636 PARTNER_s.., pp.

RTNERSHIP
•1!)> 637

u po~ a l?erson becau se a partnership is a fiduciary

relationsh ip. It operates under the doctrine of delectus
PARTNERSHIP persona~ (or personarum, in its plural form), where a
person 1s free to choose th ose whom he wants to be
associated with in pa rtnership.
Partnership, concept
A partnership is a contract of two or more persons 2. Th ~re must be a mutua l contribution of money, property
. Who or mdu stry to a common fund . (Art. 1767)
bind them selves to contribute money , P~0 ?ertY or industry to
common fu nd with the intention of diVIdmg the profits a"' a The property that may be contributed may be real
'
th emselves. Two or more persons may also. form a partnersh ip g or personal, tangible or intangible (such as goodwill or
0
the exercise of a profession. (Art. 1767) I'. 1s both: r incorporeal rights such as credit rights) . Industry may be
1. A con tract (Art. 1768) and physical manual efforts or intellectual industry. However,
a limited partner may contribute cash or other property ,
2. A business organization. but not services. (Art. 1845)
It is a juridical entity which h a s a persona1·
separate and distinct from that of each of the Partne~ty 3. It must have a lawful object or purpose. (Art. 1770)
(Art. 1768) It begins from the moment of the execution \ Partnership, being a contract, must have a lawful
the contract, u nless it is otherwise stip ulated. (Art. l 78 4~ object. If a partnership has an unlawful object, it is void.
If such illegality constitutes a crime, the partners will be
Characteristics of a contract of partnership criminally prosecuted and the profits and effects and
instruments of the crime will be confiscated in favor of the
I. Consensual - It is perfected by mere consen t.
government. {Art. 1770, Art. 45, Revised Penal Code)
2. Principal - It does not depend upon any other contract for
its validity or existence. 4. The partnership must be established for the common
benefit or interest of the partners which is to obtain profits
3. Bilateral or multilateral - It is entered into by two or more and to d ivide the profits among the partners. (Arts. 1768,
persons whose rights and obligations are reciprocal. 1770)
4. Nominate - It has a special name given to it by law. (Art The very purpose of a partnership business is to
1767) . obtain profits which is evident in the definition of the
5. contract itself. It is an element that distinguishes it from
Preparatory - It is a means by which other contracts will religious, civic and social organizations.
be entered into as the partnersh ip pursues its business.
However, if a partnership is formed for the practice
6. Onerous - The partners contribute money property or of a profession , its primary purpose is not to obtain profits
industry to a comn1on fu nd . (Art. !767) ' but to render service to the public.
Essential requisites of partnership Form or a partnenhip contract
I. There must be a valid contract. A partnership con tract may be constituted in any form ,
i.e., oral or written, except as follows:
In rd er for a partnersh ip to exist there must be a
°
vo Iun t ary agreement ' 1. Where immovable property or real rights are contributed
.
bu smcss among the parties to carry on the
as partn . to the partnership (regardless of the amount thereof)
ers. 1ts format10n cannot be imposed
 PARTNER_<> pARTNERSHIP 639
"1-!Jp
638

·p contract must be in a Effect if requirements are not complied with

a. The partners hl PUb!ic
instrument; and The partnership will be considered as a general
partnership.
An inventory of the said property must be rnad
b. . d b the parties and attached to the P be,
s1gne Y U lie \VbO may become partners
instrument. (Art. 1773 ) Any natural person who is capacitated may become a
1.
Effect if the above requirements are not complied with partner.
a. The partnership contract is void. (Art. 1773) 2. Artificial persons like partnership and corporation may
likewise form a partnership with individuals or other
b. The partnership will not have any juridicai partnerships or corporations. A joint venture (which may
personality. be entered into between two corporations) is a form of
partnership and shall be governed by the laws on
2. Where the capital of the partnership is P3 ,000.00 or rnore, partnership. (Marsman Drysdale Land , Inc. vs. Philippine
in money or property Geoanalytics, Inc. , G.R. No. 183374, June 29 , 2010) In
a. The partnership contract must be in a public the latter case of Narra Nickel Mining us. Redmont
instrument, and Consolidated Mines Corp. , G. R. No. 195580, April 21 ,
2014 , the Supreme Court held that "joint ventures have
b. Registered with the Securities and Exchange
been d eemed to be 'akin' to partnerships s ince it is
Commission (SEC) . (Art. 1771)
difficult to distinguish between joint ventures and
Effect if the above requirements are not complied with partnerships. As a rule , corpora tions are prohibited from
entering into partnership agreements; conseq u ently,
a. The partnership contract is still va!id . Accordingly corporations enter into joint venture agreements with
the partnership still acquires juridical persona!it/ other corporations or partnerships for certain transactions
(Arts. 1768, 1772) in ord er to form 'pseudo partnerships. ' "
b. The liability of the partnership and the members
Rules to determine whether a partnt:rship exists
thereof to third persons are not affected . (Art.
1772) l. Persons who are not partners as to each other are not
partners as to third persons except when a pP.rson
Reason for the registration with the SEC represents himself or consents to another representing
him to anyone , as a partner in an existing partnership or
Recording with the SEC is a condition for the
with one or more persons not actual partners. (Arts. 1769 ,
issuance to the partnership of a business license to
1825)
engage in business. This will enable both the local
government and the Bureau of Internal Revenue district 2. Co-ownership or co-possession does not of itself establish
where
Ii . . . the partnersh
. . 1·P w1·11 operate to assess its . tax a partnership, whether such co-owners or co-possessors
abilities. In add1t10n, registration will enable third do or do not share a ny profits made by the use of the
persons
·t . to determine b th th e composition
° · · of the firm and property.
I s capita1 before dealing with it and its members.
3. The sharing of gross returns does not of itself establish a
3. If the partnership · 1· • partnership, whether or n ot the persons sharing them
signed u d is a 1m 1ted partne rship a certificate have a joint or common right or interest in any prop erty
n er oath b th '
Securities and E h Y e partners and recorded •with the from which the returns are derived.
xc ange Com m1ss1on
. . .1s requ1red
.

l
.
>
640
PARTNE
RSl-!1p I pARTNERSHIP 641

. rson of a share of the profits

4. The receipt by a 17acie evidenr.e that he is a Part 0 f_a c) Property acquired by each partner
business 1s a pnrna ner In after the fonnatioTl of the
the business. partnership but only if stipulated .
ti ns· No such inference shall be dra (Art. 1779) This property shall
Excep o . . d . ayment· Wn if
such profits were receive m p . . include:
a. As a debt by installments or otherwise. (1) The property itself except
b. As wages of an employee or rent to a landlord. that the stipulation shall not
include property acquired by
c. As annuity tq a widow ar representative of a inheritance, legacy, or
deceased partner. donation .

I,.
d. As interest on Joan, thothughbth~ amount of payment (2) The profits and fruits
vary with the profits of e usmess. therefrom including those
e. As the consideration for the sale of goodwiJJ of a from property acquired by
business or other property by installment or inheritance, legacy or
otheiwise. (Art. 1769) donation. (Art. 1779)
Example:
"Kinda or partnenhip
A and B formed a universal
1. As to object partnership of all present property. At the
a. Universal partnership .- A universal Partnership time of the establishment of the
may either be a universal partnership of all partnership, A owned a fleet of taxis which
present property or a universal partnership of he had purchased and an agricultural lot
prefits \Art. 1777) which he had .inherited. B , on the other
hand, owned an apartment which he had
1) Universal partnership of all present earlier acquired by exchange and shares of
property
stock which were donated to him. The
This is a partnership in which all partners agreed that property acquired by
the_ partners contribute all the property each partner after the formation of the
which actually belonged to them to the p~ership shall belong to the partnership.
common fund , with the intention of dividing Dunng the first year of operations of the
the same among themselves as well as the partnership, the following transactions took
r;'??s~s which they acquire therewith. (Art. place:
a) Fa.re revenues of P200,000.00 were
~erty U/hich shall belong to the common realized from the operation of the
fleet of taxis.
a) b) Crops amounting to Pl00,000.00
Prope~ belonging to the partners
at the time of the constitution of the were gathered from the agricultural
partnership (present property) . Jot.
b) Rentals of PlS0,000.00
Profits that may be acquired
th . r.
,rom
c) were
e present property. collected from the apartment.

