1 | Partnership
August 26, 2015
Partnership (Article 1767-1867)
- It is a contract whereby two or more persons bind
themselves to contribute money, property, or industry to
a common fund, with the intention of dividing the profits
among themselves, or in order to exercise a profession.
(Art. 1767).
Composition of a Partnership
A. 2 or more persons
- may be natural and juridical persons
Q: Can a Corporation into a partnership?
A: GR: No; Exc: If allowed by its charter.
Rationale: Corporation is only allowed act due to:
a. There is need of the approval of the board of
directors
b. A partnership needs contribution of money
and property, and the money of the
stockholders corporation might be used.
Q: May a partnership may enter into another partnership
with another partnership?
A: Yes, condition: the new partnership has separate and
distinct personality from the partnerships.
The contributions, i.e. money and properties are distinctly
different
Rationale: If the same, there will be a difficulty to
distinguish the properties of each partnerships and of the
new partnership
Kinds of Partnerships
1. General Partner
-contribution of money and property
2. Industrial Partner
-contribution of industry (services)
Allowed:
Both General; General-Industrial
Not Allowed:
Both Industrial Partners
Rationale: there is no money or property---since money
and property is essential to a partnership
General Professional Partnership
-purpose is not for profit unlike
-partnership for the exercise of a profession, contributing
industry
-partnership for the giving of service
-it is the individual partners, and not the partnership, who
engage in the practice of the profession and are
responsible for their own acts as such.
How many members are there in a partnership
-Min: 2; Max: None, but for practicality, if more than 5
better form a corporation.
B. Contribution of money, property, or industry to a
common fund
What kind of money?
Legal tender,
Promissory Note is considered as property,
Checks- only when encashed
Property
Real or personal; corporeal or incorporeal
It should be an accessible property,
Rights over a property
Partnership Property
The property will depend on the use, the rights over the
property including the name, usage, title, the partner shall
lose the rights over the property,
Upon dissolution: partnership property will be used for
answering all the debts of the partnership
Universal Partnership of Property
- if all rights over the property are given to the partnership
-all profits realized in shall be under such property
e.g. Taxi of the partnership, the profit will be divided
-the property shall return back to the partner
Q: If Industrial Partner and earning salary instead of profit,
is it a partner?
No. Differentiate between an employee. An industrial
partner is considered a partner if s/he receives profit and
salary
C. Common fund
-pooling of all the contributions of the partners for the
capital
D. Profits
-test in determining if a partnership exists or not
-if only one partner earns profits, there is no partnership
-determine if there is a sharing of profits
Characteristics of a Contract of Partnership

1. Consensual
-there must be consent between the partners
-can be oral and written
The Articles of Partnership must registered with the SEC
when:
a. there is a contribution of P3,000 or more;
b. there is a contribution of property.
2. Nominate
-the partnership must have a special name or
designation
3. Bilateral
- it is entered into by two or more persons and the rights
and obligations arising therefrom are always reciprocal
4. Preparatory
-the contract of partnership must be perfected before the
partnership begins
5. Onerous
- because there is a giving of contribution for the partner
to benefit himself, i.e. profit
6. Commutative,
-the undertaking of each of the partners is considered as
the equivalent of that of the others
7. Principal
-partnership it does not depend for its existence or
validity upon some other contracts;
Special Features of Partnership
1. There must be a valid contract
-There has to be a valid and voluntary agreement to
become partners
The parties must have legal capacity to enter into a
contract
-incapable: unemancipated minors, insane, deaf-mute,
persons suffering civil interdiction--- cannot enter into any
contracts,
those who cannot give donation, e.g. husband and wife,
rationale: circumvent the law on donation,
the property donated shall become partnership property,
partners who are living as husband and wife (common
law)
delectus personae
choice of the person or choice of the persons
-the person who you wants to choose as a partner, right
to choose a partner
-a partnership is a fiduciary relationship and entails full
trust and confidence
One ground of dissolution is loss of trust and confidence
2 | Partnership
2. There is a contribution of property
3. It must be an association of profits with the intention of
dividing their profits themselves
The division must be proportionate to the contribution of
the partner
A partnership once has its own separate juridical
personality it can now be sue and sued, it can even own
properties and shall pay its own taxes.
There is a sharing of profits entails the sharing of loss
4. It has a juridical personality which is separate and
distinct from the partners
When a partnership enters into a contract and there was
a breach of contract, who pays the damages?
the partnership
Q: When will the partner be liable personally?
A: when he acts beyond his scope of his authority
5. The partner is mutually an agent of the other partner
- a partner who enters into contract for and in behalf of
the partnership is considered as the agent of another
partner and thus they are bound
If an authorized partner enters into a contract s/he shall
be personally liable.
If there is a managing partner and such partner enters
into a contract with a third person, the partnership shall
be held liable.
6. Purpose of the partnership must be lawful, not morals,
public policy and within the commerce of man
7. An Article of Partnership must not be kept secret
-the provisions, terms and conditions must be open and
known to the partners in order the that each partners
may act intelligently and wisely for the common of the
partnership
Effect if kept secret: If one of the partners was acting in
behalf of the other partner, without knowledge of an
existence of a managing partner, and one of the partners
was able to buy a property for the partnership---rules on
co-ownership shall apply
3 Levels of Existence
 3 | Partnership

