Art. 1808.

Industrial partner is prohibited from engaging “in business for himself” (any business).
Capitalist partner is prohibited from engaging for his own account in any operation “which is of the kind of business in
which the partnership is engaged” (same or similar business that may result in competition). (See 2 Blanco 426)
Instances When There Is No Prohibition
(a) When it is expressly stipulated that the capitalist partner can so engage himself.
(b) When the other partners expressly allow him to do so.
(c) When the other partners impliedly allow him to do so. (Example: When ALL of them are likewise violating the
article.)
(d) When the company ceases to be engaged in business (hence during the period of liquidation and winding up,
the article no longer applies, even if the “engaging” partner is himself the “liquidating partner”).
(e) When the general-capitalist partner becomes merely a limited partner in a competitive enterprise for after all, a
limited partner does not manage.
Effect of Violation
(a) the violator shall bring to the partnership all the profits illegally obtained
(b) but he shall personally bear all the losses.
(c) Violator can be ousted from the firrm on the ground of loss of trust and confidence, particularly if the violation
is repeated after due warning. This would of course result in the dissolution of the firm.

Art. 1809

RIGHT TO DEMAND A FORMAL ACCOUNT

Generally, no formal accounting is demandable till after dissolution.
Exceptions:
(1) If he is wrongfully excluded from the partnership business or possession of its property by his
co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by Article 1807; (4) Whenever other circumstances render it just and reasonable.

PROPERTY RIGHTS OF A PARTNER

1) rights in specific partnership property (example —rights in a car contributed to the firm).
2) interest in the partnership (share in the profits and surplus). (Art. 1812, Civil Code).
3) right to participate in the management. (Art. 1810, Civil Code). [NOTE: This right is not given to the limited partner. (Art.
1848, Civil Code).]

A partner is co-owner with his partners of specific partnership property.The incidents of this co-ownership are such that:
(1) A partner has an equal right with his partners to possess specific partnership property for partnership purposes;
but he has no right to possess such property for any other purpose without the consent of his partners;
(2) A partner’s right in specific partner ship property is not assignable except in connection with the assignment of
rights of all the partners in the same property;
(3) A partner’s right in specific partnership property is not subject to attachment or execution, except on a claim
against the partnership. When partnership property is attached for a partnership debt the partners, or any of
them, or the representatives of a deceased partner cannot claim any right under the homestead or exemption
laws;
(4) A partner’s right in specific partnership property is not subject to legal support under Article 291.

A Partner’s Interest in the Partnership While in general, a partner’s interest in specific partnership property cannot
be assigned, cannot be attached, and is not subject to legal support, a partner’s interest in the partnership (his
share in the profits and surplus) can in general be assigned, be attached, be subject to legal support. (See Arts.
1813 and 1814).

Effects of Conveyance By Partner of His Interest in the Partnership

1
 (a) If a partner CONVEYS (assigns, sells, donates) his WHOLE interest in the partnership (his share in the profi ts
and surplus), either of two things may happen:
1) the partnership may still remain; or
2) the partneship may be dissolved. (NOTE: However, such mere conveyance does NOT
of itself dissolve the firm, therefore in general the partnership remains.)
(b) The assignee (conveyee) does not necessarily become a partner. The assignor is still the partner, with a right to
demand accounting and settlement.
(c) The assignee cannot even interfere in the management or administration of the partnership business or affairs.
(d) The assignee cannot also demand:
1) information;
2) accounting;
3) inspection of the partnership books. R
Rights of the Assignee
(a) To get whatever profi ts the assignor-partner would have obtained.
(b) To avail himself of the usual remedies in case of fraud in the management.
(c) To ask for annulment of the contract of assignment if he was induced to enter into it thru any of the vices of
consent (fraud, error, intimidation, force, undue influence) or if he himself was incapacitated to give consent
(minor, insane).
(d) To demand an accounting — (but only if indeed the partnership is dissolved, but even then, the account can
cover the period only from the date of the last accounting which has been agreed to by all the partners). (Art.
1813, 2nd paragraph).

