b) “dispose of the goodwill” — goodwill is valuable property
(c) “do any other act which would make it impossible to carry on” — this is
evidently prejudicial
(d) “confess a judgment” — if done before a case is filed, this is null and void; if
done later, the firm would be jeopardized (e) “compromise” — this is an act of
ownership and may be said to be equivalent to alienation (which may not be
justified) (f) “arbitration” — this is also an act of ownership which may not be
justified
(g) “renounce a claim” — why should a partner renounce a claim that does not
belong to him but to the partnership?
(1819)
Conveyance of Real Property
(a) This is a particular elaboration of Art. 1818, but is applicable to real property
alone.
(b) The Article was adopted to do away with the existing uncertainty
surrounding the subject of the conveyance of real property belonging to the
partnership
(c) It will be noticed that in some instances, what is conveyed is TITLE, and in
other instances, what is conveyed is merely the “EQUITABLE INTEREST.” What
does this phrase mean? ANS.: An equitable interest or title is one not only
recognized by law, but also by the principles of equity. (See 30 C.J.S. 401).
Evidently, as used in Art. 1819, it refers to “all interest which the partnership had,
except TITLE,” that is, the beneficial interests like use, fruits, but not the naked
ownership.
(d) Art. 1819 speaks of “to convey” or a “conveyance.” Doubt- less this includes a
sale, or a donation. Does it include a mortgage?
ANS.: While under the rules of agency, a special power to sell does not include
the power to mortgage, and vice uersa (Art. 1879), still Art. 1819 has been
interpreted in the U.S. to include under the term “conveyance” the right to
mortgage. (See Bosler v. Sealfrom, 1923, 92 Pa. Super. Ct. 254).
(e) Notice that real property may be registered or owned in the name of:
1) the partnership;
2) all the partners;
c) one, some, or not all the partners;
d) one, some, or not all the partners in TRUST for the partnership;
e) third person in TRUST for the partnership.
Notice also the act of conveyancing may be in the name of the registered owner
or in the name of the partners all together, or in the name of one, some but not
all of the partners, or in the name of the partnership (the registration being
apparently disregarded).
(1820)
Admission or Representation Made By a Partner - Generally, an admission by a
partner is an admission against the partnership under the conditions given:
(a) the admission must concern partnership affairs
(b) within the scope of his authority
Restrictions on the Rule
(a) Admissions made BEFORE dissolution are binding only when the partner has
authority to act on the particular matter.
(b) Admissions made AFTER dissolution are binding only if the admissions were
necessary to WIND UP the business.
Reason: If the admission is not the “act of the partnership (thru the partner), it
should NOT be evidence against it.” The words “within the scope of his
authority” produce this result.
Previous Admission - When is a previous admission (not present court
testimony) of a partner admissible in evidence against the partnership?
ANS.: When it was made WITHIN the scope of the partnership, and DURING its
existence, provided of course that the existence of the partnership is first proved
by evidence OTHER than such act or declaration.
(1821)
Effect of Notice to a Partner
(a) In general, notice to a partner is notice to the partner- ship, that is, a
partnership cannot claim ignorance if a partner knew. BUT this rule has
restrictions and qualifications.
(b) Notice to a partner, given while ALREADY a partner, is a notice to the
partnership, provided it relates to partnership affairs.
Effect of Knowledge Although No Notice Was Given - It may be that no notice has
been given, but knowledge has been somehow acquired. (Thus, while nobody
made any notification, still the partner perhaps because of analysis or deduction
came to know of something.) Is this knowledge of a partner also to be considered
knowledge of the partnership?
ANS.: Knowledge of the partner is also knowledge of the firm provided:
(a) The knowledge was acquired by a partner who is acting in the particular
matter involved. (NOTE: The knowledge may have been acquired while already a
partner, or even PRIOR TO THAT TIME, provided he still remembers the same,
that is, “present to his mind.”)