Distinction between Partnership and Co-ownership

1. It is a contractual Relation between the partners
Partnership Co-ownership
2. It is a means or medium of doing business Contract only,
-it has a juridical personality (express or implied)
Creation Contract or Law
Agreement of the
3. It is a business enterprise/venture parties
O
Juridical
Art. 1768 The partnership has a juridical personality Personality
P Cannot sue or be
sued
Comm on enjoyment
Consequences of the Partnership Being a Juridical
Purpose Realization of Profits of their pro-indiviso
Entity share
Undivided property
a. Its juridical personality is SEPARATE and DISTINCT Duration No limitation for 10 years is not
from that of each of the partners. allowed
Cannot dispose his
Co-owner may sell
b. The partnership can, in general: Disposal/Transfe individual interest
only his pro-indiviso
r of Interest without unanimous
1. acquire and possess property of all kinds; consent
share
2. incur obligations; Cannot be transferred
3. bring civil or criminal actions, it can sue and be Death Heirs may succeed
to heirs
sued; Upon the death or Not dissolved by
Dissolution
4. can be adjudged INSOLVENT even if the incapacity of a partner death or incapacity
individual
members be each financially solvent. Distinction between Partnership and Corporation

Constitutional Rights of a Partnership Partnership Corporation

1. Right to Due Process Agreement of the Created by law or
Creation
2. Right to Equal Protection parties, voluntary operation of Law
No. of
3. Right against self-incrimination At least 2 persons At least 5persons
Incorporation
Date of the
Piercing the Veil of Corporate Fiction Commencement Issuance of the
Execution of the
-used only to check if there is fraud or sham transaction of Juridical Certificate of
Contract
entered into between the parties Personality Incorporation by
SEC
Any powers
Distinction between Partnership and Joint Venture Only expressly
Powers authorized by the
granted by law
partners
Partnership Joint Ad/Venture a stockholder
Single Transaction, cannot sue a
Temporary member of the
For profit with Effect of A partner may sue a
Purpose board of directors,
Purpose some degree of Mismanagement co-partner
Specie of the action must be
continuity in the name of the
Partnership
e.g. Mining Ventures corporation
Legal/Juridical Right of
P O Succession
O P
Personality
Firm Name P (req uired) O Partners may be The stockholders
Extend of Liability personally and are liable only to the
to Third Persons subsidiarily liable for extent of the shares
partnership debts subscribed by them
Anytime by the will of
any partners caused
by death, retirement, upon the Consent of
Dissolution
insolvency, civil the State
interdiction, or insanity
of a partner
Term of
Any period 50 years, extendible
Existence

