A. Rights of Partners 1. Partners in General a. Mutual Agency i. General Rule Art. 1803.

When the manner of management has not been agreed upon, the following rules shall be observed: (1) All the partners shall be considered agents and whatever any one of them may do alone shall bind the partnership, without prejudice to the provisions of Article 1801. (2) None of the partners may, without the consent of the others, make any important alteration in the immovable property of the partnership, even if it may be useful to the partnership. But if the refusal of consent by the other partners is manifestly prejudicial to the interest of the partnership, the court's intervention may be sought. General Rule: All the partners shall be considered agents and whatever any one of them may do alone shall bind the partnership, if the manner of management has not been agreed upon. This is without prejudice to the provisions of Art. 1801. (Art. 1801 provides for a mechanism in settling disagreements among the partners) Exception: Act does not bind the partnership when the act is an important alteration in the immovable property of the partnership, even if useful.

Art. 1818. Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority. An act of a partner which is not apparently for the carrying on of business of the partnership in the usual way does not bind the partnership unless authorized by the other partners. General Rule: Any partner may bind the partnership by any act for apparently carrying on in the usual way the business of the partnership. Exception: The partner does not bind the partnership when the said partner has no authority to perform the said act, and that the third person dealing with him has knowledge that he has no authority. Art. 1803
(all partners are agents and whatever they do binds the partnership)

Art. 1818
(a partner apparently carrying on in the usual way the business of the partnership binds the partnership)

Applies if the manner of management of the partnership has not been agreed upon Not limited to acts for apparently carrying on in the usual way the business of the partnership (authority may even extend to acts beyond the usual business of the partnershipauthority still limited by rules on agency though) Does not apply in making important alterations in the partnerships immovable property, even if useful, without the consent of the other partners

Applies even if the manner of management of a partnership has been agreed upon Limited to acts for apparently carrying on in the usual way of the business (good faith of the partner immaterialhowever, his partners may have a right of action against him) Does not apply when the partner has no authority to perform the act, and the third person dealing with him knew of his lack of authority OR the transaction requires unanimous consent of partners

Stratemeyer v. West Facts: West and Falconer were partners in a farm business. Falconer contracted with Stratemeyer to put up grain bins in the farm. The partnership was dissolved, so Stratemeyer demanded on West (the other partner) for the amount owed him. West alleged that Falconer had no authority to contract with Stratemeyer because he had no express authority to do so, as he was only general manager. Held: Falconer could transact with Stratemeyer. There is a presumption of a partners authority and agency to act for the partnership and his partner. Burden of proof to prove lack of authority lies on the part of the one alleging such lack (in this case, defendant/co-partner West). The existence of the partnership having been admitted, proof of express authority was unnecessary. Once established that a person is a partner and that he is acting in the usual way of the partnerships business, the burden shifts to the other to disprove such authority and agency. Cook v. Brundidge Facts: Cook sued the law firm for alleged fraudulent acts of Lyon, a partner of the firm. Held: Lyons receipt of funds from Cook was apparently carrying on in the usual way t he business of the law firm. The extent of authority of a partner is determined essentially by the same principles as those measuring the scope of the authority of an agent. If the power exercised be one usually exercised by partners in a like business, all the members of the firm must be supposed to have intended to confer a like power on each other. If the power be habitually exercised by a partner, and acquiesced in by the other members of the firm, it is but fair to conclude that the members of the firm intended it to be exercised. Problems: In a funeral company without designation of manner of management, can a managing partner allow a childrens party to be held in the company premises? A computer company with designation of manner of management owns a building. A movie producer wanted to use it for a shoot. Is this allowed? In a hospital company with designation of the manner of management, Q was the managing partner. X is a lawyer who drafted the articles himself. X dealt with Y for law suits. Is this allowed? No. X knew of Ys lack of authority. A is the only partner in a bag manufacturing company authorized to sign. D knew this, but B previously signed contracts too. B signed with D. Is the contract binding? ii. Exceptions The general rule that a partner is presumed to be authorized to act for the partnership for acts apparently for carrying on the business of the partnership in the usual way DOES NOT APPLY when: 1. The lack of authority is known to third persons The partnership has a duty to inform those who deal with its members in the course of the partnership business whether there are special restrictions on the authority of particular partners, and persons not usually in a position to know of such special agreements cannot be charged with knowledge of them absent specific notice. (cf. Keeler rules on agency where the law places the burden to determine the extent of the authority of the agent on third persons) 2. The transaction requires unanimous consent. According to Art. 1818, these are: a. Assign the partnership property in trust for creditors or on the assignees promise to pay the debts of the partnership; b. Dispose of the good-will of the business; c. Do any other act which would make it impossible to carry on the ordinary business of a partnership;

d. e. f. g.

