MGT 162

LAW ON PARTNERSHIPS PART 2

Atty. Roderick F. Blanco, CPA

EXAMPLE:
RULES OF MANAGEMENT

A. PARTNER APPOINTED IN THE ARTICLES OF STIPULATION THAT NONE OF THE MANAGING

PARTNERSHIP PARTNERS SHALL ACT WITHOUT THE CONSENT
OF THE OTHERS
SCOPE OF AUTHORITY
The concurrence of ALL of them shall be necessary
⤿ May execute all acts of administration despite for the validity of the acts. (Art. 1802)
the opposition of his partners
STIPULATION THAT NONE OF THE MANAGING
EXCEPT:
PARTNERS SHALL ACT WITHOUT THE CONSENT
When he acts in BAD FAITH. OF THE OTHERS

In case of absence/disability of one cannot be

alleged unless there is imminent danger of grave
REVOCATION OF APPOINTMENT
and irreparable injury to the partnership.
A. With just or lawful cause
⤿ Can be revoked by the vote of the partners D. MANNER OF MANAGEMENT NOT AGREED UPON
owning the controlling interest. (ART. 1803)

B. Without just or lawful cause A. All partners shall be considered agents of the
⤿ Can be revoked only with the consent of ALL partnership.
partners.
However, none of them may, without the
consent of the others, make any important
B. APPOINTED AFTER THE PARTNERSHIP HAS BEEN
alteration in the immovable property of the
CONSTITUTED
partnership, even if it may be useful to the
partnership.
SCOPE OF AUTHORITY

⤿ May execute all acts of administration but in B. Whatever any one of them may do alone shall
case of opposition by the other partners, the bind the partnership.
partners owning controlling interest may vote
for his removal as manager. C. In case of OPPOSITION:
I. Decision of majority shall prevail;
II. In case of tie, controlling interest;
REVOCATION OF APPOINTMENT
RIGHTS OF PARTNERS TO ENGAGE IN BUSINESS
⤿ May be removed with or without just or lawful
INDUSTRIAL PARTNER
cause by vote of partners owning controlling
interest.
GENERAL RULE AND EXCEPTION

C. TWO OR MORE PARTNERS APPOINTED AS “An industrial partner cannot engage in business for himself
MANAGERS UNLESS the partnership expressly permits him to do so.”
(Art. 1789)

EFFECT IF HE ENGAGES IN BUSINESS FOR HIMSELF

SPECIFICATION OF DUTIES
WITHOUT PERMISSION
⤿ Each managing partner may execute only the
The CAPITALIST partners may either:
duties specified in his appointment.
1. Exclude him from the partnership, with a right to
NO SPECIFICATION OF DUTIES damages; OR
⤿ Each one may separately execute all acts of 2. Avail themselves of the benefits obtained from the
administration. business he engaged in, with a right to damages.
(Art. 1789)
In case of OPPOSITION:
KINDS OF BUSINESS WHICH HE MAY ENGAGE IN
A. Decision of majority of managing partners
shall prevail. 1. Kind different from the partnership business.
2. Same business of the partnership, if there is a
B. In case of tie, decision of partners owning stipulation allowing him to engage in that business.
controlling interest.
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 MGT 162

LAW ON PARTNERSHIPS PART 2

Atty. Roderick F. Blanco, CPA

EFFECT IF HE ENGAGES IN SIMILAR BUSINESS WITHOUT COMPREHENSIVE EXAMPLE:

ANY STIPULATION
Bien, Allen, Gerald, Ryle and Allen are partners in the firm
1. The capitalist partner shall bring to the common BAGRA Company. Bien is an industrial partner, while the rest
fund any profits accruing to him from his are capitalist partners with Allen contributing P20,000;
transaction; and Gerald, P30,000; Ryle, P10,000; and Allen, P40,000. The
2. He shall personally bear all the losses. partners stipulated that Allen shall not be liable for liabilities
of the partnership after its assets are exhausted.
RULES ON SHARING OF PARTNERSHIP LIABILITIES TO
THIRD PERSONS After several years of operational losses, BAGRA’s assets
dwindled to P120,000, while its liabilities reached P160,000.
NATURE OF LIABILITY (ART. 1816)
How shall the liabilities be paid?
A. Pro-rata
⤿ Equally among partners REQUIREMENT TO OPERATE UNDER FIRM NAME