Charging the Interest of a Partner

While a partner’s interest in the partnership (his share in the profits or surplus) may be charged or levied upon, his
interest in a specific fi rm property cannot as a rule be attached.

Preferential Rights of Partnership Creditors

The law says “without prejudice to the preferred rights of partnership creditors under Art. 1827.” This simply
means that partnership creditors are entitled to priority over partnership assets (including the partner’s interest in
the profi ts), that is, the separate creditors will get only after the fi rm creditors have been satisfied. Art. 1827
reads: “The creditors of the partnership shall be preferred to those of each partners as regards the partnership
property. Without prejudice to this right, the private creditors of such partner may ask the attachment and public
sale of the share of the latter in the partnership assets.”
[NOTE: (a) Partnership creditors have preference in partnership assets. (b) Separate or individual creditors have
preference in separate or individual properties (not those included in the firm).]

Receivership
(a) When the charging order is applied for and granted, the court MAY (discretionary) at the same time or later
appoint a receiver of the partner’s share in the PROFITS or other MONEY due him. (Art. 1814).
(b) The receiver appointed is entitled to any RELIEF necessary to conserve the partnership assets for partnership
purposes. Thus, he may nullify all efforts to assign specific partnership property.

Redemption of the Interest Charged

How made?
1) The “charge” may be “redeemed” or bought at anytime BEFORE foreclosure.
2) AFTER foreclosure, it may still be “bought,” with separate property (by any one or more of the partners); or with
partnership property (with consent of all the other partners). (NOTE: The consent of the delinquent partner is not
needed.)

OBLIGATIONS OF THE PARTNERS WITH REGARD TO THIRD PERSONS

2
ARTICLE 1815.

 Importance of having a firm name

- to distinguish the partnership which has a distinct and separate juridical personality from the
individuals composing the partnership and from other partnerships and entities (De Leon, 2010).

 Liability for the inclusion of name in the firm name

- Persons who, not being partners, include their names in the firm name do not acquire the rights of a
partner but under Article 1815, they shall be subject to the liability of a partner (Art. 1816) insofar as
third persons without notice are concerned (De Leon, 2010).

ARTICLE 1816.

 Liability distinguished from Losses

- While an industrial partner is exempted by law from losses (as between the partners), he is not
exempted from liability (insofar as third persons are concerned).
- partners will be personally liable (jointly or pro rata) only after the assets of the partnership have
been exhausted. Even the industrial partner would have to pay, but of course he can recover later on
what he has paid, from the capitalist partners, unless there is contrary agreement. (De los Reyes v.
Lukban & Borja, 35Phil. 757; Compania Maritima v. Muñ oz, et al., 9 Phil. 326).

 Unequal Contribution of Capitalist Partners

- Suppose capitalist partners had contributed unequally to the capital, will their liability to strangers
be equal or proportionate to their contributions? ANS.: Proportionate for the law says “pro rata”
(proportionate).

 Partner Acting in His Own Name

- he does not act in behalf of the partnership; he acts in his own name, although for the benefit of the
partnership.

ARTICLE 1817.

 A stipulation among the partners contrary to the pro rata and subsidiary liability imposed by Article 1816 is:
- VOID AND OF NO EFFECT insofar as it affects the rights of THIRD PERSONS;
- VALID AND ENFORCEABLE only as among partners.

ARTICLE 1818.“Effects of the acts of partners acting as an agent of the partnership”

 Agency of a Partner
- It has been truthfully said that a partnership is a contract of “mutual agency,” each partner acting as a
principal on his own behalf, and as an agent for his co-partners or the firm. (Commercial Casualty Ins.
Co. v. North, 1943, 320 Ill. App. 221, 60 N.E. 2d 434).

 When Can a Partner Bind the Partnership

- A partner binds the partnership when the following requisites are present:
a. when he is expressly authorized or impliedly authorized;
b. when he acts in behalf and in the name of the partnership.
- Instances of implied authorization:
a. when the other partners do not object, although they have knowledge of the act;
b. when the act is for “apparently carrying on in theusual way the business of the partnership.”