Confess a judgment; Enter into a compromise concerning a partnership claim or liability; Submit a partnership claim or liability to arbitration; Renounce a claim of the partnership

Exceptions to the exceptiongeneral rule that a partner is authorized to bind the partnership applies: a. When the partner is authorized by the other partners to execute such acts OR b. When the other partners have abandoned the business. b. Share in Profits Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion. In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital. Art. 1799. A stipulation which excludes one or more partners from any share in the profits or losses is void. In case of dispute as to the share of the industrial partner, just and equitable under the circumstances allows court discretion. As a guide, the old Civil Code rule is that the industrial partner receives a share equal to the one who has contributed the least capital.

ProblemDistribute the profits in this case where the articles of the partnership have no stipulation as to profits: A, a partner in ABCD Co., waived his right to profits in favor of B, C, and D (his children). A contributed 50%. B contributed 25%. C contributed industry and 25%. D contributed only industry. The partnership earned 100k. Can A waive his right to profits? ABCD Co. suffered 100k worth of losses. How will it be distributed: 1. 2. 3. 4. If articles stipulate A, B, and C will share in the losses. If D is an industrial partner. No stipulation and ABC contributed equally. Profits shared 1:2:3:4.

c. Right to Associate Another/Authorize Admission Art. 1804. Every partner may associate another person with him in his share, but the associate shall not be admitted into the partnership without the consent of all the other partners, even if the partner having an associate should be a manager. Two interpretations of associate another with his share

Sub-partnership a partnership formed between a member of a pre-existing partnership and a third person for a division of the profits coming to the contracting member from the original partnership enterprise. Subpartners are partners as between themselves, but a subpartner does not become a member of the original partnership. Consequently, the subpartner is not liable for the debts of the original partnership. Merely allow another to receive the profits he is entitled to this interpretation prevents the creating of a juridical personality for the sub-partnership.

Problem: XYZ is a law partnership. X wanted A, the valedictorian of the best law school in the country, to be a partner but A had another offer. X offered to partner with A by associating him in his share in XYZ partnership. Is this allowed? Does 1804 contemplate subpartnership? What if XYZ is commercial? d. Access to Books and Information Art. 1805. The partnership books shall be kept, subject to any agreement between the partners, at the principal place of business of the partnership, and every partner shall at any reasonable hour have access to and may inspect and copy any of them. Reasonable hour: Any reasonable hour on business days throughout the year, not merely during some arbitrary period of a few days chosen by some or one of the partners. If management has been entrusted to one or more partners, the obligation to provide access to books and keep partnership accounts primarily rests on the managing or active partner (obligation not shared by all partners). If the partnership is undergoing winding up, the duty is imposed on the liquidating partner and on a surviving partner if there is a deceased partner. Problem: B did not trust his partners. At the end of every month, B requests the books. A rule was issued to limit this practice to once a year. Is this valid? No. Art. 1805 is express: EVERY partner shall have access to books at any reasonable hour. e. Formal Account General Rule: Partner has no right to demand a formal accounting except as a consequence of dissolution or if he seeks dissolution. Exceptions (Art. 1809, when any partner shall have the right to a formal account as to partnership affairs): o If he is wrongfully excluded from the partnership business or possession of its property by his co-partners; o If the right exists under the terms of any agreement; o As provided by Art. 1807 If there is any benefit/profit derived by a partner without the consent of the others from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property o Whenever other circumstances render it just and reasonable Any partner may demand an accounting for as long as the partnership exists. The prescription runs upon the dissolution of the partnership when the final accounting is done. Problem: B is a partner in ABC Co. He heard rumors that C received gifts from suppliers. B asked for a formal account. C objected, saying there was no justification for the formal account. Is C correct? No. Just and reasonable. f. Property Rights Art. 1810. The property rights of a partner are: (1) His rights in specific partnership property; (2) His interest in the partnership; and

