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Profession – a group of men pursuing a learned art as a common calling in the spirit GR: Determination in ambiguous cases
of public service – no less a public service because it may incidentally be a means of -may be questioned by affected partnership
livelihood; preparation or practice of wc acad learning is required for public service 1. Non partners to themselves can’t be partners to 3rd persons unless estoppel
art1825
Concept of Partnership a. Consent of becoming a partner
1. Association – 2 or more as coowners a business for profit b. Partners can’t avoid conseq of relation by denying as partners
2. Legal relation – expressed/implied agreement c. Parties’ belief does not matter to existence of partnership
3. Undertaking – share in profit or loss d. GR: P never exist as to 3rd pesons if no contract express/implied
4. Status – from contract of partnership except Estoppel – subject to liability
5. Organization – for production of income 2. Co ownership is not partnership even it share in profit from property
6. Entity – separate and distinct from members a. Element but not partnership itself
*form of business b. Profit from operation, not from property
3. Gross return sharing is not partnership ( profit dapat)
Characteristics of Partnership a. Coownership of business, not profit/property
1. Consensual – perfected by consent upon express/implied agreement b. Agreement to share in profit or loss tends to establish strong
2. Nominate – special name; civil code of ph existence of partnership, but mere fact in contract doesn’t in itself
3. Bilateral – 2 or more persons and rights are reciprocal establish partnership
4. Onerous – procure benefit requires giving something 4. Receipt of share in profit is prima facie that he is a partner EXCEPT when
5. Commutative- undertaking is equivalent of others received in payments of:
6. Principal – doesnt depend others for existence a. Debt by installment
7. Preparatory – means to end; ex. engage for profit b. Wages of employee/rent to landlord
c. Annuity to widow/representative of deceased
Essential Features of Partnership [VCLLOP] d. Interest on loan
1. [V]alid contract e. Consideration for sale of goodwill or property installment
- delectus personae
-may be incidental by acts but still customary written in Art of Partnership Test and incident of partnership
-no partnership by law, implication by law, operation 1. Reached agreement
-no religious soc, conjugal, community partn bc no express/implied 2. Incidents:
contract a. Share in profit and losses
2. [L]egal capacity to enter b. Equal rights even if diff contribution
-cant give consent: unemancipated minors(marriage, 18y/o), c. Every partner is agent
insane/demented, deafmutes, civil interdiction sufferers, incompetent under d. All partners are personally liable for debts of P
guardianship e. Fiduciary rel exists (trust)
- cant enter universal partnership – those prohibited from giving each f. Dissolution does not terminate P, continues until winding up
other donations (spouse married or unmarried living together who gives donation/grant of partnership is completed
is void, unless moderate gifts or on family rejoicing) *incidents are modified by stipulation and subject to rights of 3rd persons
- [✓] partnership enter partnership
- [ X ] corpo enter partnership except by law (bc corp will be bound by Ordinary Partnership (OP) vs. Co-Ownership (CoO)
acts of persons who aren’t its duly appointed officers and agents wc is inconsistent w/ Partnership Co-Ownership
“ corp shall manage own affairs separately&exclusively) creation created by contract only Generally, by law or
3. mutual [C]ontribution of money, property, or industry to a common fund- (express or implied) even w/ contract
- money : Ph currency and cash ONLY
- property: real, personal, tangible, intangible, promissory note(evidence of juridical has None, cannot sue or be
obligation), goodwill sued
-industry- in absence of two, law allows industry purpose profit Use of thing
*limited partnership- cant contribute industry/service duration No limit 10yrs, excess void
4. object must be [L]awful disposal of may not dispose or assign may assign
-otherwise, void (ab initio) interests except agreed by ALL
-general limitation: P may be organized for any purpose except wc law
power to act with Binding, except contrary Not binding
requires specific business org suchas: banking- gen banking law, only stock corps may
3rd persons
undertake
5. [P]rimary purpose must be to obtain profits and to divide
-main reason for existence: obtain profit, distinguish religious &social org effect of death dissolution Not necessarily
-principal purpose, not necessarily only purpose Others: profit Agreement-contribution ALWAYS Prorate shares
-profit: joint interest, not necessarily in equal shares, presumptive not
conclusive (pwedeng share in profit/loss but not partners) form Any except movable no public instrument
-loss:not necessary agree upon system if sharing agency Mutual representation No mutual rep
Conjugal PG- p. formed by marriage of husband and wife by virtue of which they place *transfer of real prop to partnership must be registered in Registry of Property
a common fund the fruits and income from separate prop, and those acquired thru Failure to be in comply--- void
efforts by chance, unless otherwise agreed in marriage settlement, divide equally upon
dissolution of the marriage or partnership the net gains or benefits obtained by either Art. 1772 – Partnership with capital of Php 3,000 above
both of them during marriage GR:3,000 above must be in public instrument & SEC registered
4. Limited Reason: they should not be allowed to do indirectly what the law forbids directly
- Liability is limited to capital contribution; Or else.. void and null
- Special partner
- Doesn’t participate in management Ex. Spouses in P causes dissolution
5. Managing- one who manages actively the firm’s affairs appointed at articles of Legal provisions:
partnership or after constitution; aka general/real partner 1. Donation/gratitious advantage by spouses is void except moderate gifts to
6. Liquidating - one who liquidates or winds up the affairs of the firm after each other on family occasions
dissolution(1836) 2. Void donations:
7. Partner by estoppel/Quasi-partner/Nominal/Implication - one who is not a. Guilty of adultery or concubinage at time of donation (nullity
really a partner but liable in protection to 3rd persons;liable to ppl who in good faith by spouse or guilt proved by preponderance of evidence)
believed b. Between guilty on criminal offense
8. Continuing – continues after dissolution by admission of enw partner or c. Public officer, wife, descendants, ascendants of office
retirement, death, expulsion of partner
9. Surviving – remains after dissolution by death of partner Art. 1783 – Particular Partnership
10. Subpartner- not member but contracts partner’s share in P - it has for its object determinate things, their use of fruits, or specific
undertaking, or the exercise of a profession or vocation
· Other classifications
a. Ostensible partner- one whose connection with the firm is public and Ex. Acquisition of an immovable for purpose of reselling at profit and common
open;whether or not he has actual interest; if he is not actually a partner, subject to enjoyment; 2 or more accountants in practice7
liability by estoppel · Doctrine:
b. Secret- unknown partner, but participates in Profit and losses An agreement to undertake a particular piece of work or a single transaction or a
c. Silent- may be known partner but doesn’t participate in the management, limited number of transactions and immediately divide th esiting profits would seem to
though he shares in the profits or losses, withdrawal needs notice to persons who do fall within the meaning of “partnership” in law
business to escape liability in future
d. Dormant/sleeping- one who is both a secret and silent partner (not US Uniform Partnership Act – disagrees – defines partnership as “association” of 2 or
managing) “sleeping partner”; shares in profit or loss; withdrawal needs no notice then more persons as co-owners a business for profits” – business – commercial sense,
not liable anymore not joint venture but same rights and liabilities as joint ventures and partners
e. Original-member from time of org
f. Incoming- about to become If two (2) individuals form a particular partnership for a deal in reality, it does not
g. Retiring-withdrawing partner necessarily follow that all deals are for the benefit of the partnership. In the absence
of agreement, each particular deal results in a particular partnership. If one of them, on
*ALL ARE SUBEJCT TO LIABILITY FOR ALL PAR OBLIGATIONS his account, and using his own funds, should make transactions in the same business,
it is his own undertaking
Arts. 1777-80 – Universal Partnership
General Rule: begins from the moment of the execution of the contract, unless
it is otherwise stipulated. Art. 1787 – Appraisal of Goods
- Partners may stipulate some - This is different from a C. Necessity of the Inventory Appraisal
other date for the partnership actually - proof is needed to determine how much goods or money had been contributed.
commencement of the consummated(agreed), if still Bec in absence of stipulation share in profits and losses is proportion to
partnership executory, nonexistent contribution so inventory is useful
- It can be in future time or partnership
based on happening of - This is still inchoate D. Risk of loss
some future - after goods have been contributed, the partnership bears the risk of
contingency/condition subsequent changes in their value
- It has no juridical personality
at the moment Art. 1788- Obligations with respect to contribution of money
Requisites when a capitalist partner is obliged to sell his interest to the other partners: If the things contribute are fungible, or cannot be kept without deteriorating, or if
1. There’s imminent loss of the partnership; they were contributed to be sold, the risk shall be borne by the partnership. In
2. Majority of capitalist partners are of opinion that additional contribution to the absence of stipulation, the risk of the things brought and appraised in the
common fund would save business inventory, shall also be borne by the partnership, and in such case the claim
3. Refusal to share (not bc of financial inability) shall be limited to the value at which they were appraised. (1687)
4. No agreement to the contrary
Note: industrial partner is exempted for he is already giving his entire industry Cases contemplated:
1. Determinate thing is not fungible and only use contributed – partner’s
Art. 1792 – Obligations of Managing Partner who collects debt 2. Determinate things = ownership transferred to the partnership – partnership’s
3. Fungible thing = detoriates = even if use only – partnership’s
General rule: If partner authorized to manage collects a demandable sum owed 4. Things contributed to be sold – partnership’s
to him and partnership then.. 5. Things brought and appraised in the inventory– partnership’s
*implied sale = price being represented by their appraised value
a. PRORATE amounts – if collection is for managing partner
b. FULLY APPLY – collection for partnership only
General rule:
o Purpose: GOOD FAITH = partnership>managing partner’s interest
a. ^^Must be an ACTUAL/CONSTRUCTIVE DELIVERY
para no subordination
b. Loss by partner’s fault = damages
c. 2nd par – debtor can choose payment to partner over partnership in case of
c. Before delivery, partner’s risk and loss
onerous/interest sake’s
Requisites:
a. at least two debts; Art. 1796 – Responsibility of partnership
b. both sums are demandable; and
c. collecting partner is authorized to manage and actually manages the The partnership shall be responsible to every partner for the amounts he may
partnership have disbursed on behalf of the partnership and for the corresponding interest,
from the time the expense are made; it shall also answer to each partner for the
When not applicable obligations he may have contracted in good faith in the interest of the
- If the partner collecting is not a managing partner (no undue partnership business, and for risks in consequence of its management.