l L
 PARTNERSI-JJ~ pARTNERSHIP 643
642

Dividends of PS0,000.0Q during the existence of the partnership

d)
received from the shares of stoctere (Art. 1780)
e)
A coconut plantation Profits/property which shall belong to the
purchased by A from his own f Was partnership
Uncts
f) Coconuts worth P80 ,000.oo w · a) Profits obtained by the partners by
gathered from the co ere their work or industry during the
plantation. conut existence of the partnership.
g) A fishpond was received by B by Accordingly, profits acquired
of donation from a rich uncle. Way by the partners without the exertion
of physical or intellectual efforts,
h) Fish valued at P70,000.00 we such as those acquired by chance or
harvested from the fishpond . re
lucrative title are excluded.
Based on the foregoing, the folio • b) The usufruct (the use) of the
belong to the partnership: wmg property belonging to each partner
a) Fleet of taxis at the time of the constitution of the
partnership.
b) Agricultural lot
The ownership of the
c) Apartment property (whether movable or
Shares of stock immovable) belonging to each
d)
partner at the time of the
e) Fare revenues constitution of the partnership shall
continue to pertain exclusively to
f) Crops gathered from agricultural lot each partner as only the usufruct is
g) Rentals from the apa rtment passed on to the partnership.
h) Dividends from the sha res of stock c) The profits and fruits from the
properties aforementioned (items "a"
i) Coconut plantation and "b") .
j) Coconuts h arvested d) Profits and fruits , if stipulated , of
property acquired by each partner
k) Fish harvested after the constitution of the
The fishpond belongs to B because partnership.
the stipulation on future property does not Example:
mclude property acquired by inheritance,
A and B formed a universal
legacy or donation . However the fruits
partnership of profits. At the time of the
therefrom, represented by the fi ~h gathered,
establishment of the partneFship, A owned
belong to the partnership.
a fleet of taxis which he had purchased and
2) Universal partnership of profits an agricultural lot which he had inherited .
B, on the other hand, had an apartment
This comprises a ll that the partners
which he had earlier acquired by exchange
may acquire by their work or industl)'

l
 PARTNERS" 645
11Jp PARTNERSHIP
644

es of stock which were donated

an d sh a r . 1t d h to e) Salary of A as professor in a certain
h" The parties st1pu a e t at fruits
college
f~:-re property . shall belong to tho:
partnership. Dunng the . first Year of . I) Coconuts gathered from the coconut
operations of the partn_ersh1p, the following plantation
transactions took place. g) Fish harvested from the fishpond
a) Fare revenues of P200,000.00. were The fleet of taxis and agricultural lot
realized from th e operation of th shall continue to pertain to A, while the
fleet of taxis. e apartment and shares of stock shall
b) Crops amounting to PlOO,OOO.oo continue to pertain to B; since only the use
were gathered from the agricultural and fruits of the said properties were
contributed to the partnership at the time
Jot.
of its establishment. The coconut
c) Rentals of Pl 50,000.00 were plantation belongs to A because it is not a
collected from the apartment. fruit. T-he lotto winnings and fishpon<i
d) Dividends of PS0,000.00 were belong to B since they were acquired by
received from the shares of stock chance and lucrative title, respectively.
However, the coconuts gathered and the
e) Salary of P200,000.00 was received fish harvested belong to the partnership
by A as professor of a certain because of the stipulation that fruits of
college. future property shall belong to the
Pl ,000,000.00 was won by B in the partnership.
lotto draw. Rule in case universal partnership is without any
g) A coconut plantation was specification
purchased by A from his own funds. Articles of universal partnership entered
h) Coconuts worth P80,000.00 were into without specification of its nature, only
gathered from the coconut constitu~e a universal partnership of profits. (Art.
plantation. 1781)
i) A fishpond was received by B by way This is so because a universal paru1ership
of donation from a rich uncle. of profits transmits Jess rights and interests. If the
doubt refers to the incidents of a gratuitous
j) Fish valued at P70,000.00 were contract, the least transmission of rights shall
harvested from the fishpond . prevail (See Art. 1378), a universal partnership
Based on the foregoing, the following being considered a donation.
belong to the partnership: Prohibition to enter into a universal partnership
a) Fare revenues Persons prohibited from giving any
b) Crops gathered from agricultural lot donation or advantage cannot enter ir,tc a
c) universal partnership. (Art. 178:?) TI-.u ; ;; so
Rentals from the apartment because in a universal partnership, the ar t.,t. ,
d) Dividends from the shares of stock are in effect making a donation. Allowing such :
 PARTNERsb
t1IJl
646
· t enter into a universal partnership .
perso~s o vention of the prohibition on donat ·\\111[
be a cJrcum . d . Ion
The following onatlons are vo·ct s
between them · 1 :
l) Donations between spouses . during the
marriage except m?derat~ . ~1fts on the
occasion of a family reJ01cmg. Th
prohibition applies to persons living ese
husband and wife without the benefit as
marriage .. (Art. 87, Family Code) of
2) Those made between person_s who Were
guilty of adultery or concubmage at the
time of the donation. (Art. 789)
3) Those made between t~o. persons found
guilty of the same rnmmal offense ·
consideration thereof. (Art. 789) ' m
4) Those made to a public officer or his wife
descendants or ascendants by reason of hi~
office. (Art. 789)
b. Particular partnership
A particular partnership has for its object
determinate things, their use or fruits , or a specific
undertaking, or the exercise of a profession. (Art.
1783)
Examples: (1) A real estate partnership
whereby partner A contributed a parcel of land and
partner B a building. (2) A real estate lessor
partnership whereby A contributed cash a nd B the
use and lease of his building. (3) A partnership
formed for the exercise of the law profession.
2. As to liability
a. General partnership - A partnership where all the
partners are general pa rtners who a re liable to the
extent of. the·1r separate property after the
partnership assets have been exhausted.
b.
Limited partn ers h 1"P - A partnership where there 1s
. among the partners as well as to third persons.
at leas t one ge 1
. 't d nera partner and at least one
l1m1 e partner Th
to the extent of h : general pa rtner s a re liable up
t eir separate property, while the
647
pARTNERSHIP
limited partners are liable only to the extent of
their investment in the partnership.
As to duration
3.
a. Partnership for a fixed term - One for which a
period for its duration is fixed by the partners,
(Art. 1785) such as a partnership with a term of 5
years.
b. Partnership for a particular undertaking - One
which is organized for a certain undertaking
which , when attained, will cause the termination
of the partnership, (Art. 17 85) such as a
partnership formed to construct 20 residential
houses.
c. Partnership at will - One where no period is fixed
by the parties for its duration ; h ence, may. be
terminated at will by the partners.
If a partnership for a fixed term or a
particular u ndertaking is continued a fter the
expiration of the said term or the attainment of
the said undertaking withou t any express
agreement, the partnership becomes a partnership
a t will. -(Art. 1785) The continuation of the
bu siness 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 se ttlement or liquidation of
partnership affairs is a prima Jacie evid ence
of the continuation of the partnership. (Art.
1785)
4. As to repre sentation to others
a. Ordinary partnersh ip - One which ac tually exists
b. Partnership by estoppel - One which in reality is
not a partnership but is considered a s one with
respect to those who, by reason of their conduct or
 PARTNERsLI
648 •1lp
admission, are precluded from denying 118 .
existence. (Art. 1825)
A partnership by . estoppel may a .
• rise
through any _of the fo IIowmg means:
When a person. represents himself as a
1) .
partner in an ex1stmg partnership.
a) If _all the patrtt~ers consent to such
mJSrepresen a 10n, a "partner h"
• . S lp
by estoppeI 1s created between th
actual partners
. and the person whe0
ma de th e misrepresentation. Her
partnership liability results. Th~sa
the assets of the partnership shall
be used to pay the liability and aft
their exhaustion, both the actu:
partners and the person who mad
the misrepresentation shall be liabt
with their separate properties.
b) If not. all the partners consented to
the mJSrepresentation, no partner-
ship liability results. A "partnership
bj· estoppel" is created among the
actual partners who consented to
the misrepresentation and the
person who made the misrepresent-
~tion, each one of whom shall be
hable jointly or pro-rata with their
separate properties.
2) When person represents himself as a
partner m a non-existing partnership.
h No partnership liability arises but
t e person who made the misrepresentation
randbl all. . persons wh o consented to it are
ia e Jointly or pro-rata.
Examples:
1) A, 8 and C
Enterp . are partners in Durable
nses Th
materials · . ey want to purchase
know on credit from X but X does not
any of th em. So they ask D who 1s
. restrictions of a general partner, except that, "in
649
pARTNERSHIP
known to X to represent himself as a
partner in Durable Enterprises. X thus
grants a charge sale to D11rable Enterprises
amounting to P90,000.00 . A partnership
by estoppel is created among A, B, C and D
and a partnership liability results because
all the partners consented to the
misrepresentation. D becomes a. partner by
estoppel in Durable Enterprises. Assuming
that Durable Enterprises has assets of
P60,000.00 only, X may go after these
assets and the separate assets of A, 8 , C
and D for the balance of P30 ,000.00.
2) In the above example, if only A and B
permitted D to represent himself as a
partner, no partnership liability results. A
partnership by estoppel is created among A,
e Band D. In collecting his claim of P90,000,
X cannot go after the partnership assets
but only after the separate assets of A, B
and D.
3) A and Bare not partners but they represent
themselves to X as partners. A and B are
I, partners by estoppel. They shall be
I responsible jointly or pro-rata to X for any
liability incurred o:-i account of the
misrepresentation.
Kinda 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.
(Art. 1816)
b. Limited pa.'1:ner - One who is liable for partnership
debt::. to the extent of his capital contribution only.
(Art. 1843)
c. General-limited partner - One who has all the
rights and powers and is subject to all the
 PARTNERSJirp 651
650 PARTNERSHIP

