PART I TITLE IX (4) "A partnership is the status arising out of a

PARTNERSHIP (Arts, 1767-1867) (Chapter 1) contract entered into by two or more persons
GENERAL PROVISIONS whereby they agree to share as common owners
the profits of a business carried on by all or any
ARTICLE 1767. of them on behalf of all of them." (31 Words and
By the contract of partnership two. or more Phrases
persons bind themselves to contribute money, property, or (5) "A partnership is an organization for production of
industry to a common fund, with the intention of dividing income to which each partner contributes one or
the profits among themselves. both of the ingredients of income, which are
Two or more persons may also form a partnership capital or service." (Ibid., p. 292.)
for the exercise of a profession. (1665a) (6) "A partnership is an entity, distinct and apart
from the members composing it, and, for the
Elements or Requisites of a Partnership purpose of which it was created, it is a person
➢ There must be a VALID CONTRACT having its own assets and liabilities and any benefit
➢ There must be MUTUAL CONTRIBUTION of money, or liability attaching to a member of the
property or industry to a common fund partnership, results from the partnership relation."
➢ The object or purpose must be LAWFUL (Ibid., p. 293.)
➢ It must have been established for the COMMON (7) "A partnership is a joint undertaking to share in
BENEFIT of the partners, which is to obtain profit the profit and loss." (Eastman vs. Clark, 53 N.H.
and divide the same among themselves 276, 16 Am. Rep. 192.)

Doctrine of “Delectus Personae” Partnership is a legal concept, but the determination of the
➢ Means “Choice of the Person” existence of a partnership may involve inferences drawn
➢ The right to choose with whom a person wishes to from an analysis of all the circumstances attending its
associate himself creation and operation. (68 C.J.S. 399; see Art. 1769.) As a
➢ The very foundation and essence of partnership\ form of business organization, it falls between two
➢ Allows the partners to have power, although not extremes of organizational form the single proprietorship
necessarily the right to dissolve the partnership and the corporation.

Concept of partnership. General professional partnership.

The above article gives the legal definition of The practice of a profession is not a business or
partnership (often called "co-partnership") from the an enterprise for profit. However, the law allows the joint
viewpoint of a contract. pursuit thereof by two or more persons as partners. Art.
1783.)
There are, however, other definitions. Thus: In such case, it is the individual partners, and not
(1) "A partnership is a contract of two or more the partnership, who engage in the practice of the
competent persons to place their money, effects, profession and are responsible for their own acts as such.
labor and skill, or some or all of them, in lawful The law does not allow individuals to practice a
commerce or business and to divide the profits and profession as a corporate entity. Personal qualifications for
bear the losses in certain proportions." (40 Am, such practice cannot be possessed by a corporation.
Jur. 126, 474; 68 C.J.S. 398.)
(2) "A partnership is an association of two or more Partnership for the practice of law.
persons to carry on as co-owners Partnership Act, (1. A mere association for non-business purpose.
Sec. 6.) a business for profit." (Uniform It is not a partnership formed for the purpose
(3) "A partnership is a legal relation based upon the of carrying on trade or business or of holding property.
express or implied agreement of two or more Thus, the use of a nom de plume, assumed, or trade name
competent persons whereby they unite their in law practice is improper...
property, labor or skill in carrying on some lawful
business as principals for their joint profit." (2. Distinguished from business.
(Mechem, Elements of the Law of Partnership The practice of law is intimately and peculiarly
[1923], p. 1.) related to the administration of justice and should not be
considered like an ordinary "money-making trade."
 The primary characteristics which distinguish the b. Two/more parties must have legal capacity to
legal profession from business are the following: enter a contract
a. A duty of public service, of which the c. Mutual contribution
emolument is a by-product, and in which d. Must be lawful
one may attain the highest eminence e. Must obtain profit and divide to the parties
without making much money;
b. A relation as an "officer of court" to Article 1775
the administration of justice involving It is also required that the articles of partnership
thorough sincerity, integrity, and reliability; must not be kept secret among the members:; otherwise,
c. A relation to clients in the highest the association shall have no legal personality and shall be
fiduciary degree; and governed by the provisions of the Civil Code Relating to
d. A relation to colleagues at the bar co-ownership.
characterized by candor, fairness, and
unwillingness to resort to current business Existence of a valid contract
methods of advertising and encroachment on 1. Form
their practice, or dealing directly with their - The relation evidenced by the terms which
clients. (In the Matter of the Petition for maybe oral or written, express or implied for
Authority to Continue Use of Firm Name the acts and declaration of parties subject to
"SyCip, Salazar, etc."/"Ozaeta, Romulo, Articles 1771-1773
etc.," 92 SCRA 1 [1979], citing H.S. 2. Articles of partnership
Drinker, Legal Ethics [1953], pp. 4-5.) - States the name, nature/purpose and location
of the firm and power, rights, duties and
Characteristics elements of Partnership liabilities of partnership among themselves,
1. Consensual their contributions, the manner by which the
a. perfected by mere consent profits and losses are to be shared and the
b. implied agreement of two/more person procedure for dissolving the partnership.
2. Nominate 3. Requisites
a. Has a special name or designation in our - All the essentials of a valid contract must be
law present
3. Bilateral a. Consent and capacity of contracting parties
a. Entered into by two or more persons b. Subject matter of the contract
4. Onerous c. Cause which is established “art. 1318
a. Each parties aspires to procure/obtain for
himself a benefit through giving or
something Legal capacity of the parties to enter into the contract.
5. Commutative 1. (Individuals.
a. The undertaking of each of the partners - As a general rule, any person may be a
is considered as the equivalent of that of partner who is capable of entering into
others contractual relations. Consequently, any person
6. Principal who cannot give consent to a contract cannot
a. Does not depend its existence or validity be a partner. Hence, the following cannot give
upon some contracts their consent to a contract of partnership:
b. Is stand alone a. Unemancipated minors;
7. Preparatory b. Insane or demented persons;
a. Entered into a means to an end c. Deaf-mutes who do not know how to
b. Engage in business and divide the profit write;
among contracting parties d. Persons who are suffering from civil
interdiction; and
A partnership is aa contract of agency ‘article 1818’ e. Incompetents who are under guardianship.
(see Arts. 1327, 1329; Art. 34, Revised
Features of partnerships Penal Code; Rules 93-94, Rules of Court.)
a. Must be valid
Under Article 1782, persons who are prohibited from giving
each other any donation or advantage cannot enter into a Legality of the object.
universal partnership. The object is unlawful when it is contrary to law,
morals, good customs, public order, or public policy. (Art.
A married woman may enter into a contract of partnership 1306.)
even without her husband's consent, but the latter may As in other kinds of contract, the purpose of a
object under certain conditions. partnership must be lawful (Art. 1770.)
otherwise, no partnership can arise as the contract
2. Partnerships. is inexistent and void ab initio. (Art. 1409[1]
- There is no prohibition against a partnership
being a partner in another partnership. When Purpose of Partnership
two or more partnerships combine with each -to obtain profit is the main reason
other (or with a natural person or persons)
creating a distinct partnership, say, partnership Sharing of profits.
X, all the members of the constituent - (Not necessarily in equal shares.
partnerships will be individually liable to the - Since the partnership is engaged for the
creditors of partnership X. common benefit or interest of the partners
3. Corporations. (Art. 1770.), it is necessary that there be an
- unless authorized by statute or by its charter, intention to divide the profits among the
a corporation is without capacity or power to members, although not necessarily in equal
enter into a contract of partnership shares.
- If all the other elements create a partnership,
Contribution to a common fund a stipulation which excludes one or more
1. Money partners from any participation in the profits
- currency which is legal tender in the Philippines (or losses) is void. (Art. 1799.)
- there is no contribution of money until they - Not conclusive evidence of partnership. The
have been cashed. (Art. 1249.) sharing in profits is merely presumptive and
2. Property not conclusive, even if cogent, evidence of
- may be real or personal, corporeal or partnership.
incorporeal.
- credit such as promissory note or other Sharing of losses.
evidence of obligation or even a mere goodwill 1. Necessary corollary of sharing in profits.
may be contributed, as they are considered a. The definition of partnership under Article
property 1767 refers to "profits" only and is
3. Industry. silent as to "losses."
- interpreted to mean the active cooperation, b. The reason is that the object of a
- personal manual efforts or intellectual, and for partnership is primarily the sharing of
which he receives a share in the profits (not profits, while the distribution of losses is
merely salary) of the business but a "consequence of the same."
(Espiritu & Sibal, op. cit., p. 2, citing 11
“The contribution of a partner may be in the three forms Manresa 263.)
of money, property and industry, or any two or one of c. Be that as it may, the right to share in
them.” the profits carries with it the duty to
contribute to the losses, if any. (see Art.
Proof of contribution 1797.)
- In partnership, proof is necessary that there 2. Agreement not necessary.
be contribution of money, property, or a. It is not necessary for the parties to
industry to a common fund with the intention agree upon a system of sharing losses,
of dividing the income or profits obtained for the obligation is implied from the
therefrom. partnership relation but if only the share
- The existence of valid contract as proof to of each partner in the profits has been
acquire all the rights to a co-partner. agreed upon, the share of each in the
 losses shall be in the same proportion. (Art. contributed thereto, in which case a public instrument SHALL
1797, par. 1.) be necessary.
3. Generally, a stipulation which excludes one or more
partners from any share in the profits or losses Article 1772
is void. (Art. 1799.) Every partnership having a capital of three
thousand pesos or more, in money or property, shall appear
Juridical personality of Partnership in public instrument which must be recorded in the Securities
ART. 1768. and Exchange Commission.
The partnership has a juridical personality separate Failure to comply with the requirements of the
and distinct from that of each of the partners even in preceding paragraph shall not affect the liability of the
case of failure to comply with the requirements of Article partnership and the members thereof to third persons.
1772, first paragraph. (n)
Effect of failure to comply with statutory requirements.
Two kinds of person under our Law
Natural person Contract of partnership is VOID.
- Human beings that have rights Being VOID, means no liability attached to partnership
and obligation from the moment Liability may still be incurred by the partnership
they conceived Not void, therefore valid
Juridical person Effects as to third person
- Pertains to artificial persons
- Those that are created by law Under Article 1772
and by such granted with This article makes it clear that even in case of
rights and obligations. failure to comply with the requirements of Article 1772,
- Generally treated just like a with reference to the execution of a public instrument and
human. registration of the same with the Securities and Exchange
Commission in cases when the partnership capital exceeds
Partnership is an artificial being, created by the provisions P3,000.00, such partnership acquires juridical personality.
of the Civil code and was granted with rights and duties. (se3 Art. 1784.)
The law recognizes that in the Philippines, most
Partnership, a juridical person. partnerships are created with very small capital to engage
A partnership is sometimes referred to as a in small business and it would be impractical to require that
"firm" or a "company," terms that connote an entity they appear in a public instrument and be registered as
separate from its aggregate individual partners. provided in Article 1772.
(
Like the corporation, a partnership duly formed Under Articles 1773 and 1775.
under the law is a juridical person to which the law grants However, in the case contemplated in Article 1773,
a juridical personality separate rate and distinct from that the partnership shall not acquire any juridical personality
of each of the partners. (Art. 44, par. 3. because the contract itself is void. This is also true
regarding secret associations or societies which do not acquire
Article 1770 juridical personality under Article 1775.
A partnership must have lawful object or purpose,
and must be established for the common benefit or To organize a partnership not an absolute right.
interest of the partners. To organize a corporation or a partnership that
When unlawful partnership is dissolved by a juridical could claim a juridical personality of its own and transact
decree, the profits shall be confiscated in favor of the business as such, is not a matter of absolute right but a
estate, without prejudiced to the provisions of the RPC privilege which may be enjoyed only under such terms as
governing the confiscation of the instruments and effects the State may deem necessary to impose.
of the crime.
ART. 1769
Article 1771 In determining whether a partnership exists, these
A partnership must be contributed in any form, rules shall apply:
except where immovable property or real rights are
 1. (Except as provided by article 1825, persons who inadequate to prove the intent to form a
are not partners as to each other are not partners partnership,
as to third persons;
2. Co-ownership or co-possession does not of itself Persons not partners as to each other.
establish a partnership, whether such co-owners or Persons who are partners as between themselves
co- possessors do or do not share any profits are partners as to third persons. Generally, the converse is
made by the use of the property; true, to wit: if they are not partners as between
3. (The sharing of gross returns does not of itself themselves, they cannot be partners as to third persons.
establish a partnership, whether or not the persons (
sharing them have a joint or common right or 1. Intention to create partnership.
interest in any property from which the returns a. Partnership is a matter of intention, each
are derived; party giving his consent to become a
4. The receipt by a person of a share of the partner.
profits of a business is prima facie evidence that 2. Partnership by estoppel
he is a partner in the business, but no such a. A partnership can never exist as to third
inference shall be drawn if such profits were persons if no contract of partnership,
received in payment: express or implied, has been entered into
a. As a debt by installments or otherwise; between the parties themselves. (see Art.
b. As wages of an employee or rent to a 1834, last par.) The exception refers to
land- lord; partnership by estoppel. Thus, where
c. (As an annuity to a widow or persons by their acts, consent, or
representative of a deceased partner; representations have misled third persons or
d. (As interest on a loan, though the amount parties into believing that the former are
of payment vary with the profits of the partners in a non-existing partnership, such
business; persons become subject to liabilities of
e. (As the consideration for the sale of a partners to all who, in good faith, deal
good- will of a business or other with them in their apparent relations. This
property by installments or otherwise. (n) liability is predicated on the doctrine of
estoppel provided for in Article 1825.
Rules to determine existence of partnership.
Article 1769 lays down the rules for determining Co-ownership or co-possession.
whether or not an association is one of partnership. In There is co-ownership (or co-possession) whenever
general, to establish the existence of a partnership, all of the owner- ship (or co-possession) of an undivided thing or
its essential features or characteristics must be shown as right belongs to different persons. (Art. 484.)
being present.
(1) Where terms of contract not clear 1. (Clear intent to derive profits from operation of
- In the typical contract of partnership, the business.
parties expressly agree to unite their - Co-ownership of property does not of itself
property and services as coproprietors to establish the existence of a partnership,
carry on a business for profit, and to share although "co-ownership" is an essential
the profits in stated proportions. element of partnership. (see Art. 1811.)
- Such a contract creates no difficulty in
regard to the determination of the existence ➢ Two or more persons may become co-owners
of a partnership relation. without a contract (e.g., by inheritance or by law)
(2) (Where existence disputed but they cannot be partners in the absence of
- The existence of a partnership may be contract.
disputed by an interested party. ➢ A partner may transfer to the partnership, as his
- The issue as to whether a partnership contribution, merely the use or enjoyment of a
exists is a factual matter to be decided on specific thing, retaining the ownership thereof. (Art.
the basis of all circumstances. 1830[4].) In such case, the partners become co-
- No single factor usually is controlling. Where owners, not of the property, but of the right to
circumstances taken singly may be use such property
 create an inference of partnership, when gross
(b) The law does not imply a partnership between co- returns are involved.
owners or co-possessors because of the fact that they Receipt of share in the profits
develop or operate a common property, since they may
rightfully do this by virtue of their respective titles. 1. Strong presumptive evidence of partnership
- A partnership is established by an agreement
2. Existence of fiduciary relationship to share both profits and losses, while a lack
- If the parties are partners in the business of such an agreement negates the existence
undertaking, there is a well-defined fiduciary of a partnership.
relationship between them as partners. - The sharing of profits and losses is “prima
- If the parties are partners, the remedy for facie evidence” of an intention to form a
a dispute or difference between them would partnership but not a conclusive evidence. The
be an action for dissolution, termination, and presumption of partnership arising from such
accounting. Where the relationship is that of profit- sharing agreement may be rebutted
co-owner, the remedy would be an action, as and outweighed by other circumstances. (see 59
for instance, for non-performance of a Am. Jur. 2d 968-969.)
contract. (Barrett & Seago, op. cit., p. 21.) 2. When no such inference will be drawn.
- Paragraph 4 of Article 1769 states that
Sharing of gross returns. sharing profits by a person is not a “prima
1. Not even presumptive evidence of partnership facie evidence” of being a partner in a
- The mere sharing of gross returns alone does business. In cases where profits are shared for
not indicate a partnership, since in a other purposes, such as debt payments, wages,
partnership, the partners share net profits rent, annuities, or consideration for property
after satisfying all of the partnership's sales, the profits are not shared as a partner.
liabilities. Internal Revenue regulations may control this
- As distinguished from the general rule test.
recognizing sharing of profits as presumptive - The basic test of partnership, whether “inter
evidence of partnership (infra.), the sharing of se” or as to third persons, is whether the
gross returns has been held not to constitute business is carried on in behalf of the person
even prima facie evidence of the relation. (68 sought to be held liable. And persons who are
C.J.S. 441.) partners in fact may not avoid the
2. Reason for rule consequences of the relation by mere word of
- The reason behind the rule is a sound and denial.
practical one, for when a business is carried on 3. Sharing of profits as owner
in behalf of a given person as partner, he is - Partners in a business share profits as co-
conceived as being interested in its failures as owners, ensuring clear and enforceable contracts,
well as its successes; it is the chance of gain even if ambiguous, to maintain the business's
or loss which characterizes a business, whether success.
in the form of a partnership or otherwise.
- As a matter of experience, therefore, it is In other words, to be a partner, one must have an
found generally that where the contract interest with another in the profits of a business as
requires a given portion of "gross returns" to profits.
be paid over, the portion is paid over as
commission, wages, rent, interest on a loan, etc. Tests and incidents of partnership.
3. Where there is evidence of mutual management In determining whether a partnership exists, it is
- Where, however, there is further evidence of important to distinguish between tests or indicia and incidents
mutual management and control, a partnership of partnership.
may result, even though the agreement calls (
for a portion of "gross returns." Of course, 1. Once the legal nature of a contract as one of
opinions will differ with respect to the precise partnership has been established, whether or not
extent of management and control necessary to the parties intended that relationship to be called
partnership or believed it to be a partnership,
 certain consequences or incidents follow as a matter the equitable ownership of the former entitling him to the
of law, irrespective of any actual understanding performance of certain duties and the exercise of certain
between the parties. powers by the latter. (76 Am. Jur. 2d, 247-248; see Art.
2. Some of the typical incidents of a partnership are: 1440.)
a. The partners share in profits and losses.
(Arts. 1767, 1797, 1798.) This community In a partnership, a partner is a "co-owner" with
of interest in profits is not incidental to his partners of specific partnership property. (Art. 1811.)
the ordinary agency;
b. They have equal rights in the Partnership distinguished from co-ownership.
management and conduct of the There is a co-ownership whenever the ownership
partnership business (Art. 1803.); of an undivided thing or right belongs to different persons.
c. Every partner is an agent of the (Art. 484.) It is the right of common dominion which two or
partnership, and entitled to bind the other more persons have in a spiritual part of a thing which is
partners by his acts, for the purpose of not physically divided. (4 Sanchez Roman 162.)
its business. (Art. 1818.) He may also be
liable for the entire partnership obligations; The following are the distinctions between a partnership and
d. All partners are personally liable for the a co-ownership:
debts of the partnership with their 1. Creation.
separate property (Arts. 1816, 1822- - Co-ownership is generally created by law.
1824.) except that limited partners are - It may exist even without a contract, but
not bound beyond the amount of their partnership is always created by a contract
investment (Art. 1843.); (Art. 1767.), either express or implied;
e. A fiduciary relation exists between the 2. Juridical personality
partners (Art. 1807.); and - A partnership has a juridical personality
f. On dissolution, the partnership is not separate and distinct from that of each
terminated, but continues until the winding partner (Art. 1768
up of partnership is completed. (Art. - Co-ownership has none;
1828.) 3. Purpose
- The purpose of a partnership is the
Such incidents may be modified by realization of profits (Art. 1767.)
stipulation of the partners subject to the - Co-ownership, it is the common enjoyment of
rights of third persons dealing with the a thing or right (see Art. 486.) which does not
partnership. necessarily involve the sharing of profits;
4. Duration
Partnership distinguished from a labor union. - Under the law, there is no limitation upon the
A labor union is any association of employees which duration of a partnership (see Arts. 1767,
exists in whole or in part for the purpose of collective 1785.)
bargaining or of dealing with employers concerning terms - Co- ownership, an agreement to keep the
and conditions of employment. (Art. 210, Labor Code.) thing undivided for more than ten years is not
allowed (see Art. 494.);
Partnerships and labor unions have some 5. Disposal of interests
characteristics in common, but the purpose of partnership is - A partner may not dispose of his individual
essentially to enable its members, as principals, to conduct a interest in the partnership (Art. 1812.) so as
lawful business, trade, or profession for pecuniary gain of to make the assignee a partner unless agreed
partners, and no one may become a partner without consent upon by all of the partners (see comments
of all partners. (People vs. Herbert, 295 N.Y.S. 251, 162 under Art. 1814.)
Misc. 817; 68 C.J.S. 403.) - Co-owner may freely do so (see Art. 495.);
6. Power to act with third persons
Partnership distinguished from a business trust. - In the absence of any stipulation to the
A trust is the legal relationship between one person contrary (Art. 1803.), a partner may bind the
(beneficiary) having the equitable ownership in property and partnership,
another (trustee) owning the legal title to such property,
 - Co-owner cannot represent the co-ownership - Conjugal partnership is to regulate the
(see Arts. 491, 492.); hence, a judgment property relations of husband and wife during
secured against only one of the co-owners will the marriage (Art. 74, Ibid.);
not bind the other co-owners (Smith vs. Lopez, (6) Distribution of profits
5 Phil. 78 [1905].); - In the ordinary partnership, the profits are
7. Effect of death divided according to the agreement of the
- The death of a partner results in the partners or in proportion to their respective
dissolution of the partnership (Art. 1830[5].), capital contributions (Art. 1797.),
- death of a co-owner does not necessarily - Conjugal partnership, the shares of the
dissolve the co-ownership. (Rodriguez vs. Ravalan, spouses in the profits are divided equally (Art.
17 Phil. 63 [1910].) 106, Ibid.);
(7) Management
- In the ordinary partnership, the management is
Partnership distinguished from conjugal partnership of gains shared equally by all the partners unless one
Art. 106 of the Family Code establishes a conjugal or more of them are appointed managers in
partnership, where the marriage of a husband and wife the articles of partnership (Arts. 1801-1803.)
involves the joint ownership of their separate properties, - Conjugal partnership, although the
ensuring equal distribution upon dissolution. administration belongs to both spouses jointly,
the husband's decision shall prevail in case of
The ordinary or business partnership may be disagreement (Art. 124, Ibid.); and
distinguished from a conjugal partnership as follows: 8. Disposition of shares. In the ordinary partnership,
(1) Parties. the whole interest of a partner may be disposed
- A business partnership is created by the of without the consent of the other partners (see
voluntary agreement of two or more partners comments under Art. 1813.), while in a conjugal
(Art. 1767 partnership, the share of each spouse cannot be
- Conjugal partnership arises in case the future disposed of during the marriage even with the
spouses -a man and a woman - agree that it consent of the other. (see Arts. 89, 107, 121,
shall govern their property relations during the 127, Ibid.)
marriage (Art. 105, Family Code.);
(2) Laws which govern Partnership distinguished from a voluntary association
- The ordinary partnerships are, as a rule, A partnership is distinguished from voluntary
governed by the stipulation of the parties (see associations organized for social purposes (such as social
Arts. 1159, 1308.), clubs, committees, lodges, fraternal societies, etc.) as follows:
- Conjugal partnership is governed by law (Arts.
105-133, Ibid.); 1. Juridical personality
(3) Juridical personality - A partnership has a juridical personality, while
- A partnership has a juridical personality (Art. a voluntary association has none;
1768.) 2. Purpose
- Conjugal partnership of gains has none; - A partnership is always organized for
(4) Commencement pecuniary profit, while in a voluntary
- A partnership begins from the moment of the association, this objective is lacking:
execution of the contract, unless it is otherwise 3. Contributions of members
stipulated (Art. 1784 - In a partnership, there is a contribution of
- Conjugal partnership of gains commences capital, either in the form of money,
precisely on the date of the celebration of property, or services, while in a voluntary
the marriage and any stipulation to the association for social purposes, although fees
contrary is void (Arts. 88, 107, Ibid.); are usually collected from the members to
(5) Purpose maintain the organization, there is no
- The primary purpose of the ordinary contribution of capital
partnership is to obtain profits (Art. 1767.) 4. Liability of members
- The partnership, as a rule, is the one liable in
the first place for the debts of the firm,
 while in a voluntary association, the members - Corporation has such right (Sec. 2, Ibid.);
are individually liable for the debts of the 8. Extent of liability to third persons
association, authorized by them either - In a partnership, the partners (except limited
expressly or impliedly, or subsequently ratified partners) are liable personally and subsidiarily
by them (sometimes solidarily) for partnership debts to
Partnership distinguished from a corporation. third persons (see Arts. 1816, 1822-1824.)
The following are the distinctions: - Corporation, the stockholders are liable only to
1. Manner of creation the extent of the shares subscribed by them
- A partnership is created by mere agreement (see Secs. 64, 37, Ibid.);
of the parties (Art. 1787.) 9. Transferability of interest
- Corporation is created by law or by operation - In a partnership, a partner cannot transfer his
of law (Sec. 2, B.P. Blg. 68.); interest in the partnership so as to make the
2. Number of incorporators transferee a partner without the consent of
- A partnership may be organized by only two all the other existing partners because the
persons (Art. 1767.) partnership is based on the principle of
- Corporation (except a corporation sole) requires delectus personarum (see Arts. 1767, 1804.)
at least five incorporators (Sec. 10, Ibid.); - Corporation, a stockholder has generally the
3. Commencement of juridical personality right to transfer his shares without the prior
- A partnership commences to acquire juridical consent of the other stockholders because
personality from the moment of the execution corporation is not based on this principle (Sec.
of the contract of partnership (Art. 1784.) 63, Ibid.);
- Corporation begins to have juridical personality 10. Term of existence
only from the date of issuance of the - A partnership may be established for any
certificate of incorporation by the Securities period of time stipulated by the partners (see
and Exchange Commission (Sec. 19, Ibid.); Arts. 1767, 1785.)
4. Powers - corporation may not be formed for a term in
- A partnership may exercise any power excess of 50 years extendible to not more
authorized by the partners provided it is not than 50 years in any one instance (Sec. 11,
contrary to law, morals, good customs, public Ibid.);
order, or public policy (Art. 1306.) 11. Firm name
- Corporation can exercise only the powers - A limited partnership is required by the law
expressly granted by law or implied from to add the word "Ltd." to its name (Art.
those granted or incident to its existence (Secs. 1844[1, a].)
2, 36, Ibid.); - corporation may adopt any firm name provided
5. Management it is not the same as or similar to any
- In a partnership, when the management is not registered firm name (see Sec. 18, Ibid.);
agreed upon, every partner is an agent of the 12. (Dissolution
partnership (Art. 1803.) - A partnership may be dissolved at any time
- Corporation, the power to do business and by the will of any or all of the partners
manage its affairs is vested in the board of (Art. 1830[1, 2].),
directors or trustees (Sec. 23, Ibid.); - corporation can only be dissolved with the
6. Effect of mismanagement consent of the State (Secs. 117-122, Ibid.); and
- In a partnership, a partner as such can sue a 13. (Governing law
co-partner who mismanages (see Arts. 1794, - A partnership is governed by the Civil Code,
1806, 1809.) - corporation is governed by the Corporation
- Corporation, the suit against a member of the Code.
board of directors or trustees who mismanages
must be in the name of the corporation (see Similarities between a partnership and a corporation.
Sec. 23, Ibid.); They are as follows:
7. Right of succession 1. Like a corporation, a partnership has a juridical
- A partnership has no right of succession (see personality separate and distinct from that of the
Arts. 1828-1831, 1860.), individuals composing it;
 2. Like a corporation, a partnership can act only Under Article 1830, one of the causes for the
through agents; dissolution of a partnership is "any event which makes it
3. Like a corporation, a partnership (except a unlawful for the business of the partnership to be carried
corporation sole) is an organization composed of an on or for the members to carry it on in partnership." (Art.
aggregate of individuals; 1830[3].)
4. Like a (stock) corporation, a partnership distributes
its profits to those who contribute capital to the ART. 1771.
business (although an industrial partner also shares in A partnership may be constituted in any form,
partnership profits); except where immovable property or real rights are
5. Like a corporation, a partnership can be organized contributed thereto, in which case a public instrument shall
only where there is a law authorizing its be necessary. (1667a)
organization;
6. A partnership, no matter how created or organized Form of partnership contract.
(except a general professional partnership is taxable As a general rule, no special form is required for
as a corporation, subject to income tax the validity or existence of the contract of partnership.
The contract may be made orally or in writing regardless
Article 1770 of the value of the contributions unless immovable property
A partnership must have a lawful object or or real rights are contributed, in which case, Article 1773
purpose, and must be established for the common benefit requires the execution of a public instrument.
or interest of the partners.
When an unlawful partnership is dissolved by a To affect third persons, the transfer of real
judicial decree, the profits shall be confiscated in favor of property to the partnership must be duly registered in
the State, without prejudice to the provisions of the Penal the Registry of Property of the province or city where
Code governing the confiscation of the instruments and the property contributed is located.
effects of a crime. (1666a)
Partnership implied from conduct.
Effects of an unlawful partnership 1. Binding effect
The following are the consequences of a - A partnership may exist and often exists in
partnership the absence of express agreement, written or
formed for an unlawful purpose: verbal, between the parties.
1. The contract is void ab initio and the partnership - Its existence may be implied from the acts or
never existed in the eyes of the law; conduct of the parties, as well as from other
2. The profits shall be confiscated in favor of the declarations, and such implied contract would be
government; as binding as a written and express contract.
3. The instruments or tools and proceeds of the crime 2. Ascertainment of intention of parties.
shall also be forfeited in favor of the government - In determining whether or not a particular
4. The contributions of the partners shall not be transaction constitutes a partnership, as
confiscated unless they fall under No. 3. between the parties, the intention as disclosed
by the entire transaction, and as gathered
Dissolution of unlawful partnership from the facts and from the language
Instances of unlawful object are those to create employed by the parties as well as their
illegal monopolies or combinations in restraint of trade, or to conduct, should be ascertained.
carry on gambling, or for smuggling purposes, or for 3. Conflict between intention and terms of contract.
leasing furnished apartments to prostitutes, or to prevent - Also, if the parties intend a general
competition in bidding for government contracts. partnership, they are general partners
\ A judicial decree is not necessary to dissolve an although their purpose is to avoid the creation
unlawful partnership. However, it may sometimes be of such a relation.
advisable that a judicial decree of dissolution be secured for
the convenience and peace of mind of the parties. ART. 1772.
Every contract of partnership having a capital of
Effect of subsequent illegality of partnership business three thousand pesos or more, in money or property, shall
appear in a public instrument, which must be recorded in 2. An inventory of the property contributed must be
the Office of the Securities and Exchange Commission. made, signed by the parties, and attached to the
Failure to comply with the requirements of the public instrument.
preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons. ` If personal property, aside from real property, is
contributed, the inventory need not include the former.

