PARTNERSHIP
September 16 2019 Monday – 2hrs
WWW EH 403
MANAGEMENT OF PARTNERSHIP
Relevant Provisions: Articles 1800 – 1803
Article. 1800. The partner who has been appointed manager
in the articles of partnership may execute all acts of
administration despite the opposition of his partners, unless
he should act in bad faith; and his power is irrevocable
without just or lawful cause. The vote of the partners
representing the controlling interest shall be necessary for
such revocation of power.
A power granted after the partnership has been constituted
may be revoked at any time.
Article 1801. If two or more partners have been entrusted
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.
Article. 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.
Article. 1803. When the manner of management has not
been agreed upon, the following rules shall be observed:
(1) All the partners shall be considered agents and whatever
any one of them may do alone shall bind the partnership,
without prejudice to the provisions of article 1801.
(2) None of the partners may, without the consent of the
others, make any important alteration in the immovable
property of the partnership, even if it may be useful to the
partnership. But if the refusal of consent by the other
partners is manifestly prejudicial to the interest of the
partnership, the court’s intervention may be sought.
Question: How is partnership managed?
SUMMARY OF RULES
(1) NO DESIGNATED MANAGING PARTNER
Apply Article 1803
Rule: All partners shall be considered agents and
whatever anyone of them may do alone shall bind the
partnership.
(2) ONE MANAGING PARTNER IS APPOINTED
Apply Article 1800
NOTE: Qualify first the kind of appointment
2 Kinds of Appointment
(1) Managing Partner appointed in the Articles of
Partnership
(2) Managing Partner appointed AFTER the
execution of Partnership
(A) Managing Partner Appointed in the Articles of
Partnership
RULES
(1) As to acts
May execute all acts of administration despite the
opposition of his partners UNLESS he should act in
bad faith
(2) As to revocation
a. Power is irrevocable UNLESS there is a just
or lawful cause (ex. important act of
alteration of an immovable)
b. Requires the vote of partners with controlling
interest
Comments:
• The managing partner has the
authority to manage to the extent of
acts of administration, which also
involves acts incidental to
management but short of acts of
ownership
• Other partners cannot object as long
as he acted in good faith.
ILLUSTRATION– Managing partner decides that
the whole building should be black.
Bottom line: The other managing partners can
oppose since the managing partner already
exceeded in his acts. This is a case of alteration
of an immovable which is not contemplated as
an act of administration – rather, constitutes an
act of ownership. Hence, the other partners can
oppose. None of the partners may, without
consent of the others, make any important
alteration in the immovable property.
(B) Managing Partner Appointed After the Constitution of
Partnership
RULES
(1) As to acts
Can execute all acts of administration despite the
opposition of his partners UNLESS he should act in
bad faith
(2) As to revocation
a. Power may be revoked anytime due to any
cause (with or without cause)
b. Requires the vote of partners with
controlling interest
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Summary: Situation 2 Manager with Controlling Interest Abstains
Appointment in Appointed After RULE – Status quo will prevail.
the Articles of the Constitution Mr X will not be hired. The partnership should look for
Partnership of Partnership another employee.
As to acts May execute all acts of administration
despite the opposition of his partners SUMMARY (Bottom Line of the Illustration)
UNLESS he should act in bad faith In case of disagreements among managing partners, the
decision of the majority shall prevail (Majority Rule). In
As to revocation Power is Power may be case of a tie, the decision of the partner with the
irrevocable revoked any time controlling interest shall prevail. In case the partner with
UNLESS there is a due to any cause the controlling interest abstains, the status quo will
just or lawful (with or without
prevail.
cause cause)

Requires the vote Requires the vote (4) WHEN UNINAMITY IS REQUIRED
of partners with of partners with Apply Article 1802
controlling controlling
interest interest General Rule: Concurrence of all shall be necessary for
the validity of acts.
Take note of the distinction between the two as to the
manner of revocation. Comments:
• Consent of all partners must be obtained before
a managing act can be done.
(3) TWO OR MORE DESIGNATED AS MANAGING • Neither absence nor disability of any of them
PARTNERS may be alleged as an excuse to dispense of this
Apply Article 1801 requirement.