Sept 2, 2015
Art. 1769. Test to determine the existence of a
partnership
Without any agreement or contract of partnership
1. Persons who are not partners as to each other are not
partners as to third persons;
2. Co-ownership or co-possession does not itself
establish a partnership, whether such co-owners or co-
possessors do or do not share any profits made by the
use of the property;
3. The sharing of gross returns does not of itself establish
a partnership, whether or not the persons sharing them
have a joint or common right or interest in any property
from which the returns are derived;
4. The receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in
the business, but no such inference shall be drawn if
such profits were received in payment:
a. As a debt by installments or otherwise;
b. As wages of an employee or rent to a landlord;
c. As an annuity to a widow or representative of a
deceased partner;
d. As interest on a loan, though the amount of
payment vary with the profits of the business;
e. As the consideration for the sale of a goodwill of a
business or other property by installments or
otherwise.
Requisites for Existence of Partnership
In particular it must be proved that:
a. there was an intention to create a partnership
b. there was a common fund obtained from contributions
c. there was a joint interest in the profits.
Absence of one of the requisites--- no partnership
Who has the burden of proof to show that a partnership
exists?
It is the partner/partnership
If there is no certainty with what kind of relationship is
entered into--- the partner has the burden of proof
4 | Partnership
Consequences of the Establishment of Partnership
1. Sharing of profits and losses
2. Equal rights or voice in management and on the
conduct of the partnership business (Art. 1807)
3. A partner is an agent of the other partners---
his action binds the partnership and other partner as long
as it is for the purpose of the business (Art. 1818)
4. Partners are personally liable to the debt of the
partnership (Art. 1816, 1822-1824), liability of a limited
partner is different to a general partner
5. The books of the partnership shall be kept at the
principal place of business--- any of the partner may look
into the books
6. There is a fiduciary relationship existing among the
parties
7. A capitalist partner, one who contributes money or
property, you cannot venture into another partnership
that is in competition with the business venture, while an
Industrial Partner is absolutely prohibited to venture into
another partnership since what he contributes is only
service and should be loyal
8. On dissolution, the partnership is not totally terminated,
but continues until the winding up of partnership is
completed.
Different Parties in Partnership
GR: There is no special capacity required by the partners,
anyone can be a partner
Exc:
1. Those who cannot give consent to a contract
2. Those who prohibited from giving each other donation,
or advantage, e.g.
a. husband and wife in a universal partnership
(Art. 1782)
b. Art. 739. The following donations shall be void:
1. Those made between persons who were guilty
of adultery or concubinage at the time of the
donation, no need of conviction;
2. Those made between persons found guilty of
the same criminal offense, in consideration
thereof;

3. Those made to a public officer or his wife,
descendants and ascendants, by reason of his
office
Consent
- The consent is essential to the contract of
partnership
- The Consent and Intent to form a partnership
Partnership by Estoppel
when two persons not partners represent themselves as
partners to strangers.
The person represents himself as a partner in a
partnership
Ex.
Suppose A, B, and C are not really partners, but A told X
that he (A), B, and C are partners. X, believing the
representation made by A and consented to by B,
extended credit to A.
As against A and B, A, B, and C constitute a partnership
by estoppel. But as against C, there is no partnership
and X cannot hold him liable as a partner. When the debt
matures,
X is entitled to collect only from A and B who are liable
as partners although not actually partners.
Q: Is there a partnership formed?
A: None, Art. 1825 provides only liability
A and B can run after X and vice versa.
Art. 1770 Object or Purpose
The object or purpose must be LAWFUL and established
for the common benefit of the partners, i.e., it must be
within the commerce of man, possible, and not contrary
to law, morals, good customs, public order or public
policy
If a partnership has several purposes, one of which is
unlawful, the partnership can still validly exist so long as
the illegal purpose can be separated from the legal
purposes.
Unlawful partnership-purpose is to commit a crime
Consequences of an unlawful partnership
1. The partnership contract is VOID AB INITIO.
2. The profits derived and properties, instruments used
and contributed shall be seized and confiscated in favor
5 | Partnership
of the government in re: Art. 45 of the Revised Penal
Code
If the contributions not used in the crime can be returned
to the partners
Exc: the property of a third person not liable for the
offense
3. No legal personality
Partial Illegality
Initially legal and becomes illegal
Effect:
Does not automatically dissolve the partnership,
Ask for an accounting, and make a new partnership with
another business
As to the Legal, the innocent partner may ask for an
accounting and return of contribution and distribution of
his profit
e.g
Business of selling 2nd hand cars
but there was a law prohibiting the selling of 2nd hand
cars.
The partners may ask for an accounting,
Dissolve or change the business venture
Examples of Unlawful Partnership
a. A partnership formed to furnish brothels or prostitution
dens
b. A partnership formed to create illegal monopolies or
combinations in restraint of trade.
c. A partnership for gambling purposes.
d. A partnership formed for the purpose of acquiring
parcels of land much in excess of the maximum allowed
by the law.
Consideration
-contribution of money, property and industry
Effect Failure to Contribute
Money : the partner becomes a debtor to the partnership,
if there are interest and damages incurred due to non
contribution, the partner is liable
Specific, Real or Personal Property:
loss before delivery: partnership is dissolved, the partner
has nothing to contribute, the owner bears the loss
loss after delivery: partnership bears the loss, the
partners can contribute to give an additional capital for
the business venture