advantage) there is no basis for the suspicion that the partner is in BAD
FAITH *applicable only if there’s no stipulation
*** manner of management not agreed (walang managing partner)– then all partners *Partner not personally liable, free from fault, if acted within scope
manage– all managing partner
Responsibility of partnership to partners:
1. Obligation to refund the amounts disbursed by the partner in behalf of the
Art. 1793 – Obligation of Partner who receives share in partnership credit, others partnership PLUS interest from the time the expenses WERE CONTRACTED
not (and not from the time of DEMAND)
o Loans and advances made to partnership; not the capital
General rule: In case of insolvency of the debtor, MUST bring such to the contributed by him
partnership capital if other partners have not yet collected their share (even if 2. To answer for the obligations contracted by the partner in GOOD FAITH in the
receipt was solely for him only) interest of the partnership business
3. Answer for the risks in consequence of its management
Purpose: “Community of interest” unfair not to share in loss
Art. 1797.
Requisites:
1. Partner received in whole/part his credit share
2. Others haven’t collected The losses and profits shall be distributed in conformity with the
3. Debtor became insolvent 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.
*Designation of 3rd person is binding unless manifestly inequitable 2. Appointment as manager AFTER the constitution of the partnership
*Partner guilty of estoppels or give consent or ratification to designation - If a partner is designated as a MANAGER after the articles of partnership
*3mos to forestall paralysation of operations is constituted, then, the appointment may be revoked at ANY TIME, FOR
ANY CAUSE
- Reason: Because in this case, the appointment is not a condition of the
contract and therefore, the revocation is not founded on a CHANGE OF
Art. 1799.
THE WILL OF THE PARTNERS. There is merely a CONTRACT OF
AGENCY which may be revoked anytime
A stipulation which excludes one or more partners from any share in the profits
- But, for there to be revocation, there should be a vote of a majority of the
or losses is void.
partners, having the CONTROLLING INTEREST
1. Stipulation excluding a partner from share in profit is VOID, but SCOPE OF THE POWER OF THE MANAGING PARTNER
partnership exists. Profit or losses apportioned as if there were no GR: the managing partner has ALL THE POWERS OF A GENERAL AGENT and
stipulation on the same. those INCIDENTAL POWERS necessary to carry out the object of the
2. Stipulation, may be a factor in determining that no partnership exist partnership
a. there shall be no liability for losses, Unless expressly withheld:
b. OR from the nature of the contract, it is clear that a party did not a. Minor power to issue receipt is included in the gen. powers of the
intend to share in the losses, manager as this is in keeping with present day business dealings
b. Manager of a partnership engaged in buy and sell is clothed with
*Unequal shares in profit/loss even if equal contributions is valid if there’s sufficient authority even w/o approval of the other partners to purchase on
stipulation: unless inequality is so gross that in effect, a simulated form to credit as it is usual or customary to buy and sell credit
attempt to exclude a partner from any share in profits, stipulation is VOID. c. Managing partner has authority to dismiss an employee particularly when
there’s justifiable cause for dismissal after complying with the
EXP: Industrial partner not subject to loss bc he cant withdraw labor unlike requirements prescribed by law
capitalist partner withdrawing capital; failure to realize profit is also his share in EXPN: When the power of the managing partner is restricted/expressly withheld
loss Unless expressly granted:
a. Partner designated as one of managers to take care of “selling fish in
manila and the purchase of supplies” has no authority to purchase for the
partnership “barge, a truck and machine” bc they are no supplies
b. Neither can managing partner of partnership formed for the purpose of
Art.1800 - Rights and Obligations of a Managing Partner operating a tailoring shop, sell or convey tailoring shop which is
partnership property without consent of all partners
General rule: Managing partner may execute all admin acts even if opposed by c. Managing partner may not bind the partnership contract wholly foreign to
partners except in bad faith, and power is irrevocable without lawful cause. its business. No authority to execute mortgage on firm’s property to
Revocation of power needs vote of partners representing controlling interest. secure debt of a 3rd person
A power granted after the partnership has been constituted may be revoked at
any time. Compensation for services rendered:
GR: He is NOT entitled to an additional compensation BEYOND his share in the
*Equal voice in management of partnership even if diff capital contribution except profits of the business unless contrary:
when agreement to contrary Reason: because EACH PARTNER (in the absence of an agreement)
*May select managing partner or make allocation functions assumes the duty to give his TIME, ATTENTION and SKILL to manage
*refers to partners only, not 3rd persons. No compensation other than share in income. the affairs of the partnership. In his managing the partnership, he in effect
is taking care of his own interest and property. Thus, even if his services is
Rights and obligations with respect to management: greater in proportion than the rest because he is the managing partner; or
because his co-partners are ill, his only compensation is his share in the
PROFITS
EXPN:
1. The law may IMPLY a contract for compensation GR: In case where there is a stipulation that no MANAGING PARTNER may act
a. When the partner is made to do something NOT in the without the consent of ALL the partners, the CONCURRENCE OF ALL shall be
fulfillment of his duties in the partnership or not related to the necessary for the validity of their acts
partnership business
b. When the partner employs his co-partner for him to do Gen rule 2: And the ABSENCE or DISABILITY of the partner may not be alleged
something for him OUTSIDE OF AND INDEPENDENT of the as an excuse or justification
partnership business Exception:
c. When the partner is guilty of EXTRAORDINARY
NEGLIGENCE in which case, the burden of management is 1. The same may be an excuse or justification if there is an IMMINENT
shifted to the other partner (the latter shall be entitled to DANGER OF GRAVE OR IRREPARABLE INJURY to the partnership
compensation) 2. Where the partnership is engaged in the BUY AND SELL BUSINESS
d. Where the partner is EXEMPT from rendering services in where it is USUAL AND CUSTOMARY TO BUY AND SELL ON CREDIT –
which case, he may demand payment for services he Smith, Bell and Co. v. Aznar
rendered OR WHERE THE SERVICES rendered were
EXTRAORDINARY NB:
e. When the managing partner is OVERBURDENED with work
because he devotes all his time and attention to the 1. The partners may stipulate in their ARTICLES OF PARTNERSHIP that no
partnership while his co-partners are busy with their individual managing partner may act without the consent of all the other managing
business in which case, an UNUSUAL CONDITION presents partners
itself and he may thus demand compensation
f. Where there is WILFUL failure on the part of the managing Q; WHAT THEN IS REQUIRED IN SUCH CASE?
partner to fulfill his duty in which case the other partners are The UNANIMOUS consent of all the managing partners is
burdened to perform such necessary for the validity of their acts
2. The parties may agree that there would be payment of compensation
Q; WHAT IS THE EFFECT OF SUCH REQUIREMENT OF UNANIMITY
* If there is no PROHIBITION AS THIS REGARD in the Articles of Partnership, then, OF CONSENT?
compensation may be agreed to be given to a GENERAL PARTNER The consent of ALL THE MANAGING PARTNERS are so
INDISPENSABLE such that the absence or disability of the
partners may not be interposed as an excuse or justification
to dispense with such a requirement
Art. 1801. Exception: Where there is IMMINENT DANGER of GRAVE OR
If two or more partners have been intrusted with the management of IRREPARABLE INJURY TO THE PARNTERSHIP then one managing
the partnership without specification of their respective duties, or without a partner may act EVEN without the consent of the ABSENT OR DISABLED
stipulation that one of them shall not act without the consent of all the others, without prejudice to his liability under Art. 1794
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. 2. The EXCEPTION under Art. 1802 will not apply where there is an
In case of a tie, the matter shall be decided by the partners owning the OPPOSITION on the part of the other managing partners
controlling interest. (1693a) Reason: One of the essential conditions of the authority conferred on the
managing partner is that the MANAGEMENT should be with the consent
Requisites: of ALL THE PARTNERS
1. 2 or more managers
2. No specification of duties Q; WHAT IF SUCH CONSENT IS WANTING?
3. No stipulation that one of them shall act without consent If such unanimous consent is wanting, then, the proposed act is
OUTISIDE HIS AUTHORITY
GR: If 2 or more partners were instructed with the management of the partnership BUT
there was no SPECIFICATION of their duties or WITHOUT stipulation that ONE OF Art. 1803.