(3) His right to participate in the management. i. Rights to Specific Partnership Property Art. 1811. A partner is co-owner with his partners of specific partnership property. This rule results in juridical inconsistency. Co-ownership is inconsistent with the theory that the partnership is a separate entity which owns the partnership property (and not the individual partners). However, this is still the rule in the CC even if the UPA already amended this provision to reflect the entity theory. The consequences of this co-ownership of specific partnership property are (Art. 1811): (1) Any partner has the right to possession for partnership purposes; - Possession includes use and control, including sale and disposition, such as applying partnership property to partnership debts, even without the consent of the other partners. - However, this is subject to several limitations: o Subject to other partnership provisions of the CC and any agreement between the partners o Possession and use must be for partnership purposes OR o If for another purpose, must be with consent of the other partners. Problem: XYZ Co. owns a limousine. X always uses the limo. Y tells X that he will use the limo. Y says that X cannot monopolize the use. Z says he is the only one authorized to use the limo as managing partner. Who is correct? When can Y use the limo? Z, because the purpose should be for partnership purposes. Y can use if he gets consent of others. (2) A partners right is not assignable; - Except in connection with the assignment of rights of all the partners in the same property. - Rule applies even if the assignment is made after dissolution of the partnership but before its termination by the completion of the winding-up of its business. - Effect of non-compliance: assignment null and void, except when real property is involved and Art. 1819 applies relative to the interest of an innocent purchaser. However, while the assignment is null and void, it can be regarded as a valid assignment of the partners interest in the partnership. Problem: A assigned his interest in a building owned by ABC Co. to D. What is the effect? The assignment is not valid. The general rule is that a partner cannot assign his rights to specific partnership property. (3) A partners right is not subject to attachment or execution; - Except on a claim against the partnership. - When partnership property is attached for a partnership debt, any partner may not claim any right under the homestead or exemption laws. - Subject to attachment only where the claim is against the firm and NOT subject to attachment for a personal debt. The policy is to take the partners interest out of his individual creditors reach to prevent disruption of partnership affairs and assets. - However, when the partners created a situation where the creditor was induced to deal with the partner as an individual, the rule prohibiting attachment does not apply. Right may be attached. Problem: X sued B, a partner in ABC Co. X was awarded P1M. X applied for a charging order against the interest of B in ABC Co. B argues that X cannot do this because a partners interest cannot be subject to a charging order. Is B correct? B wants to redeem the charging order against him. How can he do this? (4) A partners right is not subject to legal support.

- Same policy as above. A partner has no personal property in any specific property of the partnership, and he has no right to possess or use it except for a partnership purpose. ii. Interest in the Partnership Art. 1812. A partner's interest in the partnership is his share of the profits and surplus. Profit: Gain realized from the business or investment over and above expenditures or the excess of the value of returns over the value of advances Surplus: Excess of assets over liabilities Not the same. Surplus is simply what is left of the assets after all liabilities have been satisfied. If it is more than capital investment or advances, then there is profit. If it is less, then there is loss. Nature: A partners interest in the partnership is personal property, which is different from his right to specific partnership property. Art. 1813. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership, or, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled. However, in case of fraud in the management of the partnership, the assignee may avail himself of the usual remedies. In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and may require an account from the date only of the last account agreed to by all the partners. Art. 1814. Without prejudice to the preferred rights of partnership creditors under Article 1827, on due application to a competent court by any judgment creditor of a partner, the court which entered the judgment, or any other court, may charge the interest of the debtor partner with payment of the unsatisfied amount of such judgment debt with interest thereon; and may then or later appoint a receiver of his share of the profits, and of any other money due or to fall due to him in respect of the partnership, and make all other orders, directions, accounts and inquiries which the debtor partner might have made, or which the circumstances of the case may require. The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed by the court, may be purchased without thereby causing a dissolution: (1) With separate property, by any one or more of the partners; or (2) With partnership property, by any one or more of the partners with the consent of all the partners whose interests are not so charged or sold. Nothing in this Title shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his interest in the partnership. Charging order: A flexible court-supervised substitute for the more disruptive process of execution by the sheriff. Its purpose is to permit the judgment creditor to realize on his judgment against an individual partner against that partners interest in the partnership. When to avail: As long as the debtor partner has not received such interest. If there was fraudulent dissolution, even after the dissolution. A charging order does not necessarily justify the sale of partnership assets. A charging order may authorize the judicial sale of the charged interest, but not particular assets or property of the