Partnership with capital of P3,000.00 or more Article 1773 is intended primarily to protect third
There are two requirements where the capital of persons. With regard to them, a de facto partnership or
the partnership is P3,000.00 or more, in money or partnership by estoppel may exist. (see Art. 1825.)
property, namely: When inventory is not required.
1. The contract must appear in a public instrument; An inventory is required only "whenever immovable
2. It must be recorded or registered with the property is contributed." Hence, Article 1773 does not
Securities and Exchange Commission. apply in the case of immovable property which may be
possessed or even owned by the partnership but not
However, failure to comply with above contributed by any of the partners.
requirements does not prevent the formation of the If personal property, aside from real property, is
partnership (Art. 1768.) or affect its liability and that of contributed, the inventory need not include the former.
the partners to third persons. But any of the partners is
granted the right by the law to compel each other to ARTICLE 1774
execute the contract in a public instrument. Of course, this Any immovable property or an interest therein
right cannot be availed of if the partnership is void under may be acquired in the partnership name. Title so required
Article 1773 can be conveyed only in the partnership name. (n)

(Registration of partnership Acquisition of conveyance of property by partnership

Registration is necessary as "a condition for the Since a partnership has juridical personality
issuance of licenses to engage in business or trade. In this separate from and independent of that of the persons or
way, the tax liabilities of big partnerships cannot be evaded members composing it (Art. 1768.), it is but logical and
and the public can also determine more accurately their natural that immovable property may be acquired in the
membership and capital before dealing with them." partnership name. Title so acquired can, therefore, be
conveyed only in the partnership name.
The recording or registration of the articles or
contract of partnership is not for the purpose of giving The legal effects of conveyance or sale of real
the partnership a juridical personality. The only objective property standing in the name of the partnership executed
of the law is to make the recorded instrument open to all by a partner in the partnership name or in his own name
and to give notice thereof to interested parties. are governed by Article 1819, paragraphs one and two.

