CHAPTER 2 7.

As to nature of membership
OBLIGATIONS OF THE PARTNERS a. Original partners – members from the
time of its constitution
KINDS OF PARTNERS
b. Incoming partners – members after the
1. As to contribution establishment
a. Capitalist partners – contribute money c. Retiring partners – those who withdraw
or property or both money and property from the partnership
b. Industrial partners – contribute only 8. As to state of survivorship
their industry or labor a. Surviving partners – continue the
c. Capitalist-industrial partners – partnership after dissolution by reason of
contribute money or property and industry death of a partner
or both money, property and industry b. Deceased partners – died while being a
2. As to liability member of the partnership
a. General partners – can be held liable to 9. As to the effect of expulsion
third persons for partnership obligations a. Expelled partners – expelled by other
even to the extent of their separate partners for a valid cause
property b. Expelling partners – caused the
b. Limited partners – cannot be held liable expulsion of a partner for a valid cause
to third persons for partnership obligations 10. As to the value of the contribution
3. As to management a. Majority partners – contribution
a. Managing partners – manage actively represents the majority or controlling
the business or affairs of the partnership interest
b. Silent partners – do not take active part b. Nominal partners – contribution to the
in the business or affairs of the partnership partnership represents the minority
though they share in the profits or losses interest
c. Liquidating partners – take charge of
the winding up or liquidation of the Section 1:
partnership affairs after dissolution Obligations of the Partners Among
4. As to third persons Themselves
a. Ostensible partners – take active part
Legal relations created by a contract of
and known to the public as a partner in the
partnership partnership
b. Secret partners – connection with the
partnership is not known to the public 1. Relations between partners;
c. Dormant partners – do not take active 2. Relations between partners on one hand and
part and is not known to the public as the partnership in the other hand;
partners; secret and silent partners 3. Relations between the partners on one hand
and third persons on the other hand;
5. As to membership 4. Relations between the partnership and the third
a. Real partners – partners existing in a persons.
legal partnership
b. Partners by estoppel – not really
partners but represent themselves, or Examples of obligations and rights
consent to another or others representing
to anyone as partners in an existing of a partners
partnership or in one that is fictitious or Obligations of Rights of partners
apparent partners
6. As to continuation of the business affairs after 1. To give their 1. Right to associate
dissolution promised with another
contribution person in their
a. Continuing partners – continue the share
partnership business after dissolution 2. Not to convert 2. Right to have
b. Discontinuing partners – do not partnership access to and
continue the partnership business after the money to their inspect and copy
dissolution own use partnership books
 3. To account and 3. Right to demand a therein during the term, without any
hold as trustee for formal account settlement or liquidation of the partnership
any profits derived affairs, is prima facie evidence of a
without the continuation of the partnership.
consent of other
partners
OBLIGATION OF EVERY PARTNER
4. Not to engage in 4. Right to ask for
any business the dissolution of 1. The obligation to contribute to what had
which is of the the partnership at been promised;
kind in which the a proper time The failure to contribute is to make the
partnership is partner a debtor of the partnership even if
engaged there is no demand. In case of failure to deliver
5. Obligation of 5. Property rights of the promised contribution, the remedy is
managing partners: specific performance with interest and
partners to credit a. Rights in specific
damages occasioned thereby and not
to the partnership partnership
rescission.
the payment property
made by a debtor b. Interest in the 2. The obligation to deliver the fruits
who owes the and partnership thereof; and
the partnership c. Right to If the partner is in bad faith, he is liable not
participate in the only for the fruits actually produced, but also
management for those that could have been produced. If
6. Obligation to NOTE: money has been promised and that partner
share with the Limited partners have failed to do so, he becomes a debtor for the
other partners the no right to participate interest and damages from the time he should
share of the in the management. have complied with his obligation.
partnership credit 3. The obligation to warrant
which they have The warranty in case of eviction refers only
received from an
to specific or determinate things which a
insolvent
partner contributed to the partnership.
partnership debtor
7. Pay for damages ARTICLE 1787. When the capital or a part
suffered by the thereof which a partner is bound to
partnership
contribute consists of goods, their appraisal
through their fault
must be made in the manner prescribed in the
contract of partnership, and in the absence of
ARTICLE 1784. A partnership begins from the stipulation, it shall be made by experts
moment of the execution of the contract, chosen by the partners, and according to
unless it is otherwise stipulated. current prices, the subsequent changes
thereof being for the account of the
GENERAL RULE: A partnership beings from the partnership. (n)

moment of the execution of the contract.