THEM shall not act WITHOUT THE CONSENT of the others, then they may When the manner of management has not been agreed upon, the
SEPARATELY execute all acts of administration following rules shall be observed:
(1) All the partners shall be considered agents and whatever any one
EXPN: However if any of them (other managing partners) should oppose the acts of of them may do alone shall bind the partnership, without prejudice to
the others: the provisions of Article 1801.
(2) None of the partners may, without the consent of the others,
1. The decision of a majority shall prevail make any important alteration in the immovable property of the
2. In case of tie, the decision of the partners owning the controlling interest partnership, even if it may be useful to the partnership. But if the
shall prevail refusal of consent by the other partners is manifestly prejudicial to
the interest of the partnership, the court's intervention may be
Q; WHAT DECISION WILL PREVAIL IN CASE OF OPPOSITION? sought. (1695a)
1. First, the matter shall be decided by the MAJORITY of the managing
partners The standing of the partners in case they failed to indicate the manner of management
2. In case of a tie, the matter shall be decided by the partners having the - In case of their failure to indicate either in the Articles of Partnership or
controlling interest (more than 50% of the capital investment) subsequent contract WHO SHALL MANAGE the affairs of the partnership,
then ALL THE PARTNERS shall have EQUAL RIGHTS in the conduct
*If there is no specification as re the respective duties of the partners, then, one may and management of the partnership affairs. ALL OF THEM shall be
not have MORE POWERS than the other managing partners in the conduct and MANAGERS AND AGENTS and any act done by them alone shall BIND
management of the partnership THE PARTNERSHIP subject, however to the provision of Art. 1801 in
case of TIMELY OPPOSITION on the part of any partner in which case,
*But if there is a SPECIFICATION OF DUTIES, then, the partner’s (in charged) the MAJORITY VOTE shall be had for the PRESUMED INTENT OF THE
decision will prevail over the others PARTIES is that they shall all manage REGARDLESS of their capital
contribution. In case of a tie, then, the CONTROLLING INTEREST’S
decision will prevail
Q: MAY THE MANAGING PARTNER MAKE ANY IMPORTANT ALTERATION IN THE Art. 1805.
IMMOVABLE PROPERTY? The partnership books shall be kept, subject to any agreement
No, even the managing partner may not make any important alteration in the between the partners, at the principal place of business of the partnership, and
immovable property WITHOUT THE CONSENT of the other partners every partner shall at any reasonable hour have access to and may inspect and
copy any of them. (n)
Exception: If the refusal of consent by any partner is MANIFESTLY
PREJUDICIAL to the interest of the partnership, then, the intervention of the GR: The partnership books shall be kept
court may be sought so that important alterations to the immovable property 1. In the place agreed upon by the partners
may be made. 2. In the absence of agreement, at the PRINCIPAL PLACE of business of
the partnership
NB: The consent may be presumed from the failure to make any opposition
GR: Every partner shall have AT A REASONABLE HOUR access to and may
Q: WHAT IF THE ALTERATION IS NECESSARY FOR THE PRESERVATION? INSPECT AND COPY any of them
The law speaks of alteration that is useful to the partnership. Hence, when the
alteration is necessary for its preservation, then, the consent of the other Q: WHO HAS THE OBLIGATION OF KEEPING THE BOOKS OF THE
partners is not necessary PARTNERSHIP?
The managing or the active partner has the obligation to keep a TRUE
Q: A, B AND C FORMED A PARTNERSHIP FOR A TRANSPORTATION BUSINESS. AND CORRECT books of accounts and such books shall at all times be
THERE WAS NO AGREEMENT AS RE THE MANNER OF MANAGEMENT. A open for inspection by the other partners
CONTRACTED A DEBT FOR SUPPLIES. ARE THE PARTNERSHIP AND THE
PARTNERS LIABLE FOR THE INDEBTEDNESS? Q; WHAT COULD BE PRESUMED AS RE THE BOOKS?
Yes. Where there was no agreement was re the manner of management, each 1. The partners have knowledge of the contents of the books
partner is considered as an AGENT of the partnership. A must be deemed to 2. The books state accurately the state of accounts of the partnership
have an authority to contract the debt in as much as he incurred the same in the
prosecution of the partnership business – Bachrach v. La Protectora Q: WHAT ARE THE RIGHTS OF THE PARTNERS AS RE THE PARTNERSHIP
BOOKS?
Q: IN THE ARTICLES OF PARTNERSHIP, THE PARNTERS ARE NOT GIVEN THE Generally, the partnership books should be kept at the principal place of
AUTHORITY TO ENTER INTO CONTRACTS. IT IS THE DEPARTMENT THRU A business (subject to an agreement to the contrary) so that the partners may:
RESO OF 6 MEMBERS THAT COULD SO ENTER INTO SUCH CONTRACT. A 3 RD 1. Access
PERSON SEEKS ENFORCEMENT OF A CONTRACT ENTERED INTO BY ONE OF 2. Inspect
THE PARTNERS. IS THE PARTNERSHIP BOUND? 3. Copy any of them
No. The partners may be empowered to contract in the name of the partnership
ONLY if there is no provision as re the management of the partnership. In this Q: WHY ARE THEY GIVEN SUCH RIGHT?
case, the articles did so provide. The partners are not empowered to enter into 1. Each partner has a right to a TRUE AND FULL INFORMATION of the
contracts. Hence, the department cannot be bound without a resolution adopted partnership accounts and activities
by it in a meeting – Council of Red Men v. Veterans Army 2. Each partner is a CO-OWNER of the partnership properties, including the
partnership books, and they also have EQUAL RIGHTS in the
Art. 1804. management of the partnership affairs so that the books should not be
Every partner may associate another person with him in his share, kept under the sole control and custody of just one partner
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 NB: The books should not be transferred without the consent of the other
manager. (1696) partners
GR: Every partner may ASSOCIATE another person with him in his share BUT such Q: IS THE RIGHT TO THE BOOKS OF THE PARTNERSHIP ABSOLUTE?
associate shall NOT be admitted into the partnership without the consent of ALL THE No. It may be restrained. Hence, it may be used only for partnership
OTHER PARTNERS, even if the partner having an associate may be the MANAGER purposes
Q: WHAT IS THE RULE PROVIDED FOR UNDER ART. 1804? Q; MAY THE PARTNERS ACCESS THE BOOKS AT ANY HOUR
That every partner may associate with another person, known as the No. they may access it at any REASONABLE HOUR ONLY. This phrase
SUBPARTNER, as re his share (partner’s share) even without the consent of has been interpreted to mean that it may be accessed at any
the other partners REASONABLE HOUR ON ANY BUSINESS DAY THROUGHOUT THE
YEAR and not merely on ARBITRARY DAYS chosen by the managing
Q: WHAT IS THE PARTNERSHIP FORMED BETWEEN A MEMBER OF A partners
PARNTERSHIP AND A 3RD PERSON? Art. 1806.
A SUBPARTNERSHIP. The manner by which the profits are to be divided Partners shall render on demand true and full information of all
between the members of the subpartnership or that one of the members shall things affecting the partnership to any partner or the legal representative of any
receive the entire profits is immaterial as re the formation of the subparntership deceased partner or of any partner under legal disability. (n)
Q; WHEN WILL THERE BE NO DUTY TO RENDER INFORMATION? Q: To whom does the obligation to account rests?
Where the information already appears in the partnership books because MANAGING OR ACTIVE PARTNER and a special task of the
it is open to inspection SURVIVING PARTNER
NB: good faith not only requires that there be no FALSE STATEMENT. It also requires Q: When does prescription begins to run?
that there be no concealment among partners – Poss v. Gottlieb It will run from the time of the DISSOLUTION OF THE PARTNERSHIP
when the final accounting is done
Art. 1807.
Every partner must account to the partnership for any benefit, and Q: What kind of action is an action for accounting?
hold as trustee for it any profits derived by him without the consent of the other It is an ACTION IN PERSONAM because it is an action against a person
partners from any transaction connected with the formation, conduct, or for the performance of a personal duty on his part. It is only incidental that
liquidation of the partnership or from any use by him of its property. (n) part of the assets of the partnership subject to accounting or under
liquidation happen to be real property.
GR:
1. Every partner must account to the partnership FOR ANY BENEFIT
2. And hold as TRUSTEE for the partnership any PROFITS derived by him SECTION 2: Property Rights of a Partner
in any transaction connected with the FORMATION, CONDUCT or
LIQUIDATION OF THE PARNTERSHIP or FROM ANY USE BY HIM of Art. 1810.
his property The property rights of a partner are:
(1) His rights in specific partnership property;
Q: WHAT IS THE NATURE OF THE RELATIONSHIP BETWEEN AND AMONGST (2) His interest in the partnership; and
PARTNERS? (3) His right to participate in the management. (n)
Fiduciary relationship, that is, of trust and confidence. Each partner is
considered in law to be the CONFIDENTIAL AGENT of the others EXTENT OF PROPERTY RIGHTS OF A PARTNER
4. The fact that the income generated by the property is received by the - The partner’s interest in the partnership consists of his proportional share
partnership or the taxes are paid by the partnership is evidence that the in the undistributed profits during the life of the partnership and his share
partnership is the owner of the said property in the undistributed surplus after its dissolution
Art. 1811. o Profit – excess of returns over expenditure in a transaction or
series of transactions, the net income of the partnership for a
given period of time
A partner is co-owner with his partners of specific partnership
o Surplus – assets of the partnership of after partnership debts
property.
and liabilities are paid and settled and the rights of the
partners among themselves are adjusted; excess of assets
The incidents of this co-ownership are such that:
over liabilities
- Nothing is to be considered as the share of a partner but his proportion of
(1) A partner, subject to the provisions of this Title and to any the residue or balance after an account has been taken of the debts and
agreement between the partners, has an equal right with his partners credits
to possess specific partnership property for partnership purposes; - A partner is not a creditor of the partnership for the amount of his share
but he has no right to possess such property for any other purpose
without the consent of his partners;
Art. 1813.
