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*The partnership relationship is essentially on of mutual trust and confidence, the law imposes upon the partners highest standards
of integrity and good faith in their dealings with each other.
*A partner is both principal and an agent in relation to his co-partners. In a limited partnership, it does not involve the element of
trust and confidence, as in the case of general partnership
Art. 1784.
A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated.
FUTURE PARTNERSHIP
- Partners may stipulate some other date for the commencement of the partnership
- It can be in future time or based on happening of some future contingency
- It has no juridical personality at the moment
Art. 1785.
When a partnership for a fixed term or particular undertaking is continued after the termination of such term or
particular undertaking without any express agreement, the rights and duties of the partners remain the same as they were at
such termination, so far as is consistent with a partnership at will.
A continuation of the business by the partners or such of them as habitually acted therein during the term, without any
settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnership. (n)
DISSOLUTION OF PARTNERSHIP
- One of the partners may dictate a dissolution at will but he must act in good faith
- A partnership with fixed term may be terminated prior to the expiration of the term
Art. 1787.
When the capital or a part thereof which a partner is bound to contribute consists of goods, their appraisal must be
made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by experts
chosen by the partners, and according to current prices, the subsequent changes thereof being for account of the partnership. (n)
Art. 1788.
A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and
damages from the time he should have complied with his obligation.
The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from
the time he converted the amount to his own use. (1682)
OBLIGATIONS WITH RESPECT TO CONTRIBUTION OF MONEY (PAR. 1) AND MONEY CONVERTED TO PERSONAL USE (PAR. 2)
1. To contribute on the date due
2. To reimburse any amount he may have taken for his own use
3. To pay the agreed or legal interest, if he fails to pay on time
4. To indemnify the partnership for the damages
INDUSTRIAL PARTNER
- The one who contributes his industry, labor, or services to the partnership
- He becomes the debtor of the partnership for his work or services
- The partnership acquires an exclusive right to avail itself of his industry
- Action for specific performance is not available as a remedy because it will amount to involuntary servitude
Art. 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership.
(n)
Art. 1791.
If there is no agreement to the contrary, in case of an imminent loss of the business of the partnership, any partner who
refuses to contribute an additional share to the capital, except an industrial partner, to save the venture, shall he obliged to sell
his interest to the other partners. (n)
Art. 1792.
If a partner authorized to manage collects a demandable sum which was owed to him in his own name, from a person
who owed the partnership another sum also demandable, the sum thus collected shall be applied to the two credits in proportion
to their amounts, even though he may have given a receipt for his own credit only; but should he have given it for the account of
the partnership credit, the amount shall be fully applied to the latter.
The provisions of this article are understood to be without prejudice to the right granted to the other debtor by Article
1252, but only if the personal credit of the partner should be more onerous to him. (1684)
Art. 1793.
A partner who has received, in whole or in part, his share of a partnership credit, when the other partners have not
collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership capital what he
received even though he may have given receipt for his share only. (1685a)
There are commentators who said YES because of the COMMUNITY OF INTEREST AND EQUALITY among partners
e.g. After the dissolution of the partnership, the partnership credit will be divided among partners who assume the obligation to
COLLECT THEIR RESPECTIVE SHARES
1. It would be unfair and unjust for the MORE DILIGENT partner who has already collected his credit to bear the NEGLIGENCE
of the other partners who were unable to collect. It would be unfair for his to suffer their DEFAULT
2. When the partnership is DISSOLVED, the tie that unites the partnership ceases, hence, the obligation under Art. 1793 has
no foundation anymore.
Art. 1793 presupposes the existence of a PARTNERSHIP CAPITAL. After dissolution, the shares of each principal partners are
returned and hence, there is no more common property or partnership capital.
If at all there remains a COMMON CREDIT among them (credit owned in common) but NOT a partnership capital
Art. 1794.
Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate
them with the profits and benefits which he may have earned for the partnership by his industry. However, the courts may
equitably lessen this responsibility if through the partner's extraordinary efforts in other activities of the partnership, unusual
profits have been realized. (1686a)
1. The partner is responsible to SECURE BENEFITS for the partnership. Hence, all the profits earned shall pertain as a matter of
law or right to the partnership
2. Compensation takes place when the negligent partner is both a creditor and debtor of the partnership. A partner however
is a DEBTOR of the partnership for his industry and he shall be liable for the injury suffered by it caused by his fault. Hence,
there cannot be any compensation
EXPN: When UNUSUAL PROFITS may have been realized by the partnership thru the extraordinary efforts of the partner, the courts
may MITIGATE OR LESSEN the liability for damages
Art. 1795.