partnership. However, the sale of the partnership assets may be an appropriate means of execution under a charging order, provided the other partners are afforded a full opportunity to contest the sale. First National Bank of Denver v. District Court Facts: The District Court charged various partnership interests of five partners who failed to pay a promissory note. When they failed to pay in two years, the bank moved for execution and sale of the partnership assets. Held: Execution and sale would have been proper if the procedure on due application was followed. Partnership property may only be charged with payment of the judgment debt after due application with notice and hearing. Ex parte motion for execution and sale was improper. Problem: Peter, a partner in ABC Co., was asked to borrow from Elias. Peter instructed X to reveal loan for ABC Co. Debt was unpaid so Elias sued and attached Peters interest. ABC said this was not assignable. Is ABC correct? Problem: A sold entire interest to B. Is this valid? iii. Right to Participate in the Management Any partner may participate in the management of the partnership. A partner is deemed an agent of the partnership if the manner of management has not been agreed upon or vene if it has been agreed upon, for any act apparently for carrying on the usual business of the partnership. g. Conveyance of Property in Partnership Name Art. 1774. Any immovable property or an interest therein may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name. Art. 1819 provides the effect of the conveyance of the partnerships real property by a partner/partners, and the partnerships right to recover would be dependent on whose name the property is titled and the manner by which the property is conveyed. Art. 1819s coverage may be divided in 4 headings: i. Title in the Partnership Name a.) If conveyance is in the partnership name: Any partner may convey title by a convyance executed in the partnership name - But even if title is transferred, the partnership may recover the property except: the partners act binds the partnership because it was for apparently carrying on in the usual way the business of the partnership OR if he was not authorized, the person to whom he sold the property had no knowledge of this fact; or the property has been conveyed by the grantee or a person claiming through such grantee to a holder for value without knowledge that the partne, in making the conveyance, has exceeded his authority. Hodge v. Garrett Facts: Voeller, a managing partner of a theatre, and Hodge signed a contract for the sale of a parcel of land belonging to the partnership. Held: Voeller was not authorized to enter into the contract. The contract may be valid if Voeller had the actual authority to sell the property, or, even if Voeller did not have such, the contract is still enforceable if the sale was in the usual way of carrying out the business, and Hodge did not know that Voeller did not

have this authority. There was no indication that he had express or implied authority to sell real property belonging to the partnership, and there was no evidence that he sold property in the past. The partnership was not engaged in the business of buying and selling real estate. It was also not conducting the partnership business in the usual way (usual is running the operations of the theatre, and not selling property adjacent to it). Backowski v. Solecki Facts: Backowski and Solecki were partners in a warehousing business. Backowski brought an action to recover land sold by Solecki to Billmax. The property was sold in the partnership name. Held: When the conveyance is in the partnerships name, it is a proper transfer. However, the partnership may recover unless the Soleckis act binds the partnership or the property has been conveyed by Billmax to a bona fide purchaser. Because Billmax did not convey the property, the only issue was whether Soleckis act of sale bound the partnership. The sale binds the partnership if this was for apparently carrying on in the usual way the business of the partnership. If it was, the Court has to determine whether Solecki had no authority to act for the partnership and that Billmax had knowledge of Soleckis lack of authority. If it wasnt, the Court has to determine if Solecki was given authority to sell. Case remanded to determine these additional questions of fact. b.) If conveyance is in the partners name: The conveyance passes the equitable interest of the partnership, provided the act is one within the authority of the partner because it was for apparently carrying on in the usual way the business of the partnership OR if he was not authorized, the person to whom he sold the property had no knowledge of this fact. ii. Title in the Name of One Partner or Some Partners and Partnership Right is Undisclosed - Where title to real property is in the name of one or more but not all the partners, and the record does not disclose the right of the partnership, the partners in whose name the title stands may convey title to such property. - The partnership may recover such property if the partners act does not bind the partnership because it was not for apparently carrying on in the usual way the business of the partnership or if the partners had no authority and the buyer had knowledge of this fact. - Thus, the partnership cannot recover if the buyer or his assignee, is a holder for value, without knowledge of the lack of authority. iii. Title in the Name of One, Some, or All of the Partners or Third Person in Trust for the Partnership - Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership, a conveyance executed by a partner in the partnership name, or in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner because it is for apparently carrying on in the usual way the business of the partnership or if he had no authority the purchaser had no knowledge of the fact that he ha no such authority. - Thus, equitable interest is not transferred where the grantee under the conveyance has knowledge that the partner who signs the contract for the sale lacks the authority to so bind the partnership. iv. Title in the Name of All the Partners - Where the title to real property is in the names of all the partners, a conveyance executed by all the partners passes all their rights in such property. Summary: TITLE? Title is in the partnership name + conveyance executed in partnership name = title passes

