CHAPTER 2 7.

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

moment of the execution of the contract.

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

PARTNER Obligation of capitalist partners to

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

REQUISITES: Risk of Loss

1. The existence of at least 2 debts (one where
the managing partner is the creditor and the
other where the partnership is the creditor);
and
2. Both sums are demandable
NOTES
➢ If managing partner issued a receipt for his own
credit, the sum should be applied
proportionately.
➢ If managing partner for the credit of the
partnership, then the entire sum will be applied
to the credit of partnership.
➢ Liability refers to the obligation towards the
partners.
➢ Losses refers to obligation as among the
partners.
ARTICLE 1793. A partner who has received, in
whole or in part, his share of a partnership
credit, when the other partners have not
collected theirs, shall be obliged, if the debtor
should thereafter become insolvent, to bring
to the partnership capital what he received
even though he may have given receipt for his
share only. (1685a)
1. Specific and determinate things which
are not fungible
➢ The partner owns them bears the risk of
loss since only their use and fruits are
contributed.
2. Fungible things
➢ The partnership bears the risk of loss as
there is a transfer of ownership after
delivery of fungible things.
3. Things contributed to be sold
➢ The partnership bears the risk of loss as
there is a transfer of ownership after
delivery of things contributed to be sold.
4. Things brought and appraised in the
inventory
➢ The partnership bears the risk of loss as
there is a transfer of ownership after the
delivery of things brought and appraised in
the inventory.
Obligation of the partnership to every
partner
1. To refund the amounts a partner may have
disbursed on behalf of the partnership plus the
 interest from the time the expenses were ARTICLE 1799. A stipulation which excludes
made. one or more partners from any share in the
2. To answer to each partner for obligations, he profits or losses is void. (1691)
may have contracted into in good faith in the
interest of the partnership, and for the risks in General rule: A stipulation excluding one or more
consequence of its management. partners from any share in the profits and losses is
void. What is void is the stipulation only and not the
RULES FOR DISTRIBUTION OF PROFITS AND contract of partnership. Hence, the profits and
losses shall be distributed as if there was no
LOSSES OF A PARTNERSHIP agreement as discussed in the preceding article.
1. Distribution of profits
a. According to agreement – profits shall Exception: An industrial partner is not liable for
be distributed in conformity with the losses unless the waived this right.
agreement.
b. If there is no agreement Why is an Industrial Partner not liable for losses?
i. Capitalist partners – in proportion
While capitalist partners can withdraw
to what he may have contributed
their capital, the industrial partner cannot withdraw
ii. Industrial partners – that is just
any labor or industry he had already exerted.
and equitable under the
Moreover, in a certain sense, he already has shared
circumstances
in the losses in that, if the partnership show no
iii. Capitalist-industrial partners – in
profit, this means that he has labored in vain.
proportion to what he contributed
plus the agreed amount as his
just and equitable share
Example of an act of administration
2. Distribution of losses A managing partner of a partnership may
a. According to agreement – losses shall execute all acts of administration including the right
distributed in conformity with the to sue debtors of the partnership in case of their
agreement; if only agreement to the share failure to pay their obligation when it became due
of each partner in the profits, the share of and demandable.
each in the losses shall be in the same
proportion; industrial partner shall not be Who shall manage the partnership?
liable for the losses. Either one, some or all the partners
b. If there no agreement designated as managing partner/s in the articles of
i. Capitalist partners – in proportion partnership or after the contract of partnership had
to what they have contributed already been constituted. If there is no agreement,
ii. Industrial partners – not liable for management is vested in all of the partners.
losses
iii. Capitalist-industrial partners – in TWO MODES OF APPOINTMENT
proportion to his capital
1. Appointment as manager in the articles of
contribution
partnership; or
2. Appointment as manager made in an
Third Person Designating the Share of instrument other than the articles of
partnership.
Partners in the Profits and Losses
I. Appointment as Manager in the
General Rule: It is valid.
Articles of Partnership
Exception: It is not valid and it may be questioned General Rule: Power is irrevocable without just or
if it is manifestly inequitable; unless:
lawful cause.
1. A partner began to execute the decision of the
third person; or Exception:
2. A partner has not questioned the said decision 1. To remove him for just cause, vote of partners
of the third person within a period of 3 months having controlling interest is necessary;
from the time he had knowledge thereof.
2. To remove him without just cause, there must
be unanimity including his own vote.
Reason: This represents a change in the will of the
parties; a change in the terms of the contract; a
novation; so to speak, requiring unanimity.
Extent of power:
1. If he acts in good faith, he may do all acts of
administration despite the opposition of his
partners.
2. If he acts in bad faith, he cannot do any act of
administration. IT must be noted that the
presumption in law is in favor of good faith.
II. Appointment as Manager Made in an
Instrument other than the Articles
of Partnership
Rule: The power to act may be revoked at any time,
with or without just cause by the partners owning
the controlling interest.
Reason: Such appointment is a mere delegation of
power; revocable at any time.
Extent of power: The manager can do all acts of
administration.
When Two or More Managing Partners
have been Entrusted with the Management
Requisites:
1. Two or more partners are managers;
2. There is no specification of respective duties;
and
3. There is no stipulation requiring unanimity, that
is, that one of them shall not act without the
consent of all the others.
General rule: Each one may separately execute all
acts of administration.
Exceptions: If any of the managers should oppose:
1. The decision of the majority (per head) of the
managing partners shall prevail.
2. In case of a tie, the decision of the managing
partners owning the controlling interest (more
than 50%) shall prevail.
NOTES
➢ The right to oppose is not given to the non-
managers because in appointing their other
partners as managers, they have stripped
themselves if all participation in the
administration.