if only use is given and not ownership: before and after Sept. 4, 2015
delivery, partnership is dissolved
Art. 1771: Formalities
Gr: No specific form, thus maybe oral or written A. Object
WRITTEN when there was a contribution of:
1. Real/ Immovable Property
2. money P3,000 or more
Requirements
1. It must be in a public instrument
2. Registered in the Securities and Exchange
Commission
Contribution of real properties or real rights in real
properties:
a. must be in a PUBLIC INSTRUMENT, and;
b. there must be an INVENTORY of the immovables,
attached to the public instrument and signed by all the B. Duration
parties.
Reason: to determine in terms of money the contribution
of the partner
c. Registered in the Register of Deeds, to protect the
third persons
If non-compliance: The partnership will still be existent
but the contract VOID
The partnership may be considered as a de facto or
partnership by estoppel
Art. 1774. Acquisition of Property Under the
Partnership Name C. Extent of Partner Liability
-Applicable to immovable, and personal property because
the partnership is a juridical entity and capable of owning
and possessing property.
If there are Alien Partners
Follow the 40-60 ratio of Filipino to Foreign capital stock
ownership
Art. 1775. If Articles are Kept Secret
Effect:
a. The association here is certainly not a partnership and
therefore not a legal person,
b. It may be sued by third persons under the common D. According to representation to others:
name it uses; otherwise, said innocent third parties may
be prejudiced.
6 | Partnership
Classes of Partnership
1. universal
a. with all present property
---lose ownership of their property
b. with all profits
---the individual properties here continue to be
owned by the partners, but the usufruct thereof
passes to the firm)
2. particular
here the object are determinate things, their use or
fruits is for a specific undertaking, or the exercise of a
profession or occupation
1. Fixed
2. For particular undertaking/venture/purpose
3. partnership at will
a. here, no period, express or implied, is given and
so its duration depends on the will of the partners;
b. if the period has expired, but the partnership
continued, without liquidation, by the partners who
habitually acted as such during the term.
1. General Partneship
- liable beyond his contribution, maybeliable pro rata
and subsidiarily and sometimes solidarily (Arts. 1822-
1824.) with their separate property for partnership
debts
-maybe all General Partners or General and Industrial
Partner;
2. Limited partnership that where at least one
partner is a general partner, and the rest are limited
partners.
-A limited partner is liable only to the extent of his
contribution.
1. ordinary partnership
2. partnership by estoppel
 7 | Partnership

Classes of Partners 3. Nominal Partner or Partner by Implication

-He is one who is represented as being in fact a
A. Nature of Contribution partner, but who is not so as between the partners
themselves, but there was no objection to the
1. Capitalist partner partners
-one who contributes money or property to the
common fund; 4. Secret partner
-who takes active part in the business but is not
2. Industrial partner known to be a partner by outside parties nor
-who contributes only his industry or personal service. held out as a partner by the other partners.
B. Liability
5. Dormant partner
1. General partner -does not take active part in the business and is
-whose liability to third persons extends to his not known or held out as partner.
separate property; he may be either a capitalist or
industrial partner. E. Membership
-He is also known as real partner;
1. Original partner
2. Limited partner -a member of the partnership from the time of its
- whose liability to third persons is limited to his capital organization;
contribution.
-May demand the return of his contribution 2. Incoming partner
-He is also known as special partner. -a person lately, or about to be, taken into an existing
partnership as a member;
C. Management
3. Retiring partner
1. Managing partner -one withdrawn from the partnership; a withdrawing
-who manages the affairs or business of the partner
partnership; he may be appointed either in the articles
of partnership or after the constitution of the 4. Continuing partner
partnership. -continues the business of a partnership after it has
been dissolved by reason of the admission of a new
2. Liquidating partner partner, or the retirement, death, or expulsion of one
-who takes charge of the winding up of partnership or more partners.
affairs upon dissolution
-may ONLY be designated 5. Surviving partner
-who remains after apartnership has been
3. Silent Partner dissolved by the death of any partner
-does not take any active part in the business
although he may be known to be a partner 6. Subpartner
-only for Profits - or one who, not being a member of the
partnership, contracts with a partner with
D. As to third persons
reference to the latters share in the partnership.
1. Partner by estoppel
-who is not really a partner, not being a party to a Art. 1784. Commencement of Partnership
partnership agreement, but is liable as a partner for
the protection of innocent third persons GR: A partnership begins from the moment of the
execution of the contract,
2. Ostensible Partner -even if contributions have not yet been made
Ostensible partner or one who takes active part and
known to the public as a partner in the business Exc: Stipulation
The agreement for a future partnership, the intent must
later on be actualized by the formation of the intended
partnership.
 8 | Partnership