RATIONALE: In order to know the monetary value
EXCEPTION: The partners can agree on some other of the contribution of that partner as of the date of
contribution. In the absence of stipulation, the share
date for the start of the partnership.
of each partner in the profits and losses shall be in
Article 1785. When a partnership for a fixed proportion to what he may have contributed.
term or particular undertaking is continued
after the termination of such term or Manner of appraisal:
particular undertaking without any express 1. By stipulation; or
agreement, the rights and duties of the 2. In the absence of stipulation, by experts chosen
partners remain the same as they were at by the partners according to current prices
such termination, so far as is consistent with
a partnership at will. Essence of Partnership: Being in a contract of
A continuation of the business by the partnership, each partner must share in the profits
partners or such of them as habitually acted and losses of the venture.
Cases covered of the liability for damages and as to profits and the industrial partner
losses, in proportion to shall not be liable for
interest his contribution losses.
1. Money promised by a partner is not given on Remedies of capitalist partners against an
time; and
2. Money of the partnership is converted to industrial partner engaged in business for
partners’ own use.
himself
Demand is not necessary 1. The capitalist partners may exclude the
1. In the case of contribution, because time is of industrial partner from the partnership plus
the essence, a partnership is formed precisely damages; or
to make use of the contribution, and this use 2. The capitalist partners may avail themselves of
should start from its formation, unless a the benefits which the industrial partner may
different period has been set; otherwise the have obtained plus damages.
firm is necessarily deprived of the benefit
thereof. Thus, injury is constant. NOTES
2. In the case of conversion, demand is also not ➢ An action for specific performance to compel
necessary, even if no actual injury result, the the partner to perform the promised industry is
liability exists, because the Article is absolute. not available as remedy because this will lead
to prohibition on involuntary service under the
CAPITALIST PARTNER vs. INDUSTRIAL Philippine Constitution.

PARTNER Obligation of capitalist partners to

Capitalist partner Industrial partner
Contribution contribute additional capital
Contributes money or Contributes his ARTICLE 1790. Unless there is a stipulation to
property industry the contrary, the partners shall contribute
Prohibition to engage in other business equal shares to the capital of the partnership.
General rule: cannot General rule: cannot (n)
engage in the same engage in business for
kind of business in himself General rule: Capitalist partners are not bound to
which the partnership contribute additional capital.
is engaged
Exception: stipulation Exception: if the Exceptions:
authorizing him partnership expressly 1. Stipulation; and
permits him to do so 2. In case of imminent loss of the business of the
Profits
partnership to save the venture. IF the
Share in the profits Shares in the profits
capitalist partners refuse to contribute
according to according to
additional capital, they shall be obliged to sell
agreement; if there is agreement; if there is
no agreement, in no agreement, he shall their interest to the other capitalist partners
proportion to his receive such share as who are willing to contribute additional capital.
contribution may be just and
equitable under the NOTES
circumstances ➢ Contract of partnership is governed by the
Losses principle of fiduciary relationship, that is trust
General rule: the General rule: the and confidence, so that if a capitalist partner
agreement as to agreement as to (solvent) is not willing to make additional
losses; if any. If there losses; if any contribution, then there is no more fiduciary
is no agreement, then relationship to speak of.
the agreement as to ➢ Article 1791 is not applicable to industrial
profits partners because they are already giving their
Exceptions: in the Exception: in the entire industry.
absence of agreement absence of agreement,
ARTICLE 1792. If a partner authorized to
ARTICLE 1792 vs. ARTICLE 1793
manage collects a demandable sum, which
was owed to him in his own name, from a ARTICLE 1792 ARTICLE 1793
person who owed the partnership another As to number of credits
sum also demandable, the sum thus collected 2 distinct credits; one Only 1 credit, that is, in
shall be applied to the two credits in in favor of the favor of the
proportion to their amounts, even though he partnership and partnership
another in favor of the
may have given a receipt for his own credit
managing partner
only; but should he have given it for the
As to applicability
account of the partnership credit, the amount
Applies only if the Applies to any partner
shall be fully applied to the latter. partner is a managing
partner
The provisions of this article are understood
As to debtor’s insolvency
to be without prejudice to the right granted
Debtor is not insolvent Debtor has become
to the debtor by article 1252, but only if the
insolvent
personal credit of the partner should be more
onerous to him. (1684)
ARTICLE 1794
RATIONALE: To prevent furtherance of the partner’s Damages suffered by the partnership
personal interest to the detriment of the through the fault or negligence of a partner are not
partnership. Art. 1792 is not applicable to a partner generally subject to set-off with the profits and
who is not a managing partner because there is no benefits which that partner may have earned for the
basis for the suspicion that the partner is in bad partnership by his industry.
faith.
In case of a partner’s extraordinary efforts
in other activities of their partnership, unusual
OBLIGATIONS OF A MANAGING PARTNER
profits have been realized. This principle rests on
WHO COLLECTS DEBT equity.

