Article 1767.

By the contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves. Two or more persons may also form a partnership for
the exercise of a profession.
It is both:
1. A contract (Article 1768) and;
2. A business organization.
a. It is a juridical entity which has a personality separate and distinct from that of each of the partners. (Art. 1768). It
begins from the moment of the execution of the contract, unless it is otherwise stipulated (Art. 1784).
CHARACTERISTICS OF A CONTRACT OF PARTNERSHIP
1. Consensual – it is perfected by mere consent
2. Principal – it does not depend upon any other contract for its validity or existence.
3. Bilateral – it is entered into by two or more persons whose rights and obligations are reciprocal.
4. Nominate – it has a special name given to it by law.
5. Preparatory - it is a means by which the other contracts will be entered into as the partnership pursues its business.
6. Onerous – The partners contribute money, property or industry to a common fund.
ESSENTIAL REQUISITES OF PARTNERSHIP
1. There must be a valid contract.
a. Article 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service.
b. Delectus Personae – No one can become a member of the partnership association without the consent of all the
other associates.
2. There must be a mutual contribution of money, property or industry to a common fund.
3. It must have a lawful object or purpose.
4. The partnership must be established for the common benefit or interest of the partners which is to obtain profits and to
divide the profits among the partners.
a. However, if a partnership is formed for the practice of a profession, its primary purpose is not to obtain profits but
to render service to the public.
FORM OF PARTNERSHIP CONTRACT
1. Where immovable property or real rights are contributed to the partnership (regardless of the amount thereof)
a. The partnership contract must be in a public instrument;
b. An inventory of the said property must be made signed by the parties and attached to the public instrument.
i. Effect if the above requirements are not complied with
1. The partnership contract is void.
2. The partnership will not have any juridical personality
2. Where the capital of the partnership is 3,000 or more, in money or property
a. The partnership contract must be in a public instrument;
b. Registered with the Securities and Exchange Commission
i. Effect if the above requirements are not complied with
1. The partnership contract is valid
2. The liability of the partnership and the members thereof to third persons are not affected
3. If the partnership is a limited partnership, a certificate signed under oath by the partners and recorded with the Securities
and Exchange Commission is required.
i. Effect if requirements are not complied with
1. The partnership will be considered as general partnership
WHO MAY BECOME PARTNERS
1. Any natural person who is capacitated may become a partner.
a. The following persons cannot give their consent to a contract of partnership:
i. Unemancipated minors (emancipation takes place by the attainment of majority)
ii. Insane or Demented Persons
iii. Deaf-mutes who do not know how to write
iv. Persons who are suffering from civil interdiction (mental incapacity)
v. Incompetents who are under guardianship
2. A partnership may enter into another partnership with individuals or other partnerships as there is no prohibition thereto.
However, a corporation is prohibited from doing such.
RULES TO DETERMINE WHETHER A PARTNESHIP EXISTS – Article 1769
 1. Persons who are not partners as to each other are not partners as to third persons except when a person 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 (partners by estoppel-Article 1825).
2. Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or co-possessors do or
do not share any profits made by the use of the property.
3. The sharing of gross returns does not itself establish a partnership, whether or not the persons sharing them have a joint
or common right or interest in any property from which the returns are derived.
4. The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a partner in the
business.
a. EXCEPTIONS: No such inference shall be drawn if such profits were received in payment: (DRAWInG)
i. Debt by installment or otherwise
ii. Rent to a landlord
iii. Annuity to a widow or representative of a deceased partner
iv. Wages of an employee
v. Interest on loan, though the amount of payment vary with the profits of the business
vi. Consideration for the sale of Goodwill of a business or other property by installment or otherwise.