respect to his contribution, he s?all have the right b. Liquidating p~rtner - One who takes charge of the
. t the other members which he wouJct h s winding up of the affairs of the partnership after it
agams ave
had if he were not a 1so a gen~ra1 partner, (Art is dissolved. (See Art. 1836.)
l 853 ), i.e., ~e shall be !table P:o-rata t~
c. Nominal partner - One who is not actually a
partnership creditors to th~_extent ~f his separate
assets after the partners 1p asse s have be partner but who may become liable as such to
third persons, (such as a partner by estoppel) .
exhausted, but he can demand reimbursement:~
the amount he paid from his co-partners. (See Art. 1825.)
d. Ostensible partner - One who is active and known
Example: to the public as a partner, such as by allowing his
Manuel, Alberto and Con:a~o are partners in MAc name to be included in the firm name.
Company, Ltd. with Manuel as hm1ted partner, Alberto as e. Secret pa!1:ner - One whose connection with the
general partner, and Conrado as general-limited partner. partnership is kept from the public.
The partnership has assets of P60 ,000 .00 and liabilities of
P90,000 .00. In the settlement of the liabilities, the assets f. Silent partner - One who has no voice in the
}Viii first be exhausted. Thereafter, the creditors can management of the business (though he shares in
collect the balance of P30,000.00 from the separate assets the profits and losses.)
of Alberto and Conrado who will be liable for P15 ,000.00 g. Dormant partner - A partner who does not
each . After payment to the creditors, Conrado may participate in the management of the business and
demand reimbursement of Pl5 ,000.00 from Alberto. This not known to the public as a partner.
is so because as to third persons, Conra--'. is a general
partner, but among the partners, he is a limited partner. Rules on division of profit and loss (Art. 1797)
Manuel will not be liable with his separate a ssets being a
1. If all are capitalist partners
limited partner.
a. Profits and losses shall be divided according to
2. As to contribution their agreement.
a. Capitalist partner - One who contributes money or b. If only the sharing of the partners in the profits has
property to the common fund . (Art. 1767) been agreed upon, the share of each partner in the
losses shall be in the same proportion as the share
b. Industrial partner - One who contributes his of each in the profits.
services or industry to the partnership. (Arts.
_1767, 1789). Such industry may be physical or c. In the absence of both, the share of each partner in
mtellectual industry. the profits and losses shall be in proportion to his
C.
capital contribution .
Capitalist-industrial partner - One who contributes
not only money or property but also his services to Examples:
the partnership. (Art. 1797 ) a. ZONE Enterprises is owned by partners Zorina,
Odessa, Norma and Elma with capital
3. Other classifications contributions of Pl0,000.00, P20,000.00,
a. Managing part ner - One who manages the P30,000 .00 and P40,000.00, respectively. During
. the year, the partnership realized a net profit of
busmess or the ft · rt
1800.) a airs of the partnership. (See A · PB,000.00 .

L
652 PARTNERsl-!rp
I) Assuming that th~ partn:r_s ~greed t? diVide
profits in the ratio of 2.1.2 .5, Zonna IYilJ
have a share of P 1,600.00; Odes
PB00 .00; Norma, Pl ,600.00; and Elm~'
P4,000.00. ' 2.
2) If" the partners have no profit sharin
agreement, the profit_ shall diVictJ
according to the ratio . of, their capita]
contribution. Thus, Zonna s share of the
profit is PB00.00 ; Odessa, Pl ,600.00;
Norma, P2 ,400.00; and Elma, P3 ,200.0o.
b. Assuming the partnership sustained a loss of
P7,000.00, such Joss shall be divided among the
partners as follows:
I) In case they agreed to a I?ss sharing of
3:2: 1:4, Zorina's share 1s P2, 100.00;
Odessa, Pl ,400.00; Norma, P700.00; and
Elma, P2,800.00. . are partners in LACE Company. Lucille,
2) If the partners do not have any loss sharing
agreement, such loss shall be divided
according to their profit sharing agreement
in the ratio of 2: 1:2:5. Thus, Zorina's share
is Pl ,400.00; Odessa, P700.00; Norm11,
Pl ,400.00; and Elma, P3 ,500.00.
3) If the partners do not have any profit and
loss sharing agreement, the loss shall be
divided according to the ratio of their
capital contribution as follows: Zorina,
P700.00; Odessa, Pl,400.00; Norma,
P2, 100.00; and Elma, P2,800.00.
~ote : The sharing or capital ratios have been converted
mt_o fractions or percentages by adding the figures and
usmg_ as denominAtor the total. Thus, for 2 : 1:2:5, the
total is 10. The partners' sharing will be 2/ 1O· 1/ID;
~ft!~; an~ 51IO. For the capital contribution ra~io, the
sharin cap1~ contribution is PI00,000.00. Thus, the
P20 ooi ~II be l0,000.00 over PI00,000.00 or IO%;
PlOO 000 00 over Pl00,000.00 or 20%; P30,000.00 over
' · or JO%; and P40,000 over PI00,000.00 or
L
PARTNERSHIP 653
40%. The fraction or percentage developed will be
multiplied by the profit or loss, as the case may be.
If aside from the capitalist partners, there is also an
industrial partner (or there are industrial partners)
a. Profits
1) The profits shall be divided according to
their agreement.
2) 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 sh8:ll
share in the profits in proportion to his
capital contribution.
Example:
Lucille, Abigail, Cherrie and Elaine
Abigail and Cherrie are capitalist partners
with contributions of P20 ,000.00,
P30,000.00 and P50 ,000.00 , respectively.
Elaine is an industrial partner. They have
no profit-sharing agreement. LACE
Company earned Pl5,000.00 du~ng the
year. Elaine shall first be given an
equitable share to be decided by. ~he
partners, say, P3 ,000 .00. The remammg
profit of Pl2 ,000.00 shall be ~ivided ~ong
the three capitalist partners m the ratio of
their capital contribution of 2:3:5. T_hu~,
Lucille's share is P2 ,400 .00; Abigail,
PJ,600.00; and Cherrie, P6,000.00.
Note : There is an opinion that the old law
still applies to determine the equitable
share of the industrial partner. Under the
old law, the equitable_ share of the
industrial partner is equivalent to that_ of
th capitalist partner with the least capital
co~tribution. However, this ma~ be 1:1nfair
t the industrial partner especially if the
l~ast capital contribution is so small that it
 PARTNERSHIP 655
654

does not reflect. a j~st and e 3) If the partners do not also have a profit
compensation of his services. qu.ita.b!e sharing agreement, Carlos, Albert and
Roland will divide the loss according to the
b. Losses ratio of their capital contribution of 2 :3 :5 or
The industrial partner shall not share . P2,400.00, P3 ,600 .00 and P6,000.00 ,
1)
the losses. respectively. Edwin will not share in the
loss.
2) The capitalist partners shall share in
losses as follows: the If aside from capitalist partners, there is also a capitali~t-
3.
a) According to their agreement. industrial partner (or there are capitalist-industnal
partners)
b) In the absence of any agre
h . enient a. Profits
thereon, e~c capitalist Part
shall :;hare m the losses in the ner 1) The profits shall be divided according to
proportion as the share of ea:~e their agreement.
1
the profits. n
2) In the absence of any agreement thereon,
c) In _th~ absence of both, each profits shall be divided as follows :
cap1tah~t partner _shall share in the a) The capitalist-industrial partner
losses m. proport10n to his capita] shall first receive a just and
contribution.
equitable share of the profits in his
Example: capacity as industrial partner;
Carlos, Albert, Roland and Edwin are .b) Thereafter, each capitalist partner,
partners m CARE Company with Carlos including the capitalist-industrial
contributing P20 ,000.00; Albert, P30,000.00; and partner in his capacity as capitalist
Roland , PS0,000.00. Edwin contributed his partner, shall share in the profits in
industry. During the year, CARE suffered a Joss of proportion to his capital
Pl2 ,000.00. contribution.
1) Assuming that the losses were agreed upon Example:
~o be · sha~ed by Carlos, Albert and Roland Mark, Orland, Robert and Edgar are
m the rat10 of I :2 :3 , Carlos' share in the partners in MORE Enterprises. Mark,
loss is P2 ,000.00; Albert, P4 ,000.00; and Orland and Robert are capitalist partners
Roland, P6,000.00 . Edwin will not share in with contributions of Pl0,000 .00;
the loss. P20,000.00 and P30,000 .00, respectively.
2) Edgar is a capitalist-industrial partner with
If the partners do not have a loss sharing
·a capital contribution of P40 ,000.00.
agreement but have one as to profit in the
During the year, MORE realized a profit of
ratio of 3 :4 :5 :2 , the loss will be shared by
P20,000.00 .
Carlos, Albert and Roland in the ratio of
~:4 :5 or P3 ,000.00, P4,000.00 and Assuming that the partners have no
5 ,ooo.oo, respectively. Edwin will not profit sharing agreement, Edgar will first
sh are in th e Ioss bemg · ·
an mdustna ·I receive an equitable share in the profit in
partner.