REQUISITES: Risk of Loss

1. The existence of at least 2 debts (one where 1. Specific and determinate things which
the managing partner is the creditor and the are not fungible
other where the partnership is the creditor); ➢ The partner owns them bears the risk of
and loss since only their use and fruits are
2. Both sums are demandable contributed.
2. Fungible things
NOTES ➢ The partnership bears the risk of loss as
➢ If managing partner issued a receipt for his own there is a transfer of ownership after
credit, the sum should be applied delivery of fungible things.
proportionately. 3. Things contributed to be sold
➢ If managing partner for the credit of the ➢ The partnership bears the risk of loss as
partnership, then the entire sum will be applied there is a transfer of ownership after
to the credit of partnership. delivery of things contributed to be sold.
➢ Liability refers to the obligation towards the 4. Things brought and appraised in the
partners. inventory
➢ Losses refers to obligation as among the ➢ The partnership bears the risk of loss as
partners. there is a transfer of ownership after the
delivery of things brought and appraised in
ARTICLE 1793. A partner who has received, in the inventory.
whole or in part, his share of a partnership
credit, when the other partners have not Obligation of the partnership to every
collected theirs, shall be obliged, if the debtor
should thereafter become insolvent, to bring partner
to the partnership capital what he received 1. To refund the amounts a partner may have
even though he may have given receipt for his disbursed on behalf of the partnership plus the
share only. (1685a)
 interest from the time the expenses were ARTICLE 1799. A stipulation which excludes
made. one or more partners from any share in the
2. To answer to each partner for obligations, he profits or losses is void. (1691)
may have contracted into in good faith in the
interest of the partnership, and for the risks in General rule: A stipulation excluding one or more
consequence of its management. partners from any share in the profits and losses is
void. What is void is the stipulation only and not the
RULES FOR DISTRIBUTION OF PROFITS AND contract of partnership. Hence, the profits and
losses shall be distributed as if there was no
LOSSES OF A PARTNERSHIP agreement as discussed in the preceding article.
1. Distribution of profits
a. According to agreement – profits shall Exception: An industrial partner is not liable for
be distributed in conformity with the losses unless the waived this right.
agreement.
b. If there is no agreement Why is an Industrial Partner not liable for losses?
i. Capitalist partners – in proportion
While capitalist partners can withdraw
to what he may have contributed
their capital, the industrial partner cannot withdraw
ii. Industrial partners – that is just
any labor or industry he had already exerted.
and equitable under the
Moreover, in a certain sense, he already has shared
circumstances
in the losses in that, if the partnership show no
iii. Capitalist-industrial partners – in
profit, this means that he has labored in vain.
proportion to what he contributed
plus the agreed amount as his
just and equitable share
Example of an act of administration
2. Distribution of losses A managing partner of a partnership may
a. According to agreement – losses shall execute all acts of administration including the right
distributed in conformity with the to sue debtors of the partnership in case of their
agreement; if only agreement to the share failure to pay their obligation when it became due
of each partner in the profits, the share of and demandable.
each in the losses shall be in the same
proportion; industrial partner shall not be Who shall manage the partnership?
liable for the losses. Either one, some or all the partners
b. If there no agreement designated as managing partner/s in the articles of
i. Capitalist partners – in proportion partnership or after the contract of partnership had
to what they have contributed already been constituted. If there is no agreement,
ii. Industrial partners – not liable for management is vested in all of the partners.
losses
iii. Capitalist-industrial partners – in TWO MODES OF APPOINTMENT
proportion to his capital
1. Appointment as manager in the articles of
contribution
partnership; or
2. Appointment as manager made in an
Third Person Designating the Share of instrument other than the articles of
partnership.
Partners in the Profits and Losses
I. Appointment as Manager in the
General Rule: It is valid.
Articles of Partnership
Exception: It is not valid and it may be questioned General Rule: Power is irrevocable without just or
if it is manifestly inequitable; unless:
lawful cause.
1. A partner began to execute the decision of the
third person; or Exception:
2. A partner has not questioned the said decision 1. To remove him for just cause, vote of partners
of the third person within a period of 3 months having controlling interest is necessary;
from the time he had knowledge thereof.
2. To remove him without just cause, there must NOTES
be unanimity including his own vote.
➢ The right to oppose is not given to the non-
managers because in appointing their other
Reason: This represents a change in the will of the
partners as managers, they have stripped
parties; a change in the terms of the contract; a themselves if all participation in the
novation; so to speak, requiring unanimity. administration.