KINDS OF PARTNERSHIP
1. AS TO OBJECT
a. Universal Partnership – it may either be a universal partnership of all present property or a universal partnership
of profits (Article 1777)
i. Universal Partnership of all Property – partnership in which all the partners contribute all the property
which actually belonged to them to the common fund, with the intention of dividing the same among
themselves, as well as the profits which they acquire therewith. (Article 1778)
1. Property which belong to the common fund
a. Property belonging to the partners at the time of the constitution of the partnership
(present property).
b. Profits that may be acquired from the present property
c. Property acquired by each partner after the formulation of the partnership but only if
stipulated. (Article 1779) This property shall include:
i. The property itself except that the stipulation shall not include property acquired
by inheritance, legacy, or donation.
ii. The profits and fruits therefrom including those from property acquired by
inheritance, legacy or donation.
ii. Universal Partnership of Profits – this comprises all that the partners may acquire by their work or
industry during the existence of the partnership. (Article 1780)
1. Profits/Property which shall belong to the partnership
a. Profits obtained by the partners by their work or industry during the existence of the
partnership. Accordingly, profits acquired by the partners without the exertion of physical
or intellectual efforts, such as those acquired by chance or lucrative title is excluded.
b. The usufruct of the property belonging to each partner at the time of the constitution of
the partnership.
c. The profits and fruits from the properties aforementioned (items “a” and “b”)
d. Profits and fruits, if stipulated, of property acquired by each partner after the constitution
of the partnership.
RULES IN CASE UNIVERSAL PARTNERSHIP IS WITHOUT ANY SPECIFICATION
1. Articles of universal partnership entered into without specification of its nature, only constitute
a universal partnership of profits. (Article 1781)
PROHIBITION TO ENTER INTO A UNIVERSAL PARTNERSHIP – Article 1782
1. Donations between spouses during the marriage except moderate gifts on the occasion of a
family rejoicing. These prohibitions apply to persons living as husband and wife without the
benefit of marriage. (Article 87, Family Code)
2. Those made between persons who were guilty of adultery or concubinage at the time of
donation. (Article 739)
3. Those made between two persons who found guilty of the same criminal offense, in
consideration thereof. (Article 739)
4. Those made to a public officer or his wife, descendants or ascendants by reason of his office.
b. Particular Partnership – a particular partnership has for its object determinate things, their use or fruits, or for a
specific undertaking, or the exercise of a profession. (Article 1783)
2. AS TO LIABILITY
a. General Partnership – partnership where all the partners are general partners who are liable to the extent of their
separate property after the partnership assets have been exhausted.
b. Limited Partnership – a partnership where there is at least one general partner and at least one limited partner.
3. AS TO DURATION
 a. Partnership for a fixed term – one for which a period for its duration is fixed by the partners.
b. Partnership for a particular undertaking – one which is organized for a certain undertaking which, when
attained, will cause the termination of the partnership.
c. Partnership at will – one where no period is fixed by the parties for its duration; hence, may be terminated at will
by the partners.
i. If a partnership for a fixed term or a particular undertaking is continued after the expiration of the said
term or the attainment of the said undertaking without any express agreement, the partnership becomes a
partnership at will. The continuation of the business in such a case has the following effects:
1. 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
2. The absence of settlement or liquidation of partnership affairs is a prima facie evidence of the
continuation of the partnership.
4. AS TO REPRESENTATION TO OTHERS
a. Ordinary Partnership – one which actually exists among the partners as well as to third persons
b. Partnership by Estoppel – one which in reality is not a partnership but is considered as one with respect to those
who, by reason of their conduct or admission, are precluded from denying its existence. (Article 1825) A
partnership by estoppels may arise through any of the following means:
i. When a person represents himself as a partner in an existing partnership
1. If all the partners consent to such misrepresentation, a “partnership by estoppels” is created
between the actual persons who made a representation. Here, a partnership liability results.
Thus, the assets of the partnership shall be used to pay the liability and after their exhaustion,
both the actual partners and the person who made the misrepresentation shall be liable with their
separate properties.