Consequences when a managing partner gets money

Sept 9, 2015 from the common for his personal use:
1. Reimburse the money taken;
2. Pay the agreed interest or legal interest
Art. 1786 Three Important Duties of Every Partner
3. Pay damages caused by the conversion of money to
personal use
a. the duty to contribute what had been promised;
When do you count the payment of interest and damages?
b. the duty to deliver the fruits of what should have been
Reckon at the time the managing partner converted the
delivered; and
fund for personal use, look at the intent, even if there is
no demand
c. the duty to warrant.
If there is intent to convert the money, the managing
Obligations of a Partner
partner is also criminally liable for ESTAFA---
misappropriation of partnership funds and there is intent
Art. 1788
to defraud the partnership
1. Contribute money, property, or industry
Property Obligation
If there is a failure to contribute and from the time he
Contribution on Immovable property:
failed to deliver his contribution, he becomes a debtor
Obligation to deliver on the agreed date
Q: When do you consider him to become a debtor?
If there is delay the partner becomes a debtor until the
time he delivers,
A: At the time the formation of the partnership was
entered into or a period has been agreed upon.
As a debtor the partner is also liable to:
Art. 1786, 1785
e.g. X partner was supposed to contribute money on
1. Preserve the property
Sept. 15, but he failed, after Sept.15 up to the time you
2. Warrants the property against eviction by judicial
gave your contribution, X is considered a debtor
process
X has the obligation to:
The partner warranties that the property is not subject to
1. Payment of the contribution including interest, if it is
eviction
agreed
Without any agreement, legal interest shall prevail 12%
Eg. You have property that you want to contribute to the
per annum
partnership unfortunately that property is a subject of a
case and that case ruled against the partner, the property
2. Damages
rightly belongs to Z,
-actual damages that the partnership should have earned
and the lost opportunity
Q: What happens to this property?
A: The ownership and possession is lost by the partner,
e.g. failure to enter into a transaction due to the non-
this cannot be transferred to the partnership
contribution of a partner, there was a lost opportunity to
earn
Q: The property was evicted, what happens to the
partner?
Art. 1788 2nd paragraph presupposes:
A: The partner shall become a trustee of the partnership,
The partnership is in operation,
therefore this partner has the duty to look for another
There is a managing partner and;
property that shall be agreeable to all the partners and
a common fund
has to be satisfactory and meet the standards of the
partnership
Rule: Managing partner can get money from the common
fund
If the partner cannot contribute any other property:
Exc: no agreement or no managing partner, anybody can
Dissolution of the partnership
get from the coffers of the management
Two(2) actions that can be filed with respect to
Managing partner should monitor and whenever he gets
contributions:
money,
1. Rescission of the partnership