 When Will the Act of the Partner Not Bind the Partnership

3
 1. When, although for “apparently carrying on in the usual way the business of the partnership,” still the
partner has in fact NO AUTHORITY, and the 3rd party knows that the partner has no authority. (This
is to penalize customer or client in bad faith.)
2. When the act is NOT for “apparently carrying on in the usual way” of the partnership and the partner
has NO AUTHORITY (whether or not the 3rd party knows of the LACK of AUTHORITY is NOT
IMPORTANT. As long as there was really no authority, the firm is not bound.)

 Acts of strict dominion or ownership (Par. 3)

- Acts:
a. Assigning partnership property in trust for creditors ;
b. Disposing of goodwill of business;
c. Doing an act which would make it impossible to carry on the ordinary business of
partnership;
d. Confessing a judgment;
e. Entering into a compromise concerning a partnership claim or liability;
f. Submitting partnership claim or liability to arbitration;
g. Renouncing claim of partnership

o GR: One or more but less than all the partners have no authority
XPNs:
1. Authorized by the other partners; or
2. Partners have abandoned the business

 Acts in contravention of a restriction on authority (Par.4)

- Partnership is not liable to 3rd persons having actual or presumptive knowledge of the restriction

ARTICLE 1819.“Effect of conveyance of a real property”

TYPE OF CONVEYANCE / EFFECT

 Applicable to real property alone.

 An equitable interest or title is one not only recognized by law, but also by the principles of equity. (See 30
C.J.S. 401). Evidently, as used in Art. 1819, it refers to “all interest which the partnership had, except TITLE,”
that is, the beneficial interests like use, fruits, but not the naked ownership.
 Title in the partnership’s name; Conveyance in partnership name
o Conveyance passes title but partnership can recover unless:
 Conveyance was done in the usual way of business, and
 The partner so acting has the authority to act for the partnership; or
 The property which has been conveyed by the grantee or a person claiming through such
grantee to a holder for value without knowledge that the partner, in making the conveyance,
has exceeded his authority (De Leon, 2014).
 Title in the partnership’s name; Conveyance in partner's name
o Conveyance does not pass title but only equitable interest, provided:
 Conveyance was done in the usual way of business, or
 The partner so acting has the authority to act for the partnership (De Leon, 2014).
 Title in the name of 1 or more partners, and the record does not disclose the right of the partnership;
Conveyance in name of partner/s in whose name title stands
o Conveyance passes title but the partnership may recover such property if the partners’ act does not
bind the partnership:
 The partner so acting has no authority to act for the partnership, and

4
  The person with whom he is dealing has knowledge of the fact unless the purchaser of his
assignee, is a holder for value, without knowledge (De Leon, 2014).
 Title in name of 1 or more or all; partners or 3rd person in trust for partnership; Conveyance
executed in partnership name or in name of partners
o Conveyance will only pass equitable interest, provided:
 The act is one within the authority of the partner, and
 Conveyance was done in the usual way of the business (De Leon, 2014).
 Title in the names of all the partners; Conveyance executed by all the partners
o Conveyance will pass all the rights in such property (De Leon, 2014).

ARTICLE 1820.

 Admission or Representation Made By a Partner

- Generally, an admission by a partner is an admission against the partnership under the conditions
given:
1. the admission must concern partnership affairs
2. within the scope of his authority

 Restrictions on the Rule

1. Admissions made BEFORE dissolution are binding only when the partner has authority to act on the
particular matter.
2. Admissions made AFTER dissolution are binding only if the admissions were necessary to WIND UP
the business.

 Previous Admission
- When is a previous admission (not present court testimony) of a partner admissible in evidence
against the partnership?
 ANS.: When it was made WITHIN the scope of the partnership, and DURING its existence,
provided of course that the existence of the partnership is first proved by evidence OTHER
than such act or declaration. (Sec. 26, Rule 130, Revised Rules of Court).