2. If not all the partners consented to the misrepresentation, no partnership liability results. A
partnership by estoppels is created among the actual partners who consented to the
misrepresentation and the person who made the representation, each one of whom shall be
liable jointly or pro-rata with their separate properties.
ii. When a person represents himself as a partner in a non-existing partnership
1. No partnership liability arises but the person who made the representation an all persons who
consented to it are liable jointly or pro-rata.
KINDS OF PARTNERS
1. AS TO LIABILITY
a. General partner – one who is liable for partnership debts to the extent of his separate property after all the assets
of the partnership have been exhausted.
b. Limited partner – one who is liable for partnership debts to the extent of his capital contribution only
c. General-limited partner – one who has all the rights and powers and is subject to all the restrictions of a general
partner, except that, in respect to his contribution, he shall have the rights against the other members which he
would have had if he were not also a general partner. (Article 1853) He shall be liable pro-rata to partnership
creditors to the extent of his separate assets after the partnership assets have been exhausted, but he can
demand reimbursement of the amount he paid from his co-partners.
2. AS TO CONTRIBUTION
a. Capitalist partner – one who contributes money or property to the common fund.
b. Industrial partner – one who contributes his services or industry to the partnership. Such industry may be
physical or intellectual industry.
c. Capitalist-industrial partner – one who contributes not only money or property but also his services to the
partnership.
3. OTHER CLASSIFICATIONS
a. Managing partner – one who manages the business or the affairs of the partnership
b. Liquidating partner – one who takes charge of the winding up of the affairs of the partnership after it is dissolved.
c. Nominal partner – one who is not actually a partner but who may become liable as such to third persons.
d. Ostensible partner – one who is active and known to the public as a partner, such as by allowing his name to be
included in the firm name.
e. Secret partner – one whose connection with the partnership is kept from the public
f. Silent partner – one who has no voice in the management of the business
g. Dormant partner – a partner who does not participate in the management of the business and not known to the
public as a partner.
RULES ON DIVISION OF PROFIT AND LOSS (Article 1797)
1. If all are capitalist partners
a. Profits and losses shall be divided accordingly to their agreement.
b. If only the sharing of the partners in the profits has been agreed upon, the share of each partner in the losses
shall be in the same proportion as the share of each in the profits.
 c. In the absence of both, the share of each partner in the profits and losses shall be in proportion to his capital
contribution.
2. If aside from the capitalist partners, there is also an industrial partner (or there are industrial partner)
a. Profits
i. The profits shall be divided according to their agreement
ii. In the absence of any agreement thereon, the industrial partner shall first receive a just and equitable
share of the profits, and thereafter, each capitalist partner shall share in the profits in proportion to his
capital contribution.
b. Losses
i. The industrial partner shall not share in the losses as follows:
1. According to their agreement
2. In the absence of any agreement thereon, each capitalist partner shall share in the losses in the
same proportion as the share of each in the profits.
3. In the absence of both, each capitalist partner shall share in the losses in proportion to his capital
contribution.
3. If aside from capitalist partners, there is also a capitalist-industrial partner
a. Profits
i. The profits shall be divided according to their agreement
ii. In the absence of any agreement thereon, profits shall be divided as follows:
1. The capitalist-industrial partner shall first receive a just and equitable share of the profits in his
capacity as industrial partner
2. Thereafter, each capitalist partner, including the capitalist-industrial partner in his capacity as a
capitalist partner, shall share in the profits in proportion to his capital contribution.
b. Losses
i. Losses shall be divided among the partners, including the capitalist-industrial partner in his capacity as
capitalist partner according to their agreement
ii. In the absence of any agreement thereon, losses shall be divided among the partners including the
capitalist-industrial partner in his capacity as capitalist partner, according to the ratio of their capital
contribution.
iii. In both of the above cases, the capitalist-industrial partner shall not share in the losses in his capacity as
industrial partner.