NOTE: Qualify first if there is a specific designation or no Exception: Unless there is imminent danger of grave or
specific designation. irreparable injury to the partnership

RULES Exception to the exception:

(A) With Specification of Duties
The decision of the managing partner prevails provided
there is good faith.
(2) No Specified Duties
(1) As to acts
Each may do all acts of administration separately.
(2) When there is opposition
a. Majority Rule – decision of the majority shall
prevail
b. In case of Tie – decision by the partners with
controlling interest shall prevail
Comments:
• Controlling interest pertains to the partner who
has the most number of investments, meaning –
it refers to more than 50% of investments
ILLUSTRATION – More than two managers of a
Partnership
Manager 1 – HR Partner-Manager
Manager 2 – Operations Partner-Manager
Manager 3 – Administration Partner-Manager
Situation 1 Disagreement among Managing Partners
HR Manager – recruited and selected Mr. X who is
handicapped and with a height of 4 and a half
Operations Manager – opposed
One of the managing partners object to the proposed act
SUBPARTNERSHIP
Article 1804. Every partner may associate another person
with him in his share, but the associate shall not be admitted
into the partnership without the consent of all the other
partners, even if the partner having an associate should be a
manager.
Subpartnership
Formed between a member of a partnership and a 3rd
person for a division of profits coming to the partner from
the partnership
Subpartner
• Third person with whom the partner in a partnership
has associated in his share
• Third person who wants to take part in the partnership
Extent of Participation of the Subpartner
RULES
• He only receives the profits accruing to the
partner
• He cannot intervene and interfere in the
partnership and cannot participate in the
management
• He cannot inspect partnership books and
require information from other partners

Question: How will they decide?

RULE: Majority Rule applies – They shall decide based on
the majority of the 3 managing partners. In case of tie, the
vote of the manager with controlling interest will prevail.

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 CAPITALIST PARTNER distinguished from
INDUSTRIALIST PARTNER
Relevant provisions: Article 1789 and Article 1808
Article 1789. An industrial partner cannot engage in
business for himself, unless the partnership expressly
permits him to do so; and if he should do so, the capitalist
partners may either exclude him from the firm or avail
themselves of the benefits which he may have obtained in
violation of this provision, with a right to damages in either
case.
Article 1808. The capitalist partners cannot engage for their
own account in any operation which is of the kind of business
in which the partnership is engaged, unless there is a
stipulation to the contrary.
Article 1807 — Every partner must account to the partnership
for any benefit, and hold as trustee for it any profits derived
by him without the consent of the other partners from any
transaction connected with the formation, conduct, or
liquidation of the partnership or from any use by him of its
property.
Article 1809 — Any partner shall have the right to a formal
account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership
business or possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstances render it just and
reasonable.

Any capitalist partner violating this prohibition shall bring to Article 1810. The property rights of a partner are:
the common funds any profits accruing to him from his (1) His rights in specific partnership property;
transactions, and shall personally bear all the losses. (2) His interest in the partnership
(3) His right to participate in the management
DISTINCTION
(A) PRINCIPAL RIGHTS (SIP)
Capitalist Partner Industrialist
(1) His rights in specific partnership property;
Partner
Contribution
(2) His interest in the partnership
Contributes capital Contributes
industry or
(3) His right to participate in the management
services
(B) RELATED RIGHTS (FRAT D)
As to Relative Prohibition Absolute (1) Rights to a formal account of partnership affairs
Prohibition Prohibition under certain circumstances
(2) Right to reimbursement for amounts advanced
Can engage in Absolutely to the partnership and to indemnification for
another business prohibited from risks in consequence of management
provided it is not engaging in any (3) Right of access and inspection of partnership
the same or similar business for books
to the business of himself UNLESS (4) Right to true and full information of all things
the partnership partners affecting the partnership
UNLESS there is a expressly (5) Right to have partnership dissolved under
contrary stipulation consent certain conditions