(2) A partner's right in specific partnership property is not assignable
except in connection with the assignment of rights of all the partners
A conveyance by a partner of his whole interest in the partnership
in the same property;
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
(3) A partner's right in specific partnership property is not subject to partnership, to interfere in the management or administration of the partnership
attachment or execution, except on a claim against the partnership. business or affairs, or to require any information or account of partnership
When partnership property is attached for a partnership debt the transactions, or to inspect the partnership books; but it merely entitles the
partners, or any of them, or the representatives of a deceased assignee to receive in accordance with his contract the profits to which the
partner, cannot claim any right under the homestead or exemption assigning partner would otherwise be entitled. However, in case of fraud in the
laws; management of the partnership, the assignee may avail himself of the usual
remedies.
(4) A partner's right in specific partnership property is not subject to
legal support under Article 291. (n) 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. (n)
- A partner does not own any part of the partnership property although he EFFECT OF ASSIGNMENT OF PARTNER’S WHOLE INTEREST IN PARTNERSHIP
does have rights in specific partnership assets
- Art 1811 contemplates tangible property GR1: A partner’s RIGHT IN SPECIFIC PARTNERSHIP PROPERTY is not assignable
- None of the partners can possess and use the specific partnership
property other than for “partnership purposes” without the consent of other GR2: He may assign his INTEREST IN THE PARTNERSHIP to any of his co-partners
partners
or to a third person without the consent of other partners
- If any partner made use of the partnership property he must account to
the others the profits or benefits he derived from such use
EXPN: agreement to the contrary
- On the death of a partner, his rights in specific partnership property is
vested in the surviving partners not the legal representatives of the
deceased partner except when he was the last surviving partner *The assignment will not divest the assignor of his status and rights as a partner nor
- A partner cannot separately assign his right to specific partnership operate as dissolution of the partnership
property but all of them can assign their rights in the same property
o He cannot assign individually because it is impossible to The assignment made to the third person does not grant the assignee the right:
determine the extent of his beneficial interest in the property
until after the liquidation of partnership affairs 1. To interfere in the management
o It also prevents interference by outsiders in partnership 2. To require any information or account
affairs, protects the rights of other partners and partnership 3. To inspect any partnership books
creditor to have partnership assets applied to firm debts
- The law allows a retiring partner to assign his rights in partnership
property to the partner or partners continuing the business RIGHTS OF THE ASSIGNEE
- Specific partnership property is not subject to attachment, execution,
garnishment, or injunction without the consent of all partners except on a 1. To receive in accordance with his contract the profits accruing to the
claim against the partnership assigning partner
- Specific partnership property is also not subject to legal support but the 2. To avail himself of the usual remedies provided by law in the event of
partner’s interest in the partnership is subject to legal support fraud in the management
3. To receive the assignor’s interest in case of dissolution
4. To require an account of partnership affairs, but only in case the
partnership is dissolved
Art. 1814. Section 3: Obligations of the Partners with Regard to Third Persons
Art. 1815.
Without prejudice to the preferred rights of partnership creditors
under Article 1827, on due application to a competent court by any judgment Every partnership shall operate under a firm name, which may or
creditor of a partner, the court which entered the judgment, or any other court, may not include the name of one or more of the partners.
may charge the interest of the debtor partner with payment of the unsatisfied Those who, not being members of the partnership, include their
amount of such judgment debt with interest thereon; and may then or later names in the firm name, shall be subject to the liability of a partner. (n)
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, REQUIREMENT OF A FIRM NAME
directions, accounts and inquiries which the debtor partner might have made, or Firm – the name, title, or style under which a company transacts business
which the circumstances of the case may require. Importance:
1. It is necessary to distinguish the partnership which has a distinct and
The interest charged may be redeemed at any time before separate juridical personality from the individuals composing the
foreclosure, or in case of a sale being directed by the court, may be purchased partnership
without thereby causing a dissolution: 2. To distinguish it from other partnerships
(1) With separate property, by any one or more of the partners; or GR: The partners may adopt any firm name desired
Provided:
(2) With partnership property, by any one or more of the partners 1. It is not misleading
with the consent of all the partners whose interests are not so o Partners cannot use a name that is to mislead the public by
charged or sold. passing itself off as another partnership or corporation, or its
goods or services as those of such other company
Nothing in this Title shall be held to deprive a partner of his right, if any, under 2. Use of name of deceased partners is allowed as long as it is indicated that
the exemption laws, as regards his interest in the partnership. (n) said partner is already deceased
Q: MAY 1 PARTNER MAKE ALL THE PARTNERS LIABLE FOR THE OBLIGATION
OF THE PARTNERSHIP?
Yes, a partner may, by entering into a contract in the name and for the
account of the partnership hold ALL THE PARNTERS liable for the
partnership obligation.
Reason: A partner is a PRINCIPAL WITH RESPECT TO HIS CO-PARNTERS
and at the same time an AGENT OF THE OTHERS AND OF THE
PARNTERSHIP. If he contracts with a 3rd person, he binds not only the
partnership but also the partners, JUST LIKE AN OBLIGATION CONTRACTED
BY AN AGENT – the principal shall be liable
NB: The industrial partner may seek reimbursement from the capitalist partners for the GR 2: An act of the partnership WHICH IS NOT APPARENTLY FOR CARRYING OUT
share that he has given THE BUSINESS OF THE PARTNERSHIP shall NOT bind the partnership
Exception: Agreement to the contrary Exception: When he is AUTHORIZED by the other partners
*In a partnership, gains and losses are balanced. But as re the industrial partner, what GR 3: ALL the partners MAY BE THE ONLY ONES who may do the following acts:
matters is the FINAL ADJUSTMENT OF THE LOSSES AND THE ASSETS of the 1. Assign the partnership property in trust for the creditors or on the
partnership (so that, if there are still properties remaining, the PRIMARY AND DIRECT assignee’s promise to pay the debts of the partnership
RESPONSIBILITY of the partnership shall preclude any recourse against any of the 2. Dispose of the goodwill of the business
partners) 3. Do any other act which would make it impossible to carry on the ordinary
business of the partnership
Q; IS THERE A CONFLICT BETWEEN ART. 1797 AND ART. 1816? 4. Confess judgment
None. Art. 1816 refers to LIABILITIES while Art. 1797 refers to LOSSES. 5. Enter into a compromise concerning partnership claim or liability
The mere fact that a company was unable to pay its debts on time does 6. Submit partnership claim or liability to arbitration
not mean that it is operating at a loss. It may be expecting credits in the 7. Renounce a claim of the partnership
future which may be MORE than the losses – Pacific Commercial Co. v. EXPN:
Aboitiz and Martinez 1. Unless authorized by the other partners
2. The other partners ABANDONED THE BUSINESS
Art. 1817.
Any stipulation against the liability laid down in the preceding article GR 4: No act of the partner in CONTRAVENTION of a restriction on authority WITH
shall be void, except as among the partners. (n) THE KNOWLEDGE of the persons whom he is dealing with SHALL BIND the
partnership
GR: Any STIPULATION against any liability provided under Art. 1816 shall be VOID
EXPN: Stipulation against liability as AGAINST THEMSELVES
LIABILITY OF PARTNERSHIP FOR ACTS OF PARTNERS Where title to real property is in the name of the partnership, a
1. Acts for apparently carrying in the usual way the business of the conveyance executed by a partner, in his own name, passes the equitable
partnership interest of the partnership, provided the act is one within the authority of the
GR: Since a partner is AN AGENT OF THE PARTNERSHIP, he has the partner under the provisions of the first paragraph of Article 1818.
power to do such acts with BINDING EFFECT even if he in fact has
Where title to real property is in the name of one or more but not all
no authority
the partners, and the record does not disclose the right of the partnership, the
EXPN: The partnership will not be liable ONLY if: (the 2 requisites below
partners in whose name the title stands may convey title to such property, but
are met)
the partnership may recover such property if the partners' act does not bind the
a. The partner so acting has no authority, AND
partnership under the provisions of the first paragraph of Article 1818, unless
b. The 3rd person has knowledge of the fact that the partner he
the purchaser or his assignee, is a holder for value, without knowledge.
is dealing with has no authority
*NB: Usual way – usual for a PARTICULAR PARTNERSHIP or for similar Where the title to real property is in the name of one or more or all
partnership the partners, or in a third person in trust for the partnership, a conveyance
Par. 1 refers to Acts of ADMINISTRATION ONLY 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
2. Acts of strict dominion or ownership of the partner under the provisions of the first paragraph of Article 1818.
GR: Any power not expressly delegated to a partner is presumed to be
WITHHELD Where the title to real property is in the name of all the partners a
conveyance executed by all the partners passes all their rights in such property.