DESIGNATION OF SHARE IN THE PROFITS AND LOSSES BY A THIRD PERSON OR BY A PARTNER
1. If entrusted by the partners to a third person
a. The same shall be binding upon the partners and may be impugned only when it is manifestly inequitable.
However, even if such designation by a third person is manifestly inequitable, it can no longer be impugned:
i. by a partner who has begun to execute it; or
ii. by any partner if three months had already lapsed from the time he obtained knowledge thereof
b. If entrusted to one of the partners
i. The designation is void because it cannot be entrusted to one of the partners (Article 1798). Accordingly,
the profits and losses shall be divided among the partners as if there was no stipulation thereon.
RULES OF MANAGEMENT

 When a partner has been appointed manager in the articles of partnership

o Scope of Authority
 The managing partner may execute all acts of administration despite the opposition of his partners unless
he acts in bad faith
o Revocation of appointment as managing partner
 With just or lawful cause – his appointment can be revoked by the vote of the partners owning the
controlling interest.
 Without just or lawful cause – his appointment can be revoked only with the consent of all the partners
including the managing partner because such revocation would be a novation of the terms thereof.
 When a partner has been appointed manager after the partnership has been constituted
o Scope of Authority
 He may execute all acts of administration but in case of opposition by the other partners, the partners
owning the controlling interest may resort to voting for his removal as manager.
o Revocation of his appointment as managing partner
 He may be removed with or without just or lawful cause by the vote of the partners owning the controlling
interest. (Article 1800) This is so because such partner is only an agent whose authority may be revoked
at any time by his principal which is the partnership
 When two or more partners have been appointed as managers
o When there is a specification of their respective duties
 Scope of Authority
  Each managing partner shall perform only the duties specified in his appointment
o When there is no specification of their respective duties or there is no stipulation that one shall not act without the
consent of the others.
 Scope of Authority
 Each one may separately execute all acts of administration
 Rule in case of opposition of the other managers
 The decision of the majority of the managing partners shall prevail
 In case of a tie, the decision of the managing partner/s owning the controlling interest shall prevail
o When there is a stipulation that none of the managing partners shall act without the consent of the others
 Vote required
 The concurrence of all of them shall be necessary for the validity of the acts
 Rule in case of absence or disability of one of the managing partners
 The absence or disability of one managing partner cannot be alleged, i.e, the other managing
partners are not authorized to act for the partnership unless there is imminent danger of grave or
irreparable injury to the partnership.
 When the manner of management has not been agreed upon
o All of the partners shall be considered agents of the partnership, i.e, all of them are managers
 However, none of them may, without the consent of the others, make any important alteration in the
immovable property of the partnership, even if it may be useful to the partnership. But if the refusal to give
consent by the other partners is manifestly prejudicial to the interest of the partnership, the court’s
intervention may be sought.
 Whatever any one of them may do alone shall bind the partnership
 Rule in case of opposition of the other partners
 The decision of the majority shall prevail
 In case of a tie, the decision of the partners owning the controlling interest shall prevail.
RIGHTS OF PARTNERS TO ENGAGE IN BUSINESS
1. Industrial partner
a. General Rule and Exception
i. An industrial partner cannot engage in business for himself unless the partnership expressly permits him
to do so. (Article 1789) This prohibition applies even if the business is of a kind different from the
partnership business.
b. Reason for the Prohibition
i. The partnership is the owner of the services of the industrial partner, which is his contribution to the
common fund of the partnership. (Article 1789)
c. Effect if the industrial partner engages in business for himself without the express permission of the partnership
i. The capitalist partners may either:
1. Exclude him from the partnership, with a right to damages, or
2. Avail themselves of the benefits obtained from the business he engaged in, with a right to
damages (Article 1789)
2. Capitalist partner
a. Kind of business a capitalist partner may engage in
i. A capitalist partner may engage in business for his own account in the following:
1. The business will engage in is of a kind different from the partnership business
2. The business he will engage in is of the same kind as the partnership business, but there is a
stipulation allowing him to engage in that business.