Extent of power: Stipulation Requiring Unanimity of Action

1. If he acts in good faith, he may do all acts of
administration despite the opposition of his General rule: Unanimous consent of all the
partners. managing partners (even if one of the managers is
2. If he acts in bad faith, he cannot do any act of absent of decapitated) shall be necessary for the
administration. IT must be noted that the validity of the acts and absence or disability of any
presumption in law is in favor of good faith. managing partner cannot be alleged.

II. Appointment as Manager Made in an Exception: When there is an imminent danger of

grave or irreparable injury to the partnership.
Instrument other than the Articles
Article 1802 NOT applicable to third person
of Partnership
This obligation is not imposed upon a third
Rule: The power to act may be revoked at any time, person who contracts with the partnership. Neither
with or without just cause by the partners owning it is necessary for the third person to ascertain if the
the controlling interest. managing partner with whom he contracts has
previously obtained consent of other. A third person
Reason: Such appointment is a mere delegation of may and has a right to presume that the partner
with whom he contracts has, in the ordinary and
power; revocable at any time.
natural course of business, the consent of his co-
partner; otherwise, he would not enter the contract.
Extent of power: The manager can do all acts of
administration. Rules When Manner of Management Has
When Two or More Managing Partners Not Been Upon
1. All the partners shall be considered as
have been Entrusted with the Management managers. Consequently, all partners can do all
Requisites: acts of and=ministration. If the acts of a
partner are opposed by other partners, the
1. Two or more partners are managers;
majority (per head) shall prevail. In case of tie
2. There is no specification of respective duties;
(per head), then the vote of the partners
and
representing the controlling interest shall
3. There is no stipulation requiring unanimity, that
prevail.
is, that one of them shall not act without the
2. For important alterations in immovable
consent of all the others.
property, unanimity is required.