The risk of specific and determinate things, which are not fungible, contributed to the partnership so that only their use
and fruits may be for the common benefit, shall be borne by the partner who owns them.
If the things contribute are fungible, or cannot be kept without deteriorating, or if they were contributed to be sold, the risk shall
be borne by the partnership. In the absence of stipulation, the risk of the things brought and appraised in the inventory, shall also
be borne by the partnership, and in such case the claim shall be limited to the value at which they were appraised. (1687)
GR: the risk of SPECIFIC AND DETERMINATE THINGS, which are NOT FUNGIBLE, contributed to the partnership so that only their USE
AND FRUITS are for the common benefit shall be borne by the PARTNER who owns it
GR: When the thing brought is appraised in the inventory, the STIPULATION of the parties will govern
EXPN: When there is no stipulation, then the risk shall be borne by the PARTNERSHIP and in which case, the value appraised shall be
the limit of the claim
3. FUNGIBLE THINGS (right term should be consumable) or THINGS WHICH CANNOT BE KEPT WITHOUT DETERIORATING even
if ONLY THE USE is contributed
- Risk of loss: PARTNERSHIP
- Reason: because the ownership is intended to be transferred because USE IS IMPOSSIBLE without such transfer because the
thing is CONSUMMED OR IMPAIRED
- E.G. Oil, rice, wine
GR: Every partner is AN AGENT of the partnership for purposes of its business
EXPN: when there is a stipulation to the contrary
Art. 1797.
The losses and profits shall be distributed in conformity with the 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 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)
GR: The profits and losses shall be distributed in conformity with the agreement (PROFITS AND LOSSES AGREED UPON)
EXPN:
1. If only the share in the profits are agreed upon, the share in the losses shall also be in the same proportion
2. If there is no agreement as to the share in the losses and profits, then, each partner shall have a share in the same in
proportion to what he may have contributed BUT:
Exception to the exception:
1. The INDUSTRIAL PARTNER shall not be liable for the losses
2. The industrial partner shall be entitled to a share in the profits as may be JUST AND EQUITABLE under the circumstances
3. If the industrial partner, ASIDE FROM HIS SERVICES, contributed capital, he shall also receive a share in the profits in
proportion to his capital
b. If there is no agreement
o CAPITALIST PARTNERS
- The share of the capitalist partners shall be in proportion to their CAPITAL CONTRIBUTION
- So it depends on HOW MUCH they have given in the partnership (if A contributed P3000 and B contributed only P1000,
then, A should receive twice as much)
- BASIS: Presumed WILL of the parties
2. INDUSTRIAL PARTNERS
- Their share must be that which is JUST AND EQUITABLE under the circumstances
- Their share must be satisfied first before the CAPITALIST PARTNERS divide the profits
- Their share, LIKE THAT PERTAINING TO THE CAPITALIST PARTNERS, is not fixed because it is very hard to ascertain the value
of one’s services
NB: Art. 140 of the Code of Commerce: The industrial partner is placed in the same position as that of a capitalist partner in the
distribution (the industrial partner having the SMALLEST INTEREST”
Q: WHAT ARE THE TRANSACTIONS THAT MUST BE TAKEN INTO ACCOUNT TO DETERMINE THE PROFITS AND LOSSES?
All the transactions must be taken into consideration NOT JUST one transaction to determine the profits and losses
NB: Whether or not there is a stipulation, the INDUSTRIAL PARTNER shall not be liable for the losses
Art. 1798.
If the partners have agreed to intrust to a third person the designation of the share of each one in the profits and losses,
such designation may be impugned only when it is manifestly inequitable. In no case may a partner who has begun to execute the
decision of the third person, or who has not impugned the same within a period of three months from the time he had knowledge
thereof, complain of such decision.
The designation of losses and profits cannot be intrusted to one of the partners. (1690)
Gen rule on revocation: The power (to execute all acts of admin) may not be revoked UNLESS:
1. There is JUST OR LAWFUL CAUSE and
2. The vote of the partners representing the CONTROLLING INTEREST is had
Exception: Powers granted AFTER THE CONSTITUTION OF THE PARTNERSHIP may be revoked at any time
* 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)
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:
*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
-
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
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
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: 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: 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
GR: Every partner shall have AT A REASONABLE HOUR access to and may INSPECT AND COPY any of them
NB: The books should not be transferred without the consent of the other partners
Q: LIMITATION?