b. Reason for the prohibition to engage in the same kind of business
i. The capitalist partner will be unfairly competing with the partnership business by reason of the information
he has obtained from the partnership business
c. Effect if a capitalist partner engages in the same kind of business without a stipulation allowing him to engage in
that business
i. The capitalist partner shall bring to the common fund any profits accruing to him from his transaction, and
ii. He shall personally bear all the losses (Article 1808)
RULES ON SHARING OF PARTNERSHIP LIABILITIES TO THIRD PERSONS
1. Nature of Liability
a. Pro rata – the liability of the partnership shall be equally divided among the partners.
b. Subsidiary – each partner shall be liable with his separate property after all assets of the partnership have been
exhausted.
2. Partners liable
a. All general partners whether
i. Capitalist Partner, or
ii. Industrial Partner
 3. Status of stipulation exempting a partner from pro rata and subsidiary liability after the exhaustion of partnership assets
a. Void as to third persons
b. Valid among the partners (Article 1817)
The stipulation, however, will not totally exempt a partner because his contribution will still be subject to the
payment of partnership liabilities. This is to reconcile Article 1817 with Article 1799 which declares void any stipulation
excluding a partner from losses, except in the case of an industrial partner.
Accordingly, if there is stipulation, the liabilities should be paid as follows:

 The assets of the partnership shall first be used to pay the liabilities.
 If the partnership assets are not sufficient, the liability shall be paid equally from the separate assets
of the partners including any industrial partner.
 Thereafter, the partners not exempted from pro rata and subsidiary liability shall reimburse according
to the partner’s liability shall reimburse according to the partner’s profit and loss sharing agreement or
in the ratio of their capital contribution, whichever is applicable to the following partners the amount
paid by them:
o Industrial partner whom the law exempts from losses
o General partners exempted from pro rata and subsidiary liability
REQUIREMENTS TO OPERATE UNDER FIRM NAME
A 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
a partner. (Article 1815)
OBLIGATIONS OF PARTNERS
1. Contribution of capital
a. To contribute equally to the capital of the partnership unless there is a stipulation to the contrary. (Article 1790)
2. Obligations with respect to contribution of property
a. To deliver to the partnership at the time it was constituted or on the date stipulated the property he has promised
to contribute
b. To take care of the property before its delivery to the partnership with the diligence of a good father of a family as
a rule. (Article 1163)
c. To be liable for damages in case of default.
d. To answer for eviction in case the partnership is deprived of the specific or determinate thing he has contributed to
the partnership.
e. To be liable for the fruits of the thing from the time they should have been delivered without the need of any
demand. (Article 1786)
3. Obligations with respect to contribution of money
a. To deliver to the partnership at the time it was constituted or on the date stipulated the money he has promised to
contribute.
b. To pay interest on the amount he had promised to contribute from the time he should have complied with his
obligation.
c. To pay damages suffered by the partnership by reason of the default. (Article 1788)
4. Obligations with respect to amount appropriated
a. To reimburse to the partnership the amount that he has taken from the partnership coffers.
b. To pay interest on the amount he had converted for his own use from the time of conversion.
c. To pay the damages suffered by the partnership by reason of the conversion.
5. Obligation to contribute additional capital
a. To contribute additional share to the capital in case of an imminent loss of the business of the partnership, except:
i. If he is an industrial partner, or
ii. If there is an agreement to the contrary
b. To sell his interest to the other partners if he refuses to contribute such additional capital.
6. Obligation of a partner who has received his share of the partnership credit.
To bring to the partnership capital his share of the partnership credit which he has received in whole or in part
even if he may have given his receipt only if the following requisites are present:
a. The other partners have not collected their shares, and
b. The debtor becomes insolvent after the partner has received the payment.
7. Obligation to pay damages to the partnership
To pay to the partnership for damages suffered by it through his fault.