General rule: Each one may separately execute all Art. 1803 paragraph 2 deals only with immovable property:
acts of administration. a. First, because of their comparative greater
importance than personalty.
Exceptions: If any of the managers should oppose: b. Second, because, in a proper case, they
1. The decision of the majority (per head) of the should be returned to the partners in the
managing partners shall prevail. same condition as when they were
2. In case of a tie, the decision of the managing delivered to the partnership.
partners owning the controlling interest (more
Consent of the other may be expressed or
than 50%) shall prevail.
implied (as when the partners had knowledge
 of the alternation and no opposition was made partnership or from any use by him of its
by them). property. (n)

Contract of Sub-Partnership Rationale: The partners are governed by fiduciary

➢ The consent of the other partners is not relationship, that is, mutual trust and confidence.
required.
➢ All partners can have an associate in his share NOTES
or sub-partner. ➢ Article 1807 refers only to any profits derived
➢ An associated sub-partner shall not be admitted by a partner without the consent of the other
into the partnership without the consent of all partners.
the other partners based on the following ➢ The 3 final stages of a partnership are: (1)
reasons: dissolution; (2) winding-up; and (3)
a. Mutual trust is the basis of partnership; termination.
and ➢ The partnership, although dissolved, continue
b. A change in membership is a modification to exist and its legal personality is retained, at
or novation of the contract. which time completes the winding up of its
affairs, including the partitioning and
ARTICLE 1805. The partnership books shall distribution of the net partnership assets to the
be kept, subject to any agreement between
partners.
the partners, at the principal place of
➢ For as long as the partnership exists, any of the
business of the partnership, and every partners may demand an accounting the
partner shall at any reasonable hour have
partnership’s demands.
access to and may inspect and copy any of ➢ When the final accounting is made, it is only
them. (n) then that prescription begins to run.

What is reasonable hour? ARTICLE 1808

The Supreme Court held that reasonable
hour should be on business days throughout the Rationale: The capitalist partner has already
year, and not merely during some arbitrary period acquired knowledge of the business secrets of the
of a few days chosen by the directors (or managers partnership; hence, it is unfair for him to engage in
as regards partnership). a business which is of the kind of business in which
ARTICLE 1806. Partners shall render on the partnership is engaged.
demand true and full information of all things
affecting the partnership to any partner or Effects of violation
the legal representative of any deceased 1. The capitalist partner shall bring to the
partner or of any partner under legal common fund any profits accruing to him; and
disability. (n) 2. The capitalist partner shall personally bear all
the losses.
Violation of the above stated article is
called concealment. ARTICLE 1809
Who can demand true and full information? General rule: No formal accounting is demandable
1. Any partner; until after the dissolution of the partnership.
2. Legal representative of any deceased partner;
and Exceptions:
3. Legal representative of any partner under legal
1. If a partner is wrongfully excluded from the
disability.
partnership business or possession of its
ARTICLE 1807. Every partner must account to property by his co-partners;
the partnership for any benefit, and hold as 2. If the right to demand for accounting exists
trustee for it any profits derived by him under the terms of any agreement;
without the consent of the other partners 3. As provided by article 1907; and
from any transaction connected with the 4. Whenever other circumstances render it just
formation, conduct, or liquidation of the and reasonable.
 NOTES Section 2:
➢ If excellent relations exist among the partners Property Rights of a Partner
at the start of the business and all the partners ARTICLE 1810. The property rights of a
are more interested in seeing the firm grow partner are:
rather than get immediate returns, a deferment (1) His rights in specific partnership property;
of the sharing in the profits perfectly plausible. (2) His interest in the partnership; and
(3) His right to participate in the
INDUSTRIAL CAPITALIST management. (n)
PARTNER PARTNER
Prohibition ARTICLE 1811
ABSOLUTE RELATIVE
PROHIBITION PROHIBITION A partner is co-owner with his partners of
The industrial partner The capitalist partner specific partnership property. The incidents of this
cannot engage in cannot engage in the co-ownership are such that:
business for himself, same kind of business
unless the partnership as that of the 1. A partner has an equal right with his
expressly permits him partnership for his own partners to possess specific partnership
to do so. account, there is a property for partnership purposes
stipulation to the ➢ All of the contributions of the partners are
contrary. now by the partnership being a juridical
Remedy person.
Capitalist partners Capitalist partner, who 2. A partner’s right in specific partnership
may: violated shall: property is assignable
1. Exclude him from 1. Bring to the ➢ Assignment: The transfer or property. The
the firm plus common fund any
rights or property so transferred.
damages; and profits accruing to
3. A partner’s right in specific partnership
2. Avail themselves him from said
of the benefits transactions; and property is not subject to attachment or
which he may 2. Personally bears execution
have obtained. all losses. ➢ Partners’ separate creditors cannot ask the
court for attachment or execution of the
contributed properties as these are bow
owned by the partnership which has a
separate juridical personality.
4. A partner’s right in specific partnership is
not subject to legal support