(n)
Q: IN CASE THE ACT IS NOT FOR THE CARRYING IN THE USUAL WAY THE
BUSINESS OF THE PARTNERSIP, IS THE LATTER BOUND? Par. 1: Title over the property under the partnership + conveyance is made by a
GR: No partner in the PARTNERSHIP NAME
EXPN: GR: The partnership may recover the property
1. When the acts are AUTHORIZED by ALL the EXPN:
other partners 1. When the act of the partner binds the partnership in acc with par. 1 of Art.
2. If the partners HAVE ABANDONED the business 1818
Points: 2. When the grantee or any person claiming thru such grantee has already
1. Par. 3 enumerates the acts WHICH ARE BEYOND the passed the property to a HOLDER FOR VALUE without knowledge that
implied powers of each partner the partner, in making the conveyance has exceeded his authority
2. It shows the LIMITATIONS on the authority of the partners to
bind the partnership Par. 2: Title over the property in the firm’s name + conveyance made by the partner in
Q: IF THE PARTNER WOULD LIKE TO ENTER INTO A his NAME
CONTRACT BEYOND THE SCOPE OR ONJECT OF THE GR: The conveyance will convey the EQUITABLE INTEREST in the partnership
PARTNERSHIP OR IN RE TO THE PARTNERSHIP PROVIDED that the partner acted within the scope of his authority
PROPERTY, WHAT MUST HE DO?
There must be another conference of authority, Q: EQUITABLE INTEREST/TITLE
express or implied, apart from the authority which One that is not recognized in law but only in EQUITY
is derived from his character of being a partner One that is IIMPERFECT OR UNENFORCEABLE in law but because of
(2nd par. of At. 1818) equitable principles, may be converted into a legal title or interest
e.g. Where the partnership is engaged in selling
mangoes, the act of the partner in selling dresses will Par. 3: Title is in the name of ONE or MORE but NOT ALL the partners, and the
not bind the partnership or ANY CONTRACT entered records do not disclose the right of the partnership + The conveyance made by the
into after such business is concluded partners (in whose name the title over the property is)
3. If the purposes or object of the firm is LIMITED OR SPECIAL, GR: The partnership may recover the property
the 3rd person has no right to obtain credit on the faith of the EXPN:
firm in relation to an object that is foreign to its business 1. When the act of the partner binds the partnership in acc with par. 1 of Art.
1818
3. Acts in contravention of the restriction on authority 2. When the grantee or any person claiming thru such grantee has already
GR: the partnership will not be liable to the 3rd person if the latter has passed the property to a HOLDER FOR VALUE without knowledge that
ACTUAL OR PRESUMPTIVE KNOWLEDGE of the RESTRICTION the partner, in making the conveyance has exceeded his authority
on the authority of the partner WHETHER OR NOT the act is for the
carrying in the usual way of the business Par. 4: Title in the name of ONE or MORE or ALL of the partners or 3rd person in
TRUST for the partnership + CONVEYANCE made either in the name of the firm or in
DEFENSES OF AN ERRING PARTNER the name of the partners
GR: The conveyance will convey the EQUITABLE INTEREST in the partnership c. Inferred from the fact that they are present during the execution and
PROVIDED that the partner acted within the scope of his authority delivery
Par. 5: Title in the partners name + conveyance made by ALL the partners d. Acting under the contract
GR: Their interest over the property will be conveyed
Points:
1. Ownership over the property – that which is shown in the MUNIMENT OF TITLE Art. 1820.
2. The real property is usually in the PARTNERSHIP name if it belongs to the An admission or representation made by any partner concerning
partnership partnership affairs within the scope of his authority in accordance with this Title
NB: But in one way or another, the partnership may not hold the title but is evidence against the partnership. (n)
the partners know that it is a partnership property
3. Any property purchased thru partnership funds = partnership property GR: An ADMISSION OR REPRESENTATION made by a partner concerning the
(presumption) UNLESS a contrary intention appears partnership affairs and within the scope of his authority shall be an EVIDENCE
4. Art. 1819 – legal effects of the conveyance of partnership property depending AGAINST THE PARTNERSHIP
on: Points:
a. In whose name the property is registered 1. GENERALLY, a person shall not be BOUND by the ACT, ADMISSION,
b. Who made the conveyance STATEMENT or AGREEMENT made by another WITHOUT HIS KNOWLEDGE
OR CONSENT
Exception: But he may be bound by virtue of the existing RELATION
Q: IN WHOSE NAME MAY THE PROPERTY BE REGISTERED between them
a. Partnership
b. One or more but not all the partners 2. GR: Admissions by a party and testified to by a 3rd person will be an EVIDENCE
c. One or more or all of the partners or in the 3rd person in trust for the AGAINST THE FORMER
partnership Exception: An admission made by a party may be received against ANOTHER if
d. All the partners the former is acting as an AGENT for the latter
NB: This is the basis for the rule under Art. 1820 that when a partner
5. Par. 1, 3 and 5 – conveys title or ownership makes an admission during the existence of the partnership, the latter as
Par. 2, and 4 – only EQUITABLE INTEREST well as the co-partners will be bound by the admission if the admission:
6. Conveyance – includes the power to MORTGAGE (unlike in the rule on agency a. Pertains to the partnership affairs
where the special power to sell does not include the power to mortgage) – b. The admission is within the authority of the partner making
Santiago Syjuco, Inc. v. Castro the admission
7. INNOCENT PURCHASERS WITHOUT NOTICE
GR: the innocent purchasers should be protected NOTWITHSTANDING THE 3. But where the admission is made by a party on his behalf alone, then, the same
FACT that the partner making the conveyance has no authority to do so shall only be used against him
a. LEGAL TITLE (partner) while the EQUITABLE TITLE (partnership) – the Q: MAY THE ADMISSION MADE BY A PARTNER AFTER THE DISSOLUTION BE
buyer in good faith and for value without notice will acquire title because it RECEIVED AGAINST THE OTHER PARTNERS?
is safe to PRESUME that the possession or interest of the partnership is Yes, provided that the admission has something to do with the winding up
SUBORDINATE TO and CONSISTENT with the record of title of the partnership affairs
b. Where A (partner who has no authority to sell the land) conveyed the land
to B and the latter sold it to C Points:
- Here, even if A does not have the authority to sell, under par. 1, the For the admission of the partner to bind the partnership, the following must concur:
partnership may not recover the property from C who has no notice or
knowledge that A has no authority to convey the land 1. The partner making the admission must be acting within the scope of his
- If the land is not yet sold, hence, still with B, B has a right to retain the authority at the time of making the declaration
title (being the grantee) UNLESS he knows that A has no authority to 2. The statement is made in the COURSE OF, RELATED TO AND MATERIAL TO
sell THE TRANSACTION OF THE BUSINESS OF THE PARTNERSHIP
c. The buyer need not have the ACTUAL OR CONSTRUCTIVE 3. The partnership relation must be shown before the partnership can be charged
KNOWLEDGE of the trust or any condition limiting the authority of the with the admission of a partner under Art. 1820
partner concerned 4. The proof of such relation must be established by an evidence OTHER THAN
- Notice of the interest of the partnership in a property is not had by a THE ADMISSION itself
knowledge of the fact that legal title is in the name of the member of the
partnership. The buyer will be protected e.g. If C denies the existence of a partnership, then B, in the above example
must show the existence of the partnership other than by the admission made
8. AUTHORIZATION OR RATIFICATION OF CONVEYANCE by A to him. Otherwise, such admission will not bind C.
GR: A partner may be authorized by the others to convey the real property of the firm
or even if the partner conveyed the property without authority, the partners may Exception: The ADMISSION made by a partner may be used to establish the
ratify the act of the partner partnership relations if the party to be charged by such admission is present at
Q: HOW SHOULD THIS AUTHORITY OR RATIFICATION BE PROVED? the time of the making of the declaration
GR: Convincingly because this will not be presumed (so, this will be used by the
partner so that he won’t PERSONALLY be liable) e.g. If A made a statement to the effect that he and C are partners, and C did
EXPN: not react (as in fact he is present), then, the admission made by A that
a. After the lapse of so many years after the act of conveyance, the authority partnership X and Co exists may be admitted to show that A and C are partners
will be presumed
5. Any admission made by a partner at the time when HE WAS NO LONGER A
Q; HOW SHOULD THE AUTHORIZATION BE MADE? PARNTER will not be admissible in evidence against the partnership – Congco
a. Varied opinions – some say in writing however there are instances where v. Triliana
partners become bound because of PAROL authority given (e.g. Hey
sherry you may sell this land!-oral) Art. 1821.
b. When a partner executes a deed of sale IN THE PRESENCE of his co-
partners under a PAROL AUTHORITY – held: Execution of the deed by Notice to any partner of any matter relating to partnership affairs, and the
ALL the partners knowledge of the partner acting in the particular matter, acquired while a
c. IMPLIED from the partnership business – e.g. where the partnership is partner or then present to his mind, and the knowledge of any other
engaged in the buy and sell of real estate, the contract executed to sell partner who reasonably could and should have communicated it to the
the property is presumed valid acting partner, operate as notice to or knowledge of the partnership,
except in the case of fraud on the partnership, committed by or with the
Q: HOW MAY RATIFICATION BE MADE consent of that partner. (n)
a. When A executed a deed of sale, and B thereafter, ADOPTED the act GR: Notice to or KNOWLEDGE of any partner of any matter relating to the partnership
b. Knowingly deriving benefits from the contract affairs operates as notice to or knowledge of the partnership
EXPN: Except in case of fraud on the partnership committed by or with the consent of Q: WHAT IS THE REASON FOR THE IMPOSITION OF A WIDER LIABILITY IN
that partner CASE OF TORT AND BREACH OF TRUST?