ARTICLE 1773 ARTICLE 1775

A contract of partnership is void, whenever Associations and societies, whose articles are kept
immovable property is contributed thereto, if an inventory secret among the members, and wherein anyone of the
of said property is not made, signed by the parties, and members may contract in his own name with third persons,
attached to the public instrument. (1668a) shall have no juridical personality, and shall be governed by
the provisions relating to co-ownership. (1669)
Partnership with contribution of immovable property
Where immovable property, regardless of its value, Secret partnerships without juridical personality
is contributed by any of the partners, the failure to The partnership relation is created only by the
comply with the following requirements will render the voluntary agreement of the partners. It is essential that
partnership contract void in so far as the contracting the partners are fully informed not only of the agreement
parties are concerned: but of all matters affecting the partnership. Likewise, a
1. The contract must be in a public instrument; and partner is considered the agent of his co-partners and of
the partnership in respect of all partnership transactions.
Every partnership must have a firm name under which it
shall conduct its business and to distinguish it from the b. Limited partnership or one formed by two
partners and other partnerships. (Art. 1768) or more persons having as members one or
more general partners and one or more
In view of the above, associations whose articles or limited partners, the latter not being
agreements are kept secret among the members and personally liable for the obligations of the
wherein anyone of them may contract in his own name with partnership. (Art. 1843.)
third persons are, by this article, deprived of juridical 3. As to its duration. - It is either:
personality for evidently such associations are not a. Partnership at will or one in which no time
partnerships. As among themselves, they shall be governed is specified and is not formed for a
by the provisions relating to co-ownership. particular undertaking or venture and which
Importance of giving publicity to articles of partnership may be terminated anytime by mutual
It is essential that the articles of partnership be agreement of the partners, or by the will
given publicity for the protection not only of the members of any one partner alone, or one for a
themselves but also third persons. A member who transacts fixed term or particular undertaking which
business for the secret partnership in his own name is continued by the partners after the
becomes personally bound to third persons unaware of the termination of such term or particular
existence of such association, in the same way and for the undertaking without express agreement; or
same reason that an agent who acts in his own name when b. Partnership with a fixed term or one in
dealing with third persons is directly bound in favor of such which the term for which the partnership
persons who may only sue or be sued by the agent and is to exist is fixed or agreed upon or one
not his principal. formed for a particular undertaking, and
But a person may be held liable as a partner, or upon the expiration of the term or
partnership liability may result in favor of third persons, completion of the particular enterprise, the
by reason of estoppel. partnership is dissolved, unless continued by
the partners.
ARTICLE 1776 4. As to legality of its existence. - It may be:
As to its object, a partnership is either universal a. (De jure partnership or one which has
or particular. As regards the liability of the partners, a complied with all the legal requirements
partnership may be general or limited. (1671a) for its establishment; or
b. (De facto partnership or one which has
Classifications of partnership failed to comply with all the legal
1. As to the extent of its subject matter - A requirements for its establishment.
partnership may be: 5. As to representation to others. - It may be:
a. Universal partnership or one which refers a. (Ordinary or real partnership or one which
to all the present property or to all actually exists among the partners and
profits. (Art. 1777.) also as to third persons; or
Thus, there are two kinds of universal partnership, to wit: b. (b) Ostensible partnership or partnership
1. Universal partnership of all present by estoppel or one which in reality is not
property. This is defined in Article a partnership, but is considered a
1778; partnership only in relation to those who,
2. Universal partnership of profits. by their conduct or admission, are
This is defined in Article 1780; or precluded to deny or disprove its existence.
b. Particular partnership. - This is defined in (Art. 1825.
Article 1783.
2. As to liability of the partners. - It may be: Kinds of partners
a. General partnership or one consisting of Partners are classified according to their interests in
general partners who are liable pro rata the business or their obligations to the partnership or their
and subsidiary (Art. 1816.), sometimes liabilities to third persons.
solidarily (Arts. 1822-1824), with their 1. Under the Civil Code. - They are classified into:
separate property for partnership debts; a. Capitalist partner or one who contributes
or money or property to the common fund
 b. Industrial partner or one who contributes partner in the business, whether or not he
only his industry or personal service has an actual interest in the firm. If he
c. General partner or one whose liability to is not actually a partner, he is subject to
third persons extends to his separate liability by the doctrine of estoppel;
property; he may either be a capitalist or b. Secret partner or one who takes active
industrial partner; part in the business but is not known to
d. Limited partner or one whose liability to be a partner by outside parties nor held
third persons is limited to his capital out as a partner by the other partners,
contribution. He is also known as special although he participated in the profits and
partner. Unlike the general partner, he losses of the partnership;
does not participate in the management of c. (Silent partner or one who does not take
the business; any active part in the business although
e. Managing partner or one who manages the he may be known to be a partner. Thus,
affairs or business of the partnership; he he need not to be a secret partner. If he
may be appointed either in the articles of withdraws from the partnership, he must
partnership or after the constitution of give notice to those persons who do
the partnership. He is also known as a business with the firm to escape liability
general or real partner; in the future;
f. Liquidating partner or one who takes d. Dormant partner or one who does not take
charge of the winding up of the active part in the business and is not
partnership affairs upon dissolution; known or held out as partner. He would
g. Partner by estoppel or one who is not be both a silent and a secret partner.
really a partner, not being a party to a The term used as synonymous with
partnership agreement, but is liable as a "sleeping partner". He may retire from
partner for the protection of innocent the partnership without giving notice and
third persons. He is one who is represented cannot be held liable for the obligations of
as being, in fact, a partner, but who is the firm subsequent to his withdrawal. His
not so as between the partners only interest in joining the partnership
themselves. He is also known as partner would be the sharing of the profits
by implication or nominal partner. The earned;
term "quasi-partner" is sometimes used. e. Original partner or one who is a member
He is liable for the debts of the firm to of the partnership from the time of its
those who in good faith believed in him to organization;
be a partner; and f. Incoming partner or a person lately, or
h. Continuing partner or one who continues the about to be, taken into a partnership as
business of a partnership after it has a member; and
been dissolved by reason of the admission g. Retiring partner or one withdrawn from
of a new partner, or the retirement, the partnership; a withdrawing partner. All
death, or expulsion of one or more partners in any of these six classes are
partners subject to liability for all partnership
i. Surviving partner or one who remains after obligations.
a partnership has been dissolved by the
death of any partner ART. 1777
j. Subpartner or one who, not being a A universal partnership may refer to all the
member of the partnership, contracts with present property or to all the profits. (1672)
a partner with reference to the latter's
share in the partnership. ART. 1778
( A partnership of all present property is that in
2. Other classifications. - They have also been which the partners contribute all the property which
classified into: actually belongs to them to a common fund, with the
a. Ostensible partner or one who takes active intention of dividing the same among themselves, as well as
part and known to the public as a all the profits they may acquire therewith. (1673)
 Ownership of present and future property. - It
ART. 1779 is to be noted that in this class of partnership, the
In a universal partnership of all present property, partners retain their ownership over their present and
the property which belongs to each of the partners at future property. What pass to the partnership are the
the time of the constitution of the partner- ship, becomes profits or income and the usufruct or use of the same.
the common property of all the partners, as well as all Consequently, upon the dissolution of the partnership, such
the profits which they may acquire there- with. property is returned to the partners who own it.
ARTICLE 1781
A stipulation for the common enjoyment of any Articles of universal partnership, entered into
other profits may also be made; but the property which without specification of its nature, only constitute a
the partners may acquire subsequently by inheritance, universal partnership of profits. (1676)
legacy or donation cannot be included in such stipulation,
except the fruits thereof. (1674a) Presumption in favor of universal partnership of profits
Universal partnership of all present property, Where the articles of partnership do not specify
explained. A universal partnership of all present property is the nature of the partnership, whether it is one of
one in which the partners contribute all the properties "present property" or of "profits" only, it will be
which actually belong to each of them at the time of the presumed that the parties intended merely a partnership
constitution of the partnership to a common fund, with the of profits. The reason for this presumption is that a
intention of dividing the same among themselves as well as universal partnership of profits imposes less obligations on
the profits which they may acquire therewith. the partners, since they preserve the ownership of their
In this kind of partnership, the following become the separate property.
common property of all the partners:
It is to be noted that this article applies only
1. Property which belonged to each of them at the when a universal partnership has been organized.
time of the constitution of the partnership; and
2. Profits which they may acquire from the ARTICLE 1782
property contributed. Persons who are prohibited from giving each other
any donation or advantage cannot enter into a universal
Contribution of future property partnership. Limitations upon the right to form a universal
Future property contributions in a partnership are Partnership
void, as they require determinate contributions. Partners, like
donors, cannot comprehend future property. Any stipulation Persons who are prohibited by law to give donations
including property acquired is void, and profits from other cannot enter into a universal partnership for the reason
sources become common property only with a stipulation. that each of the partners virtually makes a donation. To
allow persons who are prohibited to give each other any
ARTICLE 1780 donation or advantage to form a universal partnership will
A universal partnership of profits comprises all be like permitting them to do indirectly what the law
that the partners may acquire by their industry or work expressly prohibits.
during the existence of the partnership.
A partnership formed in violation of this article is
Movable or immovable property which each of the null and void. Consequently, no legal personality is acquired. A
partners may possess at the time of the celebration of husband and his wife, however, may enter into a particular
the contract shall continue to pertain exclusively to each, partnership or be members thereof.
only the usufruct passing to the partnership. (1675)
ARTICLE 1783
Universal partnership of profits explained A particular partnership has for its object determinate
A universal partnership of profits is one which things, their use or fruits, or specific undertaking, or the
comprises all that the partners may acquire by their exercise of a profession or vocation.
industry or work during the existence of the partnership
and the usufruct of movable or immovable property which Particular partnership explained
each of the partners may possess at the time of the The above article defines a particular partnership.
celebration of the contract. In other words, it is a partnership which is neither a
universal partnership of present property nor a universal Failure to agree on material terms
partnership of profits. - May prevent any rights or obligations from arising
Business of partnership need not be continuing in Nature on either side for lack of complete contract
It may be inferred from Articles 1767 and 1783,
that the carrying on of a business of a continuing nature Art. 1785.
is not essential to constitute a partnership. An agreement to
When a partnership for a fixed term or particular
undertake a particular piece of work or a single transaction
undertaking is continued after the termination of such term
or a limited number of transactions and immediately divide
or particular undertaking without any express agreement,
the existing profits would seem to fall within the meaning
the rights and duties of the partners remain the same as
of the term "partnership" as used in the law.
they were at such termination, so far as is consistent with

Chapter II a partnership at will.

Obligations of the Partners A continuation of the business by the partners or

such of them as habitually acted therein during the term,

• *The partnership relationship is essentially on of without any settlement or liquidation of the partnership

mutual trust and confidence; the law imposes upon affairs, is prima facie evidence of a continuation of the

the partners highest standards of integrity and partnership. (n)

good faith in their dealings with each other.

• *A partner is both principal and an agent in relation PARTNERSHIP WITH A FIXED TERM

to his co-partners. In a limited partnership, it does - One which the term of its existence has been

not involve the element of trust and confidence, as agreed upon expressly or impliedly.
in the case of general partnership - The expiration of the term fixed or completion of
the undertaking will automatically dissolve the
Art. 1784. partnership

A partnership begins from the moment of the

execution of the contract, unless it is otherwise stipulated. DISSOLUTION OF PARTNERSHIP
- One of the partners may dictate a dissolution at

COMMENCEMENT AND TERM OF PARTNERSHIP will but he must act in good faith

Consensual contract - A partnership with fixed term may be terminated

- Its registration in the SEC is not essential to give prior to the expiration of the term

it juridical personality
- The birth and life is predicated on the mutual PARTNERSHIP FOR A TERM IMPLIEDLY FIXED
desire and consent of the parties - An agreement of the parties may evidence an
understanding that the relation should continue

FUTURE PARTNERSHIP - until the accomplishment of a particular undertaking

- Partners may stipulate some other date for the or certain things have been done or have taken

commencement of the partnership place

- It can be in future time or based on happening of Art. 1786.

some future contingency Every partner is a debtor of the partnership for

- It has no juridical personality at the moment whatever he may have promised to contribute thereto.
He shall also be bound for warranty in case of

AGREEMENT TO CREATE PARTNERSHIP eviction with regard to specific and determinate things which
- This cannot be predicted on an agreement to enter he may have contributed to the partnership, in the same

into a co-partnership at a future day unless it is cases and in the same manner as the vendor is bound with

shown that such agreement was actually respect to the vendee. He shall also be liable for the

consummated fruits thereof from the time they should have been
- This is still inchoate delivered, without the need of any demand. (1681a)
OBLIGATIONS WITH RESPECT TO CONTRIBUTION OF contract of partnership, and in the absence of stipulation, it
PROPERTY shall be made by experts chosen by the partners, and
1. To contribute at the beginning of the partnership according to current prices, the subsequent changes thereof
or at the stipulated time the money, property or being for account of the partnership. (n)
industry which he promised
2. To answer for eviction in case the partnership is APPRAISAL OF GOODS OR PROPERTY CONTRIBUTED
deprived of the determinate property contributed - Appraisal is necessary to determine how much has
3. To answer to the partnership for the fruits of been contributed by the partners
the property the contribution of which he delayed - The appraisal is made by:
4. To preserve the property with diligence of a good 1. Stipulation
father of a family pending delivery 2. If there is no stipulation – experts chosen by the
5. To indemnify the partnership for any damage partners and according to current prices
caused to it by the retention of the property or
by delay in its contribution Art. 1788.
A partner who has undertaken to contribute a sum
EFFECT OF FAILURE TO CONTRIBUTE PROPERTY PROMISED of money and fails to do so becomes a debtor for the
- It will make the partner ipso jure a debtor of interest and damages from the time he should have
the partnership even in the absence of any demand complied with his obligation.
- The remedy is not rescission but an action for The same rule applies to any amount he may
specific performance with damages and interest have taken from the partnership coffers, and his liability
from the defaulting partner shall begin from the time he converted the amount to his
LIABILITY OF PARTNER IN CASE OF EVICTION own use. (1682)
- Eviction shall take place whenever by a final
judgment based on a right prior to the sale or an OBLIGATIONS WITH RESPECT TO CONTRIBUTION OF
act imputable to the vendor, MONEY (PAR. 1) AND MONEY CONVERTED TO PERSONAL USE
- the vendee (partnership) is deprived of the whole or (PAR. 2)
a part of the thing purchased 1. To contribute on the date due
- Governed by the law on sales (Art. 1547) 2. To reimburse any amount he may have taken for
his own use
LIABILITY OF PARTNER FOR FRUITS OF PROPERTY IN CASE 3. To pay the agreed or legal interest, if he fails to
OF DELAY pay on time
- No demand is necessary 4. To indemnify the partnership for the damages
- From the time the partner ought to deliver up to
the time of actual delivery LIABILITY OF GUILTY PARTNER FOR INTEREST AND
DAMAGES
LIABILITY OF PARTNER FOR FAILURE TO PERFORM SERVICE - It will start from the time when the partner
STIPULATED should have made the contribution or the time, he
- Partners are not entitled to charge each other converted the money to his own use and not to
except when there is a stipulation providing the time of the judicial or extra-judicial demand
otherwise
- If a partner neglects or refuses to render service LIABILITY OF PARTNER FOR FAILURE TO RETURN
without justifiable cause, which caused loss to the PARTNERSHIP MONEY RECEIVED
partnership, he may be held liable - Estafa (Art 315 of the RPC) – if he
misappropriates partnership money or property
Art. 1787. received by him for a specific purpose
When the capital or a part thereof which a - Mere failure to return is not an act under estafa
partner is bound to contribute consists of goods, their
appraisal must be made in the manner prescribed in the
Art. 1789. Art. 1791.
An industrial partner cannot engage in business for If there is no agreement to the contrary, in case
himself, unless the partnership expressly permits him to do of an imminent loss of the business of the partnership,
so; and if he should do so, the capitalist partners may any partner who refuses to contribute an additional share
either exclude him from the firm or avail themselves of to the capital, except an industrial partner, to save the
the benefits which he may have obtained in violation of venture, shall he obliged to sell his interest to the other
this provision, with a right to damages in either case. (n) partners. (n)

INDUSTRIAL PARTNER OBLIGATION OF CAPITALIST PARTNER TO CONTRIBUTE

- The one who contributes his industry, labor, or ADDITIONAL CAPITAL
services to the partnership GR: capitalist partner is not bound to contribute more than what he
agreed to contribute
- He becomes the debtor of the partnership for his
EXPN: imminent loss of the business
work or services
- He is under obligation to contribute an additional
- The partnership acquires an exclusive right to avail
share to save the venture
itself of his industry
- If he refuses, he shall be obliged to sell his
- Action for specific performance is not available as
interest to the other partners
a remedy because it will amount to involuntary
servitude
Requisites for application of rule
1. Imminent loss of the business
PROHIBITION AGAINST ENGAGING IN BUSINESS
2. Majority of the capitalist partners are of the
1. Industrial Partner
opinion that an additional contribution to the common
o Absolute prohibition
fund would save the business
o Applies whether he would engage in the
3. The partner refuses deliberately
same business or not
4. There is no agreement *
o To prevent any conflict of interest
2. Capitalist Partner
Industrial partner is exempted
o Prohibition only extends to any operation
which is of the same kind of business in Art. 1792.
which the partnership is engaged If a partner authorized to manage collects a
demandable sum which was owed to him in his own name,
REMEDIES WHERE INDUSTRIAL PARTNER ENGAGES IN BUSINESS from a person who owed the partnership another sums also
- Exclude him from the firm or avail themselves of demandable, the sum thus collected shall be applied to the
the benefits which he may obtained two credits in proportion to their amounts, even though he
- Right to damages may have given a receipt for his own credit only; but
- Mere toleration by the partnership will not exempt should he have given it for the account of the partnership
the industrial partner from liability credit, the amount shall be fully applied to the latter.
The provisions of this article are understood to be
Art. 1790. without prejudice to the right granted to the other debtor
Unless there is a stipulation to the contrary, the by Article 1252, but only if the personal credit of the
partners shall contribute equal shares to the capital of the partner should be more onerous to him. (1684)
partnership. (n
) OBLIGATION OF MANAGING PARTNER WHO COLLECTS DEBT
EXTENT OF CONTRIBUTION TO PARTNERSHIP CAPITAL GR: If there is debt to the partnership and to the managing partner,
- Partner can stipulate the contribution of unequal payment shall be applied to both credits proportionately

shares to the common fund EXPN: it was received for the account of the partnership only

- Absence of stipulation, there is a presumption that

the contribution is in equal shares
REQUISITE FOR THE APPLICATION OF THE RULE partners who were unable to collect. It would be
1. There are at least 2 debts; one from the partners unfair for his to suffer their DEFAULT
and the other to the partnership 2. When the partnership is DISSOLVED, the tie that
2. Both debts are demandable unites the partnership ceases, hence, the obligation
3. The partner who collects is authorized to manage under Art. 1793 has no foundation anymore.
and actually manages the partnership
Art. 1793 presupposes the existence of a PARTNERSHIP
Art. 1793. CAPITAL. After dissolution, the shares of each principal
A partner who has received, in whole or in part, partners are returned and hence, there is no more common
his share of a partnership credit, when the other partners property or partnership capital.
have not collected theirs, shall be obliged, if the debtor
should thereafter become insolvent, to bring to the If at all there remains a COMMON CREDIT among
partnership capital what he received even though he may them (credit owned in common) but NOT a partnership
have given receipt for his share only. (1685a) capital

OBLIGATIONS OF PARTNER WHO RECEIVES SHARE OF Art. 1794.