He cannot compensate them with the profits and benefits which he may have earned for the partnerships by hi
industry. However, the courts may equitably lessen this responsibility if through the partner’s extraordinary efforts in other
activities of the partnership, unusual profits have been realized. (Article 1794)
 8. Obligation to bear risk for property contributed
To bear the risk of specific and determinate things owned by him which are not fungible, contributed to the
partnership so that only their use and fruits may be for the common benefit.
The partnership shall bear the risk for the following contributions of partners:
a. Fungible things or those that cannot be kept without deteriorating.
b. Things contributed to be sold.
c. Things brought and appraised in the inventory unless there is stipulation. (Article 1795)
The purpose of such appraisal, as a rule, is to determine how much shall be credited to the capital
account of the partner bringing the property to the partnership.
9. Obligation to render information
a. To render on demand true and full information of all things affecting the partnership to:
i. Any partner, or
ii. Legal representative of any deceased partner, or
iii. Legal representative of any partner under legal disability. (Article 1806)
10. Obligation to account
To account to the partnership for any benefit, and hold as trustee for it any profits, derived by him without the
consent of the partners from any transaction connected with the formation, conduct, or liquidation of the
partnership or from use by him of its property. (Article 1807)
11. Liability of a newly-admitted partner for obligations of the partnership
a. Obligations existing at the time of his admission
i. He is liable only to the extent of his contribution except if there is an agreement that his liability shall
extend to his separate property.
b. Obligations incurred after his admission.
i. He shall be liable like the other partners pro rata with their separate property after the partnership assets
have been exhausted. (See Article 1826)
RIGHTS OF PARTNERS
1. To associate another person with him in his share.
a. The share referred to is the partner’s share of the profits. The associate shall not be admitted into the partnership
without the consent of all partners, even if the partner having an associate should be a manager. (Article 1804)
2. To have access to and inspect and copy the partnership books at reasonable hours.
a. The partnership book shall be kept at the principal place of business of the partnership, subject to any agreement
between the partners. (Article 1805)
3. To have a formal account of partnership affairs (Article 1809)
a. If he is wrongfully excluded from the partnership business of possession of its property by his co-partners
b. If the right exists under the terms of any agreement
c. With respect to benefits or profits deprived by a partner without the consent of the partners from any transaction
connected with the formation, conduct, or liquidation of the partnership of from use by him of its property. (Article
1807)
d. Whenever other circumstances render it just and reasonable
4. Property rights of a partner
a. His rights in specific partnership property (Article 1810)
i. A partner is co-owner with his partners of specific partnership property. Such co-ownership has the
following incidents (Article 1811):
1. A partner, except as provided by law and as agreed upon by the partners, has an equal right with his
partners to possess specific partnership property for partnership purposes; however, he has no right
to possess such property for any other purpose without the consent of his partners.
2. The right is not assignable except in connection with the assignment of rights of all the partners in the
same property.
3. The right is not subject to attachment or execution except on a claim against the partnership.
a. When a partnership property is attached for 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. The right is not subject to legal support.
b. His interest in the partnership (Article 1810)
i. A partner’s interest in the partnership is his share of the profits and surplus. (Article 1812)
ii. He may convey his whole interest in the partnership.
1. The conveyance does not cause the dissolution of the partnership.
2. The assignee does not become a partner. Accordingly, he has no right:
a. To interfere in the management of the business.
b. To require any information of partnership transactions.
c. To inspect partnership books
 The assignee’s rights shall be limited to the following:
a. To receive the profits to which the assigning partners would otherwise be entitled
b. To avail himself of the usual remedies in case of fraud in management.
c. In case the partnership is dissolved, to require an account from the date only of the last account
agreed to by all the partners.
ii. A partner’s interest in the partnership may be attached for his separate debts, subject to the preference
for partnership creditors.