ARTICLE 1812. A partner’s interest in the

partnership is his share of the profits and
surplus. (n)

Rationale: A partner’s interest in the partnership

(partners’ share in the profits and surplus), as a
rule, can be assigned, can be assigned, and an be
subject to legal support.

Profit – The excess of revenues over expenditures

in a business transaction.

Surplus – the excess of receipts over

disbursements. Funds that remain after a
partnership has been dissolved and all its debts
paid.

Conveyance – the voluntary transfer of a right or of

property.
 Effects of Conveyance by Partner of His Appointment of a receiver
Whole Interest in the Partnership The court may then or later appoint a
receiver of the partner-debtors’ share in the profits,
1. If a partner conveys (assigns, sells, donates) and of any other money due or to fall due to him in
his whole interest in the partnership, it may still respect of the partnership, and make all other
subsist (this is the general rule) or it may be orders, directions, accounts and inquiries which the
dissolved (this is an example, for example, if debtor-partner might have made, or which the
the remaining partners do not want to continue circumstances of the case may require.
the operation of the business of the
partnership). Redemption of interest charged
2. The assignee:
a. Cannot interfere in the management of the 1. Before foreclosure
partnership business; The interest charged may be redeemed at
b. Cannot require information or accounting any time before foreclosure.
of partnership transactions; and 2. After foreclosure
c. Cannot inspect partnership books. It may still be purchased without thereby
causing a dissolution:
Rights of the assignee a. With separate property of a partner; or
b. With partnership property with the consent
1. To receive the profits to which the assigning of all the partners whose interests are not
partner would otherwise be entitled; so charged or sold.
2. In case of fraud in the management of the
partnership, the assignee may avail himself of Redemption – the extinguishment of the charge or
the usual remedies provided by law;
attachment on the partner’s interest in the profits
3. In case of dissolution, to receive the assignor’s
interest and
4. In case of dissolution, the assignee may require
Rights of a partner under exemption laws
an account from the date only of the last A partner shall not be deprived of his right
account agreed to by all partners. under the exemption laws, as regards his interest
in the partnership.
NOTES
However, a partner, cannot avail himself of
➢ The assignment of interest does not purport to
the exemption laws insofar as his right in specific
transfer an interest in the partnership, but only
partnership property is concerned.
a future contingent right to a portion of the
ultimate residue as the assignor may become
entitled to receive by virtue of his proportionate
interest in the capital.

What is meant by a “charging order” upon

a partner’s interest in the partnership?
A “charging order” upon a partner’s
interest in the partnership refers to the remedy
available to a judgment creditor of a debtor-partner
to charge the interest of the latter in the partnership
by means of a court order for the purpose of
satisfying the amount of the judgment. A receiver
of the debtor-partners’ share of the profits may be
appointed. This charging order, however, is always
subject to the preferred rights or partnership
creditors.