PARTNERSHIP CREDIT Every partner is responsible to the partnership for
- There is only one credit, the credit in favor of the damages suffered by it through his fault, and he cannot
partnership compensate them with the profits and benefits which he
may have earned for the partnership by his industry.
REQUISITES FOR APPLICATION OF THE RULE However, the courts may equitably lessen this responsibility
1. A partner has received, whole or in part, his share if through the partner's extraordinary efforts in other
of the partnership credit activities of the partnership, unusual profits have been
2. The other partners have not collected their shares realized. (1686a)
3. The partnership debtor has become insolvent
OBLIGATION OF PARTNER FOR DAMAGES TO PARTNERSHIP
CREDIT COLLECTED AFTER THE DISSOLUTION OF THE GR: Every partner is responsible to the partnership for damages
suffered by it thru his FAULT and he cannot compensate it with the
PARTNERSHIP
PROFITS AND BENEFITS which he may have earned for the partnership
Q: would the obligation under art. 1793 for the partner
by his industry
who has collected his share in the partnership credit to
share it with the others who have not collected theirs when REMEDY OF THE PARTNER HELD LIABLE
the debtor becomes insolvent apply after the dissolution of - The courts may EQUITABLY LESSEN THIS
the partnership? RESPONSIBILITY if thru the EXTRAORDINARY
EFFORTS of the partner in OTHER ACTIVITIES of
There are commentators who said YES because of the partnership, UNUSUAL PROFITS may have been
the COMMUNITY OF INTEREST AND EQUALITY among realized
partners
But Manresa and Ricci held otherwise. COMPENSATION OF DAMAGES WITH PROFITS EARNED FOR
PARTNERSHIP BY GUILTY PARTNER
e.g. After the dissolution of the partnership, the GR: There shall be no compensation
partnership credit will be divided among partners who Reason: There are 2 reasons given:

assume the obligation to 1. The partner is responsible to SECURE BENEFITS for

the partnership. Hence, all the profits earned shall
COLLECT THEIR RESPECTIVE SHARES pertain as a matter of law or right to the
1. It would be unfair and unjust for the MORE partnership
DILIGENT partner who has already collected his 2. Compensation takes place when the negligent
credit to bear the NEGLIGENCE of the other 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 2. Risk of SPECIFIC AND DETERMINATE THINGS which
liable for the injury suffered by it caused by his are NOT FUNGIBLE where THERE IS A TRANSFER
fault. Hence, there cannot be any compensation OF OWNERSHIP
- Risk of loss: shall be borne by the
EXPN: When UNUSUAL PROFITS may have been realized by the partnership PARTNERSHIP
thru the extraordinary efforts of the partner, the courts may
- Reason: because the ownership is
MITIGATE OR LESSEN the liability for damages
transferred to the partnership “res perit
domino”
Art. 1795.
3. FUNGIBLE THINGS (right term should be consumable)
The risk of specific and determinate things, which
or THINGS WHICH CANNOT BE KEPT WITHOUT
are not fungible, contributed to the partnership so that
DETERIORATING even if ONLY THE USE is
only their use and fruits may be for the common benefit,
contributed
shall be borne by the partner who owns them.
- Risk of loss: PARTNERSHIP
If the things contribute are fungible, or cannot be
- Reason: because the ownership is intended
kept without deteriorating, or if they were contributed to
to be transferred because USE IS
be sold, the risk shall be borne by the partnership. In the
IMPOSSIBLE without such transfer because
absence of stipulation, the risk of the things brought and
the thing is CONSUMMED OR IMPAIRED
appraised in the inventory, shall also be borne by the
- E.G. Oil, rice, wine
partnership, and in such case the claim shall be limited to
4. WHERE THE THING CONTRIBUTED IS TO BE SOLD
the value at which they were appraised. (1687)
- Risk of loss: Partnership
- Reason: because the partnership cannot sell
GR: the risk of SPECIFIC AND DETERMINATE THINGS, which are NOT
FUNGIBLE, contributed to the partnership so that only their USE AND it without it being the owner
FRUITS are for the common benefit shall be borne by the PARTNER 5. THINGS BROUGHT AND APPRAISED IN THE
who owns it INVENTORY
- Risk of loss: Partnership
GR: The following shall be borne by the partnership: - Reason: because it is to be presumed that
1. When the thing contributed is FUNGIBLE the parties intended the PRICE to be
2. Thing which cannot be kept without deteriorating contributed to the partnership for the
3. Contributed to be sold thing appraised. Hence, the PRICE is
EXPN: deemed as the appraised value
1. When the thing promised has NOT YET BEEN There is in effect an IMPLIED SALE
DELIVERED to the partnership - The parties contributed the PRICE to buy
2. When the loss is due to the fault of any of the the land (appraised) belonging to the
partners, in which case, the said partner shall be partner *
liable for damages to the partnership in accordance
with Art. 1794 this article presupposes actual or constructive delivery

GR: When the thing brought is appraised in the inventory, the Art. 1796.
STIPULATION of the parties will govern
The partnership shall be responsible to every
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
partner for the amounts he may have disbursed on behalf
the claim of the partnership and for the corresponding interest, from
the time the expense are made; it shall also answer to each
RISK OF LOSS OF THINGS CONTRIBUTED partner for the obligations he may have contracted in good
1. Risk of SPECIFIC AND DETERMINATE THINGS which faith in the interest of the partnership business, and for
are NOT FUNGIBLE where THE USE is the only risks in consequence of its management. (1688a)
thing contributed
- Risk of loss: The OWNER of the thing GR: Every partner is AN AGENT of the partnership for purposes of its
business
because he remains to be the owner
EXPN: when there is a stipulation to the contrary
 3. If the industrial partner, ASIDE FROM HIS
RESPONSIBILITY OF HE PARTNERSHIP TO THE PARTNERS SERVICES, contributed capital, he shall also receive a
1. Obligation to REFUND THE AMOUNT disbursed by share in the profits in proportion to his capital
the partner in behalf of the partnership PLUS
interest from the time the expenses WERE THE RULES IN DISTRIBUTION OF PROFITS
CONTRACTED (and not from the time of DEMAND) a. If there is an agreement
o Here, the law contemplates A LOAN OR - The share of the partners in the profits shall be
ADVANCES MADE by partner AND not the in accordance with their agreement
capital contributed by him - So, if they agreed that it shall be 50-50, so be
2. To answer for the OBLIGATIONS contracted by it
the partner in GOOD FAITH in the interest of - Subject to Art. 1799 which provides that a
the partnership business STIPULATION which excludes any partner from the
3. Answer for the risks in consequence of its share in the profits and losses shall be void
management b. If there is no agreement
o CAPITALIST PARTNERS
Art. 1797. - The share of the capitalist partners shall be in
The losses and profits shall be distributed in proportion to their CAPITAL CONTRIBUTION
conformity with the agreement. If only the share of each - So, it depends on HOW MUCH they have given in
partner in the profits has been agreed upon, the share of the partnership (if A contributed P3000 and B
each in the losses shall be in the same proportion. contributed only P1000, then, A should receive
In the absence of stipulation, the share of each twice as much)
partner in the profits and losses shall be in proportion to - BASIS: Presumed WILL of the parties
what he may have contributed, but the industrial partner
shall not be liable for the losses. As for the profits, the o INDUSTRIAL PARTNERS
industrial partner shall receive such share as may be just - Their share must be that which is JUST AND
and equitable under the circumstances. If besides his services EQUITABLE under the circumstances
he has contributed capital, he shall also receive a share in - Their share must be satisfied first before the
the profits in proportion to his capital. (1689a) CAPITALIST PARTNERS divide the profits
- Their share, LIKE THAT PERTAINING TO THE
GR: The profits and losses shall be distributed in conformity with the CAPITALIST PARTNERS, is not fixed because it is
agreement (PROFITS AND LOSSES AGREED UPON)
very hard to ascertain the value of one’s services
EXPN:
1. If only the share in the profits are agreed upon, NB: Art. 140 of the Code of Commerce: The industrial partner is placed
the share in the losses shall also be in the same in the same position as that of a capitalist partner in the
proportion distribution (the industrial partner having the “SMALLEST INTEREST”

2. If there is no agreement as to the share in the

losses and profits, then, each partner shall have a THE RULES IN DISTRIBUTION OF LOSSES
share in the same in proportion to what he may 1. If there is an AGREEMENT OR STIPULATION, then,
have contributed BUT: the distribution of the losses shall be in accordance
with the agreement subject to Art. 1799
Exception to the exception: 2. If there is NO AGREEMENT BUT THERE IS A
1. The INDUSTRIAL PARTNER shall not be liable for STIPULATION AS TO THE PROFITS, then, the
the losses distribution of the losses shall also be in accordance
2. The industrial partner shall be entitled to a share with the PROFIT-SHARING RATIO
in the profits as may be JUST AND EQUITABLE
under the circumstances - Note that the INDUSTRIAL PARTNER shall not be
liable for any losses
Q: WHAT ARE THE TRANSACTIONS THAT MUST BE TAKEN GR: if the partner has entrusted to a 3rd person the DESIGNATION OF
THE SHARE OF EACH PARTNER IN the profits and losses, the same
INTO ACCOUNT TO DETERMINE THE PROFITS AND LOSSES?
may be impugned only IF IT IS MANIFESTLY INEQUITABLE
All the transactions must be taken into consideration NOT JUST one
transaction to determine the profits and losses
3. If there is NO AGREEMENT AND THERE IS NO EXPN: In no case may such decision be impugned if:
AGREEMENT AS TO THE SHARING OF THE 1. The partner has BEGUN the execution of the
PROFITS designation
- The sharing of the losses shall be in proportion to 2. He did not impugn the designation in the sharing
their CAPITAL CONTRIBUTION of the profits within a period of 3 months from
- Note also that the INDUSTRIAL PARTNER shall not the time he had knowledge thereof
be liable for any losses
NB: The designation of the profits and losses cannot be left to any of
- SHARING OF LOSSES: If there is an AGREEMENT as
the partners
to the distribution of the losses, then, that will
govern
BINDING EFFECT OF THE DECISION OF THE 3RD PERSON
- If there is no agreement AS TO THE
GR: The designation by the 3rd person of the sharing in the profits and
DISTRIBUTION OF THE LOSSES, then, they shall losses among partners is BINDING
share the losses BASED ON THE STIPULATED EXPN: When the designation is MANIFESTLY INEQUITABLE

PROFIT-SHARING RATIO (share in the losses = Exception to the exception: But even if the designation is
stipulated sharing in the profits) MANIFESTLY INEQUITABLE in the following cases, the
- If there is NO AGREEMENT ALSO AS TO THE designation cannot anymore be impugned:
PROFIT-SHARING RATION, then, the losses shall 1. When the partner has begun the execution of the
be in PROPORTION to their CAPITAL designation
CONTRIBUTION 2. When the partner fails to impugn the designation
- But the industrial partner shall not be liable for within a period of 3 months
the losses. A, B and C shall bear the losses (being Basis for the exception to the exception: Because the
capitalist partners) partner is guilty of ESTOPPEL, or may be deemed to have
- But, if D, an industrial partner, is also a capitalist given his consent or ratification
partner, then, he shall share in the losses in
proportion to his contribution NB: Remedy of partners: Have it changed or if there is no more
recourse, go to court and have the decision stricken out – my opinion

NB: Whether or not there is a stipulation, the INDUSTRIAL PARTNER shall

not be liable for the losses Art. 1799.
A stipulation which excludes one or more partners
Art. 1798. from any share in the profits or losses is void. (1691)
If the partners have agreed to entrust to a third
person the designation of the share of each one in the STIPULATIONS EXCLUDING A PARTNER FROM ANY SHARE IN
profits and losses, such designation may be impugned only PROFITS OR LOSSES
when it is manifestly inequitable. In no case may a partner - The stipulation is generally void but the
who has begun to execute the decision of the third person, partnership will subsist
or who has not impugned the same within a period of - The parties expressly stipulate that there shall be
three months from the time he had knowledge thereof, no liability for losses, or were from the nature of
complain of such decision. the contract, it is clear that a party did not intend
The designation of losses and profits cannot be to share in the losses, such fact may be a factor
entrusted to one of the partners. (1690) in determining that no partnership exist
- The one excluded from any share in the profits or
DESIGNATION BY A THIRD PERSON OF SHARE IN PROFITS losses is not intended by the parties to become a
AND LOSSES partner
- It is valid to stipulate that an industrial partner is
excluded from losses
 - Parties can stipulate unequal shares therefore be changed only with the consent of ALL the
partners including the appointee.
Art. 1800.
The partner who has been appointed manager in 2. Appointment as manager AFTER the constitution of
the articles of partnership may execute all acts of the partnership
administration despite the opposition of his partners, unless - If a partner is designated as a MANAGER after
he should act in bad faith; and his power is irrevocable the articles of partnership is constituted, then, the
without just or lawful cause. The vote of the partners appointment may be revoked at ANY TIME, FOR
representing the controlling interest shall be necessary for ANY CAUSE
such revocation of power. - Reason: Because in this case, the appointment is not
A power granted after the partnership has been a condition of the contract and therefore, the
constituted may be revoked at any time. (1692a) revocation is not founded on a CHANGE OF THE
WILL OF THE PARTNERS. There is merely a
RIGHTS AND OBLIGATIONS WITH RESPECT TO CONTRACT OF AGENCY which may be revoked
MANAGEMENT anytime
GR: A partner who has been appointed a MANAGER in the ARTICLES OF - But, for there to be revocation, there should be a
PARNTERSHIP may EXECUTE ALL ACTS of administration despite the
vote of a majority of the partners, having the
opposition of his co-partners (provided he is in GF)
CONTROLLING INTEREST
EXPN: But if he acts in BAD FAITH and there is an opposition, he may
not execute such acts
SCOPE OF THE POWER OF THE MANAGING PARTNER
Gen rule on revocation: The power (to execute all acts of GR: the managing partner has ALL THE POWERS OF A GENERAL AGENT
and those INCIDENTAL POWERS necessary to carry out the object of the
admin) may not be revoked UNLESS:
partnership
1. There is JUST OR LAWFUL CAUSE and EXPN: When the power of the managing partner is restricted
2. The vote of the partners representing the
CONTROLLING INTEREST is had COMPENSATION FOR SERVICES RENDERED
GR: He is NOT entitled to an additional compensation BEYOND his share in
Exception: Powers granted AFTER THE CONSTITUTION OF THE the profits of the business
PARTNERSHIP may be revoked at any time
- Reason: because EACH PARTNER (in the absence of
an agreement) assumes the duty to give his TIME,
TWO DISTINCT CASES OF APPOINTMENTS UNDER ART 1800
ATTENTION and SKILL to manage the affairs of
1. Appointment as manager in the ARTICLES OF
the partnership. In his managing the partnership,
PARNTERSHIP
he in effect is taking care of his own interest and
- Here, the partner appointed as managing partner
property. Thus, even if his services are greater in
by common agreement in the Articles of
proportion than the rest because he is the
Partnership may execute all acts of administration
managing partner; or because his co-partners are
(and not acts of strict of ownership under Art.
ill, his only compensation is his share in the
1818 par. 3)
PROFITS
- He may execute such acts of admin EVEN WITH
EXPN:
the opposition of the other partners
1. The law may IMPLY a contract for compensation
o Exception: Unless he acted in bad faith
a. When the partner is made to do something
- His appointment as manger may be REVOKED ONLY
NOT in the fulfillment of his duties in
IF:
the partnership or not related to the
o There is just and lawful cause
partnership business
o The vote of the partners constituting the
b. When the partner employs his co-partner
controlling interest is had
for him to do something for him OUTSIDE
Because the revocation is deemed to be a CHANGE IN THE
OF AND INDEPENDENT of the partnership
TERMS OF THE CONTRACT. The appointment made is
business
considered as one of the conditions of the contract and can
 c. When the partner is guilty of
EXTRAORDINARY NEGLIGENCE in which case, Q; WHAT DECISION WILL PREVAIL IN CASE OF OPPOSITION?
the burden of management is shifted to 1. First, the matter shall be decided by the
the other partner (the latter shall be MAJORITY of the managing partners
entitled to compensation) 2. In case of a tie, the matter shall be decided by
d. Where the partner is EXEMPT from the partners having the controlling interest (more
rendering services in which case, he may than 50% of the capital investment)
demand payment for services he rendered
OR WHERE THE SERVICES rendered were THE REQUISITES FOR THE APPLICATION OF THE RULE
EXTRAORDINARY 1. 2 OR MORE partners have been appointed as
e. When the managing partner is managing partners
OVERBURDENED with work because he 2. There is no specification of their respective duties
devotes all his time and attention to the 3. There is no stipulation that one may not act
partnership while his co-partners are busy without the consent of the others
with their individual business in which case,
an UNUSUAL CONDITION presents itself and *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
he may thus demand compensation
in the conduct and management of the partnership
f. Where there is WILFUL failure on the part
of the managing partner to fulfill his *But if there is a SPECIFICATION OF DUTIES, then, the partner’s (in
duty in which case the other partners are charged) decision will prevail over the others