i
 PARTNERslirp
656
his capacity as industrial partner. Thus .
the partners decide that such equitai/
share is P4,000.00, the balance e
Pl 6 000.00 will be shared by the Part Of
incl~ding Edgar in his capacity as capit~ers
partner according to the ratio of th st
capital cont, ibution of 1 :2 :3 :4 or Pl ,6QQ ~Ir
p 3 , 20 o.oo, P4,800 .00, and P6,4oo:oo'
respectively.
b. Losses
l) Losses shall be div(de~ a~ong the Partners
including the ca p1tahst-m~us~rial Partne;
in his capacity as cap1tahst partner,
according to their a greement.
2) In the absence of any agreement thereon
losses shall be divided among the Partner '
including the capitalist-partner in
capacity a s capitalist partner, according to
the ratio of their capital contribution.
3) In both of the above cases, the capitalist.
industria l p artner s hall not share in the
losses in h is ca pa city as industrial partner.
Example:
Sonia, Ursula, Rowena and Elsa are
partners in SURE En te rprises with capital
contributions of P I0 ,000.00, P20,000.00,
P30,000.00, and- P40,00 0 , respectively. Elsa is
also an industrial partn er being the man ager of the
partnership. The par tnership sustained a loss of
P14,000.00 during the year.
1) Assuming that t h e partners agreed to share
m the losses in t he ratio of 2 :3 :5:4 , Sonia's
share is P2 ,000.00; Ursula, P3,000.00;
Rowena , PS,0 00. 0 0 ; and Elsa, P4,000.00.
2)
If the partn ers have no los s sharing
a greeme nt, the loss will be divided
according to the ratio of their capital
contribu tion of 1:2:3:4 o r Pl ,400.00;
P2 , 8 00.00 ; P4,200.00; a nd P5,60C.00.
PARTNERSHIP 657
In both cases, Elsa s hall not share in the
loss. in her capacity as industria l partner.
Note: Any stipulation which excludes one or more partners from
any s hare in the profits and losses is void (Art. 1799) except one
1
which exempts an industrial partner from losse s beca u se the law
provides that h e shall not be liable therefor . (See Art. 1797.)
0
' 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
The same shall be binding upon the partners and
m a y be impugned only when it is manifes tly inequitable.
However, eve n if such designation by a t h ird person is
manife stly inequitable, it can no longe r be impugned:
a. By a partne r who h as begun to execute it; or
hi: b. By any partner if t hree months had already laps ed
from the time h e obtained knowledge thereof. (Art.
1798)
2. If e ntrusted to on e of the partner s
The designation is void because it cannot be
entrusted to one of the partner s. (Art. 1798) Accordin g ly ,
the profits and losses shall be divided among the partn ers
as if there was no stipulation t hereon.
Rules of management
1. When a partner h as been a ppointed manager in the
articles of partnership
a. Scope of a uthority
The mana ging partner may execute all acts
of a dministration despite the opposition of his
partne rs unless h e acts in bad faith. (Art. 1800)
b. Revocation of appointment of managing partner
1) With just or lawful cause - His appointm ent
can be revoked by the vote of the partners
own ing the controlling inte rest. (Art . 180 0)
2) Withou t just or lawful cause - His
appointm ent can b e revoked only with t he
 PARTNERs"
658 nip
659
pARTNERSHIP
consent of all the partners including
·ng partner because such rev the
man agl . ocar b. When there is n o specification of their respective
would be a novat10n of the terms the/on dut ies or there is no sti pulation th a t one shall not
(See 11 Manresa 381.) eor. act without the consent of the others.

When a partner has been_ a ppointed manager after the 1) Scope of authority
2. Each one m ay separa tely execu te all
partnership has been constituted
acts of a dminis tration . (Art. 180 l)
a. Scope of authority
2) Rule in cas e of opposition of the o ther
He may execu te all acts of a dministrar
0
but in case of c,pposition by the other pa rtners ' n managers
partnern owning t h e con tro
i rmg m
· t erest may reso
,the a) The decision of the m ajority of the
to votmg for his removal as manager. (See Arrt m a n aging partners s hall prevail
1800.) t. (pe r head).
Revocation of his appointment as m anaging b) In case of a tie , the decision of the
b. managing partner / s owning the
partner
controlling interest shall prevail.
He may be removed with or without just or (Art. 1801)
lawful cause by the vote of the partners owning th
controlling interest. (Art. 1800) e Example:
This is so becau se such partner is only
agent whose authority may be revoked at any
by his principal which is the partnership. e
t: MARILE N Company is owned by the
following partners
contribu tions: Mary ,
with their
Pl0 ,000.00;
respective
Anna,
?20 ,000.00; Rose , P30 ,000.00; Irma , P40 ,000.00 ;
3. When two or more partners have been appointed as Liza , PS0 ,000.00; Edna , PI00 ,000.00 , and Nora,
managers P200 ,000.00 . Except for Edn a a nd Nora, all the
rest are m anagers without any s p ecification as to
a. When there is a specification of their respective their respective duties.
·duties
I) Mary wants to buy goods from Excellent
1) Scope of authority Company . Liza opposes it . Anna and Rose
Each managing p artner shall side with Mary , whi le Irma sides with Liza.
perform only the du ties s pecified in his The gro up of Mary will p revail beca u s e they
appointment. constitute the majority , i.e ., 3 over 2 .

Example: A, B , C and D are 2) Sup pose that Rose a bsta ins thereby
creating a tie. In this case, the grou p of
partners with A and B having been
Liza will prevail because s he and Irm a
~PP?mted a s . m a nagers of their trading represent the controlling interest among the
usu1:ess. A 1s to perform the operating
function while B, the administrative m a n aging partners.
function. The managing partners can N ote : There is a contrary opinion stating
perform only the function assigned to each that the tie should b e re sc,lved by
of them. inducting the vote of the partners who ov. n
the controlling inte rest although they a rf>
 PARTNERS 661
660 fiJp
PARTNERSHIP

not managers. Thus, the vote of Ed

2) In case of a tie , the decision of the partners
Nora would be controlling to resolve <lnd
owning the controlling interes t shall prevail.
However, this will be the sa me as t_ e tie.
case where no one was appoint~n the (Arts. 1801 , 1803)
manager among the partners. (See N o. d4.) as Example:
When there is a stipu lation that none MARILEN Company is owned by the following
c. partners and their contributions: Mary , Pl0,000.00 ; Anna,
managing partners shall act without the co of the
the others nsent of P20 ,000.00; Rose , P30 ,000.00; Irma, P40 ,000 .00; Liza,
PS0 ,000.00; Edna, Pl00 ,000.00 , and Nora, P200 ,000.00.
1) Vote required The partners did not designate who among themselves
The con c urrence of all of the shall be the manager. Accordingly, all partners are
be necessary for the validity of thm ~haJJ considered agents or managers of the partnership. Each
(Art. 1802 ) · e acts. one may thus execute acts of administration.
2) Rule in case of absence or di sa bilit , 0 a. Mary wants to buy gooc!s from Excellent Company.
of the managing partners ) f one Liza opposes it. Anna, Rose and Irma side with
Mary, while Edna and Nora side with Liza. The
_The a bsence · or disabi lity of 0 group of Mary will prevail because they constitute
manag:mg partner cannot be alleged ? e
the m ajority, i.e., 4 over 3 .
the other managing partners ' 1.e.,
authorized to act fo r the par t nersh .are not b. :.,..1ppose that Rose abstains from votin g thereby
there is imminent danger of 'P unle.;s creating a tie . In t his case, the group of Liza will
irreparable injury to the partner !·grave or prevail because she, Edna and Nora represent the
1802) s •Ip. (Art. controlling interest among all the partners.