Points: Public policy. The principle of RESPONDEAT SUPERIOR or rule on
1. A 3rd person desiring to notify the partnership as regards any matter vicarious liability equally applies in the case of a partnership as it applies
relating to the partnership affairs need NOT notify ALL the partners to the law on agency
2. It is enough that he notifies 1 or ANY of the partners.
- This is an effective communication even if the partner to whom the Q: WHAT IS THE REASON FOR THE SOLIDARY LIABLITY?
information was communicated to FAILED or NEGLECTED to Because the law protects a person who IN GOOD FAITH, relied on the
communicate such knowledge or notice to the other co-partners authority of the partner, whether that authority is REAL OR APPARENT.
Hence, under Art. 1824, whether guilty or innocent, the other partners
Q: CASES OF KNOWLEDGE UNDER ART. 1821? shall be solidarily liable – Munasque v. CA
1. Knowledge of a partner acting on a particular matter ACQUIRED while a
partner Q: WHO MAY BE IMPLEADED BY THE AGGRIEVED PARTY
2. Knowledge of a partner acting on a particular matter then PRESENT to his Since the liability is SOLIDARY, the partner has his ELECTION to:
mind 1. Sue the partnership
3. Knowledge of ANY OTHER PARTNER who could and should have 2. Sue just ONE partner – even the one who has no knowledge
communicated it to the acting partner of the tort or breach
3. Sue one or more partners
Art. 1822. Q: REQUISITES FOR THE LIABILITY UNDER ART. 1822?
Where, by any wrongful act or omission of any partner acting in the 1. The partner must be guilty of any WRONGUL ACT OR OMISSION
ordinary course of the business of the partnership or with the authority of co- 2. That partner must be acting IN THE ORDINARY COURSE OF BUSINESS or
partners, loss or injury is caused to any person, not being a partner in the with the AUTHORITY of the other co-partners EVEN if the act is not RELATED
partnership, or any penalty is incurred, the partnership is liable therefor to the to the business
same extent as the partner so acting or omitting to act. (n)
Q: MAY A NON-ACTING PARTNER BE HELD CRIMINALLY LIABLE FOR THE
Art. 1823. CRIMINAL ACTS OF HIS CO-PARNTER?
No.
The partnership is bound to make good the loss:
(1) Where one partner acting within the scope of his apparent Q: WHEN THEN MAY HE BE HELD CRIMINALLY LIABLE?
authority receives money or property of a third person and In case where the partnership is engaged in an unlawful business
misapplies it; and and he knows of it or consents thereto
(2) Where the partnership in the course of its business receives 3. LIABILITY UNDER ART. 1822 as a RULE does not include CRIMINAL
money or property of a third person and the money or property so LIABILITY
received is misapplied by any partner while it is in the custody of the Reason: this is personal and individual in character
partnership. (n)
e.g. Where a partner is guilty of embezzlement, the other partner cannot be disbarred
Art. 1824. or disciplined if he has no KNOWLEDGE, DID NOT CONSENT TO, OR
All partners are liable solidarily with the partnership for everything PARTICIPATED in the criminal act
chargeable to the partnership under Articles 1822 and 1823. (n)
GR: The partners are merely PERSONALLY AND SUBSIDIARILY liable Exception: There may be criminal responsibility in case where the crime is
STATUTORY and where the penalty is FINE rather than imprisonment
Points:
1. LIABILITY ARISING FROM PARTNER’S TORT OR BREACH OF TRUST e.g. A partner is also held criminally liable because of his co-partner’s illegal blasting
a. Art. 1822-1824 establishes the SOLIDARY liability of the partners and the
partnership for the WRONGUL ACT OR OMISSION (tort) or BREACH OF MISAPPLICATION OF MONEY OR PROPERTY OF A 3RD PERSON
TRUST by any partner ACTING within the SCOPE OF THE PARTNERSHIP Cases contemplated under Art. 1823
BUSINESS OR WITH AUTHORITY FROM THE OTHER PARTNERS 1. The partnership shall be liable for the losses suffered by a 3rd person
NB: whose money or property was misappropriated by a partner who received
1. If the partner acts BEYOND the scope of the partnership it within the scope of his authority
business, the latter is not bound by said act by virtue of Art. 2. Or by ANY OTHER PARTNER AFTER the money or property has been
1818 unless authorized by the other partners received by the partnership and while in its custody
2. If the partner is NOT authorized by the other partners, then, the
partnership will not be liable – supplied by me Art. 1825.
b. This is TRUE even if the partners DID NOT PARTICIPATE IN, RATIFY OR When a person, by words spoken or written or by conduct,
HAD NO KNOWLEDGE of the said act or omission represents himself, or consents to another representing him to anyone, as a
c. Remedy: This is without prejudice to the co-partners’ right to ask for partner in an existing partnership or with one or more persons not actual
reimbursement from the guilty partner partners, he is liable to any such persons to whom such representation has
been made, who has, on the faith of such representation, given credit to the
2. Art. 1816 v. Art. 1822-1824 actual or apparent partnership, and if he has made such representation or
a. Art 1816 – the liability is SUBSIDIARY consented to its being made in a public manner he is liable to such person,
Art. 1822-1824 – the liability of the partners is SOLIDARY whether the representation has or has not been made or communicated to such
person so giving credit by or with the knowledge of the apparent partner making
b. Art. 1816 – the liability of the partners is FOR THE CONTRACTUAL the representation or consenting to its being made:
PARTNERSHIP OBLIGATIONS to 3rd persons
Art. 1822-24 – the liability of the partners arises from the LIABILITY OF (1) When a partnership liability results, he is liable as though he were
THE PARTNERSHIP for the wrongful act or omission of any partner an actual member of the partnership;
(2) When no partnership liability results, he is liable pro rata with the
NB: It is called TORT if the act or omission does not constitute a crime or other persons, if any, so consenting to the contract or representation
felony punishable by law as to incur liability, otherwise separately.
Q: WHAT IS THE NATURE OF THE LIABILITY OF THE PARNTERS IN CASE OF When a person has been thus represented to be a partner in an
WORKMEN’S COMPENSATION CASES? existing partnership, or with one or more persons not actual partners, he is an
Liwanag and Reyes v. Workmen’s Compensation Commission – it should agent of the persons consenting to such representation to bind them to the
be solidary same extent and in the same manner as though he were a partner in fact, with
respect to persons who rely upon the representation. When all the members of
the existing partnership consent to the representation, a partnership act or b. In case of an EXISTING PARNTERSHIP AND none of the partners
obligation results; but in all other cases it is the joint act or obligation of the consented to such representation
person acting and the persons consenting to the representation. (n) o Then, only those who represented themselves or
consented to such representation will be liable
Q: ESTOPPEL/EFFECTS THEREOF o As well as those who made or consented to such
- Estoppel is a BAR which precludes a person from DENYING OR representation
ASSERTING ANYTHING contrary to that which has been
established as the TRUTH by his own deed or representation, either Q: DOES ESTOPPEL CREATE A PARTNERSHIP?
EXPRESS OR IMPLIED No. estoppels does not create a partnership. A contract, express or
- Through estoppel, an admission or representation is rendered implied is necessary in order to form a partnership
CONCLUSIVE with respect to the person making it and cannot be
denied or disapproved as against the person relying thereon NB: The law only considers them as partners and the association as a partnership in
so far as it is favorable to the 3rd person by reason of the equitable principle of
Q: MAY A PERSON BE HELD LIABLE AS A PARTNER EVEN IF HE IS NOT A ESTOPPEL – Mcdonald v. National City Bank of NY
PARTNER IN FACT?