Stipulation Requiring Unanimity of Action
General rule: Unanimous consent of all the
managing partners (even if one of the managers is
absent of decapitated) shall be necessary for the
validity of the acts and absence or disability of any
managing partner cannot be alleged.
Exception: When there is an imminent danger of
grave or irreparable injury to the partnership.
Article 1802 NOT applicable to third person
This obligation is not imposed upon a third
person who contracts with the partnership. Neither
it is necessary for the third person to ascertain if the
managing partner with whom he contracts has
previously obtained consent of other. A third person
may and has a right to presume that the partner
with whom he contracts has, in the ordinary and
natural course of business, the consent of his co-
partner; otherwise, he would not enter the contract.
Rules When Manner of Management Has
Not Been Upon
1. All the partners shall be considered as
managers. Consequently, all partners can do all
acts of and=ministration. If the acts of a
partner are opposed by other partners, the
majority (per head) shall prevail. In case of tie
(per head), then the vote of the partners
representing the controlling interest shall
prevail.
2. For important alterations in immovable
property, unanimity is required.
Art. 1803 paragraph 2 deals only with immovable property:
a. First, because of their comparative greater
importance than personalty.
b. Second, because, in a proper case, they
should be returned to the partners in the
same condition as when they were
delivered to the partnership.
Consent of the other may be expressed or
implied (as when the partners had knowledge
 of the alternation and no opposition was made
by them).
Contract of Sub-Partnership
➢ The consent of the other partners is not
required.
➢ All partners can have an associate in his share
or sub-partner.
➢ An associated sub-partner shall not be admitted
into the partnership without the consent of all
the other partners based on the following
reasons:
a. Mutual trust is the basis of partnership;
and
b. A change in membership is a modification
or novation of the contract.
ARTICLE 1805. The partnership books shall
be kept, subject to any agreement between
the partners, at the principal place of
business of the partnership, and every
partner shall at any reasonable hour have
access to and may inspect and copy any of
them. (n)
What is reasonable hour?
The Supreme Court held that reasonable
hour should be on business days throughout the
year, and not merely during some arbitrary period
of a few days chosen by the directors (or managers
as regards partnership).
ARTICLE 1806. Partners shall render on
demand true and full information of all things
affecting the partnership to any partner or
the legal representative of any deceased
partner or of any partner under legal
disability. (n)
Violation of the above stated article is
called concealment.
Who can demand true and full information?
1. Any partner;
2. Legal representative of any deceased partner;
and
3. Legal representative of any partner under legal
disability.
ARTICLE 1807. Every partner must account to
the partnership for any benefit, and hold as
trustee for it any profits derived by him
without the consent of the other partners
from any transaction connected with the
formation, conduct, or liquidation of the
partnership or from any use by him of its
property. (n)
Rationale: The partners are governed by fiduciary
relationship, that is, mutual trust and confidence.
NOTES
➢ Article 1807 refers only to any profits derived
by a partner without the consent of the other
partners.
➢ The 3 final stages of a partnership are: (1)
dissolution; (2) winding-up; and (3)
termination.
➢ The partnership, although dissolved, continue
to exist and its legal personality is retained, at
which time completes the winding up of its
affairs, including the partitioning and
distribution of the net partnership assets to the
partners.
➢ For as long as the partnership exists, any of the
partners may demand an accounting the
partnership’s demands.
➢ When the final accounting is made, it is only
then that prescription begins to run.
ARTICLE 1808
Rationale: The capitalist partner has already
acquired knowledge of the business secrets of the
partnership; hence, it is unfair for him to engage in
a business which is of the kind of business in which
the partnership is engaged.
Effects of violation
1. The capitalist partner shall bring to the
common fund any profits accruing to him; and
2. The capitalist partner shall personally bear all
the losses.
ARTICLE 1809
General rule: No formal accounting is demandable
until after the dissolution of the partnership.
Exceptions:
1. If a partner is wrongfully excluded from the
partnership business or possession of its
property by his co-partners;
2. If the right to demand for accounting exists
under the terms of any agreement;
3. As provided by article 1907; and
4. Whenever other circumstances render it just
and reasonable.
 NOTES Section 2:
➢ If excellent relations exist among the partners Property Rights of a Partner
at the start of the business and all the partners ARTICLE 1810. The property rights of a
are more interested in seeing the firm grow partner are:
rather than get immediate returns, a deferment (1) His rights in specific partnership property;
of the sharing in the profits perfectly plausible. (2) His interest in the partnership; and
(3) His right to participate in the
INDUSTRIAL CAPITALIST management. (n)
PARTNER PARTNER
Prohibition ARTICLE 1811
ABSOLUTE RELATIVE
PROHIBITION PROHIBITION A partner is co-owner with his partners of
The industrial partner The capitalist partner specific partnership property. The incidents of this
cannot engage in cannot engage in the co-ownership are such that:
business for himself, same kind of business
unless the partnership as that of the 1. A partner has an equal right with his
expressly permits him partnership for his own partners to possess specific partnership
to do so. account, there is a property for partnership purposes
stipulation to the ➢ All of the contributions of the partners are
contrary. now by the partnership being a juridical
Remedy person.
Capitalist partners Capitalist partner, who 2. A partner’s right in specific partnership
may: violated shall: property is assignable
1. Exclude him from 1. Bring to the ➢ Assignment: The transfer or property. The
the firm plus common fund any
rights or property so transferred.
damages; and profits accruing to
3. A partner’s right in specific partnership
2. Avail themselves him from said
of the benefits transactions; and property is not subject to attachment or
which he may 2. Personally bears execution
have obtained. all losses. ➢ Partners’ separate creditors cannot ask the
court for attachment or execution of the
contributed properties as these are bow
owned by the partnership which has a
separate juridical personality.
4. A partner’s right in specific partnership is
not subject to legal support