4. Right of partners to e ngage in busi ne s s

uWhen
pon the manner of management has not been agreed
1. Industrial partner
a. All the partners shall be consider d a. General rule and exception
partnership i.e. all of th e agents of the
' ' em are managers. An industrial partner cannot engage in
However, none of the . business for himself unless the partnershp
consent of the others m may, w1~hout the expressly permits him to do so. (Art. 1789)
alteration in th . ' make any important
partnership, even e if n7tm:able property of the This prohibition applies even if the
partnership. But if the ay be ~sefuJ to the business is of a kind different from the partnership
the other partners . r~fusal to give consent by business.
interest of the part is ~amfestly prejudicial to the b. Reason for the prohibition
may be sought (Artners 1P, the court's intervention
· . 1803) The partnership is the owner of the services
b. Whatever any one of th of the industrial partner, which is his c ontribution
the partnership. em may do ic?lone sha ll bind to the common fund of the partnership. (See Art.
C. 1789.)
Rule in case of op ..
I) Th .. position of the other p a rtners
e dec1s1on of th e maJority
. shall prevail.
 PARTNERS 663
662 liJp
PARTNERSHIP

Effect if the industrial partner engages ir. b .

c. for himself without the express penniss;o Usines8 Rules on sharing of partnership liabilities to third persons
n Of••
partnership "'' 1. Nature of liability
The capitalist partners may either: a. Pro rata - The liability of the partnership shall be
equally divided among the partners.
1) Exclude him from the partn ership
right to damages, or ' With a The s haring should be equal because the
liability is imposed on all the partners including an
2) Avail themselves of the benefits obt . industrial partner w hose proportionate share
from the business he engaged in ained cannot be determined in the absence of a profit
right to damages . (Art . 1789) _ ' With a and loss sharing agreement since he has no capital
contribution.
2. Capitalist partner b. Subsidiary - Each partner shall be liable with h is
a. Kind of business a capitalist part n er may engage in separate property after all the assets of the
partnership have been exhausted . (Art. 1816)
. A capitalist partner may engage in bu .
for his own a ccount in the following: smess
2. Partners liable
1) The business he will engage in is of a . All general partners whether:
different from the partnership b usmess.
• kind
a. capit alist partner, or
2) The b~siness he w ill engage in is of
same kmd as the partnership b . the b. indu s trial partner.
there is a stipulation all _usmess, but
. owmg him to
engage m that business. (See Art. 1808.) 3. Status of stipulatio n exempting a partner from pro rata
and subsidiary liability after t he exhaustion of partner ship
b. R_eason for the prohibition to engage in the same assets
kmd of business
a. Void as to th ird persons.
The capitalist pa rt , 11 .
competing with the n~r " i be unfrurly b. Valid among the partners. (Art. 18 17)
of the . r . partnersh ip bu siness by reason
m,ormation he h Ob . The stipulation, however, w ill not totally
partners hip busi ness. as tamed from the
exempt a pa rtner because his contrib ution will still
C. Effect if a capitalist be subject to the pay ment of partnership liabilities.
kind of busin ess .th partn er engages in the same This is to reconcile Art. 1817 with Art. 1799 which
WI out a stip J f I' • .
to engage in that business u a 10n a .owmg him declares void any stipulation excluding a partner
from losses, except in the case of an industrial
I) The capitalist part-'1.er. '
common f <l partner shall bnng to the
from his t un any . p ro fiits accru ing to him Accordingly, if there is such stipulation, the
ra n sa c t1on , a nd
liabilities shall be paid as follows :
2) He s h a ll per
18 08) sonally bear all the losses. (Art . a. The assets of the partnership shall first be used to
pay the liabilities.
 PARTNER 605
664 S1j1p pARTNERSHIP

If the partnership assets are not suffici

b. liability shall be paid equally from the ent, the Over (under)
Payment t o Actual S h a re
assets of the partners including any in~Parate In Liabilitv payment
Partner Creditors 8 ,000.00
partner. Ustlia! p None p
Calixto p 8 ,000.00 8 ,000 ,0 0
Thereafter, the partners not ex e mpted f 8 ,000.00 None
c. He bron . ( 7 ,000.00)
rata and subsidiary liability s hall r ~orn 1 Pro 8 ,000.00 15 ,000.00
Au s tria 3 ,000.00
according to the partners ' profit and los: ~bursc 8 ,000.00 5 ,000.00
Roxas fl 2 ,000.0 0 )
agreement or in the ratio of their s aring 8 ,000.00 20 ,000.00
Mendez
contribution , whichever is a p p lica ble capita]
following p artners t h e amo u n t p a id by t h ~m:to the As shown in the above table, Au s tria , and Mendez a re t o give an
additional a mount of P7 ,000.00 a nd Pl 2 ,000.00 , re spectively , to
1) Industrial par tne r whom the Ja w re tur n Ca lixto's paym ent of P8 ,00 0 .00 , Hebron's pay m e nt of
from losse s . exernpts
PB,0 00 .00 , and Roxas ' overpay m e nt of P3 ,000.00 .
2) General partners exempted fram pro rata
and subsid iary liability . Requirement to operate unde r flrm name
A partne r ship shall operate under a firm n ame , which m ay
Example: or m ay not include the n ame of one or more of the partners.
. Ca lixto, Hebron , Austria, Roxas and Mendez are Those who , not being m embers of the partnership, include
m the firm CHARM Sales Company car t O . . Partners their n ames in the firm n ame , shall be subject to t he liability of a
t h. · IX is an mdu t ·
par ner, _w !le the re st a re capitalist partners 'th s rial pa rtner. (Art. 18 15)
contnbutmg P20,000.00; Austria, P30 000 ;'~. Hebron
Pl0,000.00 ; and Mendez P40 000 00 Th ' · • Roxas Oblig ations of partners
that Hebron shall not b; lia bl~ fo; li~b 1Tt·
1 e pO~ t ners stipulated
after its a ssets are exhausted. ies t h e pa rtn ership 1. Co n t ri bution of ca pital
To co n tribute eq u ally to the cap it a l of t h e
After several years of a p er ' tional I partne rsh ip unless there is a s tipulatio n to t he contrary .
d~indled to Pl20,000.00, w~il . oss e~ , C,H'."'RM's assets
P ,60,000 .00 . How s h a ll the Iiab ·1·t· e be1ts . h a brnt1es reached (Art. 179 0)
11 1e s p aid ?
1. The assets of Pl 20 000 0 0 hall 2. Obligations with res pect to contribution of p roperty
-application leaves ' a ·bal s firS t be exhausted. This
a To deliver to the partnership at the time it w as
lia bilities. a n ce of P4 0 ,000.0 0 of the
constitute d or on the date s t ipulated the prope rty
he h as p romised to contribute .
2. The amou nt of P40 000 0 0
five partners a t PS' 000· 00 s h all be share d equally by the b. To take care of the p roperty befor e its delive ry to
separate assets . ' · ea ch to be paid out of their the partner ship w ith the diligence o f a good father
of a family as a rule . (Art. 1 163)
3. Based on the ra tio of :he ca . c. To b e liable for dam ages in c a s e of default.
Austria , Roxas a nd M pita! contribu tions of partners
ea ch in the ba lan e n d ez of 3 : I :4 , the actual share of
i~o
d. To answer fo r eviction in ca se t h e p a r t ner ship is
rJs ,000 .00, a n d p of P 4 0 ,ooo.oo is Pl 5, 000.00, deprived of th e s p ecific or d e termina te t h in g h e ha s
20 con tributed to the p artner s h ip.
d u e from Ca lixto and H .OO, respectively, while none are
ta ble: e bron , as show n in the following
p
PARTNERsi.,
666 ,.,Jp 667
PARTNERSHIP

To be liable for the fruits of the thing from the .

e.
they should have been delivered without th~ tune
of any demand . (Art. 1786)
Obligations with respect to contribution of money
3.
a. To deliver to the partnersh!P at the time it wa
8 Obligation to pay damages to the partnership
constituted or on lhe date stipulated the mone h
has promised to contribute. Y e
b. To pay interest on the amount he had promised
contribute from the time he should have comp!' to
with his obligation. Ied
c. To pay damages suffered by the partnership b
reason of the default. (Art. 1788) Y efforts in other activities of the partnership, unusual
4. Obligations with respect to amount appropriated
To reimburse to the partnership the amount that
a.
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. (Art. 1788)
s. Obligation to contribute additional capita l
a. To contribute additiona l share to the capital in
case of a n imminent loss of the business of the
partnership, except:
I) If he is an industrial partner, or
2) 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. (Art.
1791)
6. Obligatio~ of a partner ~ho has received his share ~f the
pa rtnership credit
Tho. bring to the partnership capital his share of a
Part ners 1p credit •h · h h •
part e 'f h " IC e has received in whole or in
followingve~ 1 . _e may have given his receipt only if the
qu1s1tes are present:
a. The other partners have not collected their shares,
need and
b. The debtor becomes insolvent after the partner J-Jas
received the payment. (Art. 1793)
7.
To· pay to the partnership for damages suffered by
it through his fault.
He cannot compensat~ them with the profits and
benefits which he may have earned for the partnership by
his industry. However, the courts may equitably lessen
this responsibility if through the partner's extraordinary
profits have been realized . (Art. 1794)
8. Obligation to bea r 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 t he ris k for the
following con tribution s of partners:
a. Fungible things or those that cannot be kept
without deteriorating.
b. Things con tributed to be sold.
C.
Things brought and appraised in the inven tory
unless there is a stipulation. (Art. 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
To render on demand true a nd full information of
all things affecting the partnership to:
a. Any partner, or
b. Legal representative of any deceased partner, or
 PARTNERS"
qjp 669
668 PARTNERSHIP