GR: Persons who are not partners to each other are not partners as to 3rd NB: Therefore, ACTUAL PARTNERSHIP is one thing and LIABILITY as partners is
persons. Hence, one may not be liable or claim any right as a another thing. The LIABILITY (as partners) is created merely in favor of persons who
partner UNLESS he consent to his being a partner in good faith relied on such representation and EXTENDED credit to the ACTUAL OR
EXPN: Art. 1825 (because of the doctrine of estoppel) APPARENT PARTNERSHIP
Q: HOW MAY A PERSON BE HELD LIABLE AS A PARTNER BY ESTOPPEL? Q: MAY LIABILITY AS A PARTNER ARISE CONTRARY TO THE INTENTION OF
A person, not otherwise a partner may be held liable as a partner by THE PARTIES?
estoppel and thus may be held liable to 3rd persons relying on such Yes.
representation when:
1. He DIRECTLY REPRESENTS himself as a PARTNER of an The partnership LIABILITY (of a person who holds himself out or who permits others to
EXISTING PARTNERSHIP or of a NON-EXISTING represent him as a partner) arose because of:
PARTNERSHIP (with one or more person who are not actual a. Estoppel
partners) b. Principle of law to prevent fraud upon those persons who lend their money
2. He INDIRECTLY REPRESENTS himself by consenting to upon reliance to the credit of those persons who held themselves as
another representing him as a partner in an existing partners
partnership or in a non-existing partnership
Therefore, he may become a partner by estoppel by: Points:
1. Representing himself as a partner 1. One may be held liable as a partner even if this is contrary to his intention
2. By consent or knowledge 2. One WHO HAS RECEIVED BENEFITS OR PROFITS in lieu of a
partnership transaction CANNOT deny that there is no partnership
Q: HOW TO HOLD A PERSON LIABLE AS A PARTNER BY ESTOPPEL because the agreement is void
1. Prove the misrepresentation NB: Partnership liability does not depend upon the contract between
2. Prove that because of such BONAFIDE (GF) RELIANCE, he the parties but whether or not the 3rd person has a right to rely
suffered injury thereby on their joint credit
3. One who incurs partnership liability does not acquire the rights of a
Q: WHEN WILL PARTNERSHIP LIABILITY RESULT? partner
When ALL the ACTUAL PARTNERS consent to the representation by a
person that he is a partner or in a case where the latter consents to his Q: WILL THE DOCTRINE OF ESTOPPEL APPLY IN THE CASE OF ACTUAL
being represented as such, the LIABILITY incurred by such person as well PARTNERS?
as that of the ACTUAL PARTNERS – partnership liability. No. The doctrine will not apply between and among them because they
become partners not because of ESTOPPEL but because of their
NB: This gives rise to a PARTNERSHIP BY ESTOPPEL. The person will be CONTRACT.
considered as an AGENT OF THE PARTNERSHIP and his act or obligation shall be
that of the partnership (note that the partnership shall be responsible for all the It is true that a single or more partners may become liable for a GREATER EXTENT
expenses incurred by the partner) than that allowed in the partnership agreement, but this is only:
- So, in this case, the PARTNERSHIP WILL BE LIABLE. Thereafter, the partners a. A ground as amongst the partners to DISSOLVE THE PARNTERSHIP
will be liable with their separate properties (JOINT and SUBSIDIARY) b. ESTOPPEL will only apply with respect to a 3rd person in order to protect
his interest (because the representations were detrimental to him)
Q: WHEN IS THE LIABILITY CONSIDERED AS PRO RATA?
a. In case where THERE IS NO ACTUAL OR EXISTING Q: WHEN DOES THE DOCTRINE OF ESTOPPEL APPLY THEREFORE?
PARTNERSHIP – all those represented as partners and those who With respect to 3rd persons who relied on the representation of another as
made such representation shall be liable jointly or pro rata (e.g. A, a partner to their detriment. The law will not allow the denial of such
B, C and D are not partners. A and B represented C and D as their representation because this will prejudice the 3rd person
alleged partners. C and D contracted P1000). Here, A, B, C and D
shall each be held liable for P250 NB: There is a dictum to the effect that where the representation is so PUBLIC and
b. In case where NOT ALL OF THE PARTNERS of an EXISTING OPEN such that a PRESUMPTION is created that the 3rd person in fact relied upon it
PARTNERSHIP consented to the representation – then, the partner
by estoppel and the partners who made or consented to such Q: HOW TO PROVE THAT A PERSON HELD HIMSELF OUT AS A PARTNER
representation by the former will be held liable pro rata or jointly It is a question of fact and must be established by evidence. It is a case to
(e.g. A, B and C are partners in an existing partnership. A case basis
consented to D’s representation of himself as a partner. D
contracted a loan of P1000. In this case, A and D shall each be Points:
liable for P500. B and C will not be liable as well as the partnership 1. No one can be held liable as a partner where the acts imputed are NOT
because they did not consent to the representation by D) his own or where such acts came from persons whom he did not so
authorize or he DOES NOT KNOW
Q: WHEN IS THE LIABILITY SEPARATE 2. Mere SUPPOSITION, BELIEF OR UNDERSTANDING that a person is a
a. When there is no existing partnership AND not ALL BUT ONLY partner (generally held, supposed and believed and understood as such)
SOME of the persons consented to the representation is not sufficient proof that he is a partner
o Then, only those who represented themselves or
consented to such representation will be liable NB: Art. 1834 v. Art. 1825 – Under Art. 1834, there is NO PARTNERSHIP BY
o As well as those who made or consented to such ESTOPPEL. There is merely a PARTNERSHIP LIABILITY which continues because of
representation lack of termination
Q: DOES ESTOPPEL APPLY BETWEEN ACTUAL PARTNERS? Q: IS IT NECESSARY TO PROVE THAT THE DEFENDANT IS FINANCIALLY
No. Because they become as such by agreement. CAPABLE?
No.
NB: Note however that a single partner or 2 or more partners may become liable to 3rd
persons TO A GREATER EXTENT than that provided in the partnership agreement. NB: Sole reliance is not necessary with respect to dealings involving the one
(this only goes to show that estoppels applies only between a PARTNER and a 3RD representing or represented
PERSON)
LIABILITY AS GENERAL PARTNERS OF PERSONS WHO ASSUME TO ACT AS A
CORPORATION
Q: WHAT THEN IS THE SIGNIFICANCE OF ESTOPPEL BETWEEN ACTUAL Q: WHAT DOES THE LAW SAY OF THE LIABILITY OF PERSONS WHO ASSUMT
PARTNERS TO ACT AS A CORPORATION KNOWING IT TOBE WITHOUT AUTHORITY TO DO
Should a partner agree with a 3rd person to be liable for a greater liability, SO?
this will be a ground for DISSOLUTION of the partnership. Under Sec . 21 of BP Blg. 68: All persons WHO ASSUME TO ACT
as a corporation KNOWING it to be without authority to do so shall be
Q: HOW ABOUT AS TO 3RD PERSONS? liable as GENERAL PARTNERS on all DEBTS, LIABILITIES AND
3rd persons may use estoppels as a defense in order to get their claim. DAMAGES incurred or arising thereon.
NB: A person or persons may be a partner (or partners) by representing themselves to Q; IS IT A DEFENSE FOR THE CORPORATIO TO STATE THAT IT HAS NO
be such or by allowing others, with their consent and knowledge to be represented as CORPORATE PERSONALITY?
such. No. Under the same section, it was provided that: “provided however that
when any such OSTENSIBLE CORPORATION is sued on any of its
Basis: The law will not permit a DENIAL OF SUCH REPRESENTATION (as a partner) transaction or on any tort committed by it, it shall not be allowed to
where 3rd persons have relied on the same (in the exercise of reasonable diligence) to interpose the defense of lack of corporate personality
their detriment
Q: WHAT THEN IS THE LIABILITY OF PERSONS WHO ATTEMPT BUT FAIL TO
Q: HOW DO YOU PROVE THAT ONE HAS RELIED ON THE REPRESENTATION FORM A CORPORATION?
OF ANOTHER? Their liability shall be that of a GENERAL PARTNER. In this case, a DE
There is a dictum to the effect that the holding out as a partner may be so FACTO PARTNERSHIP is formed among them
PUBLIC AND OPEN and this creates the presumption that the 3rd person
relied upon it. Q: WHO SHALL BE LIABLE AS GENERAL PARTNERS?
Only the ACTIVE MEMBERS of the attempted corporation.
Q: HOW TO PROVE THAT ONE HAS REPRESENTED HIMSELF OUT OR
ALLOWED SOMEONE TO REPRESENT HIM AS SUCH NB: Under Sec. 21, it was stated that the persons WHO ASSUME TO ACT as a
This is a QUESTION OF FACT and each case depends upon its own corporation shall be liable as GENERAL PARTNERS
merits
Q: HOW ABOUT THE STOCKHOLDER?
Points: (on how to prove that one is a partner by estoppel) There shall be NO PERSONAL LIABILITY because he has not
1. One cannot be a PARTNER BY ESTOPPEL if the acts relied upon is NOT participated in the corporation
his or that of the others who are not authorized by him or known to him
2. NOT SUFFICIENT EVIDENCE: The mere fact that it is generally
SUPPOSED, BELIEVED OR UNDERSTOOD that he is a PARTNER
3. Art. 1834 last par – not a PARTNERSHIP BY ESTOPPEL but
PARTNERSHIP LIABILITY (for lack of termination) Art. 1826.
Q: ARE THE PROVISIONS OF THE CIVIL CODE APPLICABLE TO A DE FACTO A person admitted as a partner into an existing partnership is liable for all the
PARTNERSHIP? obligations of the partnership arising before his admission as though he had
Yes. Note that the law RECOGNIZES a defectively organized partnership been a partner when such obligations were incurred, except that this liability
as DE FACTO for purposes of 3rd persons. Hence, although the de facto shall be satisfied only out of partnership property, unless there is a stipulation
partnership HAS NO LEGAL PERSONALITY OR JURIDICAL to the contrary. (n)
EXISTENCE, the Civil Code provisions on partnership apply. Hence, it
must also have the attribute of DOMICILE.