RECOVERY? General Rule: Partnership can recover. Exceptions: 1. Act binds under Art. 1818 usual way of partnership EXCEPT: Even if business is carried on in the usual way, but the partner really has no authority and the third party knows of this lack of authority 2. Transferred to holder for value without knowledge of lack of authority 3. Not for carrying the usual way but authorized by partner Problems: A parcel is registered in the name of ABC Co. (real estate company). A, as partner, executed a deed of sale to D on behalf of the partnership. What is the effect? Title is transferred. Any partner can convey by conveyance in the partnership name. Can ABC Co. recover? What if A is not authorized? Can ABC Co. recover? What if D was aware of As lack of authority but told it to E? What if ABC Co. was a manufacturing company? XYZ Co. (food company) is the registered owner of land. A partner executed a deed of sale in his own name over the parcel to W. What is the effect? What if XYZ Co. was a real estate company? T, a partner in TUV Co. (manufacturing of tubs), is the registered owner of land. T executes a deed of sale to S over the land in his own name. What is the effect? Can TUV Co. recover? What if U, a partner, executes a deed of sale in the partnership name in favor of S and TUV was a real estate company? A parcel was in the name of A, B, and C (partners in ABC Co.) T wants to buy the parcel. Who must execute the deed of sale? 2. Rights of Managing Partners Art. 1800. The partner who has been appointed manager in the articles of partnership may execute all acts of administration despite the opposition of his partners, unless he should act in bad faith; and his power is irrevocable without just or lawful cause. The vote of the partners representing the controlling interest shall be necessary for such revocation of power. A power granted after the partnership has been constituted may be revoked at any time. Art. 1801. If two or more partners have been intrusted with the management of the partnership without specification of their respective duties, or without a stipulation that one of them shall not act without the consent of all the others, each one may separately execute all acts of administration, but if any of them should oppose the acts of the others, the decision of the majority shall prevail. In case of a tie, the matter shall be decided by the partners owning the controlling interest. Problem: M is the managing partner of MNO Co. (restaurant). M removes unhealthy food from the menu. N and O objected. Is M authorized to proceed? Can N revoke? B. Obligations of Partners 1. Partners in General a. Contribution Art. 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto.

Art. 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership. i. Sum of Money