Legal representative of any . partner Under legai f t he partnership

c. a. If he is wrongfully excluded rom e rt b his c o-
disability. (Art . 1806)
business or possession of its prop Y Y
partners.
Obliaation to account
10. 0
b. If the right exists under th e terms of any
To account to the partnership _for any b_enefit, and
agreement.
hold as trustee for it any profits, denved by him Without
With respect t o benefits or profits derived by a
the consen t of the partners . from
d a n y . transacti·
. on c.
t of the partners from
.th the formation , con uct, or 11qu1dation f partner withou t the consen . h formation ,
connec t e d WI h. f ·t 0
the partnership or from use by im o I s property. (Art. any transaction connected with t e . f
1807) conduct , or liquidation of the partne rship or rom
use by him of its property. (Art. 1807)
11. Liability of a newly-admitted partner for obligations of the d. Whenever other circumstances render it juSt a nd
partnership reasonable.
a. Obligations existing at the time of his admission
4. Property rights of a partn er
He is ·liable but only to the extent of his
contribution except if there is a n agreement that a. H is rights in specific partnership property (Art.
his liability shall extend to his separate property. 181 0)
b. Obligations incurred after his admission A partner is co-owner with his partners ?f
specific partnership pro perty. Such co-ownership
He shall be liable like the other partners pro h as the following in cident s (Art. 1811) :
rata with their s eparate property after the
partner ship assets have been exha:uste d . (See Art. 1) A partner, exce pt a s provided b y law and as
1826. ) agreed upon by t he partners, h a s an eq1:1a1
right with h is p artners to possess s p e cific
Rights of partners partner ship p rope rty for partnership
purposes; howeve r, he h as n o right to
I. To associate another person with him in his share.
possess such property for a n y other
The share referred to is the p a rtne r 's s hare of the p urpose without the c onsent o f hi s
profits. The associate sha ll not b e a dmitted into the partners .
partnership without the consen t of all the partn ers, even ii 2) The right is n o t assignable ex c e p t in
the partner having an ·a s s ociate s hould be a manager. connection w ith the ass ignment o f rig h ts of
(Art. 1804)
all t he p a r tners in t h e same property.
2. 3)
To have a ccess to a nd inspect and copy t h e partn ership Th e right is n ot subj ect to a t tachm ent o r
books a t rea sona ble h ou rs . execution except on a cla im again st the
p artner ship.
The partnership book s h a ll be k ept at the p rincipal
place of bu s ine f h . . , W hen a p artnership property is
ss o t e p a rtnership s ub3ect to any
agreemen t between the partners . (Ar t. 1805) a ttac h e d for p artnership debt, t h e p artners ,
3. or a ny of the m, or the r e pre s e n tatives o f a
To have deceased partne r , cannot c la im a n y right
1809): a orma] account of partnership affairs (Art•
under the home stea d o r e x e mption laws.
 PARTNERs"
670 11ip 671
PARTNERSHIP

The right is not subject to legal support,

41 his separate creditors after the partnership
His interest in the partnership (Art. 181 O) debts have been paid. (Art. 1814)
b.
l) A partner's interest in the partnershi . c. His right to participate in management. (Art. 1810)
his share of the profits and surplus. ts
1812) ( rt. Application of payment when a person owes separate
He may convey his whole interest in the demandable debts to the partnership and to the partner
2)
partnership. authorized to receive payment
a) The conveyance does not caus 1. If the partner authorized to receive payment issues the
th
dissolution of the partnership. e e receipt for the partnership, payment shall be applied to
the partnership credit .
b) The assignee does not becorn
partner. Accordingly, he has e a 2. If the partner authorized ·to receive payment issues his
right: no own receipt, payment shall be applied to the two credits
proportionately (Art. 1792)
(1) To interfere in the
management of the business. There shall be no proportionate application, i.e.,
payment shall be applied to the partner's credit in its
(2) To require_ any information of entirety in any of the following cases:
partnership transactions.
a. The debt is owed to a partner not authorized to
(3) To inspect partnership receive payment.
books. .
b. The debt to the partnership ' s not yet due .
The assignee 's rights shall be
limited to the following: c. The debt owed to the partner authorized to receive
paymen t is more onerou s to the debtor and the
(I) To receive the profits to latter exe rcises h is right to a pply the payment to
which the ass igning partner such debt.
would otherwise be entitled. 3. Example:
(2) To avail h imself of the usual D owes C Pl 0 ,000.00. He also owes Pl0,000. 0 0 to
remedies in case of fraud in ABC and Company of which C is the managing partner
manageme nt. who is authorized to collect the credits of the partnership.
(3) In case the partnership is Both debts are already due. D pays C Pl0 ,000.00
dissolved, to require an informing C that the amount is in payment of D's debt to
account from the date only of him. Accordingly, C issues his own receipt. The payment
the las t account agreed to by here will be divided proportionately between C's credit and
all the pa rtners. the partnership credit at PS ,000.00 each. Partner C
3) should not place his interest before tha t of the
A partner's interest in the pa rtnership may partnership.
be attached for his separate debts, subject
to th e preference for partnership creditors. However, payment will be applied to C's cred it
a lone in the following instances:
h' However, th e pa rtner may avail
a. If the debt of D to C is more onerous to D, such as
imselt of the exemption Jaws as again 5t
wlien the debt is secured by a ple<lge of D's rin g,

ltrm
 PARTNERst.
672 "lP PARTNERSHIP 673

. d his right to apply the payrnent

and D exercise to
Liability of partnership to third persons for acts of partners
his debt to C.
b f D to C is already due and that du I. When partnership is bound
b. If the ded Ct ompany is not yet due . e to
ABC an o a. If the partner is a uthorized to act for the
. t the manager or the partner authorized partnership the p a rtners hip is bound whether or
c. ]f C 1s no h' to not t he act' is for appa rently carrying. on in the
collect the debts due to the partners Ip .
usual way the busines s of the partnership.
Obligations of the partners hip to the partners b. If the partner is not authorized to . act for the
the partner any amounts he may hav partnership, the p a rtnership is bound if:
1· To. pay dt O, r the partnership
• · h · t
wit in eres t f rom the tun·ee
disburse ,o I) The act is for apparently carrying on in the
the expenses were made . usual way the business of the partne rship ,
a nd
2. To pay for the obligations which a partner may have
contracted in good faith in the interest of the partnership 2) The third p erson has no knowle d ge of the
partner's lack of a u t hority. (Art . 1818)
business.
Example:
3. To answer for risks in consequence of its management.
(Art. 1796)
Riza, Imelda , Chanda, and Editha are partners in
RI CE Compa ny whose business is trading in grains such
Obligations of partnership for wrongful acts of partner/s a s rice , corn , etc:. The partners appointed Riza to manage
the partnership. During the year t he partne rs also
The partne,ship shall be solidarily liable with all the au thorized Chanda to buy a van for t he partner s hip .
partners in the following cases:
a. Any sale o r pu rchase of grains by Riza is binding
I. For loss or injury caused to a third person or any penalty against RICE Company because she is t he duly
is incurred by reason of the wrongful act or omission of appointed manager.
any partner acting in the orqinary cour se of the business
b. The purchase of van by Chanda will also bind
of the partnership or with the authority of his co-partners.
(Art. 1822 ) RICE Company a lthough it is not con nected with
the trading of grain products because she is
2. Where one partner•acting within the scope of h is apparent a uthorized to perform that act.
authority receives money or property of a third person and c. If Edit ha who is not authorized at all to act for
misapplies it. RICE Company sell s grains to Theresa , a customer,
RI CE Company w ill be bound by the sale so long as
3. Where the partnership in the course of the business Theresa is not aware of Editha's lack of authority
receives money or property of a third- person and such since the sale made by Editha is a pparently fo:-
money or property is misapplied by any partner while it is carrying on in the usual way the business of the
m th e cu st ody of the partnership. (Art. 1823) partnership.
£ . Note : The solidary liability as may be noted from the 2. When partnership not bound
ord~gomg rules, applies only if the act of the partner is done in the
or m ary course of bus· . •
mess, or with actual or apparent authonty. 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
 675
674 PARTNERSHIP