Obligation to Account to the Partnership

Article 1807 — Every partner must account to the partnership
for any benefit, and hold as trustee for it any profits derived
Consequence (1) bring to the (1) May be by him without the consent of the other partners from any
for Violation common fund the excluded from transaction connected with the formation, conduct, or
profits derived the partnership + liquidation of the partnership or from any use by him of its
damages property
(2) In case of
losses, the partner (2) Partners may
SITUATION 1 – Partner was given a birthday gift by reason
shall bear them avail of the
alone benefits + of a business transaction connected with the Partnership
damages Dela Peña is a partner of a business engaged in trading
and real estate. He transacted with a potential buyer and
NOTE: One may be both a capitalist partner and an was about to meet him to sign a Deed of Sale. It was also
industrialist partner his birthday. Thus aside from the Deed of Sale over the
property, the client also gave Dela Peña 50K as a birthday
PROPERTY RIGHTS OF A PARTNER present.
Relevant articles: 1805-1810
Question: What is your obligation to the partnership as to
Article 1805 — The partnership books shall be kept, subject
that gift?
to any agreement between the partners, at the principal Answer: Apply Article 1807.
place of business of the partnership, and every partner shall Bottom line: As provided under Article 1807, the partner
at any reasonable hour have access to and may inspect and has the obligation to disclose it to the partnership. Every
copy any of them. partner must account to the partnership whatever benefit
he may have gained and hold in trust by him any profits
Article 1806 — Partners shall render on demand true and full derived without the consent of the other partners from
information of all things affecting the partnership to any any transaction connected with the partnership.
partner or the legal representative of any deceased partner Moreover, there is also a fiduciary relationship.
or of any partner under legal disability.

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 SITUATION 2 – Partner receives a gift
not in relation to the Partnership
A parish priest gave Dela Peña 50K. As a matter of fact, it
was his partner which introduced him to the parish priest,
that’s why Dela Pena and the parish priest became
friends.
cannot claim any right under the homestead or
exemption laws;
A partner's right in specific partnership property is not
subject to legal support under Article 291.

Question: Is there an obligation for the partner to report SUMMARY

this 50K to the partnership? May the specific partnership property be:
Partnership Partner’s Debt
Answer: No. This is a pure gift. It has nothing to do with Debt
the transaction. Mortgaged Yes No
Except all partners agree
Executed Yes No
Rights to a Formal Account of Partnership Affairs Except all partners agree
Under Certain Circumstances Assigned Yes (If all No
Question: As to partners alone, who could ask for formal partners agree Except all partners agree
accounting?
to assign their
Answer: Apply Article 1809.
interest)
Any partner shall have the right to a formal account as to Legal Cannot be subjected
partnership affairs: (TAWO) Support Except all partners agree
(1) If he is wrongfully excluded from the partnership Use A partner may use and possess specific
business or possession of its property by his co- partnership property ONLY FOR
partners; PARTNERSHIP PURPOSES unless all
(2) If the right exists under the terms of any partners consent to his personal use
agreement;
(3) As provided by Article 1807;
(4) Whenever other circumstances render it just and
(A) RIGHTS TO POSSESS SPECIFIC PARTNERSHIP
reasonable
PROPERTY
NOTE: The partner cannot always ask for a formal RULE: A partner has an equal right with his partners to
accounting. It must be these circumstances referred possess specific partnership property FOR PARTNERSHIP
above. PURPOSES ONLY unless ALL PARTNERS CONSENT to his
personal use.

PARTNER’S INTEREST IN THE PARTNERSHIP

Article 1812 – A partner’s interest in the partnership is
his share of the profits and surplus.
Profit – excess of RETURNS over EXPENDITURES
Surplus – excess of ASSETS over LIABILITIES
Situation – Partner used the specific partnership property
for a personal use
The partner borrowed the funeral car to tour her relatives
in Cebu. One week after, she received a statement of
account – “For the use of Car No. 3”. She was billed 50K
for the 3 days that she used the car. The partner objected.