2. Specific performance
Liability of the fruits of the property
e.g. The property is being leased, earning rentals
rentals, Z promised to contribute the property on Sept. 9,
but the tenants are staying there until Oct 10, thus cannot
be delivered.
The rentals earned from Sept. 9 to Oct. 10 shall be
included in the partnership assets,
the partner cannot keep the rentals
Art 1787 Contribution of Goods
Rule: Appraisal of value of the goods is needed to
determine how much has been contributed.
How Appraisal is made?
(a) Firstly, as prescribed by the contract.
(b) Secondly, in default of the first, by EXPERTS chosen
by the partners, and at CURRENT prices. E.g. licensed
real estate appraisers
Art. 1795 Risk of loss of contribution of property or
goods
(a) Specific and determinate things (NOT fungible)
whose use/usufruct is enjoyed by a firm like a car
partner who owns it bears loss for ownership
Ex. Taxi business, Z allowed the car be used, If the car
was wrecked, it Z who will bear the loss.
(b) Fungible or Deteriorable Firm bears loss for
evidently, ownership was being transferred; otherwise,
use is impossible.
Ex. Business of vegetable, or cell phone was lost, the
partnership shall bear the loss
(c) Things Contributed to be Sold Firm bears loss for
evidently, firm was intended to be the owner; otherwise,
a sale could not be made.
(d) Contributed under Appraisal Firm bears loss
because this has the effect of an implied sale.
Art. 1789 Contribution of Services and Industry
-labor and service therefore the partner is bound to give
100% attention to the partnership
- he cannot engage in any other business without the
express
consent of the other partners;
Can you compel a partner to perform his obligation if he
refuses, to contribute his industry?
9 | Partnership
No, involuntary servitude
If your industrial partner enters into a business of his own,
what is the remedy?
1. Partner may be excluded
2. Liable for damages because of his failure to contribute
since there was loss on the partnership,
3. The profits/benefits earned by the industrial partner
may be taken by the partnership
The partnership may demand from the industrial partner
such profits or benefits
Other obligation in relation to contribution:
Obligation to Preserve the Property
With the diligence of a good father of a family, take care
of the contributions a partner promised
Art. 1790. Respect the stipulation as to the amount of
contribution to be contributed
In Articles of Partnership, can stipulate to the amount of
contribution, this shall follow to the sharing of profits and
losses.
e.g. Total= 5M; A=1M, B=3M, C=1M
If no stipulation, they shall contribute equally
Exc: An industrial partner shall receive just and equitable
share.
Additional Contribution
If:
! There is stipulation, the partners are compelled
! There is imminent loss of the business partnership, the
business is to go bankrupt
If one of the partner refuse--- he is obliged to sell his
interest over other partners
If he refuses to contribute and refuses to sell---he is no
longer interested in pursuing the business venture
If there is a stipulation that Z partners is not compelled to
contribute even if there is imminent loss---cannot compel
to contribute additional amount
What kind of refusal and still the partner is a part of
partnership? By reason of insolvency and he cannot
contribute additionally

Sept 11, 2015
Art. 1796 Obligation of the Partnership to a partner
1. Reimburse cash expenses that the partner incurred
2. To honor the all the contract the partner entered into,
these transactions should be: for the benefit and interest
of the partnership; and entered into in good faith
3. To refund all cash advances or amounts disbursed on
behalf of firm plus interest (legal) from the time expenses
were made
(and not from demand, since after all, a partner is an
agent, and the rule on agency applies to him).
Example:
Fastfood business
Agreement to contribute money, but it was not enough to
buy machineries
Partner A will contribute money for the business to start,
but his money is also not enough
A entered into a loan transaction, this was for the
partnership,
The loan was due even if not profits were not realized
and he made cash advances to pay for such loan,
You should count the period when the expenses and
cash advances were made
Q: What if the business incurred losses, can you still ask
for reimbursement?
A: The partner who made cash advances and expenses
may still ask for reimbursement, cause a partner is still
considered an agent of the partnership
An agent is not liable for the obligation incurred by the
principal.
Art. 1810. The property rights of a partner are:
(1) His rights in specific partnership property;
(2) His interest in the partnership; and
(3) His right to participate in the management.
All the partners has the right to own the property
Partnership property are covered by Rules on co-
ownership
What can the partners with respect to their partnership
property?
Any of the partners may use the property as long as for
the purpose of the business
If for personal use: there should be consent of all the
partners
10 | Partnership
Management
-an important property right,
can be all of them or by a designated a managing partner
-a partner has a voice on how the business will proceed
Interest
-the share of the partner with respect to the profit and the
surplus---refers to excess after the distribution of profits
If partnerships assets were sold after the payment of
debts and there were excess, this excess should be
returned to the partnership and shall be distributed
If there are debts:
1. Pay off the debts
2. The remaining shall be the profits
3. Distribute depending to the contribution of each partner
4. The remaining shall be the surplus
Partner s share is also partnership assets, this includes:
1. Return of his contribution; and
2. Share in the net profits
Once the partner receives his share in the profits,
it is now considered as the personal property of the
partner, he may dispose as long as the way he disposes
is not contrary to law, public policy, public order
Art 1810 (3) MANAGEMENT RIGHTS
GR: partners are agents of the partnership, therefore
anybody can manage the partnership
Exc:
A. There is an appointed managing partner designated in
the Articles of Partnership
If a partner is designated in the articles of partnership, his
managing power is irrevocable since revocation
represents a change in the terms of the contract.
Rationale: the mismanagement is management
prerogative and the court cannot question such.
Rule: Power is irrevocable.
Exc: when there is just or unjust cause
1) In just cause, the controlling partners (partner with the
highest percentage in the contribution) should vote
to OUST HIM.
Therefore, the controlling partner as much as possible
should not be the managing partner