Art. 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation. ii. Specific and Determinate Things [Art. 1786, (2)] If the partner contributes specific and determinate things, he has two obligations: 1. He shall also be bound for warranty in case of eviction (like vendor-vendee) - Eviction takes place whenever by a final judgment based on a right prior to the sale or act imputable to the vendor, the vendee is deprived of the whole or part of the thing purchased. - Covers implied warranty (from the time ownership passes, vendee shall enjoy legal and peaceful possession of the thing) - May also cover hidden defects (Tolentino) 2. He is liable for the fruits of the specific and determinate things from the time they should have been delivered, without the need of any demand. Problem: E, F, G, H decided to form a partnership with 1M capital. How much is E expected to contribute? What if F misses the deadline for contribution? What if G contributes a condo unit? iii. Goods Art. 1787. When the capital or a part thereof which a partner is bound to contribute consists of goods, their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by experts chosen by the partners, and according to current prices, the subsequent changes thereof being for account of the partnership. Problem: PQR is engaged in selling books. R bound himself to contribute the unniforms of sales personnel. He indicated that the value was 1k. Is this valid? b. Additional Capital (Art. 1791) Aside from what has been agreed upon, a partner may be required to contribute additional capital. Each partner is obligated to contribute an additional share to the capital in case of an imminent loss of the business of the partnership, provided there is no agreement to the contrary. However, this rule does not apply to an industrial partner. If the partner does not comply with the obligation to contribute additional capital, he shall be obliged to sell his interest to the other partners. Problem: KLM Co. was facing imminent loss of business. L is an industrial partner. Is he required to contribute capital? What if K refuses? c. Alteration in Immovable Property Art. 1803 (2). When the manner of management has not been agreed upon, none of the partners may, without the consent of the others, make any important alteration in the immovable property of the partnership, even if it may be useful to the partnership. But if the refusal of consent by the other partners is manifestly prejudicial to the interest of the partnership, the court's intervention may be sought.

Problem: PQR is the owner of a parcel of land for rice production. It has no managing partners. P wanted to build solar panels and windmills on the land to take advantage of renewable energy sales and carbon credits. Is P authorized? Is consent an absolute requirement? d. Bring to Partnership Capital Credit Received Art. 1793. A partner who has received, in whole or in part, his share of a partnership credit, when the other partners have not collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership capital what he received even though he may have given receipt for his share only. e. Responsible for Damage Suffered by the Partnership Art. 1794. Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate them with the profits and benefits which he may have earned for the partnership by his industry. However, the courts may equitably lessen this responsibility if through the partner's extraordinary efforts in other activities of the partnership, unusual profits have been realized. Damages: injury or damage, economic or otherwise, suffered by the partnership and not damages in the form of payment made to third persons. Must be suffered by the partnership, not by third persons. Must have been caused by the fault of the partner. Responsible to the partnership: broader than mere payment of damages, may extend to withholding of profits or some other penalty. f. Bear Risk of Loss of Specific and Determinate Things

Art. 1795. The risk of specific and determinate things, which are not fungible, contributed to the partnership so that only their use and fruits may be for the common benefit, shall be borne by the partner who owns them. g. Share in Losses (Arts. 1797-1799) Similar to the rule on profits, the losses must be shared by the partners (except industrial partner who does not share in the losses if there is no stipulation as to profits and losses) in this manner: 1. Losses distributed as stipulated in their agreement but a stipulation which excludes one or more partners from any share in the losses is void 2. If there is no stipulation as to losses but only sharing in the profits has been agreed upon, the share of each in the losses shall be in the same proportion 3. If there is no stipulation as to profits and losses, the share of each partner in losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses The partners may agree to entrust to a third person the designation of the share of each in the losses and such designation may be impugned only when it is manifestly inequitable. A partner who has begun to execute the decision of the third person, or who has not impugned the same within a period of 3 months from the time he had knowledge thereof, cannot complain of such decision. h. Account for Benefits Art. 1807. Every partner must account to the partnership for any benefit for any profits derived by him without the consent of the other partners from any transaction connected with the formation,

conduct, or liquidation of the partnership or from any use by him of its property. He must also hold as trustee such profits. i. Liable for Partnership Contracts

Art. 1816. All partners, including industrial ones, shall be liable pro rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership. All partners are personally liable for valid partnership contracts if the partnership assets have been exhausted. Pro rata: Division of liability according to the number of partners (not according to their contributions) Exemption of industrial partners relates merely to the distribution of losses among the partners themselves in the settlement of the partnership affairs and has no reference to partnership obligations to third parties. Inability of a partnership to pay a debt to a third party does not necessarily mean a loss.