burdened to perform such

2. The parties may agree that there would be Art. 1802.
payment of compensation In case it should have been stipulated that none of
* the managing partners shall act without the consent of the
If there is no PROHIBITION AS THIS REGARD in the Articles of others, the concurrence of all shall be necessary for the
Partnership, then, compensation may be agreed to be given to a GENERAL validity of the acts, and the absence or disability of any
PARTNER
one of them cannot be alleged, unless there is imminent
danger of grave or irreparable injury to the partnership.
Art. 1801.
(1694)
If two or more partners have been entrusted with
GR: In case where there is a stipulation that no MANAGING PARTNER
the management of the partnership without specification of may act without the consent of ALL the partners, the CONCURRENCE OF
their respective duties, or without a stipulation that one of ALL shall be necessary for the validity of their acts

them shall not act without the consent of all the others,
each one may separately execute all acts of administration, Gen rule 2: And the ABSENCE or DISABILITY of the partner
but if any of them should oppose the acts of the others, may not be alleged as an excuse or justification
the decision of the majority shall prevail. In case of a tie, Exception:
the matter shall be decided by the partners owning the 1. The same may be an excuse or justification if
controlling interest. (1693a) there is an IMMINENT DANGER OF GRAVE OR
IRREPARABLE INJURY to the partnership
GR: If 2 or more partners were instructed with the management of the 2. Where the partnership is engaged in the BUY AND
partnership BUT there was no SPECIFICATION of their duties or
SELL BUSINESS where it is USUAL AND CUSTOMARY
WITHOUT stipulation that ONE OF THEM shall not act WITHOUT THE
CONSENT of the others, then they may SEPARATELY execute all acts of
TO BUY AND SELL ON CREDIT – Smith, Bell and Co.
administration v. Aznar
NB:
EXPN:: However if any of them (other managing partners) 1. The partners may stipulate in their ARTICLES OF
should oppose the acts of the others: PARTNERSHIP that no managing partner may act
1. The decision of a majority shall prevail without the consent of all the other managing
2. In case of tie, the decision of the partners owning partners
the controlling interest shall prevail
Q; WHAT THEN IS REQUIRED IN SUCH CASE? - In case of their failure to indicate either in the
- The UNANIMOUS consent of all the managing Articles of Partnership or subsequent contract WHO
partners is necessary for the validity of their acts SHALL MANAGE the affairs of the partnership,
Q; WHAT IS THE EFFECT OF SUCH REQUIREMENT OF then ALL THE PARTNERS shall have EQUAL RIGHTS
UNANIMITY OF CONSENT? in the conduct and management of the partnership
- The consent of ALL THE MANAGING PARTNERS is affairs. ALL OF THEM shall be MANAGERS AND
so INDISPENSABLE such that the absence or AGENTS and any act done by them alone shall
disability of the partners may not be interposed BIND THE PARTNERSHIP subject, however to the
as an excuse or justification to dispense with such provision of Art. 1801 in case of TIMELY
a requirement OPPOSITION on the part of any partner in which
case, the MAJORITY VOTE shall be had for the
Exception: Where there is IMMINENT DANGER of PRESUMED INTENT OF THE PARTIES is that they
GRAVE OR IRREPARABLE INJURY TO THE PARNTERSHIP shall all manage REGARDLESS of their capital
then one managing partner may act EVEN without the contribution. In case of a tie, then, the
consent of the ABSENT OR DISABLED without prejudice to CONTROLLING INTEREST’S decision will prevail
his liability under Art. 1794
Q: HOW MANY PARTNERS SHOULD CONCEDE AS RE THE
2. The EXCEPTION under Art. 1802 will not apply IMPORTANT ALTERATION OF IMMOVABLE PROPERTY?
where there is an OPPOSITION on the part of - Unanimous consent is necessary so that ANY
the other managing partners IMPORTANT ALTERATION to the immovable
Reason: One of the essential conditions of the authority property may be made.
conferred on the managing partner is that the Q: HOW SHOULD THE CONSENT BE GIVEN?
MANAGEMENT should be with the consent of ALL THE - The consent need not be express. It may be
PARTNERS implied from the fact that ACTUAL KNOWLEDGE
was acquired and no opposition from the other
Q; WHAT IF SUCH CONSENT IS WANTING? partners was made
- If such unanimous consent is wanting, then, the Q: DOES THE PROHIBITION APPLY TO MOVABLE PROPERTY?
proposed act is OUTISIDE HIS AUTHORITY - No, it only applies to immovable property because
of the greater importance of this kind of
Art. 1803. property
When the manner of management has not been Q: IS ANY ALTERATION CONTEMPLATED?
agreed upon, the following rules shall be observed: - No, it must be an IMPORTANT ALTERATION in
1. All the partners shall be considered agents and immovable property. Any important alteration
whatever any one of them may do alone shall bind constitutes an act of STRICT DOMINION.
the partnership, without prejudice to the provisions Q: MAY THE MANAGING PARTNER MAKE ANY IMPORTANT
of Article 1801. ALTERATION IN THE IMMOVABLE PROPERTY?
2. None of the partners may, without the consent of - No, even the managing partner may not make any
the others, make any important alteration in the important alteration in the immovable property
immovable property of the partnership, even if it WITHOUT THE CONSENT of the other partners
may be useful to the partnership. But if the Exception: If the refusal of consent by any partner is MANIFESTLY
PREJUDICIAL to the interest of the partnership, then, the intervention of
refusal of consent by the other partners is
the court may be sought so that important alterations to the immovable
manifestly prejudicial to the interest of the
property may be made.
partnership, the court's intervention may be sought.
(1695a) NB: The consent may be presumed from the failure to make any
opposition

The standing of the partners in case they failed to indicate

the manner of management Q: WHAT IF THE ALTERATION IS NECESSARY FOR THE
PRESERVATION?
 - The law speaks of alteration that is useful to the Q: WHAT IS THE PARTNERSHIP FORMED BETWEEN A
partnership. Hence, when the alteration is necessary MEMBER OF A PARNTERSHIP AND A 3RD PERSON?
for its preservation, then, the consent of the other - A SUBPARTNERSHIP. The manner by which the
partners is not necessary profits are to be divided between the members of
Q: A, B AND C FORMED A PARTNERSHIP FOR A the sub partnership or that one of the members
TRANSPORTATION BUSINESS. THERE WAS NO AGREEMENT AS shall receive the entire profits is immaterial as re
RE THE MANNER OF MANAGEMENT. A CONTRACTED A the formation of the sub partnership
DEBT FOR SUPPLIES. ARE THE PARTNERSHIP AND THE Q: IS THE SUBPARTNERSHIP = MAIN PARTNERSHIP?
PARTNERS LIABLE FOR THE INDEBTEDNESS? - No. it could be said that it is a partnership within
- Yes. Where there was no agreement was re the a partnership. It is a distinct and separate
manner of management, each partner is considered partnership from that of the main partnership
as an AGENT of the partnership. A must be Q: DOES A SUBPARTNER AUTOMATICALLY BECOME A
deemed to have an authority to contract the debt MEMBER OF THE PARTNERSHIP?
in as much as he incurred the same in the - No. A sub partnership agreement does not in any
prosecution of the partnership business – Bachrach wise AFFECT the composition, existence and
v. La Protectora operations of the firm. But the sub partners are
Q: IN THE ARTICLES OF PARTNERSHIP, THE PARNTERS ARE partners INTER SE but the sub partner does not
NOT GIVEN THE AUTHORITY TO ENTER INTO become a member of the firm WITHOUT the
CONTRACTS. IT IS THE DEPARTMENT THRU A RESO OF 6 mutual assent of all the partners EVEN if they
MEMBERS THAT COULD SO ENTER INTO SUCH CONTRACT. know of the existence of the sub partnership
A 3 RD PERSON SEEKS ENFORCEMENT OF A CONTRACT agreement
ENTERED INTO BY ONE OF THE PARTNERS. IS THE Q: DOES THE SUBPARTNER ACQUIRE THE RIGHTS OF A
PARTNERSHIP BOUND? PARNTER AS WELL AS THEIR OBLIGATONS?
- No. The partners may be empowered to contract - NO. Not being a member of the partnership, then,
in the name of the partnership ONLY if there is he does not acquire the rights of the partners and
no provision as re the management of the neither does he become indebted for the
partnership. In this case, the articles did so provide. partnership’s debts
The partners are not empowered to enter into
contracts. Hence, the department cannot be bound Art. 1805.
without a resolution adopted by it in a meeting – The partnership books shall be kept, subject to
Council of Red Men v. Veterans Army any agreement between the partners, at the principal place
of business of the partnership, and every partner shall at
Art. 1804. any reasonable hour have access to and may inspect and
Every partner may associate another person with copy any of them. (n)
him in his share, but the associate shall not be admitted
into the partnership without the consent of all the other GR: The partnership books shall be kept
1. In the place agreed upon by the partners
partners, even if the partner having an associate should be
2. In the absence of agreement, at the PRINCIPAL PLACE of
a manager. (1696)
business of the partnership

GR: Every partner may ASSOCIATE another person with him in his share GR: Every partner shall have AT A REASONABLE HOUR access to and
BUT such associate shall NOT be admitted into the partnership without may INSPECT AND COPY any of them
the consent of ALL THE OTHER PARTNERS, even if the partner having
an associate may be the MANAGER Q: WHO HAS THE OBLIGATION OF KEEPING THE BOOKS OF
THE PARTNERSHIP?
Q: WHAT IS THE RULE PROVIDED FOR UNDER ART. 1804? - The managing or the active partner has the
- That every partner may associate with another obligation to keep a TRUE AND CORRECT book of
person, known as the SUBPARTNER, as re his share accounts and such books shall at all times be open
(partner’s share) even without the consent of the for inspection by the other partners
other partners Q; WHAT COULD BE PRESUMED AS RE THE BOOKS?
 1. The partners have knowledge of the contents of REPRESENTATIVE of a deceased partner or of a partner under LEGAL
DISABILITY
the books
2. The books state accurately the state of accounts
Q: WHAT IS THE REASON FOR THE DUTY TO RENDER
of the partnership
INFORMATION?
Q: WHAT ARE THE RIGHTS OF THE PARTNERS AS RE THE
- Mutual trust and confidence require that there be
PARTNERSHIP BOOKS?
no CONCEALMENT AMONG PARTNERS.
- Generally, the partnership books should be kept at
- Hence, there is a duty to render true and full
the principal place of business (subject to an
information of all things affecting the partnership
agreement to the contrary) so that the partners
Q: LIMITATION?
may:
- The information must be used only for the
1. Access
partnership purpose
2. Inspect
Q: MAY THERE BE A DUTY TO RENDER INFORMATION ONLY
3. Copy any of them
WHERE THERE IS DEMAND
Q: WHY ARE THEY GIVEN SUCH RIGHT?
- No. It does not mean that there may not be an
1. Each partner has a right to a TRUE AND FULL
obligation to render VOLUNTARY DISCLOSURE of
INFORMATION of the partnership accounts and
material facts affecting or relating to the
activities
partnership affairs.
2. Each partner is a CO-OWNER of the partnership
properties, including the partnership books, and
Q; WHEN WILL THERE BE NO DUTY TO RENDER
they also have EQUAL
INFORMATION?
- RIGHTS in the management of the
- Where the information already appears in the
partnership affairs so that the books
partnership books because it is open to inspection
should not be kept under the sole control
NB: good faith not only requires that there be no FALSE STATEMENT. It
and custody of just one partner
also requires that there be no concealment among partners –Poss v.
Gottlieb
NB: The books should not be transferred without the consent of the
other partners
Art. 1807.
Q: IS THE RIGHT TO THE BOOKS OF THE PARTNERSHIP
Every partner must account to the partnership for
ABSOLUTE?
any benefit, and hold as trustee for it any profits derived
- No. It may be restrained. Hence, it may be used
by him without the consent of the other partners from
only for partnership purposes
any transaction connected with the formation, conduct, or
Q; MAY THE PARTNERS ACCESS THE BOOKS AT ANY HOUR
liquidation of the partnership or from any use by him of
- No. they may access it at any REASONABLE HOUR
its property. (n)
ONLY. This phrase has been interpreted to mean
that it may be accessed at any REASONABLE
GR:
HOUR ON ANY BUSINESS DAY THROUGHOUT THE
1. Every partner must account to the partnership FOR
YEAR and not merely on ARBITRARY DAYS chosen ANY BENEFIT
by the managing partners 2. And hold as TRUSTEE for the partnership any PROFITS
derived by him in any transaction connected with the
Art. 1806. FORMATION, CONDUCT or LIQUIDATION OF THE
Partners shall render on demand true and full PARNTERSHIP or FROM ANY USE BY HIM of his

information of all things affecting the partnership to any property

partner or the legal representative of any deceased partner Q: WHAT IS THE NATURE OF THE RELATIONSHIP BETWEEN

or of any partner under legal disability. (n) AND AMONGST PARTNERS?