2) For unjust cause, there must be a unanimous vote,
including the vote of the managing partner.
Reason: This represents a change in the will of the
parties: a change in the terms of the contract;
a novation , so to speak, requiring unanimity.
How do you revoke?
may file an application for dissolution of the partnership
by a judicial decree and create a new partnership.
NO Court intervention since it is a management
prerogative.
What is the extent of you power?
If done in Good Faith,
All acts of administration, e.g. business transactions, hire
and fire employees---should be done in good faith,
no need for the consent of other partners
Rationale: When they appointed a managing partner, the
other partners already surrendered their power to
management
If the managing partner is acting in Bad Faith,
He cannot do all acts of administration, but he is enjoying
the presumption that he is in good faith.
B. Appointment as manager after the constitution of the
partnership in another instrument or orally
-this may be revoked at any time for any cause just or
unlawful cause.
Why is there a difference in revocation?
The appointment is a mere designation of power
Extent of power?
As long as he remains as the managing partner, he can
do all acts of administration.
The act of administration of the managing partner should
be within his authority and for the best interest of the
partnership
Act of dominion---act of ownership
there should be consent of all the partners for it to
binding
GR: All acts of administration is conferred to the
managing partner
Exc:
1. specifically restricted
Eg. All acts of administration except hire and fire
employees
2. expressly withheld
-same as 1
11 | Partnership
3. not incidental to the business
-not part of the business
4. it is not necessary to carry out the object of the
partnership
Art. 1801 Two or more managing partners
Rules:
1. If there is a designation
-The partner can only perform the power designated to
him
2. If there is no designation, these partners have equal
power, unlimited act of management
3. If it is stipulated that the managing partner cannot act
without the consent of the partners
If one of the managing partner objects to the acts of
another managing partner
Remedy: Register his objection before the other partner
completes the act or before the acts produce legal effect
e.g. hiring then there is a contract of employment, the
objecting partner may stop the other partner.
If not, the act will bind the partnership
Why will register your objection? To protect third persons
Q: Who has the right to object the act of managing
partner?
A: The other managing partner can only object to the
acts of the managing partners.
A & B managing partner
C & D partners
C & D cannot object because they already gave up the
right to management to A & B
If there is an objection, how do you now decide?
Majority of all the managing partner
If there is a tie: vote of the partner with controlling
interest--- such partner is also a managing partner
Art. 1802 The all the acts of administration must be with
the consent of all the partners, even if you are a
managing partner.
All partners must agree to the act of the managing
partner, e.g. hiring of an employee and all partners
should consent

The managing partner cannot act without the consent of
the other managing partner.
A, B & C are managing partner
A for his acts to be valid, B & C must consent
A cannot put up the defense he is did not yet get the
consent because he is incapacitated
A will hire
B & C was out of the country
A cannot hire without the consent of B & C
Exc: there is an imminent danger or irreparable injury
that which will be a cost to the partnership if there is a
delay, e.g. damage upon the taxi
There is no need for the consent of other managing
partner
Art. 1803: There is no designation of a managing partner
The partners shall all be considered as managing
partners
In re: Art. 1818 as long as the partners are acting in good
faith, the acts are binding upon the partnership
As an agent, a partner is keen to act within the scope of
his authority, whether actual, implied or apparent
authority
---his acts concerning the partnership business and every
contract in the partnership name will bind the partnership
Q: When can a partner bind the partnership?
A: A partner binds the partnership when the following
requisites are present:
(a) expressly authorized; or
(b) impliedly authorized;
Instances of implied authorization:
1) when the other partners do not object,
although they have knowledge of the act;
2) when the act is for apparently carrying on in
the usual way the business of the partnership.
Doctrine of Apparent Authority
-The act is binding on the firm even if the partner
was not really authorized, provided that the third
party is in GOOD FAITH.
Ex: Partner is authorized to buy products which will be
used to sell, The partnership uses only cash and the third
person does not know this limitation and this partner
used check or credit,
12 | Partnership
It shall bind the partnership.
Sept. 16, 2015
Rules in management when there is no designated
partner
Every partner is an agent of the partnership, any partner
is a managing partner as long as:
1. The partner is acting is good faith
2. It is acting in behalf of the partnership and for the
interest of the partnership;
Therefore the act of partnership binds the partnership.
When does the act of a partner does not bind a
partnership?
If there is timely objection by the other partner
Eg. X partner will enter into a transaction with a third
person, X partner is in good faith and is acting for the
best interest of the partnership, for the act not to bind the
partnership, there should be a timely objection by Y
partner
How can the objection Y partner be overturned?
Art. 1801 there has to be a majority decision of all the
partners
The transaction may proceed and shall bind the
partnership
Art. 1818 as an agent of the partnership, a partner is
deemed to have acted within his scope of his authority,
That includes all acts of administration, whether implied,
actual or apparent.
-limitations on the authorizations of a partner are not
binding on innocent third persons who have a right to
assume that every general partner has the power to bind
the partnership especially those partners acting with
ostensible authority by whatever is proper for the
transaction in the ordinary and usual manner of the
partnership
-third persons who transacts with a partner are not
required to inquire as to whether or not the authority of
the partner to whom they are transacting has the consent
of the other partners
-innocent persons who deal with the partner will not be
liable, they can hold liable the partnership, despite the
limitations on the partner, as long as the partner is acting
in the ordinary and usual manner of the business
e.g. XYZ partnership uses only cash basis in their
transactions, X enters into a transaction with instalment
or credit basis, the third person who enters into such