ARTICLE 1815
B. Subsidiary
⤿ Separate property A partnership shall operate under a firm name,
PARTNERS LIABLE which may or may not include the name of one or more of the
partners.
⤿ All general partners whether:
Those who, not being members of the partnership,
include their names in the firm name, shall be subject to the
1. Capitalist partner; or
liability of a partner.
2. Industrial partner.
OBLIGATIONS OF PARTNERS
STIPULATION EXEMPTING A PARTNER FROM LIABILITY
(ART. 1817) CONTRIBUTION OF CAPITAL (ART. 1790)

A. Void as to third persons. To contribute equally to the capital of partnership

B. Valid among the partners. UNLESS there is a stipulation to the contrary.

STIPULATION EXEMPTING A PARTNER FROM LIABILITY OBLIGATIONS WITH RESPECT TO CONTRIBUTION OF

(ART. 1817) PROPERTY

What if there is a stipulation exempting a partner from pro-
rata and subsidiary liability, how will the liabilities be paid?
STIPULATION EXEMPTING A PARTNER FROM LIABILITY
(ART. 1817)
1. Partnership Assets
2. If insufficient, paid equally from separate assets of
the partners INCLUDING any industrial partner
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.
C. To be liable for damages in case of default.

STIPULATION EXEMPTING A PARTNER FROM LIABILITY
(ART. 1817)
3. Partners not exempted from liability shall reimburse
according to the P&L sharing agreement or in the
ratio of capital contribution, whichever is
applicable, to the following partners the amount
paid by them:
I. Industrial partner whom the law exempts
from losses
II. General partners exempt from pro rata and
subsidiary liability
D. To answer for eviction in case the partnership is
deprived of the specific thing he has contributed to
the partnership.
E. To be liable for fruits of the thing from the time they
should have been delivered without need of any
demand.
OBLIGATIONS WITH RESPECT TO CONTRIBUTION OF
MONEY (ART. 1788)
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.

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 MGT 162

LAW ON PARTNERSHIPS PART 2

Atty. Roderick F. Blanco, CPA

C. To pay damages suffered by the partnership by so that only their use and fruits may be for the common
reason of default benefit.

OBLIGATIONS WITH RESPECT TO AMOUNT OBLIGATION TO BEAR RISK FOR PROPERTY

APPROPRIATED (ART. 1788) CONTRIBUTED (ART. 1795)

A. To reimburse to the partnership the amount that he The partnership shall bear the risk of the following
has taken from the partnership coffers. contributions of partners:

A. Fungible things, or those which cannot be kept

B. To pay interest on the amount he converted for his
own use from the time of conversion.
C. To pay damages suffered by the partnership by
reason of the conversion.
without deteriorating;
B. Things contributed to be sold;
C. Things brought and appraised in the inventory
unless there is a stipulation.
OBLIGATION TO RENDER INFORMATION (ART. 1806)

OBLIGATION TO CONTRIBUTE ADDITIONAL CAPITAL To render on demand true and full information of all things
(ART. 1791) affecting the partnership to:

A. To contribute additional capital in case of an A. Any partner, or

IMMINENT LOSS of the partnership, EXCEPT: B. Legal representative of any deceased partner;
C. Legal representative of any partner under legal
I. If industrial partner; or disability.
II. There is an agreement to the
contrary. OBLIGATION TO ACCOUNT (ART. 1807)

B. To sell his interest to the other partners if he refuses
to contribute such additional capital.
OBLIGATION OF A PARTNER WHO HAS RECEIVED HIS
SHARE OF THE PARTNERSHIP CREDIT (ART. 1793)
To account to the partnership for any benefit, and
hold as trustee for it any profits derived by him without the
consent of the other partners from any transaction
connected with the formation, conduct, or liquidation of the
partnership or from any use by him of its property.

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.
OBLIGATION TO PAY DAMAGES TO THE PARTNERSHIP
(ART. 1794)
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
partnership by his 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.
OBLIGATION TO BEAR RISK FOR PROPERTY
CONTRIBUTED (ART. 1795)
To bear the risk of specific and determinate things,
which are not fungible, contributed to the partnership
LIABILITY OF A NEWLY-ADMITTED PARTNER FOR
OBLIGATIONS OF THE PARTNERSHIP (ART. 1826)
A. Obligations existing at the time of his admission
⤿ Up to his contribution only, unless there is a
contrary stipulation
B. Obligations incurred after his admission
⤿ Pro rata with his separate property
RIGHTS OF PARTNERS
1. To associate another person with him in his share.
(Art. 1804)
2. To have access to and inspect and copy the
partnership books at reasonable hours. (Art. 1805)
3. To have a formal account of partnership affairs.
(Art. 1809)
I. If he is wrongfully excluded from the
partnership business or profession of its
property by his co-partners;
II. If the right exists under the terms of any
agreement;
III. With respect to benefits or profits derived
by a partner 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 (Art. 1807)