- Fiduciary relationship, that is, of trust and

DUTY TO RENDER INFORMATION confidence. Each partner is considered in law to be

GR: The partners shall render ON DEMAND TRUE AND FULL INFORMATION the CONFIDENTIAL AGENT of the others
of all things affecting the partnership to any PARTNER, OR THE LEGAL Q: NATURE OF THE DUTY OF THE PARNTERS?
- Analogous to the duties of the TRUSTEE
Q: WHAT IS THE DUTY OF EACH PARTNER WHEN HE Reason:
TRANSACTS ANY PARTNERSHIP BUSINESS? 1. This right is already protected by Art. 1805 and
- He should always act for the COMMON BENEFIT in Art. 1806
all transactions affecting the partnership affairs. 2. This may cause much inconvenience and unnecessary
He cannot use or apply exclusively for his own waste of time
benefit the PARTNERSHIP ASSETS and the results
of the knowledge gained for his individual benefit EXPN:
NB: The managing partner has the fiduciary duty to inactive partners 1. He is wrongfully excluded from the partnership
Q: TRANSACTION? 2. If it exists under any agreement
- Doing or performing something. It was given a 3. Provided under Art. 1807
broad meaning – more of the justice of the case 4. Whenever circumstances render it just and reasonable
demanded rather than Q: To whom does the obligation to account rests?
- MANAGING OR ACTIVE PARTNER and a special task
Art. 1808. of the SURVIVING PARTNER
The capitalist partners cannot engage for their own Q: When does prescription begins to run?
account in any operation which is of the kind of business in - It will run from the time of the DISSOLUTION
which the partnership is engaged, unless there is a OF THE PARTNERSHIP when the final accounting is
stipulation to the contrary. done
Any capitalist partner violating this prohibition shall Q: What kind of action is an action for accounting?
bring to the common funds any profits accruing to him - It is an ACTION IN PERSONAM because it is an
from his transactions, and shall personally bear all the action against a person for the performance of a
losses. (n) personal duty on his part. It is only incidental that
part of the assets of the partnership subject to
Q: When is capitalist partner PROHIBITED from engaging in accounting or under liquidation happen to be real
other business? property.
- When he is engaged in any business which is the
same or similar to the business in which the SECTION 2: Property Rights of a Partner
partnership is engaged
Q: What is the obligation of the partner that violates this Art. 1810.
prohibition? The property rights of a partner are:
1. Bring to the common fund any profits he derived 1. His rights in specific partnership property;
from his transactions 2. His interest in the partnership; and
2. If there are losses, the partner should bear it 3. His right to participate in the management. (n)
alone
EXTENT OF PROPERTY RIGHTS OF A PARTNER
Art. 1809. A. Principal Rights
Any partner shall have the right to a formal 1. His rights in specific partnership property
account as to partnership affairs: 2. His interest in the partnership
1. If he is wrongfully excluded from the partnership 3. His right to participate in the management
business or possession of its property by his co- B. Related Rights
partners; 1. Right to reimbursement for amounts advanced
2. If the right exists under the terms of any to the partnership and to indemnification for
agreement; risks in consequence of management
3. As provided by article 1807; 2. Right of access and inspection of partnership
4. Whenever other circumstances render it just and books
reasonable. (n) 3. Right to true and full information of all things
affecting the partnership
GR: During the existence of the partnership, a partner is NOT entitled to
a formal account of partnership affairs
 4. Right to a formal account of partnership he has no right to possess such property for any
affairs under certain circumstances other purpose without the consent of his partners;
5. Right to have the partnership dissolved under 2. A partner's right in specific partnership property
certain circumstances is not assignable except in connection with the
Q: What is the difference between partnership property and assignment of rights of all the partners in the
partnership capital? same property;
- PARTNERSHIP PROPERTY IS VARIABLE, its value 3. A partner's right in specific partnership property
may vary from day to day, while PARTNERSHIP is not subject to attachment or execution, except
CAPITAL IS CONSTANT, and is not affected by on a claim against the partnership. When
fluctuations although it may be increased or partnership property is attached for a partnership
diminished by unanimous consent of the partners. debt the partners, or any of them, or the
Partnership property not only includes the original representatives of a deceased partner, cannot claim
capital contributions but all the PROPERTY any right under the homestead or exemption laws;
SUBSEQUENTLY ACQUIRED BY THE PARTNERSHIP with 4. A partner's right in specific partnership property
the use of the partnership funds, including is not subject to legal support under Article 291.(n)
partnership came and the goodwill of the
partnership. Partnership capital represents the NATURE OF A PARTNER’S RIGHT IN SPECIFIC PARTNERSHIP
AGGREGATE OF THE INDIVIDUAL CONTRIBUTIONS PROPERTY
made by the partners. - A partner does not own any part of the
Q: What are the rules regarding the OWNERSHIP of certain partnership property although he does have rights
property? in specific partnership assets
1. GR: The PROPERTY USED BY THE PARTNERSHIP - Art 1811 contemplates tangible property
constitutes partnership property - None of the partners can possess and use the
EXPN: Express agreement to the contrary specific partnership property other than for
*The partner may only contribute the use of the property “partnership purposes” without the consent of
not the ownership
other partners
2. GR: Property ACQUIRED BY A PARTNER with the
- If any partner made use of the partnership
use of partnership funds is PRESUMED
property, he must account to the others the
PARTNERSHIP PROPERTY
profits or benefits he derived from such use
EXPN: If it is acquired AFTER DISSOLUTION BUT
- On the death of a partner, his rights in specific
BEFORE WINDING UP of the partnership affairs it
partnership property are vested in the surviving
would be considered his but is liable to account to
partners not the legal representatives of the
the partnership for the funds used
deceased partner except when he was the last
3. Property carried in the partnership books is
surviving partner
strongly inferred as partnership property
- A partner cannot separately assign his right to
4. The fact that the income generated by the
specific partnership property but all of them can
property is received by the partnership or the
assign their rights in the same property
taxes are paid by the partnership is evidence that
o He cannot assign individually because it is
the partnership is the owner of the said property
impossible to determine the extent of his
beneficial interest in the property until after
Art. 1811.
the liquidation of partnership affairs
A partner is co-owner with his partners of
o It also prevents interference by outsiders in
specific partnership property.
partnership affairs, protects the rights of
The incidents of this co-ownership are such that:
other partners and partnership creditor to have
1. A partner, subject to the provisions of this Title
partnership assets applied to firm debts
and to any agreement between the partners, has
- The law allows a retiring partner to assign his
an equal right with his partners to possess specific
rights in partnership property to the partner or
partnership property for partnership purposes; but
partners continuing the business
 - Specific partnership property is not subject to In case of a dissolution of the partnership, the
attachment, execution, garnishment, or injunction assignee is entitled to receive his assignor's interest and may
without the consent of all partners except on a require an account from the date only of the last account
claim against the partnership agreed to by all the partners. (n)
- Specific partnership property is also not subject to
legal support but the partner’s interest in the EFFECT OF ASSIGNMENT OF PARTNER’S WHOLE INTEREST IN
partnership is subject to legal support PARTNERSHIP
GR1: A partner’s RIGHT IN SPECIFIC PARTNERSHIP
Art. 1812. PROPERTY is not assignable
A partner's interest in the partnership is his share GR2: He may assign his INTEREST IN THE PARTNERSHIP to
of the profits and surplus. (n) any of his co-partners or to a third person without the
consent of other partners
NATURE OF PARTNER’S INTEREST IN THE PARTNERSHIP EXPN: agreement to the contrary
- The partner’s interest in the partnership consists
*The assignment will not divest the assignor of his status and rights as a
of his proportional share in the undistributed
partner nor operate as dissolution
profits during the life of the partnership and his
of the partnership
share in the undistributed surplus after its
dissolution The assignment made to the third person does not grant
o Profit - excess of returns over the assignee the right:
expenditure in a transaction or series of 1. To interfere in the management
transactions, the net income of the 2. To require any information or account
partnership for a given period of time 3. To inspect any partnership books
o Surplus - assets of the partnership of
after partnership debts and liabilities are RIGHTS OF THE ASSIGNEE
paid and settled and the rights of the 1. To receive in accordance with his contract the
partners among themselves are adjusted; profits accruing to the assigning partner
excess of assets over liabilities 2. To avail himself of the usual remedies provided by
- Nothing is to be considered as the share of a law in the event of fraud in the management
partner but his proportion of the residue or 3. To receive the assignor’s interest in case of
balance after an account has been taken of the dissolution
debts and credits 4. To require an account of partnership affairs, but
- A partner is not a creditor of the partnership for only in case the partnership is dissolved
the amount of his share
Art. 1814.
Art. 1813. Without prejudice to the preferred rights of
A conveyance by a partner of his whole interest in partnership creditors under Article 1827, on due application
the partnership does not of itself dissolve the partnership, to a competent court by any judgment creditor of a
or, as against the other partners in the absence of partner, the court which entered the judgment, or any
agreement, entitle the assignee, during the continuance of other court, may charge the interest of the debtor
the partnership, to interfere in the management or partner with payment of the unsatisfied amount of such
administration of the partnership business or affairs, or to judgment debt with interest thereon; and may then or later
require any information or account of partnership appoint a receiver of his share of the profits, and of any
transactions, or to inspect the partnership books; but it other money due or to fall due to him in respect of the
merely entitles the assignee to receive in accordance with his partnership, and make all other orders, directions, accounts
contract the profits to which the assigning partner would and inquiries which the debtor partner might have made, or
otherwise be entitled. However, in case of fraud in the which the circumstances of the case may require.
management of the partnership, the assignee may avail The interest charged may be redeemed at any
himself of the usual remedies. time before foreclosure, or in case of a sale being directed
by the court, may be purchased without thereby causing a
dissolution: Art. 1816.
1. With separate property, by any one or more of All partners, including industrial ones, shall be liable
the partners; or pro rata with all their property and after all the
2. With partnership property, by any one or more of partnership assets have been exhausted, for the contracts
the partners with the consent of all the partners which may be entered into in the name and for the
whose interests are not so charged or sold. account of the partnership, under its signature and by a
Nothing in this Title shall be held to deprive a partner of person authorized to act for the partnership. However, any
his right, if any, under the exemption laws, as regards his partner may enter into a separate obligation to perform a
interest in the partnership. partnership contract. (n)

Section 3: Obligations of the Partners with Regard to Third LIABILITY FOR CONTRACTUAL OBLIGATIONS OF THE
Persons PARTNERSHIP
GR: After all the partnership assets have been exhausted, all the partners,
including the industrial ones, shall be liable for all the contracts which may have
Art. 1815.
been entered into in the name, for the account of the partnership and under its
Every partnership shall operate under a firm name, signature and by a person authorized to act for the partnership

which may or may not include the name of one or more EXPN: Any partner MAY ENTER INTO A SEPARATE OBLIGATION to perform a
partnership contract
of the partners.
Those who, not being members of the partnership,
Q: WHO SHALL BE LIABLE FOR CONTRACTUAL OBLIGATIONS OF THE
include their names in the firm name, shall be subject to PARTNERSHIP?
the liability of a partner. (n) GR: the partnership shall shoulder the obligations

REQUIREMENT OF A FIRM NAME Q: MAY 1 PARTNER MAKE ALL THE PARTNERS LIABLE FOR THE
OBLIGATION OF THE PARTNERSHIP?
Firm - the name, title, or style under which a company
Yes, a partner may, by entering into a contract in the name
transacts business and for the account of the partnership hold ALL THE
Importance: PARNTERS liable for the partnership obligation.
1. It is necessary to distinguish the partnership which Reason: A partner is a PRINCIPAL WITH RESPECT TO HIS CO-
PARNTERS and at the same time an AGENT OF THE OTHERS AND
has a distinct and separate juridical personality
OF THE PARNTERSHIP. If he contracts with a 3rd person, he binds
from the individuals composing the partnership
not only the partnership but also the partners, JUST LIKE AN
2. To distinguish it from other partnerships OBLIGATION CONTRACTED BY AN AGENT – the principal shall be
liable

GR: The partners may adopt any firm name desired

Provided: Q: MAY A PARTNER BE “PERSONALLY” BE LIABLE?
Yes. He may assume an undertaking in his own name or bind
1. It is not misleading
himself solidarily with the partnership to fulfill the obligation
o Partners cannot use a name that is to mislead to a 3rd person.
the public by passing itself off as another
partnership or corporation, or its goods or NATURE OF THE INDIVIDUAL LIABILITY OF THE PARTNERS
services as those of such other company 1. All the debts and obligations of the partnership
2. Use of name of deceased partners is allowed as are also the DEBTS AND OBLIGATIONS of each
long as it is indicated that said partner is already individual member of the firm
deceased 2. NATURE OF THE LIABILITY:
a. Pro rata –- equally or jointly (not
LIABILITY FOR INCLUSION OF NAME IN FIRM NAME proportionately) – Basis of pro-rating: No.
- Persons who not being partners, include their name of the members of the firm and NOT
in the firm name do NOT ACQUIRE THE RIGHTS the amount of their contributions
OF A PARTNER but is SUBJECT TO LIABILITY of b. Subsidiary –- because they become
a partner in so far as THIRD PERSONS WITHOUT PERSONALLY LIABLE ONLY after the
NOTICE are concerned
 partnership assets have already been pay its debts on time does not mean that it is operating at
a loss. It may be expecting credits in the future which may
EXHAUSTED
be MORE than the losses – Pacific Commercial Co. v. Aboitiz
- They are held as the GUARANTORS
and Martinez
of the partnership creditors to the
EXTENT that the partnership assets Art. 1817.
won’t be sufficient to cover the Any stipulation against the liability laid down in the
debts (Art. 2047 – By guaranty, a preceding article shall be void, except as among the
person called the guarantor binds partners. (n)
himself to the CREDITOR to fulfill
the obligation of the principal GR: Any STIPULATION against any liability provided under Art. 1816 shall
debtor in case he fails to do so) be VOID

- They may be JOINED as PARTY EXPN: Stipulation against liability as AGAINST THEMSELVES

DEFENDANTS in the same action

Points to remember:
against the partnership SUBJECT to
1. Any stipulation contrary to the PRO RATA AND
the right of the partners to PRIOR
SUBSIDIARY LIABILITY provided under Art. 1818 in so far as
EXHAUSTION
it affects 3rd persons shall be VOID and of no effect
c. Personal – NB: under Art. 127 of the Code
2. It is VALID AN ENFORCEABLE among the partner
of Commerce, all members of the
GENERAL PARTNERSHIP shall be
Art. 1818.
PERSONALLY AND SOLIDARILY LIABLE with
Every partner is an agent of the partnership for
their properties (the Code Commission did
the purpose of its business, and the act of every partner,
not subscribe to the solidary liability
including the execution in the partnership name of any
because it is the source of the fear and
instrument, for apparently carrying on in the usual way
reluctance for the formation of the
the business of the partnership of which he is a member
partnership
binds the partnership, unless the partner so acting has in
fact no authority to act for the partnership in the
NB: Sec. 21, Corporation Code (BP 68) – All persons (NOT
STOCKHOLDERS/MEMBERS) who act as a CORP knowing it to be without particular matter, and the person with whom he is dealing
authority to do so shall be liable AS GENERAL PARTNERS for the DEBTS, has knowledge of the fact that he has no such authority.
LIABILITIES and DAMAGES incurred as a result thereof

An act of a partner which is not apparently for

Q; MAY THE INDUSTRIAL PARTNER BE RELIEVED FROM SHARING IN THE
LIABILITY?
the carrying on of business of the partnership in the usual
No. He is generally exempt from contributing for the LOSSES way does not bind the partnership unless authorized by the
of the partnership BUT NOT FOR THE LIABILITIES. The other partners.
EXEMPTION from losses relates exclusively to the SETTLEMENT
OF THE PARTNERSHIP affairs among the partners AND not to
Except when authorized by the other partners or
their LIABILITY TO 3RD PERSONS for the debts of the
partnership (Compania Maritima v. Munoz) unless they have abandoned the business, one or more but
less than all the partners have no authority to:
NB: The industrial partner may seek reimbursement from the capitalist 1. Assign the partnership property in trust for
partners for the share that he has given Exception: Agreement to the
creditors or on the assignee's promise to pay the
contrary
debts of the partnership;
*In a partnership, gains and losses are balanced. But as re the industrial 2. Dispose of the good-will of the business;
partner, what matters is the FINAL ADJUSTMENT OF THE LOSSES AND 3. Do any other act which would make it impossible
THE ASSETS of the partnership (so that, if there are still properties
to carry on the ordinary business of a partnership;
remaining, the PRIMARY AND DIRECT RESPONSIBILITY of the partnership
4. Confess a judgment;
shall preclude any recourse against any of the partners)
5. Enter into a compromise concerning a partnership
Q; IS THERE A CONFLICT BETWEEN ART. 1797 AND ART. 1816? claim or liability;
None. Art. 1816 refers to LIABILITIES while Art. 1797 refers 6. Submit a partnership claim or liability to arbitration;
to LOSSES. The mere fact that a company was unable to
7. Renounce a claim of the partnership.
 - Basis: LAW ON AGENCY (applies to law on
No act of a partner in contravention of a restriction on partnership). The latter is a branch of the
authority shall bind the partnership to persons having former
knowledge of the restriction. (n)
b. As to 3rd PERSONS
GR: Every partner is AN AGENT OF THE PARTNERSHIP for the purpose - GR: Any LIMITATION ON THE AUTHORITY
of its business and EVERY ACT of the partner, including the execution in
of the partner will NOT bind INNOCENT
the partnership name of any instrument FOR APPARENTLY CARRYING ON
3RD PERSONS who have the right to assume
IN THE USUAL WAY THE BUSINESS OF THE PARTNERSHIP, BINDS the
partnership that the GENERAL PARTNER whom he is
EXPN: dealing with has AUTHORITY to bind the
1. The partner so acting has IN FACT no authority to act for partnership with respect to its business
the partnership in the particular matter
(especially the ostensible partner)
2. The person with whom he is dealing with has KNOWLEDGE of
the fact that he has no such authority
1. The 3rd person has NO DUTY TO MAKE INQUIRIES
GR 2: An act of the partnership WHICH IS NOT APPARENTLY FOR AS TO ACTING PARTNER’S AUTHORITY
CARRYING OUT THE BUSINESS OF THE PARTNERSHIP shall NOT bind the
- 3rd person is not bound to make inquiries
partnership
whether the partner with whom he is
Exception: When he is AUTHORIZED by the other partners
dealing with has the authority of the other
GR 3: ALL the partners MAY BE THE ONLY ONES who may do the partners
following acts: - The public is not required to inquire as re
1. Assign the partnership property in trust for the creditors or
the agreements had between the partner
on the assignee’s promise to pay the debts of the
partnership
- The regular business procedure does not
2. Dispose of the goodwill of the business require the 3rd person to inquire from time
3. Do any other act which would make it impossible to carry on to time if the partner has the authority
the ordinary business of the partnership
and bears the consent of the other partners
4. Confess judgment
- His KNOWLEDGE THAT HE IS A PARNTER is
5. Enter into a compromise concerning partnership claim or liability
6. Submit partnership claim or liability to arbitration ENOUGH
7. Renounce a claim of the partnership
EXPN: 2. There is a PRESUMPTION that the acting partner
1. Unless authorized by the other partners
has the authority to BIND the partnership
2. The other partners ABANDONED THE BUSINESS
General presumptions:
GR 4: No act of the partner in CONTRAVENTION of a restriction on a. Every partner is an AGENT OF THE FIRM
authority WITH THE KNOWLEDGE of the persons whom he is dealing with b. That he has the AUTHORITY to bind the
SHALL BIND the partnership
firm
c. This PRESUMPTION is enough for the 3rd
POWER OF PARTNER AS AGENT OF PARTNERSHIP
person to hold the firm liable for the
GR: All partners have EQUAL RIGHTS with re to the management and
conduct of the business of the partnership transactions entered into by a member
EXPN: Where there is an agreement to the contrary acting in its behalf and within his
authority – Litton v. Hill and Ceron
a. As to THEMSELVES
- If the act of the partner is within the 3. The 3RD PERSON has NO RIGHT TO ASSUME
scope of his actual, implied or apparent THAT THE ACTING PARTNER HAS AN UNLIMITED
authority, he is not only a PRINCIPAL as to AUTHORITY
himself but also an AGENT to his co-
partners or partnership as a whole. Hence, LIABILITY OF PARTNERSHIP FOR ACTS OF PARTNERS
his act BINDS the partnership 1. Acts for apparently carrying in the usual way the
business of the partnership
 GR: Since a partner is AN AGENT OF THE DEFENSES OF AN ERRING PARTNER
PARTNERSHIP, he has the power to do such o When a partner enters into a contract without
acts with BINDING EFFECT even if he in fact AUTHORITY:
has no authority • With respect to 3rd persons, that partner
EXPN: The partnership will not be liable ONLY if: as well as the partnership shall be liable
(the 2 requisites below are met) because the 3rd person has no obligation
a. The partner so acting has no authority, to make an inquiry
AND • With respect to the partnership, the erring
b. The 3rd person has knowledge of the partner is PERSONALLY LIABLE even if he
fact that the partner he is dealing with used the partnership name to enter into
has no authority the contract
*NB: Usual way –- usual for a PARTICULAR PARTNERSHIP or for similar o He cannot argue that:
partnership
• He merely ATTEMPTED TO BIND THE
Par. 1 refers to Acts of ADMINISTRATION ONLY
PARTNERSHIP but he failed (so as to avoid