However, the partner may avail himself of the exemption laws as against his separate creditors after the
partnership debts have been paid. (Article 1814)
c. His right to participate in management (Article 1810)
APPLICATION OF PAYMENT WHEN A PERSON OWES SEPARATE DEMANDABLE DEBTS TO THE PARTNERSHIP AND
TO THE PARTNER AUTHORIZED TO RECEIVE PAYMENT
1. If the partner authorized to receive payment issues the receipt for the partnership, payment shall be applied to the
partnership credit.
2. If the partner authorized to receive payment issues his own receipt, payment shall be applied to the two credits
proportionately. (Article 1792)
There shall be no proportionate application, i.e., payment shall be applied to the partner’s credit in its entirety in any of the
following cases:
a. The debt is owed to a partner not authorized to receive payment.
b. The debt to the partnership is not yet due.
c. The debt owed to the partner authorized to receive payment is more onerous to the debtor and the latter exercises
his right to apply the payment to such debt.
OBLIGATIONS TO THE PARTNERSHIP TO THE PARTNERS
1. To pay to the partner any amounts he may have disbursed for the partnership with interest from the time the expenses
were made.
2. To pay for the obligations which a partner may have contracted in good faith in the interest of the partnership business.
3. To answer for risks in consequence of its management. (Article 1796)
OBLIGATIONS OF THE PARTNERSHIP TO THE PARTNERS
The partnership shall be solidarily liable with all the partners in the following case/s:
a. For loss or injury caused to a third person or any penalty is incurred by reason of the 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. (Article 1822)
b. Where one partner acting within the scope of his apparent authority receives money or property of a third
person and misapplies it.
c. Where the partnership in the course of the business receives money or property of a third person and such
money or property is misapplied by any partner while it is in the custody of the partnership. (Article 1823)
NOTE: The solidarily liability as may be noted from the foregoing rules, applies only if the act of the partner is
done in the ordinary course of business, or with actual or apparent authority.
LIABILITY OF PARTNERSHIP TO THIRD PERSONS FOR ACTS OF PARTNERS
1. When partnership is bound
a. If the partner is authorized to act for the partnership, the partnership is bound whether or not the act is for
apparently carrying on in the usual way the business of the partnership.
b. If the partner is not authorized to act for the partnership, the partnership is bound if:
i. The act is apparently carrying on in the usual way the business of the partnership, and
ii. The third person has no knowledge of the partner’s lack of authority (Article 1818)
2. When partnership is not bound
a. When although the act is for apparently carrying on in the usual way the business of the partnership, the partner is
not authorized to act for the partnership and the third person has knowledge of the partner’s lack of authority
(Article 1818)
b. When the partner is not authorized to act for the partnership and the act is not for apparently carrying in the usual
way the business of the partnership.
It is immaterial whether the third person has knowledge or not of the partner’s lack of authority.
ACTS NOT CONSIDERED FOR APPARENTLY CARRYING ON
The following are acts which are not for apparently carrying on in the usual way of the business of the
partnership and may not be performed by a partner unless he is authorize by all the other partners, or the other
partners have abandoned the business:
 i. Assignment of partnership property in trust for creditors or on the assignee’s promise to pay the debts of
the partnership.
ii. Disposition of the goodwill of the business.
iii. Acts which would make it impossible to carry on the ordinary business of the partnership
iv. Confession of judgment
v. Entering into a compromise concerning a partnership claim or liability.
vi. Submission of a partnership claim or liability to arbitration.
vii. Renunciation of a claim of the partnership (Article 1818)
RULES ON CONVEYANCE OF REAL PROPERTY BY A PARTNER OR THE PARTNERS
1. Title to real property is in the name of the partnership and the conveyance is executed by a partner in the name of the
partnership without authority. (Article 1819, par. 1)
a. Effect
i. The conveyance passes title to the transferee
b. When the partnership may recover
i. If the act is not for apparently carrying on in the usual way of the business of the partnership, or
ii. The third person has knowledge of the partner’s lack of authority
c. When the partnership may not recover
i. When the real property has been conveyed by the grantee to a holder for value without knowledge that the
partner, in making the conveyance, had exceeded his authority.