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 MGT 162
LAW ON PARTNERSHIPS PART 2
Atty. Roderick F. Blanco, CPA
IV. Whenever other circumstances render it
just and reasonable
4. Property Rights of a Partner
A. His rights in specific partnership property.
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.
4. PROPERTY RIGHTS OF A PARTNER
A. His rights in specific partnership property.
The right is not assignable except
in connection with the assignment of rights
of all the partners in the same property;
4. PROPERTY RIGHTS OF A PARTNER
A. His rights in specific partnership property.
The right is not subject to attachment or
execution except on a claim against the
partnership;
The right is not subject to legal support.
B. His interest in the partnership
A partner’s interest in the partnership is his
share of the profits and surplus; (Art. 1812)
He may convey his whole interest in the
partnership.
i. The conveyance does not cause
the dissolution of the partnership.
ii. The assignee does not become a
partner. He has no right:
i. To interfere in the management of
the business.
ii. To require any information of
partnership transactions.
iii. To inspect partnership books.
The assignee’s rights shall be limited to the
following:
i. To receive the profits to which the
assigning partner would otherwise be
entitled.
ii. To avail himself of the usual remedies in
case of fraud in management.
iii. In case the partnership is dissolved, to
require an account from the date only of
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the last account agreed to by all the
partners.
A partner’s interest in the partnership may be
attached for his separate debts, subject to the preference for
partnership creditors.
C. His right to participate in the management.
APPLICATION OF PAYMENT
RULES ON APPLICATION OF 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, the
payment shall be applied to the two credits
proportionately. (Art. 1972)
There shall be no proportionate application in any
of the ff. cases:
a. Debt is owed to a partner not authorized to
receive payment.
b. Debt to the partnership is not yet due.
c. 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.
Example:
D owes C P10,000. He also owes P10,000 to ABC and
Company of which C is the managing partner who is
authorized to collect the credits of the partnership. Both
debts are already due. D pays C P10,000 informing C that the
amount in payment of D’s debt to him. Accordingly, C issues
his own receipt.
How should the D’s payment be applied?
OBLIGATIONS OF THE PARTNERSHIP TO THE PARTNERS
(ART. 1796)
1. To pay 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.
OBLIGATIONS OF THE PARTNERSHIP FOR WRONGFUL
ACTS OF PARTNER/S (SOLIDARY LIABLE)
⤿ For loss or injury caused to third person or any
penalty us incurred by any reason of the wrongful
act or omission of any partner acting in the ordinary
course of business of the partnership or with the
authority of his co-partners. (Article 1822)
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 MGT 162
LAW ON PARTNERSHIPS PART 2
Atty. Roderick F. Blanco, CPA
⤿ Where one partner acting within the scope of his
apparent authority receives money or property of
third person and misapplies it.
⤿ Where the partnership in the course of the business
receives money or property of third person and such
money or property is misapplied by any partner
while it is in custody of the partnership. (Art. 1823)
LIABILITY OF PARTNERSHIP TO THIRD PERSONS FOR
ACTS OF PARTNERS
When partnership is bound
a. If the partner is authorized to act for the
partnership, the partnership is bound
whether or not the act id for apparently
carrying on in the usual way of 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. (Art.
1818)
Example:
ABCD are partners in a business engaged in trading grains
such as rice, corn, et. The partners appointed A to manage
the partnership. During the year, the partners also authorized
C to buy a van for the partnership.
When partnership is NOT bound
a. When although the act is apparently
carrying on the usual way the business of
partnership, the parent is not authorized to
act for the partnership and third person has
knowledge of the partner’s lack of
authority. (Art 1818)
b. When the partner is not authorized to act
for the partnership and the act us not for
apparently carrying on in the usual way the
business of the partnership.
Example:
ABCD are partners in a business engaged in trading grains
such as rice, corn, etc. The partners appointed A to manage
the partnership. During the year, the partners also authorized
C to buy a van for the partnership.
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RULES ON CONVEYANCE OF REAL PROPERTY BY A
PARTNER/S
TITLE IS IN THE NAME OF PARTNERSHIP AND THE
CONVEYANCE EXECUTED BY A PARTNER IN THE NAME
OF THE PARTNERSHIP WITHOUT AUTHORITY
Effect: Conveyance passes title to the transferee
When the partnership can recover:
1. If the act is not apparently carrying on in
the usual way of business of the
partnership; or
2. The third person has knowledge of the
partner’s lack of authority.
When the partnership MAY NOT recover:
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.
Example:
L, M, N, O, and P are partners. A parcel of land in the name
of the LMNOP Partnership is sold by L without authority, in
the name of LMNOP Partnership, to X.
TITLE 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
CONVEYANVCE IS MADE WITHOUT AUTHORITY IN THE
NAME OF PARTNER/S IN WHOSE NAME THE TITLE
STANDS (ART, 1819, PAR. 3)
Same rules on effect, recovery, and non-recovery in the first
one.
Example:
L, M, N, O, and P are partners. A parcel of land in the name
of the LMNOP Partnership is sold by L and M and the title
does not disclose the right of LMNOP Partnership without
authority to X.
TITLE IS IN THE NAME OF THE PARNERSHIP AND THE
CONVEYANCE IE EXECUTED BY A PARTNER IN HIS OWN
NAME WITHOUT AUTHORITY (ART. 1819, PAR. 2)
Effect: Transferee does not become the owner of the real
property. However, equitable interest passes to him if:
1. The act is apparently carrying on in the usual
way the business of the partnership, and
2. Third person has no knowledge of the partner’s
lack of authority.
Equitable interest
All the beneficial interests in the property like the use
thereof and its fruits, but not the title.
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 MGT 162