2. Acts of strict dominion or ownership his act)

- GR: Any power not expressly delegated to • He cannot argue against the 3rd person

a partner is presumed to be WITHHELD that he has no authority as HE IS

ESTOPPED from denying such authority
Q: IN CASE THE ACT IS NOT FOR THE CARRYING IN THE USUAL WAY
THE BUSINESS OF THE PARTNERSIP, IS THE Art. 1819.
LATTER BOUND? Where title to real property is in the partnership
GR: No
EXPN:
name, any partner may convey title to such property by
1. When the acts are AUTHORIZED by ALL the other a conveyance executed in the partnership name; but the
partners partnership may recover such property unless the partner's
2. If the partners HAVE ABANDONED the business
act binds the partnership under the provisions of the first
Points:
paragraph of article 1818, or unless such property has
1. Par. 3 enumerates the acts WHICH ARE BEYOND the
implied powers of each partner been conveyed by the grantee or a person claiming through
2. It shows the LIMITATIONS on the authority of the such grantee to a holder for value without knowledge that
partners to bind the partnership the partner, in making the conveyance, has exceeded his
Q: IF THE PARTNER WOULD LIKE TO ENTER INTO A
authority.
CONTRACT BEYOND THE SCOPE OR ONJECT OF
THE PARTNERSHIP OR IN RE TO THE PARTNERSHIP
PROPERTY, WHAT MUST HE DO? Where title to real property is in the name of the
There must be another conference of authority, partnership, a conveyance executed by a partner, in his own
express or implied, apart from the authority
name, passes the equitable interest of the partnership,
which is derived from his character of being a
provided the act is one within the authority of the partner
partner (2nd par. of At. 1818)
e.g. Where the partnership is engaged in selling under the provisions of the first paragraph of Article
mangoes, the act of the partner in selling dresses 1818.
will not bind the partnership or ANY CONTRACT
entered into after such business is concluded
Where title to real property is in the name of one
3. If the purposes or object of the firm is LIMITED
OR SPECIAL, the 3rd person has no right to obtain
or more but not all the partners, and the record does not
credit on the faith of the firm in relation to an disclose the right of the partnership, the partners in whose
object that is foreign to its business name the title stands may convey title to such property,
but the partnership may recover such property if the
3. Acts in contravention of the restriction on authority
partners' act does not bind the partnership under the
GR: the partnership will not be liable to the 3rd person if
the latter has ACTUAL OR PRESUMPTIVE KNOWLEDGE of provisions of the first paragraph of Article 1818, unless
the RESTRICTION on the authority of the partner the purchaser or his assignee, is a holder for value, without
WHETHER OR NOT the act is for the carrying in the knowledge.
usual way of the business
 Where the title to real property is in the name of Par. 5: Title in the partners name + conveyance made by ALL the
partners
one or more or all the partners, or in a third person in
GR: Their interest over the property will be conveyed
trust for the partnership, a conveyance executed by a
partner in the partnership name, or in his own name, passes Points:
the equitable interest of the partnership, provided the act 1. Ownership over the property -– that which is shown in
is one within the authority of the partner under the the MUNIMENT OF TITLE
provisions of the first paragraph of Article 1818. 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
Where the title to real property is in the name of
not hold the title but the partners know that it is
all the partners a conveyance executed by all the partners
a partnership property
passes all their rights in such property. (n) 3. Any property purchased thru partnership funds =
partnership property (presumption) UNLESS a contrary
Par. 1: Title over the property under the partnership + conveyance is intention appears
made by a partner in the PARTNERSHIP NAME 4. Art. 1819 – legal effects of the conveyance of
GR: The partnership may recover the property
partnership property depending on:
EXPN:
a. In whose name the property is registered
1. When the act of the partner binds the partnership in acc with
b. Who made the conveyance
par. 1 of Art. 1818
2. When the grantee or any person claiming thru such grantee
Q: IN WHOSE NAME MAY THE PROPERTY BE REGISTERED
has already passed the property to a HOLDER FOR VALUE
a. Partnership
without knowledge that the partner, in making the conveyance
b. One or more but not all the partners
has exceeded his authority
c. One or more or all of the partners or in the 3rd person
in trust for the partnership
Par. 2: Title over the property in the firm’s name + conveyance made by
d. All the partners
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 5. Par. 1, 3 and 5 – conveys title or ownership
authority Par. 2, and 4 – only EQUITABLE INTEREST
6. Conveyance – includes the power to MORTGAGE (unlike in
Q: EQUITABLE INTEREST/TITLE the rule on agency where the special power to sell does
One that is not recognized in law but only in EQUITY not include the power to mortgage) – Santiago Syjuco, Inc.
One that is IIMPERFECT OR UNENFORCEABLE in law but v. Castro
because of equitable principles, may be converted into a legal
7. INNOCENT PURCHASERS WITHOUT NOTICE
title or interest
GR: the innocent purchasers should be protected
NOTWITHSTANDING THE FACT that the partner making the
Par. 3: Title is in the name of ONE or MORE but NOT ALL the
conveyance has no authority to do so
partners, and the records do not disclose the right of the partnership +
a. LEGAL TITLE (partner) while the EQUITABLE
The conveyance made by the partners (in whose name the title over the
TITLE (partnership) – the buyer in good faith
property is)
GR: The partnership may recover the property and for value without notice will acquire title
EXPN: because it is safe to PRESUME that the
1. When the act of the partner binds the partnership in acc with possession or interest of the partnership is
par. 1 of Art. 1818 SUBORDINATE TO and CONSISTENT with the
2. When the grantee or any person claiming thru such grantee record of title
has already passed the property to a HOLDER FOR VALUE b. Where A (partner who has no authority to sell
without knowledge that the partner, in making the conveyance
the land) conveyed the land to B and the latter
has exceeded his authority
sold it to C
- Here, even if A does not have the
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 authority to sell, under par. 1, the
the name of the firm or in the name of the partners partnership may not recover the
GR: The conveyance will convey the EQUITABLE INTEREST in the property from C who has no notice
partnership PROVIDED that the partner acted within the scope of his or knowledge that A has no
authority authority to convey the land
- If the land is not yet sold, hence,
still with B, B has a right to retain
 the title (being the grantee) UNLESS he Points:
knows that A has no authority to 1. GENERALLY, a person shall not be BOUND by the
sell ACT, ADMISSION, STATEMENT or AGREEMENT made
c. The buyer need not have the ACTUAL OR
by another WITHOUT HIS KNOWLEDGE OR
CONSTRUCTIVE KNOWLEDGE of the trust or
CONSENT
any condition limiting the authority of the
Exception: But he may be bound by virtue
partner concerned
of the existing RELATION between them
- Notice of the interest of the
partnership in a property is not had 2. GR: Admissions by a party and testified to by a
by a knowledge of the fact that 3rd person will be an EVIDENCE AGAINST THE
legal title is in the name of the FORMER
member of the partnership. The Exception: An admission made by a party
buyer will be protected may be received against ANOTHER if the
former is acting as an AGENT for the
8. AUTHORIZATION OR RATIFICATION OF CONVEYANCE
latter
GR: A partner may be authorized by the others to convey
NB: This is the basis for the rule
the real property of the firm or even if the partner
conveyed the property without authority, the partners may under Art. 1820 that when a
ratify the act of the partner partner makes an admission during
the existence of the partnership, the
Q: HOW SHOULD THIS AUTHORITY OR RATIFICATION BE PROVED?
latter as well as the co-partners will
GR: Convincingly because this will not be presumed (so, this will be used by the
partner so that he won’t PERSONALLY be liable) be bound by the admission if the
EXPN: admission:
a. After the lapse of so many years after the act of
a. Pertains to the partnership affairs
conveyance, the authority will be presumed
b. The admission is within the authority of
Q; HOW SHOULD THE AUTHORIZATION BE MADE? the partner making the admission
a. Varied opinions -– some say in writing however there are
instances where partners become bound because of PAROL 3. But where the admission is made by a party on
authority given (e.g. Hey sherry you may sell this land!-oral)
his behalf alone, then, the same shall only be used
b. When a partner executes a deed of sale IN THE PRESENCE of
his co-partners under a PAROL AUTHORITY – held: Execution
against him
of the deed by ALL the partners
c. IMPLIED from the partnership business – e.g. where the Q: MAY THE ADMISSION MADE BY A PARTNER AFTER THE DISSOLUTION

partnership is engaged in the buy and sell of real estate, the BE RECEIVED AGAINST THE OTHER PARTNERS?

contract executed to sell the property is presumed valid Yes, provided that the admission has something to do with the
winding up of the partnership affairs

Q: HOW MAY RATIFICATION BE MADE

a. When A executed a deed of sale, and B thereafter, ADOPTED Points:
the act For the admission of the partner to bind the partnership,
b. Knowingly deriving benefits from the contract
the following must concur:
c. Inferred from the fact that they are present during the
1. The partner making the admission must be acting
execution and delivery
d. Acting under the contract within the scope of his authority at the time of
making the declaration
Art. 1820. 2. The statement is made in the COURSE OF,
An admission or representation made by any partner RELATED TO AND MATERIAL TO THE
concerning partnership affairs within the scope of his TRANSACTION OF THE BUSINESS OF THE
authority in accordance with this Title is evidence against PARTNERSHIP
the partnership. (n) 3. The partnership relation must be shown before

GR: An ADMISSION OR REPRESENTATION made by a partner concerning

the partnership can be charged with the admission
the partnership affairs and within the scope of his authority shall be of a partner under Art. 1820
an EVIDENCE AGAINST THE PARTNERSHIP 4. The proof of such relation must be established by
evidence OTHER THAN THE ADMISSION itself
 Art. 1822.
e.g. If C denies the existence of a partnership, then B, in the above
Where, by any wrongful act or omission of any partner
example must show the existence of the partnership other than by the
acting in the ordinary course of the business of the
admission made by A to him. Otherwise, such admission will not bind C.
partnership or with the authority of co-partners, loss or
Exception: The ADMISSION made by a partner may be used to establish injury is caused to any person, not being a partner in the
the partnership relations if the party to be charged by such admission partnership, or any penalty is incurred, the partnership is
is present at the time of the making of the declaration
liable therefor to the same extent as the partner so acting

e.g. If A made a statement to the effect that he and C are partners,

or omitting to act. (n)
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 Art. 1823.
A and C are partners
The partnership is bound to make good the loss:
1. (Where one partner acting within the scope of his
5. Any admission made by a partner at the time
apparent authority receives money or property of
when HE WAS NO LONGER A PARNTER will not be
a third person and misapplies it; and
admissible in evidence against the partnership –
2. Where the partnership in the course of its business
Congco v. Triliana
receives money or property of a third person and
the money or property so received is misapplied
Art. 1821.
by any partner while it is in the custody of the
Notice to any partner of any matter relating to
partnership. (n)
partnership affairs, and the knowledge of the partner
acting in the particular matter, acquired while a partner or
Art. 1824.
then present to his mind, and the knowledge of any other
All partners are liable solidarily with the
partner who reasonably could and should have communicated
partnership for everything chargeable to the partnership
it to the acting partner, operate as notice to or knowledge
under Articles 1822 and 1823. (n)
of the partnership, except in the case of fraud on the
GR: The partners are merely PERSONALLY AND SUBSIDIARILY liable
partnership, committed by or with the consent of that
partner. (n) Points:
1. LIABILITY ARISING FROM PARTNER’S TORT OR
GR: Notice to or KNOWLEDGE of any partner of any matter relating to
BREACH OF TRUST
the partnership affairs operates as notice to or knowledge of the
partnership a. Art. 1822-1824 establishes the
EXPN: Except in case of fraud on the partnership committed by or with SOLIDARY liability of the partners and the
the consent of that partner partnership for the WRONGUL ACT OR
OMISSION (tort) or BREACH OF TRUST by
Points:
any partner ACTING within the SCOPE OF
1. A 3rd person desiring to notify the partnership as
THE PARTNERSHIP BUSINESS OR WITH
regards any matter relating to the partnership affairs
need NOT notify ALL the partners AUTHORITY FROM THE OTHER PARTNERS
2. It is enough that he notifies 1 or ANY of the partners. NB:
o If the partner acts BEYOND the scope of
- This is an effective communication even if the
the partnership business, the latter is not
partner to whom the information was communicated
bound by said act by virtue of Art. 1818
to FAILED or NEGLECTED to communicate such
unless authorized by the other partners
knowledge or notice to the other co-partners o If the partner is NOT authorized by the
other partners, then, the partnership will
Q: CASES OF KNOWLEDGE UNDER ART. 1821?
not be liable – supplied by me
1. Knowledge of a partner acting on a particular matter
ACQUIRED while a partner
a. This is TRUE even if the partners DID NOT
2. Knowledge of a partner acting on a particular matter then
PRESENT to his mind
PARTICIPATE IN, RATIFY OR HAD NO KNOWLEDGE
3. Knowledge of ANY OTHER PARTNER who could and should have of the said act or omission
communicated it to the acting partner
 b. Remedy: This is without prejudice to the co- Q: WHEN THEN MAY HE BE HELD CRIMINALLY LIABLE?
- In case where the partnership is engaged in an unlawful
partners’ right to ask for reimbursement from
business and he knows of it or consents thereto
the guilty partner
3. LIABILITY UNDER ART. 1822 as a RULE does not include
2. Art. 1816 v. Art. 1822-1824 CRIMINAL LIABILITY

a. Art 1816 – the liability is SUBSIDIARY Reason: this is personal and individual in character

Art. 1822-1824 – the liability of the

e.g. Where a partner is guilty of embezzlement, the other partner
partners is SOLIDARY cannot be disbarred or disciplined if he has no KNOWLEDGE, DID NOT
b. Art. 1816 – the liability of the partners CONSENT TO, OR PARTICIPATED in the criminal act
is FOR THE CONTRACTUAL PARTNERSHIP
Exception: There may be criminal responsibility in case where the crime is
OBLIGATIONS to 3rd persons
STATUTORY and where the penalty is FINE rather than imprisonment
Art. 1822-24 – the liability of the
partners arises from the LIABILITY OF e.g. A partner is also held criminally liable because of his co-partner’s
THE PARTNERSHIP for the wrongful act illegal blasting

or omission of any partner

MISAPPLICATION OF MONEY OR PROPERTY OF A 3RD
NB: It is called TORT if the act or omission does not constitute a crime PERSON
or felony punishable by law Cases contemplated under Art. 1823
1. The partnership shall be liable for the losses
Q: WHAT IS THE NATURE OF THE LIABILITY OF THE PARNTERS IN CASE
suffered by a 3rd person whose money or
OF WORKMEN’S COMPENSATION CASES?
- Liwanag and Reyes v. Workmen’s Compensation Commission –
property was misappropriated by a partner who
it should be solidary received it within the scope of his authority
2. Or by ANY OTHER PARTNER AFTER the money or
Q: WHAT IS THE REASON FOR THE IMPOSITION OF A WIDER LIABILITY
property has been received by the partnership and
IN CASE OF TORT AND BREACH OF TRUST?
while in its custody
- 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 Art. 1825.
When a person, by words spoken or written or by conduct,
Q: WHAT IS THE REASON FOR THE SOLIDARY LIABLITY?
represents himself, or consents to another representing him
- Because the law protects a person who IN GOOD FAITH,
relied on the authority of the partner, whether that
to anyone, as a partner in an existing partnership or with
authority is REAL OR APPARENT. Hence, under Art. 1824, one or more persons not actual partners, he is liable to any
whether guilty or innocent, the other partners shall be such persons to whom such representation has been made,
solidarily liable – Munasque v. CA
who has, on the faith of such representation, given credit
to the actual or apparent partnership, and if he has made
Q: WHO MAY BE IMPLEADED BY THE AGGRIEVED PARTY
Since the liability is SOLIDARY, the partner has his ELECTION to: such representation or consented to its being made in a
1. Sue the partnership public manner he is liable to such person, whether the
2. Sue just ONE partner – even the one who has no knowledge of representation has or has not been made or communicated
the tort or breach
to such person so giving credit by or with the knowledge
3. Sue one or more partners
of the apparent partner making the representation or
Q: REQUISITES FOR THE LIABILITY UNDER ART. 1822? consenting to its being made:
1. The partner must be guilty of any WRONGUL ACT OR
OMISSION
1. When a partnership liability results, he is liable as
2. That partner must be acting IN THE ORDINARY COURSE OF
though he were an actual member of the
BUSINESS or with the AUTHORITY of the other co-partners
EVEN if the act is not RELATED to the business partnership;
2. When no partnership liability results, he is liable pro
Q: MAY A NON-ACTING PARTNER BE HELD CRIMINALLY LIABLE FOR THE rata with the other persons, if any, so consenting
CRIMINAL ACTS OF HIS CO-PARNTER?
to the contract or representation as to incur
- No.
liability, otherwise separately.
 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
When a person has been thus represented to be a
shall be that of the partnership (note that the partnership shall be
partner in an existing partnership, or with one or more
responsible for all the expenses incurred by the partner)
persons not actual partners, he is an agent of the persons - So, in this case, the PARTNERSHIP WILL BE LIABLE.
consenting to such representation to bind them to the same Thereafter, the partners will be liable with their

extent and in the same manner as though he were a separate properties (JOINT and SUBSIDIARY)

partner in fact, with respect to persons who rely upon the

Q: WHEN IS THE LIABILITY CONSIDERED AS PRO RATA?
representation. When all the members of the existing a. In case where THERE IS NO ACTUAL OR EXISTING
partnership consent to the representation, a partnership act PARTNERSHIP – all those represented as partners and those
or obligation results; but in all other cases it is the joint who made such representation shall be liable jointly or pro
rata (e.g. A, B, C and D are not partners. A and B represented
act or obligation of the person acting and the persons
C and D as their alleged partners. C and D contracted P1000).
consenting to the representation. (n)
Here, A, B, C and D shall each be held liable for P250
b. In case where NOT ALL OF THE PARTNERS of an EXISTING
Q: ESTOPPEL/EFFECTS THEREOF
PARTNERSHIP consented to the representation –then, the partner
-Estoppel is a BAR which precludes a person from DENYING
by estoppel and the partners who made or consented to such
OR ASSERTING ANYTHING contrary to that which has been
representation by the former will be held liable pro rata or
established as the TRUTH by his own deed or representation,
jointly (e.g. A, B and C are partners in an existing partnership.
either EXPRESS OR IMPLIED
A consented to D’s representation of himself as a partner. D
-Through estoppel, an admission or representation is rendered
contracted a loan of P1000. In this case, A and D shall each
CONCLUSIVE with respect to the person making it and cannot
be liable for P500. B and C will not be liable as well as the
be denied or disapproved as against the person relying thereon
partnership because they did not consent to the representation
by D)
Q: MAY A PERSON BE HELD LIABLE AS A PARTNER EVEN IF HE IS NOT A
PARTNER IN FACT?
Q: WHEN IS THE LIABILITY SEPARATE
GR: Persons who are not partners to each other are not partners as to
a. When there is no existing partnership AND not ALL BUT ONLY
3rd persons. Hence, one may not be liable or claim any right as a
SOME of the persons consented to the representation
partner UNLESS he consent to his being a partner
o Then, only those who represented themselves or
EXPN: Art. 1825 (because of the doctrine of estoppel)
consented to such representation will be liable
o As well as those who made or consented to such
Q: HOW MAY A PERSON BE HELD LIABLE AS A PARTNER BY ESTOPPEL?
representation
A person, not otherwise a partner may be held liable as a
b. In case of an EXISTING PARNTERSHIP AND none of the
partner by estoppel and thus may be held liable to 3rd
partners consented to such representation
persons relying on such representation when:
o Then, only those who represented themselves or
1. He DIRECTLY REPRESENTS himself as a PARTNER of
consented to such representation will be liable
an EXISTING PARTNERSHIP or of a NON-EXISTING
o As well as those who made or consented to such
PARTNERSHIP (with one or more person who are not
representation
actual partners)
2. He INDIRECTLY REPRESENTS himself by consenting to
Q: DOES ESTOPPEL CREATE A PARTNERSHIP?
another representing him as a partner in an existing
No. estoppels does not create a partnership. A contract,
partnership or in a non-existing partnership
express or implied is necessary in order to form a partnership
Therefore, he may become a partner by estoppel by:
1. Representing himself as a partner NB: The law only considers them as partners and the association as a partnership
2. By consent or knowledge in so far as it is favorable to the 3rd person by reason of the equitable
principle of ESTOPPEL – Mcdonald v. National City Bank of NY
Q: HOW TO HOLD A PERSON LIABLE AS A PARTNER BY ESTOPPEL
1. Prove the misrepresentation 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
2. Prove that because of such BONAFIDE (GF) RELIANCE, he
who in good faith relied on such representation and EXTENDED credit to the
suffered injury thereby
ACTUAL OR APPARENT PARTNERSHIP