The information must be used only for the partnership purpose
Q: MAY THERE BE A DUTY TO RENDER INFORMATION ONLY WHERE THERE IS DEMAND
No. It does not mean that there may not be an obligation to render VOLUNTARY DISCLOSURE of material facts affecting or
relating to the partnership affairs.
NB: good faith not only requires that there be no FALSE STATEMENT. It also requires that there be no concealment among partners –
Art. 1807.
Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him
without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the
partnership or from any use by him of its property. (n)
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 in any transaction connected with the FORMATION,
CONDUCT or LIQUIDATION OF THE PARNTERSHIP or FROM ANY USE BY HIM of his property
Q: WHAT IS THE DUTY OF EACH PARTNER WHEN HE TRANSACTS ANY PARTNERSHIP BUSINESS?
He should always act for the COMMON BENEFIT in all transactions affecting the partnership affairs. He cannot use or apply
exclusively for his own benefit the PARTNERSHIP ASSETS and the results of the knowledge gained for his individual benefit
NB: The managing partner has the fiduciary duty to inactive partners
Q: TRANSACTION?
Doing or performing something. It was given a broad meaning – more of the justice of the case demanded rather than
Art. 1808.
The capitalist partners cannot engage for their own account in any operation which is of the kind of business in which the
partnership is engaged, unless there is a stipulation to the contrary.
Any capitalist partner violating this prohibition shall bring to the common funds any profits accruing to him from his
transactions, and shall personally bear all the losses. (n)
EXPN:
1. He is wrongfully excluded from the partnership
2. If it exist under any agreement
3. Provided under Art. 1807
4. Whenever circumstances render it just and reasonable
*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
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 it s
signature and by a person authorized to act for the partnership. However, any partner may enter into a separate obligat ion to
perform a partnership contract. (n)
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: 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
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
NB: The industrial partner may seek reimbursement from the capitalist partners for the share that he has given
Exception: Agreement to the contrary
*In a partnership, gains and losses are balanced. But as re the industrial partner, what matters is the FINAL
ADJUSTMENT OF THE LOSSES AND THE ASSETS of the partnership (so that, if there are still properties remaining, the
PRIMARY AND DIRECT RESPONSIBILITY of the partnership shall preclude any recourse against any of the partners)
GR: Any STIPULATION against any liability provided under Art. 1816 shall be VOID
EXPN: Stipulation against liability as AGAINST THEMSELVES
Points to remember:
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.
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
GR 2: An act of the partnership WHICH IS NOT APPARENTLY FOR CARRYING OUT THE BUSINESS OF THE PARTNERSHIP
shall NOT bind the partnership
Exception: When he is AUTHORIZED by the other partners
GR 3: ALL the partners MAY BE THE ONLY ONES who may do the following acts:
1. Assign the partnership property in trust for the creditors or on the assignee’s promise to pay the debts of the
partnership
2. Dispose of the goodwill of the business
3. Do any other act which would make it impossible to carry on the ordinary business of the partnership
4. Confess judgment
5. Enter into a compromise concerning partnership claim or liability
6. Submit partnership claim or liability to arbitration
7. Renounce a claim of the partnership
EXPN:
1. Unless authorized by the other partners
2. The other partners ABANDONED THE BUSINESS
GR 4: No act of the partner in CONTRAVENTION of a restriction on authority WITH THE KNOWLEDGE of the persons
whom he is dealing with SHALL BIND the partnership
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
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
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 pe rson
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
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
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
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: MAY A NON-ACTING PARTNER BE HELD CRIMINALLY LIABLE FOR THE CRIMINAL ACTS OF HIS CO-PARNTER?
No.
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
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
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)
NB: The law only considers them as partners and the association as a partnership in so far as it is favorable to the 3 rd
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
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
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)
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
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)
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
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
NB: Registration of a chattel mortgage in its place of business is valid – Peralta v. Manalang
NB: It is not necessary that the denial precede the reliance of the plaintiff (if the denial should come promptly
after it was heard)
NB: Sole reliance is not necessary with respect to dealings involving the one representing or represented
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
NB: Under Sec. 21, it was stated that the persons WHO ASSUME TO ACT as a corporation shall be liable as GENERAL
PARTNERS
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
NB: Hence, the newly accepted partner’s credit may not be garnished in order to satisfy the credit of the old creditors
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
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 3rd 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.
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
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
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
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.