LAW ON PARTNERSHIPS PART 2

Atty. Roderick F. Blanco, CPA

TITLE IS IN THE NAME OF ONE OR MORE OR ALL THE WHEN NOTICE/KNOWLEDGE NOT BINDING IN THE
PARTNERS, OR IN A THIRD PERSON IN TRUST FOR THE PARTNERSHIP
PARTNERSHIP AND THE CONVERYANCE IS EXECUTED BY
A PARTNER IN THE NAME OF THE PARTNERSHIP OR IN HIS Notice to or knowledge of a partner is not notice or
NAME WITHOUT AUTHORITY (ART. 1819, PAR.4) knowledge of the partnership in cause of FRAUD on the
partnership:
Effect: Same in the previous scenario.
a. Committed by a partner having notice of
Example: knowledge;
b. Consented to buy such partner having notice or
Same example except that the land is in the name of L and M knowledge.
in trust for LMNOP Partnership, L sells the land in the name
of LMNOP Partnership or in his own name without authority, PREFERENCE OF PARTNERSHIP CREDITORS IN
to X. Equitable interest passes to X. The other effects are the PARTNERSHIP ASSETS OVER PRIVATE CREDITOR OF A
same as in the previous example. PARTNER

TITLE IS IN THE NAME OF ALL THE PARTNERS AND THE
CONVEYANCE IS EXECUTED BY ALL THE PARTNERS IN
THEIR NAMES (ART. 1819, PAR. 5)
Effect: Conveyance passes all their rights in the property.
Example:
If the parcel of land is in the name of L, M, N, O, and P, and
they sell the property in their names to X, all their giths in the
parcel of land are passed on to X.
1. Partnership creditors shall be paid first out of
partnership assets.
2. Thereafter, a partner’s separate creditor shall be
paid out of the share of the partner owing him if
there is an excess.
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 has preference.

EFFECT OF ADMISSION OR REPRESENTATION OF A - END OF TRANSCRIPTION -

PARTNER

EVIDENCE AGAINST THE PARTNERSHIP

1. The admission or representation must concern

partnership affairs.
2. Made within the scope of authority if the partner
making the admission or representation.
3. Made during the existence of the partnership.
4. Existence of the partnership must be shown by
evidence other than by such admission or
representation.

EFFECT OF NOTICE TO AND KNOWLEDGE OF A

PARTNER

NOTICE TO A PARTNER

Notice to any partner relating to partnership affairs is

notice to the partnership, (art. 1821)

KNOWLEDGE OF A PARTNER

Acting on a particular matter

1. While already a partner; or

2. Before his admission to the partnership,
provided the same was still present to his
mind/

Not acting on any particular matter

1. While already a partner; and

2. He could and should have reasonably
communicated the same to the partner
acting on the particular matter. (Art. 1821)

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