(b) Or the knowledge may have been acquired by a partner NOT acting in the
particular matter involved. But here it is essential that “the partner having
‘knowledge’ had reason to believe that the fact related to a matter which had
some possibility of being the subject of the partner- ship business, and then only
if he was so situated that he could communicate it to the partner acting in the
particular matter before such partner gives binding effect to his act. The words
“who reasonably could and should have communicated it to the acting partner
accomplish this result.”
NOTE: Here, the knowledge must have been obtained while ALREADY a partner,
because the phrase “then present to his mind” applies only to the partner
ACTING in the particular matter involved
Service of Pleading on a Partner in a Law Firm - It has been held that service of
pleadings on the partner in a law firm is also service on the whole firm and the
other partners. (As a matter of fact, service on the firm, as evidenced by the
signature of the receiving clerk of the firm who received in behalf of the firm, is
indeed service on the law partners, and this is true whether or not the clerk
forgot to inform the partners.) It has also been held that service on a partner is
effectual not only to bind the party served but also to reach the assets of the
partnership
3. CRIMINAL LIABILITY OF PARTNERSHIP
(1822)
Wrongful Act or Omission of a Partner - Example: A, B, and C were partners.
While acting within the scope of the firm’s business, A committed a tort against
X, a third person. Is the firm liable?
ANS.: Yes. (Art. 1822). Moreover A, B, and C, as well as the firm itself, are liable in
solidum. (Art. 1824). Note that even the innocent partners are civilly personally
liable, without prejudice of course to their right to recover from the guilty
partner. (See Art. 1217).
Injury to an Employee - The law speaks of an injury to “any person, not being a
partner.” Does Art. 1822 apply to an injury to an employee, not a partner, of the
firm?
ANS.: It would seem that the answer is YES, for a mere employee is not
necessarily a partner.
When the Firm and the Other Partners are NOT Liable
(a) If the wrongful act or omission was not done within the scope of the
partnership business and for its benefit) or with the authority of the co-
partners. (Art. 1822).
(b) If the act or omission was NOT wrongful. (See Art. 1822 which uses the
term “wrongful”.)
 (c) If the act or omission, although wrongful, did not make the partner
concerned liable himself.
(d) If the wrongful act or omission was committed after the firm had been
dissolved (stopped its business) and same was not in connection with
the process of winding up.
(1823)
Liability of Partnership for Misappropriation - The difference between par. 1 and
par. 2 is that in the former the misappropriation is made by the receiving
partner, while in the latter, the culprit may be any partner. The effect however is
the same in both cases, as can be seen from Art. 1824.
(1824)
Solidary Liability of the Partners With the Partnership
(a) While in torts and crimes, the liability of the partners is solidary, in
contractual obligations, it is generally merely joint. (Art. 1816). While Art. 1816
speaks of pro rata li- ability of the partners, and while the Code Commission says
that pro rata in this article means “in proportion to their contribution” till the
Supreme Court has ruled that “pro rata” here means joint, such that if 5 partners
are liable, each would be responsible for 1/5 of the debt (regardless of amount of
contribution) and if one of the five would be excused (as when the plaintiff after
suing the five partners dismisses the claim against one of them, each of the
remaining four would be responsible for 1/5. Thus “pro rata” is used in the sense
of “joint” to distinguish the same from solidary liability.
(b) Note that torts and crimes result from individual acts of the partners; while
contractual liabilities arise from partnership obligations.
(c) Note that it is not only the partners that are liable in solidum; it is also the
partnership.
4. PARTNERSHIP BY ESTOPPEL
(1825)
Partner and Partnership By Estoppel - This Article refers to a “partner by
estoppel” and to a “partnership by estoppel.”
How the Problem May Arise - A person may:
(a) represent himself as a partner of an existing partnership, with or
without the consent of the partnership.
NOTE: If a third person is misled and acts because of such misrepresentation, the
deceiver is a partner by estoppel. If the partnership consented to the
misrepresentation, a partnership liability results. We have here a case of
“partnership by estoppel” with the original members and the deceiver as
partners. If the firm had not consented, no partnership liability results, but the
deceiver is considered still as a “partner by estoppel,” with all the obligations but
not the rights of a partner.)