Note that the court will issue a charging

order after the creditor obtained a favorable
judgment from the court which became final.
 Section 3: Subsidiary – partners’ separate property may be
Obligations of the Partners with Regard held liable only after the partnership creditors’
to Third Persons exhausted assets of the partnership.
ARTICLE 1815. Every partnership shall
operate under a firm name, which may or may Separate obligation of a partner
not include the name of one or more of the
If a partner, in his own name, enters into
partners.
a contract with a third person, then it is only that
Those who, not being members of the partner who is liable and not the partnership.
partnership, include their names in the firm
name, shall be subject to the liability of the Stipulation against liability
partner. Stipulation against liability of all partners
for the contracts entered into in the name of the
General rule: The partners may use any firm name partnership is void as to third persons but is valid
desired and this will be the name of that juridical among the partners.
person.
Partner as agent of the partnership
Exception: A contract of partnership is naturally
➢ The partnership cannot use an identical or fiduciary. Thus, trust and confidence governs the
deceptively confusingly similar name to that of partners. Hence, every partner is an agent of the
any existing partnership or corporation or to other partners and the partnership.
any other name already protected by law or is
patently deceptive or contrary to existing laws. I. Acts apparently for carrying on in the
➢ Non-partners who include their names in the usual way the business of the
firm name shall be subject to the liability of a partnership
partner. This is based on the principle of
estoppel. Such person has no right as a partner This binds the partnership unless:
because he is in fact not a partner. a. The partner so acting has in fact no
authority to act for the partnership; and
Note: The purpose of the law is to protect innocent b. The person with whom he is dealing has
knowledge of the fact that he has no such
third persons from being misled. authority (bad faith)
ARTICLE 1816. All partners, including
industrial ones, shall be liable pro rata with Act is still binding if acted by a person who
all their property and after all the partnership has no authority but such non-authority is
assets have been exhausted, for the contracts unknown to the person dealt with.
which may be entered into in the name and
for the account of the partnership, under its II. Acts not apparently for the carrying
signature and by a person authorized to act on in the usual way of business of the
for the partnership. However, any partner partnership
may enter into a separate obligation to
perform a partnership contract. (n) It does not bind the partnership, unless
authorized by the other partners.
Liability for contractual obligations
III. Acts of ownership
Article 1816 refers to liability and not to
loss that is why even an industrial partner is also Authority must come from partners
liable as he is not liable only with respect to loss. unanimously.
Hence, all partners including industrial partners’
liability is pro rata and subsidiary, unless otherwise IV. Acts in contravention of a restriction
stipulated. on authority

Pro rata — equally or jointly The act is not binding to the partnership as
to persons having knowledge of the
restriction.
Title – legal evidence of a person’s ownership rights Engaged in real estate
business
in property an instrument (such as deed) that
One or more (or all) of the partners
constitute such evidence. CONVEYANCE: ADDITIONAL:
Executed by a partner Only the equitable
Equitable Interest in his/the partnership’s interest will be
An interest held by virtue of an equitable name transferred to X (3rd
person)
title or claimed on equitable grounds, such as the
SALE:
interest held by a trust beneficiary.
Valid and binding to X can ask for the
Real Property Registration the partnership reformation of the
(Title to real property is in the name of:) contract of sale to
BUSINESS: change the seller from
The Partnership
Engaged in real estate partner to the
CONVEYANCE: ADDITIONAL:
business partnership
Executed in the Sold land can be
partnership name recovered if selling
Equitable interest will
partner has no
not be transferred if
SALE: authority to convey the
sale is not in line with
Valid and binding to land
business operations
the partnership
Cannot be recovered if
Equitable interest will
BUSINESS: sale is in line with
not be transferred if C
Not mentioned as real business operations
has no authority and
estate
3rd person has
Cannot be recovered if
knowledge of it
buyer is in good faith
All the Partners
The Partnership
CONVEYANCE: SALE:
CONVEYANCE: ADDITIONAL:
Executed by all the Valid and binding to
Executed in the Only the equitable
partners the partnership
partners’ name interest will be
transferred to 3rd
BUSINESS:
SALE: person
Engaged in real estate
Valid and binding to
business
the partnership 3rd person can ask for
the reformation of the
BUSINESS: contract of sale to
Engaged in real estate change the seller from ARTICLE 1820
business partner to the
partnership Admission – a statement in which someone admits
that something is true or that he or she has done
Equitable interest will something wrong.
not be transferred if
sale is not in line with An admission by any partner is evidence
business operations against the partnership if:

Equitable interest will 1. The admission must concern partnership

not be transferred if C affairs; and
has no authority and 2. the admission must be within the scope of his
3rd person has authority.
knowledge of it
One or more (but not all the partners) NOTE: An admission by a former partner, made after
CONVEYANCE: ADDITIONAL:
he has retired from the partnership, is not evidence
Executed by partners Sold land cannot be
recovered if 3rd person against the firm.
SALE: is in good faith
Valid and binding to ARTICLE 1821
the partnership
General Rule: Notice to a partner is notice to the
BUSINESS: partnership.
Instances where knowledge of a partner is purpose and he later misappropriated it, such
considered knowledge of the partnership: partner is guilty of estafa."

1. Knowledge of the partner acting in the ARTICLE 1824. All partners are liable
particular matter acquired while a partner; solidarily with the partnership for everything
2. Knowledge of the partner acting in the chargeable to the partnership under articles
particular matter then present to his mind; and 1822 and 1823. (n)
3. Knowledge of any other partner who
reasonably could and should have ARTICLE 1825. When a person, by words
communicated it to the acting partner. spoken or written or by conduct, represents
himself, or consents to another representing
Exception: In the case of fraud on the partnership, him to anyone, as a partner in an existing
partnership or with one or more persons not
committed by or with the consent of that partner. actual partners, he is liable to any such
ARTICLE 1822. Where, by any wrongful act or persons to whom such representation has
omission of any partner acting in the ordinary been made, who has, on the faith of such
course of the business of the partnership or representation, given credit to the actual or
with the authority of his co-partners, loss or apparent partnership, and if he has made
injury is caused to any person, not being a such representation or consented to its being
partner in the partnership, or any penalty is made in a public manner he is liable to such
incurred, the partnership is liable therefor to person, whether the representation has or
the same extent as the partner so acting or has not been made or communicated to such
omitting to act. (n) person so giving credit by or with the
knowledge of the apparent partner making
Wrongful act or omission the representation or consenting to its being
made:
The other partners and the partnership are
solidary liable with the negligent partner because (1) When a partnership liability results, he is
the law protects the 3rd person, who in good faith liable as though he were an actual member of
relied upon the authority of a partner, whether such the partnership;
authority is real or apparent.
(2) When no partnership liability results, he is
This applies only if the case of the 3 rd liable pro rata with the other persons, if any,
person falls under Article 1822 or 1823. so consenting to the contract or
representation as to incur liability, otherwise
ARTICLE 1823. The partnership is bound to separately.
make good the loss:
When a person has been thus represented to
(1) Where one partner acting within the be a partner in an existing partnership, or
scope of his apparent authority receives with one or more persons not actual partners,
money or property of a third person and he is an agent of the persons consenting to
misapplies it; and such representation to bind them to the same
extent and in the same manner as though he
(2) Where the partnership in the course of its
were a partner in fact, with respect to
business receives money or property of a
persons who rely upon the representation.
third person and the money or property so
When all the members of the existing
received is misapplied by any partner while it
partnership consent to the representation, a
is in the custody of the partnership. (n)
partnership act or obligation results; but in all
other cases it is the joint act or obligation of
A PARTNER MAY BE HELD LIABLE FOR the person acting and the persons consenting
ESTAFA to the representation. (n)

“Thus, even assuming that a contract of partnership Partnership by estoppel

was indeed entered into by and between the
parties, we have ruled that when money or property ➢ All partners consent to misrepresentation of a
had been received by a partner for a specific third person who is not a real partner.
➢ This creates a partnership obligation.
➢ All partners consenting are in bad faith; they
are all partners by estoppel.
➢ Does not apply when the third person is not
deceived. Third person has the burden of
proving the existence of a partner by estoppel
or partnership by estoppel.

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)