LIMITATIONS OF A PARTNER’S RIGHT AS A CO-OWNER OF Question: Is there an obligation of the partner to pay?
PARTNERSHIP PROPERTY Answer: Yes. Unless, all the partners consented to the
personal use of the funeral car, she has the obligation to
pay the amount.
Article 1811— A partner is co-owner with his partners of
specific partnership property. The incidents of this co-
If it took her 2 years after to pay, she must pay the
ownership are such that:
principal amount + interest.
(1) A partner, subject to the provisions of this Title and to
Bottom line: A partner’s right to possess and use
any agreement between the partners, has an equal right
partnership property is SOLELY for PARTNERSHIP
with his partners to possess specific partnership property
PURPOSES unless ALL PARTNERS CONSENT to his
for partnership purposes; but he has no right to possess
personal use.
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,

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 (B) ASSIGNMENT OF SPECIFIC PARTNERSHIP PROPERTY
RULE: A partner’s right in specific partnership property is
NOT ASSIGNABLE except in connection with the
assignment of rights of all partners in the same property
or when all partners agree or consent thereto.
SITUATION – Partner wants to assign his share/interest of
500sqm portion of the 1,500sqm of the specific
partnership property
CHARGING ORDER
Charging Order
An order by the court where the interest of the debtor-
partner is charged to satisfy the claim of the creditor
Process of a Creditor’s Charging Order
(1) Final Judgment – Creditor gets a final judgment
from the court regarding his claim against the
debtor-partner

Bottom line: Partners cannot assign interest in the
partnership property PRIOR to liquidation because it is
impossible to determine the extent of his beneficial
interest in the property.
In this case, the entire property is still in the name of the
partnership. It is not yet subdivided and it is not indicated
who owns each portion of the land. Thus, there is no
certainty as to which portion the partner owns.
Rights of an Assignee before Redemption
(1) Receive the profits to which the assigning partner
is entitled
(2) Usual remedies in the event of management fraud
(3) Require an account of partnership affairs upon
dissolution
(4) Receive the interest of the assigning partner upon
dissolution
His assignment does not grant the assignee a right to:
(1) To interfere in the management of the partnership
(2) To require any information or account
(3) To inspect any of the partnership books
(C) LEGAL SUPPORT – Interest in a Specific Partnership
Property cannot be subjected to legal support
GENERAL RULE: Interest in specific partnership of
property cannot be subjected to legal support. The
property belongs to the partnership and not the partner
himself.
(2) Execution of Final Judgment – Sheriff will execute
the judgment by going after the judgment debtor
to demand satisfaction of the debt
(3) Attachment – If the judgment debtor refuses to
pay, the sheriff may attach the properties of the
debtor
(4) When Properties are Insufficient – If the property
attached is not sufficient to satisfy the debt, the
creditor may apply for a charging order on debtor
partner’s interest (in this case, PROFITS) in the
partnership
(5) When the Creditor is granted a charging order of
the court, he may:
(a) Upon distribution – Creditor may receive
the debtor partner’s interest (e.g. the profits
distributed and surplus if there is dissolution)
to apply it to the judgment credit
(b) During redemption period – the other
partners could redeem the interest of the
judgment debtor by:
(1) Paying off the claim of the creditor with
the partner’s separate property; or
(2) Paying off the claim of the creditor with
partnership’s property WITH the
CONSENT of ALL partners

EXCEPTION: Unless all the partners agree

HOWEVER, a partner’s interest in the partnership, being

their own property can be subjected to legal support.
 Thus, if the partner will go to the bank and the
bank will ask for collateral, a partner may assign
his interest in the partnership.
 In the viewpoint of the bank – it will be
dangerous to accept this as a collateral because
this is not a solid collateral. In practice, the bank
will not allow this as a collateral.
 Why? Profits are not certain and business is not
a guarantee for profit. It is either a win or lose.
 Difference between an investor and a creditor
Investor – there is a risk of loss
Creditor – can be assured of the amount that he
will receive

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