the partnership and ,the third person

act is apparently for carrying on in the usual way
knowledge of the partners lack of authority. haa
the business of the partnership.
!818) (A~
b. If it is Imelda who purchases a van and not
When the partner is not•authorized to act for Chanda, because Imelda is not a uthorized for that
i.J.
partnership and the act 1s not for ap the purpose. It is immaterial whether the seller of the
carrying on in the usual way the busines~~;n11y van was aware or not of Imelda's Jack of authority
partnership. the because the purchase of the van is not for
It is immaterial whether the third apparently carrying on in the usual .way the
has knowledge or not of the partner's terSon business of the partnership.
authority. ack of
Rules on conveyance of real property by a partner or the
Acts not considered for apparently carrying on
partners
The following are _a cts which are not I. Title to real property is in the name of the partnership and
apparently carrying on in the usual w for the conveyance is executed by a partner in the name of
business of the partners hip and may ay the the partnership without authority . (Art. 1819, par. 1)
performed by a partner unless he is author:~ be
all the other partners, or the other partner8 h by a. Effect:
abandoned the business: ave The conveya nce passes title to the transferee .
I) Assignment of partnership property in trust b. When the partnership may recover
for creditors or on the assignee's promise to I) If the act is not for apparently carrying on
pay the debts of the partnership. in the usual way of the business of the
2) Disposition of the goodwill of the business. partnership, or
3) Acts which wou ld . make it impossible to 2) The third person has knowledge of the
carry on the ordinary business of th pa rtner's lack of a uthority.
partnership. e c. When the partnership may not recover
4) Confession of judgment. When the real proper ty h as been conveyed
5) Entering into a compromise conr.erning a by the grantee to a holder for value without
partnership claim or liability . knowledge that the par tner, in making the
conveyan ce, had exceeded his authority.
6) Sub_mission of a partnership claim or
hab1hty to arbitration . d. Example:
7) Paul, Osmond, Willia m, Elmo and Richard
Renunciation of a claim of the partnership.
(Art. 1818) are partners in POWER Company. A parcel of land
Example:
m the na me of POWER Company is sold by Paul
without authority, in the name of POWER
In the foregoing exam le Company, to Theodore. In this case, title to the
be bound in the fo llowing case~: , RICE Company will not property passes to Theodore. POWER Company
may recover 1f:
a. If Theresa was a .
to sell th ware that Ed itha had no authonly 1) It is not engaged in the buying and selling
e products of the pa rtnership even if such of land, or
 676 677
PARTNERSHIP
Even if POWER c ·ompany is engaged in
2)
buying and sellmg of land , but Th the Equitable interest does not pass to th e transfere~
b.
had knowledge of Paul's lack of autho~~Ore
if:
However, there can be no recove . The act is not for apparently carrying on ~n
1)
Theodore has sold the parcel of land to an inn ry the usual way the business of t e
ser for value who was not aware of p0 cen1
pure ha . au1· partnership, or
Jack of authonty. s
2) The third person has knowledge of the
Title to real property is in the n a m e o f one or more b partner's lack of authority.
2.
not all of the partners but the record d oes not disclose U1 c. Equitable interest, meaning
right of the partnership and the conveyance is execu~e Equitable {nterest means all the beneficial
without authority in the name of the p a rtner or Part !d interest s in the property like the use thereof and
in whose name the title sta nds (Art. I 819 , par. 3) ners its fruits, but not the title.
a. The rules on effect , recovery and non -r ecovery are d. Example
the same a s in number 1.
Assume the same example in No. 1, where
b. Example the title to the parcel of land is in the name of
Ass ume that the parcel of la nd in th POWER Company. Paul sells the land in his own
exa mple in No. I is in the name of Paul ' name without authority to Theodore. In this case ,
Osmond and the title does not disclos e the righ~~ title does not pass to Theodore. Equitable interest
POWER Company. The parce l of la nd is sold b in the pro pe rty, howeve r , passes if:
Pa ul and Osmond in their own name with y !) POWER Company is engaged in the buying
authority to Theodore. In this c ase, title likew~: and s elling of la nd , and
pa s ses to Theodore.
2) Theodore was not aware of Paul's lack of
The r_ules on recovery and non -recovery are a uthority.
the same as m the example in No . I.
Even equitable interest d oes not p a ss to
3. Theodore if POWER Com pany is not engaged in the
Title to real property is in th e n ame of the p a rtnership and
buying a nd selling of land , or Th eodore was aware
the conveyance is execu ted by a partner in his own name of Paul's lack of auth ority.
withou t authority (Art. 18 19, p ar. 2)
a. Effect 4. Title to real property is in the name of one or tnore o r all
the partners, or in a third person in trus t for the
th The tran sferee does n ot become the owner partners hip and the conveyance is executed by a par tne r
of e real property. However equi table interest in the name of the partnership or in his n ame without
passes to him if. '
authority (Art. 1819, par. 4)
I) The act 1· i
s or a p parently ca rrying on in the a. Effect
u sual way the business of the partnership,
a nd Same as in numbe r 3 a b ove.
2) b. Example:
The third pe h
rson as no knowledge of the
Partner's lack of auth ority. In the same exam ple in No. l exce p • that
the parcel of land is in the n ame of Pa,.! and

I
 PARTNE:R
'
678 S1i1p
679
pAR1'NERSHIP
in trust for POWER Company p
0 smon d w R • au1
the land in the name of PO E . Company or i Se!Ji Thus if summons is served upon a partner in a
name without au thority , to Th n hi 1
own t Th eoct case against' the partnership, the same is a notice to the
Equitable interest. pa ss_e s o e odore. The ore.
O partnership and binding against it.
effects are the same a s m the example in No. 3 _ther

2. Knowledge of a partner
Title to real property is in the name o f a ll the partners
5. Knowledge of a p a rtner act ing on the p a rticular
the cbnveyance is executed by a ll the p a rtne rs in . thand. a.
names (Art. 181 9, par. 5) e,r matter
Such knowledge is a lso knowle dge of the
a. Effect p artnership if he a cqu ired the same :
The conveyan ce pa s ses a ll th e ir ri h · .
I} While already a partner, or
the property. This is so beca u se a ll the pg ts in
gave their con sent to t he transac tio n . artner1 2) Before his a dmission to the part nership ,
provided the same was still pre s e nt to his
b. Exam ple mind , i.e ., h e s t ill re m embered it.
lf th~ parcel of la nd is in t h e n a me of p Knowledge of any oth er partne r (or a partner not
Osmond , Wilham , Elmo a nd Ric h a rd , a nd th au!, b.
acting on the particula r m a t ter)
the property in the ir name s , t o T h eodore alelyhsen
· t h e parcel o f la nd a r·e p ass ed
. h ts m ' t eir S u ch knowled ge is also knowledge o f the
ng
Theodore . on to p artne r sh1f' p rovid ed t he following r eq u isites a re
present:
Effect of admission or representation of a partner I} He acquir ed the s a me w hile already a
partner , a n d
Such ad m ission or re presenta tion is eviden ce a ·
t h ' 'f h • ga mst the 2) He cou ld and should h ave r e asonable
pa r n ers rp I t e followmg requi s ites are pre sen t :
commun icat ed the s a me t o the part ner
1. The admission or re presentation t actin g on the particular matter. (Art. 1821 )
nership a ffairs. m uS c oncern part-