Note: GR: A person admitted INTO AN EXISTING PARTNERSHIP shall be liable for ALL
1. A de facto partnership has no JURIDICAL PERSONALITY but the law THE OBLIGATIONS of the partnership BEFORE HIS ADMISSION as though he had
RECOGNIZES its DE FACTO EXISTENCE (as 3rd persons will be been a partner when such obligation was incurred, EXCEPT that his liability shall be
prejudiced) satisfied only out of the partnership property
2. It also has domicile, hence, the Civil Code provisions on partnership apply
Exception: When there is a stipulation to the contrary
Q: WHERE IS THE DOMICILE OF A DE FACTO PARTNERSHIP?
Where it conducts its business. Q: DOES A PERSON WHO IS ADMITTED AS A PARNTER INTO AN EXISTING
PARTNERHIP BECOME LIABLE FOR THE DEBTS CONTRACTED BY THE LATTER
NB: Registration of a chattel mortgage in its place of business is valid – Peralta v. BEFORE HE ENTERED?
Manalang Yes. As expressly provided under Art. 1826
Q: WHAT ARE THE ELEMENTS NECESSARY TO ESTABLISH LIABILITY OF A Q: WHAT IS THE CATCH?
PARTNER BY ESTOPPEL? GR: His liability therefore is limited only to his share in the partnership
1. Proof by the plaintiff that he is INDIVIDUALLY AWARE of the property
representations made by the defendant or the representations made of Exception: When there is a STIPULATION (that his other properties may
him be attached for that purpose) to the contrary
2. There should be RELIANCE on such representations
3. LACK OF DENIAL OR REFUTATIONS OF THE STATEMENTS by the NB: Hence, the newly accepted partner’s credit may not be garnished in order to
defendant satisfy the credit of the old creditors
NB: It is not necessary that the denial precede the reliance of the plaintiff Q: IS THE LIABILITY OF THE PARTNERS LIMITED TO THEIR PARTNERSHIP
(if the denial should come promptly after it was heard) PROPERTY ONLY?
No. We need to qualify.
1. For obligations contracted and existing at the time that they are
already partners, they shall be liable with:
a. Their partnership property, AND GR: An incoming partner shall NOT be PERSONALLY LIABLE (with his
b. Separate property separate properties) for the obligations existing BEFORE he
2. For obligations already existing at the time when a person is becomes a partner.
admitted as a partner, his liability is limited to his PARTNERSHIP EXPN: Where the contract was entered into BEFORE he became a
PROPERTY. However for subsequent obligations contracted (after partner but the goods were delivered AFTER he already becomes a
he has become a partner), he shall also be liable with his partner, he shall be liable therefore
partnership property AND separate property
NB: Hence, the creditor may sue both the RETIRING PARTNER AND THE
NB: Such obligation may have been incurred thru a contract entered into before he INCOMING PARTNER for the goods delivered AFTER the former retires and AFTER
becomes a partner the latter becomes a partner, the CONTRACT entered into being in effect at the time
when the RETIRING PARTNER has not yet tendered his notice of retirement and AT
Q: WHAT THEN ARE THE RIGHTS OF THE EXISTING AND SUBSEQUENT THE TIME when the incoming partner is NOT yet a partner
CREDITORS?
We must qualify.
1. As to persons who are already PARTNERS AT THE TIME THE Art. 1827.
OBLIGATION WAS CONTRACTED – existing and subsequent The creditors of the partnership shall be preferred to those of each
creditors EQUAL RIGHTS to BOTH the SEPARATE PROPERTY partner as regards the partnership property. Without prejudice to this right, the
AND PARTNERSHIP PROPERTIES (of the previously existing private creditors of each partner may ask the attachment and public sale of the
partners) share of the latter in the partnership assets. (n)
2. As to those who are newly-admitted partners – ONLY subsequent
partners have RIGHTS to the separate properties of newly admitted GR: The CREDITORS of the PARTNERSHIP shall be preferred to those of each of the
partners partners AS REGARDS THE PARTNERSHIP PROPERTY
NB: Art. 1826 should be read with Art. 1840 Without prejudice to this right, the PRIVATE CREDITORS of each partner may ask for
the ATTACHMENT AND PUBLIC SALE of the share of the partners in the partnership
Q: WHAT HAVE THE 2 PROVISIONS ACCOMPLISHED? assets
Art. 1826 and Art. 1840 are based on the principle that WHERE THERE
IS ONE CONTINUING BUSINESS, the mere fact that NEW PARTNERS Q:WHO WILL BE PREFERRED WHEN THE PARTNERSHIP PROPERTY IS TO BE
ARE ADMITTED or that SOME PARTNERS ceased to be partners should DISPOSED?
not cause (as before) the CONFUSION as re the claims of creditors with GR: The CREDITORS OF THE PARTNERSHIP shall be preferred over
re to the PROPERTIES EMPLOYEDIN THE BUSINESS. that of the partners’ or the partners’ claims
Reason: The partnership being a separate and distinct legal entity shall be
Hence, regardless of the TIME when the creditors became partners and deemed to apply its properties in the payment of its OWN debts rather than first
the exact combinations of the partners, THE CREDITORS shall have defraying the debts of the partners
EQUAL RIGHTS with respect to the partnership property
NB: This rule applies only in the disposition of the partnership assets
Q: IF AN INCOMING PARTNER HAS ASSUMED THE OBLIGATION OF THE
RETIRING PARTNERS, DO THE OLD CREDITORS HAVE A CAUSE OF ACTION Q: WHO MAY BE SUED BY THE CREDITORS OF THE PARTNERSHIP?
AGAINST THE FORMER? Both the partnership and the partners may be sued in ONE ACTION but
Yes, if the assumption is that the contract is made for the benefit of the note that the PRIVATE PROPERTIES of the partners may not be taken
creditors UNTIL AND UNLESS the properties of the partnership have first been
exhausted.
Basis: Art. 1311 par. 2 of the Civil Code which provides that if a contract should
contain a stipulation IN FAVOR OF A 3RD PERSON, he may demand its fulfillment Q: WHAT THEN IS THE REMEDY OF THE PRIVATE CREDITORS OF THE
provided that he has communicated his acceptance to the obligor before its PARTNERS?
revocation. Mere incidental benefit or interest is not sufficient. The contracting parties Art. 1827 provides that “without prejudice to the RIGHT TO
must have CLEARLY AND DELIBERATELY conferred a favor in favor of 3 rd persons PREFERENCE of the partnership creditors, the creditors of the partners
may ask the ATTACHMENT AND PUBLIC SALE of the latter’s share in
Q: ISN’T ART. 1826 HARSH? the partnership assets
No. This is so because the newly admitted partners will partake of the
benefits of the partnership property and the ESTABLISHED BUSINESS. Art. 1827.
He may in fact obtain FULL KNOWLEDGE of the debts of the partnership
and he may therefore protect himself by demanding its settlement or The creditors of the partnership shall be preferred to those of each
liquidation. partner as regards the partnership property. Without prejudice to this right, the
private creditors of each partner may ask the attachment and public sale of the
NB: This is not afforded to the creditors
share of the latter in the partnership assets. (n)
Q: WHAT IS THE LIABILITY OF THE RETIRING OR WITHDRAWING PARTNER
WITH RESPECT TO OBLIGATIONS CONTRACTED? GR: The CREDITORS of the PARTNERSHIP shall be preferred to those of each of the
It depends ON THE TIME WHEN THE CONTRACT was executed – partners AS REGARDS THE PARTNERSHIP PROPERTY
whether while he was still a partner or after the notice of his retirement
was served Without prejudice to this right, the PRIVATE CREDITORS of each partner may ask for
the ATTACHMENT AND PUBLIC SALE of the share of the partners in the partnership
1. If the retiring partner serves the notice of his withdrawal AND
THEREAFTER, the partnership incurs an obligation – the assets
RETIRING PARTNER SHALL NOT BE LIABLE therefore
Q:WHO WILL BE PREFERRED WHEN THE PARTNERSHIP PROPERTY IS TO BE
NB: His liability for existing obligations (incomplete) will remain DISPOSED?
2. If the contract was executed AT THE TIME WHEN HE WAS STILL GR: The CREDITORS OF THE PARTNERSHIP shall be preferred over that of the
A PARTNER and AFTER HE RETIRES OR AFTER THE SERVICE partners’ or the partners’ claims
OF HIS NOTICE OF RETIREMENT, THE GOODS WERE
DELIVERED – the retiring partner shall be LIABLE
Reason: The partnership being a separate and distinct legal entity shall be deemed
NB: In short, if the CONTRACT was entered into while he is still a partner, to apply its properties in the payment of its OWN debts rather than first defraying
it is immaterial whether the goods are delivered AFTER his retirement the debts of the partners
Q: HOW ABOUT THE INCOMING PARTNER? NB: This rule applies only in the disposition of the partnership assets
Q: WHO MAY BE SUED BY THE CREDITORS OF THE PARTNERSHIP?
Both the partnership and the partners may be sued in ONE ACTION but
note that the PRIVATE PROPERTIES of the partners may not be taken
UNTIL AND UNLESS the properties of the partnership have first been
exhausted.