2. Title to real property is in the name of one or more but not all of the partners but the record does not disclose the right of
the partnership and the conveyance is executed without authority in the name of the partner or partners in whose name
the title stands. (Article 1819, par. 3)
a. The rules on effect, recovery and non-recovery are the same as in number 1.
3. Title to real property is in the name of the partnership and the conveyance is executed by a partner in his own name
without authority (Article 1819, par. 2)
a. Effect
The transferee does not become the owner of the real property. However, equitable interest passes to him if:
1. The act is for apparently carrying on the usual way the business of the partnership, and
2. The third person has no knowledge of the partner’s lack of authority.
b. Equitable interest does not pass to the transferee if:
i. The act is not for apparently carrying on in the usual way the business of the partnership, or
ii. The third person has knowledge of the partner’s lack of authority
c. Equitable interest, meaning
i. Equitable interest means all the beneficial interests in the property like the use thereof and its fruits but not the
title.
4. Title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership and
the conveyance is executed by a partner in the name of the partnership or in his name without authority.
a. Effect – Same as in number 3 above.
5. Title to real property is in the name of all the partners and the conveyance is executed by all the partners in their names
(Article 1819, par 5)
a. Effect
i. The conveyance passes all their rights in the property. This is so because all the partners gave their consent
to the transaction.
EFFECT OF ADMISSION OR REPRESENTATION OF A PARTNER
Such admission or representation is evidence against the partnership if the following requisites are present:
1. The admission or representation must concern partnership affairs.
2. It must be made within the scope of the authority of the partner making the admission or representation
3. It must be made during the existence of the partnership.
4. The existence of the partnership must be shown by evidence other than by such admission or representation.
(Article 1821, Sec. 29, Rule 130, Revised Rules of Court)
EFFECT OF NOTICE TO AND KNOWLEDGE OF A PARTNER
1. Notice to a partner
a. Notice to any partner relating to partnership affairs is notice to the partnership. (Article 1821)
Thus, if summons is served upon a partner in a case against the partnership, the same is a notice to the
partnership and binding against it.
2. Knowledge of a partner
a. Knowledge of a partner acting on the particular matter
i. Such knowledge is also knowledge of the partnership if he acquired the same:
1. While already a partner, or
 2. Before his admission to the partnership, provided the same was still present to his mind, i.e., he
still remembered it.
b. Knowledge of any other partner (or a partner not acting on the particular matter)
i. Such knowledge is also a knowledge of the partnership provided the following requisites are present:
1. He acquired the same while already a partner
2. He could and should have reasonable communicated the same to the partner acting on the
particular matter. (Article 1821)
3. When notice or knowledge not binding on the partnership
Notice to or knowledge of a partner is not notice or knowledge of the partnership in case of fraud on the
partnership:
i. Committed by the partner having notice or knowledge
ii. Consented to by such partner having notice or knowledge (Article 1821)
PREFERENCE OF PARTNERSHIP CREDITORS IN PARTNERSHIP ASSETS OVER PRIVATE CREDITOR OF A PARTNER
In the payment of the liabilities of the partnership and those of the private debts of a partner, preference shall be as
follows:
1. Partnership creditors shall be paid out first out of partnership assets (Article 1827)
2. Thereafter, a partner’s separate creditor shall be paid out of the share of the partner owing him if there is an excess (i.e,
partnership assets are more than the partnership liabilities). The separate creditor may ask for the attachment and public
sale of the share of the partner in the partnership assets for his claim but without prejudice to the preferential right of
partnership.
3. If the share of the debtor partner in the remaining assets is not enough to settle his private debts, his private creditor can
go after the partner’s separate assets over which he (private creditor) has preference (See Article 1839)