2. It mu st be made within the scope of the a u thority of th 3. When notice or knowledge not binding on the partnership
partner makmg the admission or representation . e Notice to or knowledge of a partne r is not notice or
knowledge of the partn ership in case of fraud o n the
3. It m ust be made d unng
· t h e existence
. of the partnership. partn ership:
4. The
'd existence of th e partnership . must be shown by a. Committed by the partner having notice or
evi ence other than b h d . . know ledge.
(Art. 13 . S Y sue a miss 10n o r representation.
2 1' cc . 29 • Rule 130, Revised Rules of Court}
b. Consented to by s uch partner h aving notice or
Effect of notice to and knowled f knowledge. (Art. 182 1)
. ge o a partner
1. Notrce to a partner Preference of partnership creditors in partnership assets over
. Notice to a n . . private creditor of a partner
1s notice to th e Y partner relating to p a rtnership affalfS
partnership . (Art. 1821) In the payment of the liabilities of the partners hip and
those of the private de,bt>s of a partner, preference sha ll be as
follows·
 PARTNE~s
680 liJp 681
PARTNERSHIP
. creditors shall be paid first out of Part
Partners h 1p nersh· charged for their separate debts, either
I. assets. (Art. 1827) Ip
before or after the te rmination of any
artner's separate creditor shall be .
Thereafter, a P • h · 'f h Pa1ct specified term or undertaking.
2. of the share of the partner owmg im I t ere is an ex o~t
. partnership assets are more than the partn Ces1 c. By the expulsion of any p a rtn er from the business
(1.eb.'. l.t' ) The separate creditor may ask , er8hip bona fide in accordance with suc h a power
ha 1 1 1es . · •or h conferred by the agreement betwe e n the partners .
ent and public sale of the share of the Part I e
a tt a Chm . • b . ner ·
artnership assets for his c 1aim ut without pr . _in
th e P f rt h' eJUdi In ::ontravention of the agreement between the p a rtne rs,
to the preferential right o p a ners 1p c r editors there Ce 2.
by the express will of any partner at a nytime .
(Art. 1827) lo.
The withdrawing partner can be held liable for
If the share of the debtor partner in the remaining
3. damage s .
is not enough to settle his private debts his assets
·
creditor can go a fter t h e pa rt ner 's separate'Pnvatc
asset 8
3.
When any event makes it unlawful for the business of the
which he (private creditor) h as preferenc e . (See Art 18°Ver partnership to b e carried on or for th e members to carry it
· 39.)
on in partnership.
DISSOLUTION AND WINDING UP 4. In the following cases of loss:
a. Loss before or after d e livery of property where the
Dissolution, winding up and termination, concept partner contrib u ted only it s u se or enjoymen t, h e
I. Dissolution is the change in. the relation of the partners h avin g re se rveci the owners h ip the r eof.
caused by any partner cea smg to be associated in th The pa ct n er who owns the prope r ty bears
carrying on of the business. (Art. 1828) e
the loss.
2. Win_ding up is the process of settling the business b. Loss 0efore del ivery of specific thmg, which a
affrurs of the partnership after dissolution (S Artor p a rtner had p romised to contribu te to the
1829.) · ee
partnership.
3. Termination refers to the point when a ll the bu siness or If t he loss occurs after delivery , the
affairs of the partnership are comple te ly wound up. pa rtnership is not d issolved . T he partnership ,
being already the owne r , bears the loss.
Causes of dissolution
I. 5. By the death of any partner.
Without violation of the agreement of the partners.
a. By -th e termination of the d efin ite term or 6. By the insolvency of a ny partner or of the partn ership.
pa rticular u nd ertaking s pecified in the a greement.
b. By the express will : 7. By the civil interdiction of a n y partner. (Art. 1930)
1) 8. By decree of court in the fo llowing cases:
Of any partner who m u st act in good faith,
when no d e fimite • .
te rm or p a rticular a. On th e application by or for a partner (i .e . , a
undertaking is specifi ed. partner or his legal represe n ta tive files the
2) Of .all .the partners who have n ot as signed
. a pplication) to d issolve the p artnership w h enever:
th
eir m tereSls or s uffer ed them to be
 \

682 683
PARTNERSHIP

A p_artner has b~e n decl_ared insane .

I) ·udJcJal proceeding or JS shown to In,_~,y
•·
. d In the above cases, the act of the partner binds the
J
unsound mm • ve of partnership. If the assets of the partnership are not sufficient to
pay the liabilities , the partners can be held liable to the extent of
A partner becomes in any way i
2) their separate properties. (Arts. 1832 , 1833 , 1834 and 1839)
performing his part of the ;~7ab1e of
contract. nership
When authority of a partner to enter into new transactions is
A partner has been guilt_y of such c0 terminated among the partners (Arts. 1832, 1833, 1834)
3)
as tends to affect preJud1cially th nctuci 1. If the cause of dissolution is not by the act, insolvency or
on of the business . e carl'Ying death of a pa rtner (such as by the expiration of the term
for w hich the partnership was constituted or by decree of
4) A partner willfully o r pe rsi s t e ntly co .
breach . ot the partnership a g reement mrn1tsa court)
ot h erwJse s o cond u c t s him s elf • , or Notice o r knowledge of the acting partner of the
relating to the partne rship bu . in matters cau se of dissolution is immaterial.
• smess th
JS not rea sonably practi cable to at it
0 2. If the ca use of d issolution is the act of a partner and the
busines s in pa rtner s hip with hi;arry n the
partner who entered into the new transaction had
5) The business of the pa rtn e rsh • knowledge of the dissolution
carried on at a Joss. JP can only be
If the cause of dissolution is th e ins olve ncy or death of a
3.
6! Other circumstances r e nde r . partner and the p a r t n er who entered into the new
equ itable. (Art. 18 3 l) a dissolution transaction h a d notice or know led ge o f such ins olvency or
death
b. On the a pplication of the purc h aser of
m terest a partner's
Wh en authorit y of a partner to enter i nto new t ransact i o n is
1) After the ter min a tion of the . not t e rminated among the partners (Art . 1832)
pa rticular undertaking. s pecific term or l. If the cau s e of dis solut ion is th e act of a par tne r and the
a ctm g p artner had no knowled ge of the diss olution .
2) At a ny time wh en t h .
pa rtnersh ip a t will w ~ e partnersh ip was a
a ssigned or th e ch . n t he interest was 2. If the cause of dissolution is the insolvency or d eat h of a
(Art. 183 ) a r gm g orde r was issued. partner and the actmg part ner had no notice or knowledge
1 of su ch msolve ncy or death.
Effect of . diss olut·ion on authority of a part n e r
When t h e act of a partner after dissolution binds the
fo r Dissolution terminates a ll . partnership (Art 183 4)
th e partnership except . h au th onty of any partner to act
' wn res 1. When
affairs.the act is nece s "~ary ,or
c · d'mg up of partnership
wm
l. Acts to wind pect to th e fo llowing:
up partnership a ffa irs .
2. Acts to com p lete transactions b 2. W
b hfen the act is n ecessary to complete transactions begun
This a I' egun befor e-dissolution. e ore d1ssolut1on.
contracts. PP ies to wholly or pa rtly executor)'
3. In case of a new transaction or b usmess
cases: · in the following
684 685
pAR'fNERSHIP
If the other party to the transaction had
a. credit to the partnership before dissolutio~Jttend~
1 4,
Where although the partner has no au thority to wind up
previous creditor) and he had no knowled ,e.,, partnership affairs, the other party to the transaction is:
notice of the d1ssolut.1on . ge Or
a. One who had extended credit to the partnership
A previous creditor is e ntitled to before dissolution (i.e. , previous creditor) , and he
8
attention ; hence, he must be specially n a11, Ptclal had no notice or knowledge of the partner 's lac k of
the dissolution . Mere publica tion °
fied or authority.
dissolution is not notice to him . Howev of th,
be bound by the d issolution if he h a der, he ~iU b. One who had not so extended credit before
dissolution (i.e ., new creditor) and having no notice
publica tion if there was on.e or had ~~ad . tht or knowledge of the partner's lack of authority , the
knowledge of the d1ssolut10n in 5 0 tainCQ
fact of want of authority has not b:,en advertised in
manner. Wi thout su ch notice or know~~ Other a n ews paper of general circulation in the place (or
partnership will be boun d by t h e transacti: nge, th, in each place if more than one) at which the
b. If the other party to the tran saction had business is conducted .
extended credit before dissol ution !i .e ., not SO Except for the subject matter of the notice
creditor) bu t had n evertheless know
partnership before d issolution , and thn
dissolut;on had not been advertise~ ~ct or
a new
th, t or knowledge which is t he lack of authority of the
partner to win d up, the explanation for No . 4 (a)
and (b) is similar to No . 3 (a ) and (b) , first
newspaper of general circulation in the place 0 .a
each place if more than on e) a t which the b . r lll
t paragraph .
is regularly carried on. usiness When the act of a partner after dissolution does not bind the
partnership (Art. 1834)
. A new creditor is not entitled to a s .
attent10n; .hence, mere publication ofpe~ 1. Where the partnership is dis solved b ecause it is unlawful
dissolution 1s constructive notice tCJ h'1 he to carry on the business , unless the a c t is a ppropriate for
h h d , . m a 1though windin g up partnership affairs .
e a not read 1t. So if there wa s no publicati
and he had not come to learn of the d issolution mi
some other manner, he will not be bound b Ihm 2. Where the acting partner is ins olvent.
dissolut10n . The partnership will thus be lia~le
h 1m. 3, Where the partner had no authoritv to wind up
partnership affairs, exce pt with innocent third persons.
In the above cases [No 31 ) d
not liable with hi s sep t · a a n (b) ), a partner is (Pleas e refer to No. 4 (a) and (b) of t he immediately
of partnership a ssets: ara e property after th e exhaustion preceding topic .}
a. 4. Wh ere a partn er's a uth ority is already t ermina t ed a m on g
,If hhe is hun known a s a partner to the person with
v om t e contract is m a d e , and t he part':ers and the third person had actual or
b. con stru~llve knowledge, as the case m ay b e, o f the
So far unknown a nd · • . d1s ,;olut10n of the ftrm .
that the b . mact tve m pa rtner s hip affairs
could not b~ si~.~s s reputation of the p artnership
his connectt'osa i . tho .h ave been in any degree due to
n Wit It .