ARTICLE 1812. A partner’s interest in the

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

Rationale: A partner’s interest in the partnership

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

Profit – The excess of revenues over expenditures

in a business transaction.

Surplus – the excess of receipts over

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

Conveyance – the voluntary transfer of a right or of

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

What is meant by a “charging order” upon

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

Note that the court will issue a charging

order after the creditor obtained a favorable
judgment from the court which became final.
 Section 3:
Obligations of the Partners with Regard
to Third Persons
ARTICLE 1815. Every partnership shall
operate under a firm name, which may or may
not include the name of one or more of the
partners.
Those who, not being members of the
partnership, include their names in the firm
name, shall be subject to the liability of the
partner.
General rule: The partners may use any firm name
desired and this will be the name of that juridical
person.
Exception:
➢ The partnership cannot use an identical or
deceptively confusingly similar name to that of
any existing partnership or corporation or to
any other name already protected by law or is
patently deceptive or contrary to existing laws.
➢ Non-partners who include their names in the
firm name shall be subject to the liability of a
partner. This is based on the principle of
estoppel. Such person has no right as a partner
because he is in fact not a partner.
Note: The purpose of the law is to protect innocent
third persons from being misled.
ARTICLE 1816. All partners, including
industrial ones, shall be liable pro rata with
all their property and after all the partnership
assets have been exhausted, for the contracts
which may be entered into in the name and
for the account of the partnership, under its
signature and by a person authorized to act
for the partnership. However, any partner
may enter into a separate obligation to
perform a partnership contract. (n)
Liability for contractual obligations
Article 1816 refers to liability and not to
loss that is why even an industrial partner is also
liable as he is not liable only with respect to loss.
Hence, all partners including industrial partners’
liability is pro rata and subsidiary, unless otherwise
stipulated.
Pro rata — equally or jointly
Subsidiary – partners’ separate property may be
held liable only after the partnership creditors’
exhausted assets of the partnership.
Separate obligation of a partner
If a partner, in his own name, enters into
a contract with a third person, then it is only that
partner who is liable and not the partnership.
Stipulation against liability
Stipulation against liability of all partners
for the contracts entered into in the name of the
partnership is void as to third persons but is valid
among the partners.
Partner as agent of the partnership
A contract of partnership is naturally
fiduciary. Thus, trust and confidence governs the
partners. Hence, every partner is an agent of the
other partners and the partnership.
I. Acts apparently for carrying on in the
usual way the business of the
partnership
This binds the partnership unless:
a. The partner so acting has in fact no
authority to act for the partnership; and
b. The person with whom he is dealing has
knowledge of the fact that he has no such
authority (bad faith)
Act is still binding if acted by a person who
has no authority but such non-authority is
unknown to the person dealt with.
II. Acts not apparently for the carrying
on in the usual way of business of the
partnership
It does not bind the partnership, unless
authorized by the other partners.
III. Acts of ownership
Authority must come from partners
unanimously.
IV. Acts in contravention of a restriction
on authority
The act is not binding to the partnership as
to persons having knowledge of the
restriction.
Title – legal evidence of a person’s ownership rights Engaged in real estate
business
in property an instrument (such as deed) that
One or more (or all) of the partners
constitute such evidence. CONVEYANCE: ADDITIONAL:
Executed by a partner Only the equitable
Equitable Interest in his/the partnership’s interest will be
An interest held by virtue of an equitable name transferred to X (3rd
person)
title or claimed on equitable grounds, such as the
SALE:
interest held by a trust beneficiary.