(b) represent himself as a partner of a non-existent partner- ship. (Here,
clearly no partnership liability results, but the deceiver and all persons
who may have aided him in the misrepresentation are still liable.)
(NOTE: The liability in such a case would be joint or pro rata.)
When Estoppel Does Not Apply - When although there is misrepresentation, the
third party is not deceived, the doctrine of estoppel does not apply. Note that
the law says “liable to any such persons to whom such representation has been
made, who has, on the faith of such representation, given credit as to the actual
or apparent partnership.” (Art. 1825).
Burden of Proof - The creditor, or whoever alleges the existence of a partner or
partnership by estoppel has the burden of proving the existence of the
misrepresentation and the innocent reliance on it.
(1826)
Entry of a New Partner Into an Existing Partnership property employed in the business. All creditors of the business, irrespective of
the times when they became creditors, and the exact combinations of persons
Example: A, B, and C are partners. D is admitted as a new partner. Will D be liable
then owning the business, should have equal rights in such property. The
for partnership obligations contracted PRIOR to his admission to the partnership?
recognition of this principle solves one of the most perplexing problems of the
ANS.: Yes, but his liability will extend only to his share in the partnership partnership law.”
property, not to his own individual proper- ties. (Art. 1826). (NOTE: Had he been
Liability of New Partner for Previous Obligations - Is not the rule of holding the
an original partner, he would be liable both insofar as his share in the firm is
new partner liable (with his share of the firm’s assets) for PREVIOUS obligations
concerned, and his own individual property.)
of the firm unduly harsh on said new partner?
(NOTE: It is understood that the newly admitted partner would be liable as an
ANS.: No, it is not unduly harsh. After all “the incoming partner partakes of the
ordinary original partner for all partnership obligations incurred AFTER his
benefit of the partnership property, and an established business. He has every
admission to the firm.)
means of obtaining full knowledge and protecting himself, because he may insist
Creation of a New Partnership in View of the Entry - Does the admission of a on the liquidation or settlement of existing partnership debts. On the other hand,
new partner dissolve the old firm and create a new one? ANS.: Yes, and it is the creditors have no means of protecting themselves
precisely because of this principle that Art. 1826 has been enacted. The reason is
(1827)
simple: since the old firm is dissolved, the original creditors would not be the
creditors of the new firm, but only of the original partners; hence, they may lose Reason for the Preference of Partnership Creditors - After all, the partnership is
their preference. To avoid this injustice, under the new Civil Code (together with a juridical person with whom the creditors have contracted. Moreover, the
the new creditors of the new firm), they are also considered creditors of the assets of the partnership must first be exhausted.
NEW firm. (See also Art. 1840, which among other things provide that generally
Reason Why Individual Creditors May Still Attach the Partner’s Share - After all,
“creditors of the dissolved partnership are also creditors of the person or
the remainder (after paying partnership obligations) really belongs to the
partnership continuing the business.”) Thus, it is essential that the partnership
partners.
assets of the new firm (with the capital of the new partner) be available even to
the old creditors. (NOTE: The purchaser at the public sale does not necessarily become a partner.)
[NOTE: It is wrong to state that “the theory that a new firm is created by the Sale by a Partner of His Share to a Third Party - If a partner sells his share to a
admission of a new partner, has been abandoned.” It is wrong because indeed a third party, but the firm itself still remains solvent, creditors of the partnership
new firm is created; but the old creditors of the firm retain their preference as can- not assail the validity of the sale by alleging that it is made in fraud of them,
partnership creditors.] since they have not really been prejudiced.
“Art. 1826 should be read together with Art. 1840. Both are based on the
principle that there has been one continuous business. The fact that A has been
admitted to the business, or C ceased to be connected with it, should not be
allowed to cause endless confusion as to the claims of the creditors on the