Q: WHEN WILL PARTNERSHIP LIABILITY RESULT?

Q: MAY LIABILITY AS A PARTNER ARISE CONTRARY TO THE INTENTION
When ALL the ACTUAL PARTNERS consent to the representation by
OF THE PARTIES?
a person that he is a partner or in a case where the latter
- yes
consents to his being represented as such, the LIABILITY incurred
by such person as well as that of the ACTUAL PARTNERS -–
The partnership LIABILITY (of a person who holds himself out or who
partnership liability.
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 NB: Art. 1834 v. Art. 1825 – Under Art. 1834, there is NO
their money upon reliance to the credit of those persons who PARTNERSHIP BY ESTOPPEL. There is merely a PARTNERSHIP LIABILITY
held themselves as partners which continues because of lack of termination

Points: Q: DOES ESTOPPEL APPLY BETWEEN ACTUAL PARTNERS?

1. One may be held liable as a partner even if this is contrary - No. Because they become as such by agreement.
to his intention
2. One WHO HAS RECEIVED BENEFITS OR PROFITS in lieu of a NB: Note however that a single partner or 2 or more partners may
partnership transaction CANNOT deny that there is no become liable to 3rd persons TO A GREATER EXTENT than that provided
partnership because the agreement is void in the partnership agreement. (this only goes to show that estoppels
NB: Partnership liability does not depend upon the applies only between a PARTNER and a 3RD PERSON)
contract between the parties but whether or not
the 3rd person has a right to rely on their joint Q: WHAT THEN IS THE SIGNIFICANCE OF ESTOPPEL BETWEEN ACTUAL
credit PARTNERS
3. One who incurs partnership liability does not acquire the rights Should a partner agree with a 3rd person to be liable for a
of a partner greater liability, this will be a ground for DISSOLUTION of the
partnership.
Q: WILL THE DOCTRINE OF ESTOPPEL APPLY IN THE CASE OF ACTUAL
PARTNERS? Q: HOW ABOUT AS TO 3RD PERSONS?
No. The doctrine will not apply between and among them 3rd persons may use estoppels as a defense in order to get
because they become partners not because of ESTOPPEL but their claim.
because of their CONTRACT.
NB: A person or persons may be a partner (or partners) by representing
It is true that a single or more partners may become liable for a themselves to be such or by allowing others, with their consent and
GREATER EXTENT than that allowed in the partnership agreement, but knowledge to be represented as such.
this is only:
a. A ground as amongst the partners to DISSOLVE THE Basis: The law will not permit a DENIAL OF SUCH
PARNTERSHIP
REPRESENTATION (as a partner) where 3rd persons have
b. ESTOPPEL will only apply with respect to a 3rd person in
relied on the same (in the exercise of reasonable diligence) to
order to protect his interest (because the representations were
detrimental to him) their detriment

Q: WHEN DOES THE DOCTRINE OF ESTOPPEL APPLY THEREFORE? Q: HOW DO YOU PROVE THAT ONE HAS RELIED ON THE
With respect to 3rd persons who relied on the representation of REPRESENTATION OF ANOTHER?
another as a partner to their detriment. The law will not allow There is a dictum to the effect that the holding out as a
the denial of such representation because this will prejudice the partner may be so PUBLIC AND OPEN and this creates the
3rd person presumption that the 3rd person relied upon it.

NB: There is a dictum to the effect that where the representation is so Q: HOW TO PROVE THAT ONE HAS REPRESENTED HIMSELF OUT OR
PUBLIC and OPEN such that a PRESUMPTION is created that the 3rd ALLOWED SOMEONE TO REPRESENT HIM AS SUCH?
person in fact relied upon it This is a QUESTION OF FACT and each case depends upon its own merits

Points: (on how to prove that one is a partner by estoppel)

1. One cannot be a PARTNER BY ESTOPPEL if the acts relied
Q: HOW TO PROVE THAT A PERSON HELD HIMSELF OUT AS A PARTNER upon is NOT his or that of the others who are not
It is a question of fact and must be established by evidence. It authorized by him or known to him
is a case-to-case basis 2. NOT SUFFICIENT EVIDENCE: The mere fact that it is generally
SUPPOSED, BELIEVED OR UNDERSTOOD that he is a PARTNER
Points: 3. Art. 1834 last par – not a PARTNERSHIP BY ESTOPPEL but
1. No one can be held liable as a partner where the acts PARTNERSHIP LIABILITY (for lack of termination)
imputed are NOT his own or where such acts came from
persons whom he did not so authorize or he DOES NOT KNOW Q: ARE THE PROVISIONS OF THE CIVIL CODE APPLICABLE TO A DE
2. Mere SUPPOSITION, BELIEF OR UNDERSTANDING that a person FACTO PARTNERSHIP?
is a partner (generally held, supposed and believed and Yes. Note that the law RECOGNIZES a defectively organized
understood as such) is not sufficient proof that he is a partnership as DE FACTO for purposes of 3rd persons. Hence,
partner although the de facto partnership HAS NO LEGAL
PERSONALITY OR JURIDICAL EXISTENCE, the Civil Code
provisions on partnership apply. Hence, it must also have the
attribute of DOMICILE.
 Only the ACTIVE MEMBERS of the attempted corporation.
Note:
NB: Under Sec. 21, it was stated that the persons WHO ASSUME TO ACT
1. A de facto partnership has no JURIDICAL
as a corporation shall be liable as GENERAL PARTNERS
PERSONALITY but the law RECOGNIZES its DE
FACTO EXISTENCE (as 3rd persons will be prejudiced) Q: HOW ABOUT THE STOCKHOLDER?
2. It also has domicile, hence, the Civil Code provisions There shall be NO PERSONAL LIABILITY because he has not

on partnership apply participated in the corporation

Q: WHERE IS THE DOMICILE OF A DE FACTO PARTNERSHIP? Art. 1826.

Where it conducts its business. A person admitted as a partner into an existing partnership
is liable for all the obligations of the partnership arising
NB: Registration of a chattel mortgage in its place of business is valid –
before his admission as though he had been a partner when
Peralta v. Manalang
such obligations were incurred, except that this liability shall
Q: WHAT ARE THE ELEMENTS NECESSARY TO ESTABLISH LIABILITY OF A be satisfied only out of partnership property, unless there
PARTNER BY ESTOPPEL? is a stipulation to the contrary. (n)
1. Proof by the plaintiff that he is INDIVIDUALLY AWARE of the
representations made by the defendant or the representations GR: A person admitted INTO AN EXISTING PARTNERSHIP shall be liable
made of him for ALL THE OBLIGATIONS of the partnership BEFORE HIS ADMISSION
2. There should be RELIANCE on such representations as though he had been a partner when such obligation was incurred,
3. LACK OF DENIAL OR REFUTATIONS OF THE STATEMENTS by EXCEPT that his liability shall be satisfied only out of the partnership
the defendant property
Exception: When there is a stipulation to the contrary
NB: It is not necessary that the denial precede the reliance of the
plaintiff (if the denial should come promptly after it was heard) Q: DOES A PERSON WHO IS ADMITTED AS A PARNTER INTO AN
EXISTING PARTNERHIP BECOME LIABLE FOR THE DEBTS CONTRACTED BY
Q: IS IT NECESSARY TO PROVE THAT THE DEFENDANT IS FINANCIALLY THE LATTER BEFORE HE ENTERED?
CAPABLE? Yes. As expressly provided under Art. 1826
No.

NB: Sole reliance is not necessary with respect to dealings involving the one Q: WHAT IS THE CATCH?
representing or represented GR: His liability therefore is limited only to his share in the
partnership property

LIABILITY AS GENERAL PARTNERS OF PERSONS WHO ASSUME Exception: When there is a STIPULATION (that his other properties may
be attached for that purpose) to the contrary
TO ACT AS A CORPORATION
Q: WHAT DOES THE LAW SAY OF THE LIABILITY OF PERSONS WHO
NB: Hence, the newly accepted partner’s credit may not be garnished in
ASSUMT TO ACT AS A CORPORATION KNOWING IT TOBE WITHOUT
order to satisfy the credit of the old creditors
AUTHORITY TO DO SO?
Under Sec. 21 of BP Blg. 68: All persons WHO ASSUME TO
Q: IS THE LIABILITY OF THE PARTNERS LIMITED TO THEIR
ACT as a corporation KNOWING it to be without authority to
PARTNERSHIP PROPERTY ONLY?
do so shall be liable as GENERAL PARTNERS on all DEBTS,
No. We need to qualify.
LIABILITIES AND DAMAGES incurred or arising thereon.
1. For obligations contracted and existing at the time that they
are already partners, they shall be liable with:
Q; IS IT A DEFENSE FOR THE CORPORATIO TO STATE THAT IT HAS
a. Their partnership property, AND
NO CORPORATE PERSONALITY?
b. Separate property
No. Under the same section, it was provided that: “provided
2. For obligations already existing at the time when a person is
however that when any such OSTENSIBLE CORPORATION is
admitted as a partner, his liability is limited to his
sued on any of its transaction or on any tort committed by
PARTNERSHIP PROPERTY. However for subsequent obligations
it, it shall not be allowed to interpose the defense of lack of
contracted (after he has become a partner), he shall also be
corporate personality
liable with his partnership property AND separate property

Q: WHAT THEN IS THE LIABILITY OF PERSONS WHO ATTEMPT BUT FAIL

NB: Such obligation may have been incurred thru a contract entered into
TO FORM A CORPORATION?
before he becomes a partner
Their liability shall be that of a GENERAL PARTNER. In this
case, a DE FACTO PARTNERSHIP is formed among them
Q: WHAT THEN ARE THE RIGHTS OF THE EXISTING AND SUBSEQUENT
CREDITORS?
Q: WHO SHALL BE LIABLE AS GENERAL PARTNERS?
We must qualify.
 1. As to persons who are already PARTNERS AT THE TIME THE SERVICE OF HIS NOTICE OF RETIREMENT, THE GOODS WERE
OBLIGATION WAS CONTRACTED – existing and subsequent DELIVERED – the retiring partner shall be LIABLE
creditors EQUAL RIGHTS to BOTH the SEPARATE PROPERTY
AND PARTNERSHIP PROPERTIES (of the previously existing NB: In short, if the CONTRACT was entered into while he is
partners) still a partner, it is immaterial whether the goods are delivered
2. As to those who are newly-admitted partners – ONLY AFTER his retirement
subsequent partners have RIGHTS to the separate properties
of newly admitted partners Q: HOW ABOUT THE INCOMING PARTNER?
GR: An incoming partner shall NOT be PERSONALLY LIABLE (with
NB: Art. 1826 should be read with Art. 1840 his separate properties) for the obligations existing BEFORE he
becomes a partner.
Q: WHAT HAVE THE 2 PROVISIONS ACCOMPLISHED? EXPN: Where the contract was entered into BEFORE he became
Art. 1826 and Art. 1840 are based on the principle that a partner but the goods were delivered AFTER he already
WHERE THERE IS ONE CONTINUING BUSINESS, the mere fact becomes a partner, he shall be liable therefore
that NEW PARTNERS ARE ADMITTED or that SOME PARTNERS
ceased to be partners should not cause (as before) the NB: Hence, the creditor may sue both the RETIRING PARTNER AND THE
CONFUSION as re the claims of creditors with re to the INCOMING PARTNER for the goods delivered AFTER the former retires
PROPERTIES EMPLOYEDIN THE BUSINESS. and AFTER the latter becomes a partner, the CONTRACT entered into
being in effect at the time when the RETIRING PARTNER has not yet
Hence, regardless of the TIME when the creditors became tendered his notice of retirement and AT THE TIME when the incoming
partners and the exact combinations of the partners, THE partner is NOT yet a partner
CREDITORS shall have EQUAL RIGHTS with respect to the
partnership property Art. 1827.
The creditors of the partnership shall be preferred to
Q: IF AN INCOMING PARTNER HAS ASSUMED THE OBLIGATION OF THE
those of each partner as regards the partnership
RETIRING PARTNERS, DO THE OLD CREDITORS HAVE A CAUSE OF
ACTION AGAINST THE FORMER? property. Without prejudice to this right, the private
Yes, if the assumption is that the contract is made for the creditors of each partner may ask the attachment and
benefit of the creditors public sale of the share of the latter in the partnership
assets. (n)
Basis: Art. 1311 par. 2 of the Civil Code which provides that if a
contract should contain a stipulation IN FAVOR OF A 3 RD PERSON, he
GR: The CREDITORS of the PARTNERSHIP shall be preferred to those of each of
may demand its fulfillment provided that he has communicated his
the partners AS REGARDS THE PARTNERSHIP PROPERTY
acceptance to the obligor before its revocation. Mere incidental benefit or Without prejudice to this right, the PRIVATE CREDITORS of each partner may
interest is not sufficient. The contracting parties must have CLEARLY AND ask for the ATTACHMENT AND PUBLIC SALE of the share of the partners in
DELIBERATELY conferred a favor in favor of 3rd persons the partnership assets

Q: ISN’T ART. 1826 HARSH? Q WHO WILL BE PREFERRED WHEN THE PARTNERSHIP PROPERTY IS TO
No. This is so because the newly admitted partners will BE DISPOSED?
partake of the benefits of the partnership property and the GR: The CREDITORS OF THE PARTNERSHIP shall be preferred
ESTABLISHED BUSINESS. He may in fact obtain FULL KNOWLEDGE over that of the partners’ or the partners’ claims
of the debts of the partnership and he may therefore Reason: The partnership being a separate and distinct legal entity
protect himself by demanding its settlement or liquidation. shall be deemed to apply its properties in the payment of its
OWN debts rather than first defraying the debts of the partners
NB: This is not afforded to the creditors
NB: This rule applies only in the disposition of the partnership assets
Q: WHAT IS THE LIABILITY OF THE RETIRING OR WITHDRAWING
PARTNER WITH RESPECT TO OBLIGATIONS CONTRACTED? Q: WHO MAY BE SUED BY THE CREDITORS OF THE PARTNERSHIP?
It depends ON THE TIME WHEN THE CONTRACT was Both the partnership and the partners may be sued in ONE
executed – whether while he was still a partner or after the ACTION but note that the PRIVATE PROPERTIES of the partners
notice of his retirement was served may not be taken UNTIL AND UNLESS the properties of the
partnership have first been exhausted.
1. If the retiring partner serves the notice of his withdrawal
AND THEREAFTER, the partnership incurs an obligation – the Q: WHAT THEN IS THE REMEDY OF THE PRIVATE CREDITORS OF THE
RETIRING PARTNER SHALL NOT BE LIABLE therefore PARTNERS?
Art. 1827 provides that “without prejudice to the RIGHT TO
NB: His liability for existing obligations (incomplete) will remain PREFERENCE of the partnership creditors, the creditors of the
2. If the contract was executed AT THE TIME WHEN HE WAS partners may ask the ATTACHMENT AND PUBLIC SALE of the
STILL A PARTNER and AFTER HE RETIRES OR AFTER THE latter’s share in the partnership assets