Valid and binding to X can ask for the
Real Property Registration the partnership reformation of the
(Title to real property is in the name of:) contract of sale to
BUSINESS: change the seller from
The Partnership
Engaged in real estate partner to the
CONVEYANCE: ADDITIONAL:
business partnership
Executed in the Sold land can be
partnership name recovered if selling
Equitable interest will
partner has no
not be transferred if
SALE: authority to convey the
sale is not in line with
Valid and binding to land
business operations
the partnership
Cannot be recovered if
Equitable interest will
BUSINESS: sale is in line with
not be transferred if C
Not mentioned as real business operations
has no authority and
estate
3rd person has
Cannot be recovered if
knowledge of it
buyer is in good faith
All the Partners
The Partnership
CONVEYANCE: SALE:
CONVEYANCE: ADDITIONAL:
Executed by all the Valid and binding to
Executed in the Only the equitable
partners the partnership
partners’ name interest will be
transferred to 3rd
BUSINESS:
SALE: person
Engaged in real estate
Valid and binding to
business
the partnership 3rd person can ask for
the reformation of the
BUSINESS: contract of sale to
Engaged in real estate change the seller from ARTICLE 1820
business partner to the
partnership Admission – a statement in which someone admits
that something is true or that he or she has done
Equitable interest will something wrong.
not be transferred if
sale is not in line with An admission by any partner is evidence
business operations against the partnership if:

Equitable interest will 1. The admission must concern partnership

not be transferred if C affairs; and
has no authority and 2. the admission must be within the scope of his
3rd person has authority.
knowledge of it
One or more (but not all the partners) NOTE: An admission by a former partner, made after
CONVEYANCE: ADDITIONAL:
he has retired from the partnership, is not evidence
Executed by partners Sold land cannot be
recovered if 3rd person against the firm.
SALE: is in good faith
Valid and binding to ARTICLE 1821
the partnership
General Rule: Notice to a partner is notice to the
BUSINESS: partnership.
Instances where knowledge of a partner is
considered knowledge of the partnership:
1. Knowledge of the partner acting in the
particular matter acquired while a partner;
2. Knowledge of the partner acting in the
particular matter then present to his mind; and
3. Knowledge of any other partner who
reasonably could and should have
communicated it to the acting partner.
Exception: In the case of fraud on the partnership,
committed by or with the consent of that partner.
ARTICLE 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 his 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)
Wrongful act or omission
The other partners and the partnership are
solidary liable with the negligent partner because
the law protects the 3rd person, who in good faith
relied upon the authority of a partner, whether such
authority is real or apparent.
This applies only if the case of the 3 rd
person falls under Article 1822 or 1823.
ARTICLE 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)
A PARTNER MAY BE HELD LIABLE FOR
ESTAFA
“Thus, even assuming that a contract of partnership
was indeed entered into by and between the
parties, we have ruled that when money or property
had been received by a partner for a specific
purpose and he later misappropriated it, such
partner is guilty of estafa."
ARTICLE 1824. All partners are liable
solidarily with the partnership for everything
chargeable to the partnership under articles
1822 and 1823. (n)
ARTICLE 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
➢ All partners consent to misrepresentation of a
third person who is not a real partner.
➢ This creates a partnership obligation.
➢ All partners consenting are in bad faith; they
are all partners by estoppel.
➢ Does not apply when the third person is not
deceived. Third person has the burden of
proving the existence of a partner by estoppel
or partnership by estoppel.

ARTICLE 1826. A person admitted as a

partner into an existing partnership is liable
for all the obligations of the partnership
arising before his admission as though he had
been a partner when such obligations were
incurred, except that this liability shall be
satisfied only out of partnership property,
unless there is a stipulation to the contrary.
(n)

ARTICLE 1827. The creditors of the

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