Muasque v. CA Facts: Muasque and Galan formed a partnership to undertake remodeling of Tropical. Galan took some of the payments for himself, but Muasque still continued with the construction. Muasque thereafter filed a suit for recovery of sum money against Galan and Tropical. Two creditor corporations were allowed to intervene in the litigatation. The trial court ruled that Muasque and Galan are solidarily liable to pay the intervenors. The CA, however, ruled that the liability is joint under 1816. Held: Muasque and Galan are solidarily liable. Although the liability of partners to third persons for contracts executed in connection with the partnership business is only pro rata, this must be construed together with Art. 1824 which provides that all partners are liable solidarily with the partnership for everything chargeable to the partnership under Arts. 1822-1823. The obligation is solidary because the law protects him in good faith who relied upon the authority of a partner, whether such authority is real or apparent. Art. 1817. Any stipulation against the liability laid down in the preceding article shall be void, except as among the partners. Any partner may enter into a separate obligation to perform a partnership contract.

Problem: ABCD Co. breached its contract with X (which required it to pay liquidated damages). After selling partnership assets, Co. still needed to pay 100k to X. How will the partners share liability? What if D was an industrial partner? j. Solidarily Liable with the Partnership for Wrongful Acts or Omissions

Art. 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823. Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act. Art. 1823. The partnership is bound to make good the loss:

(1) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and (2) Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership. Problem: B of ABC Co. was an industrial partner. The business of the partnership was catering and his job included scheduling. He neglected to record Xs wedding. X sued C, a capitalist. C claimed he cannot be held solidarily liable with B. Is C correct? 2. New Partners Art. 1826. A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred, except that this liability shall be satisfied only out of partnership property, unless there is a stipulation to the contrary. Problem: ABC Co. was formed in 1990. In 1995, ABC Co. borrowed from Bank K. In 2000, D joined as partner. In 2001, ABC Co. defaulted. Bank sued A, B, C, and D. Bank sought to attach personal assets when partnership assets were exhausted. Is D liable for the loan entered into before he became a partner? Yes, but satisfaction must be only through partnership property. Is it possible for his personal property to be attached? Yes, if stipulated. Would it matter if D was an industrial partner? 3. Industrial Partners Art. 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly permits him to do so. CC does not specify if industrial partner is prohibited from entering into any type of business or just businesses similar to the business of the partnership. But considering that the Civil Code expressly prohibits capitalist partners from the kind of business in which the partnership is engaged, it may be argued that the lack of qualification in the case of industrial partners implies a disqualification from all types of business. If the industrial partner fails to comply with this obligation, the capitalist partners may either: o Exclude him from the firm or o Avail themselves of the benefits which he may have obtained. In either case, the capitalist partners have a right to damages.

Problem: A is an industrial partner in ABC Co. (manufacturing business). Can A engage in the bakery business? What if he does? 4. Managing Partners a. Application of Sums Received Art. 1792. If a partner authorized to manage collects a demandable sum which was owed to him in his own name, from a person who owed the partnership another sum also demandable, the sum thus collected shall be applied to the two credits in proportion to their amounts, even though he may have given a receipt for his own credit only. But if the credit to the managing partner is more onerous to the debtor, the latter may declare that payment is made to the former.

Problem: X owes ABC Co. 100k. X owes B, managing partner of ABC Co. 50k. X pays B 30k. What should B do? Can X do anything to prevent that? b. Concurrence of Other Managing Partners Although managing partners are generally authorized to perform acts of administration, if there are several and it was stipulated that none of the managing partners shall act without the consent of the others, the concurrence of all shall be necessary for the validity of the acts, and the absence or disability of any one of them cannot be alleged, unless there is imminent danger of grave or irreparable injury to the partnership. (Art. 1802) Problem: The articles of ABC Co. appoint A and B as managing partners and require that they jointly act. Can A execute a contract without B because the latter just gave birth? 5. Capitalist Partners Art. 1808. The capitalist partners cannot engage for their own account in any operation which is of the kind of business in which the partnership is engaged, unless there is a stipulation to the contrary. Any capitalist partner violating this prohibition shall bring to the common funds any profits accruing to him from his transactions, and shall personally bear all the losses. Problem: C is a capitalist in ABC Co. which owns a vegetarian restaurant. C bought a burger joint and started operating it. B, a vegan, told C that what he was doing is simply wrong. Is B correct?