ARTICLE 1821.

 Notice to partner of any matter relating to partnership affairs operates as notice to partnership exceptin case
of fraud:
a. Knowledge of partner acting in the particular matter acquired while a partner
b. Knowledge of the partner acting in the particular matter then present to his mind
c. Knowledge of any other partner who reasonably could and should have communicated it to the
acting partner

 “Where the knowledge or notice has been received by the partner before he became a partner, and his
partners are ignorant of this, and he is not the partner acting in the particular matter, there is no doubt
that there has been neither knowledge of nor notice to the partnership.” (Commissioner’s Note, 7 ULA, Sec.
12, pp. 20-21).

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. (n)

LIABILITY OF PARTNERSHIP FOR WRONGFUL ACTS OF A PARTNER

5
(1) In the ordinary course of the business of the partnership; or
(2) Not in such ordinary course of business, but with the authority of his co-partners [Art. 1822].

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. (n)

LIABILITY OF THE PARTNERSHIP FOR MISAPPLICATION OF MONEY OR PROPERTY

(1) Received by a partner: (a) Acting within the scope of his apparent authority; and (b) Misapplied it;
(2) Received by the partnership: (a) In the course of its business; and (b) Misapplied by any partner while it is in the custody
of the partnership [Art. 1823

Art. 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles
1822 and 1823.

LIABILITY OF THE OTHER PARTNERS UNDER ART. 1822 AND 1823 All partners are solidarily liable with the partnership for its
liabilities under Articles 1822 and 1823 [Art. 1824].

This is without prejudice to the guilty partner being liable to the other partners. However, as far as third persons are
concerned, the partnership is answerable [De Leon (2010)].

Art. 1825. When a person, by words spoken or written or by conduct, represents himself, or consents to another
representing him to anyone, as a partner in an existing partnership or with one or more persons not actual 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 actual or apparent partnership, and if he has made such representation or consented to its being made in a
public manner he is liable to such person, 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 the representation or consenting to its
being made:
(1) When a partnership liability results, he is liable as though he were an actual member of the partnership;(2) When no
partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the contract or
representation as to incur liability, otherwise separately.
When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not
actual partners, he is an agent of the persons consenting to such representation to bind them to the 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 obligation results; but in all other
cases it is the joint act or obligation of the person acting and the persons consenting to the representation. (n)

PARTNERSHIP BY ESTOPPEL
1) represents himself as a partner or
(2) consents to another representing him to anyone as a partner:
(1) In an existing partnership; or (2) With one or more persons not actual partners [Art. 1825, par. 1].

PARTNER BY ESTOPPEL
PERSONAL REPRESENTATION :
(1) To whom such representation has been made; and
(2) Who has, on the faith of such representation, given credit to the actual or apparent partnership [Art. 1825, par. 1].
PUBLIC REPRESENTATION :

6
(1) Partnership liability results, he is liable as though he were an actual member of the partnership.
(2) No partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the contract or
representation.
(3) When there are no such other persons, he is separately liable [Art. 1825, par. 1].
EFFECT ON EXISTING PARTNERSHIP OR OTHER PERSONS NOT ACTUAL PARTNERS (
1) When a person has been represented to be a partner
(a) in an existing partnership, or
(b) with one or more persons not actual partners
(2) When all the members of the existing partnership consent to the representation, a partnership act or obligation results.
(3) In all other cases, it is the joint act or obligation of the person acting and the persons consenting to the representation
[Art. 1825, par. 2].

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. (n)

LIABILITY OF AN INCOMING PARTNER A person admitted as a partner is liable:

(1) For obligations incurred subsequent to his admission as the other partners are liable;
(2) For obligations incurred before his admission, but will be satisfied only out of the partnership property, unless otherwise
stipulated that he fully assumes such obligations.

Art. 1827. The creditors of the partnership shall be preferred to those of each partner as regards the partnership property.
Without prejudice to this right, the private creditors of each partner may ask the attachment and public sale of the share of
the latter in the partnership assets. (n)