transaction may hold the XYZ partnership liable, as long
as the third person does not know such limitation.
How can we determine whether or not the transaction
is within the scope of the partnership business?
may be gauged by the usual manner in which it is carried
out in the locality;
but scope may be broadened by actual conduct of
business, as carried out with knowledge, actual or
presumed, of the partner (partners, or partnership)
sought to be charged.
e.g. XYZ partnership transacts using cash only, the X
partner uses a check or credit
ABC partnership is in the Real estate business but then
A partner is now selling motor vehicles, the third person
should start to be wary and vigilant
Effect: if there the transaction is not within the scope of
partnership business, the partnership may not be held
liable
For third persons, and there is no designated managing
partner in the partnership,
check if the partner has authority to enter into such
transaction and if there is general authority
Art. 1818. 7 Instances these acts binds a partner if
there is no designation, cannot act on its own
There is a need for unanimous consent
Rationale: Because there are already acts of dominion,
actual ownership, they are not apparently carrying on in
the usual way of the business of the partnership
1. Assign the partnership property in trust for creditors or
on the assignees promise to pay the debts of the
partnership;
---the firm will virtually be dissolved since there is a
removal of asset, giving the asset to the creditor
2. Dispose of the goodwill of the business;
goodwill is valuable property, e.g. name of the
business of the partnership
3. Do any other act which would make it impossible to
carry on the ordinary business of a partnership;
this is evidently prejudicial
4. Confess a judgment;
if done before a case is filed: confession is null and
void,;
if done after the case is filed, the firm would be
jeopardized, the confession is not binding.
13 | Partnership
5. Enter into a compromise concerning a partnership
claim or liability;
this is an act of ownership and may be said to be
equivalent to alienation, removing ownership from
partnership property
6. Submit a partnership claim or liability to arbitration;
same as alienation
7. Renounce a claim of the partnership.
the right to renounce belongs to the partnership only
Exception to these acts of dominion
-there is a need of unanimous authorization
1. When the partner is authorized by other partners
2. When all the other partners have abandoned the
partnership, the remaining partner may perform acts of
dominion
In the event there is abandonment, 1 or more but not all
partner may perform the acts of dominion
Art. 1803 (2) No designation of managing partner,
Important alteration in an immovable property
None of the partners may, without the consent of the
others, make any important alteration in the immovable
property of the partnership, even if it may be useful to the
partnership. But if the refusal of consent by the other
partners is manifestly prejudicial to the interest of the
partnership, the courts intervention may be sought.
These important alterations are useful expenses but
not necessary
Rationale: alteration in the immovable property of the
partnership is an act of strict dominion.
Rule:
Useful expenses must be with consent
Necessary expenses do not need consent
The consent required:
Unanimous consent of all the partners
The consent need not be express or implied.
Implied: as when the partners had knowledge of the
alteration and no opposition was made by them
Eg. Taxi business
Building where you house your office,
A part of the building is deteriorating,
The use will depend on the part of that building which is
deteriorating,
If the part is not used---- useful expense, there is a need
to get the consent
 14 | Partnership

If the part houses the office, computer and files---- After dissolution, the partnership has to dispose
necessary, no need to get the consent of the partners, partnership assets, if statements that must pertain to
this is partnership liability these transactions, then it shall be binding

Q: Why is it limited only to immovable property? e.g. Vehicle that is owned by the partnership and it is
paid in instalment, and a partner admitted that there is
A: First, because of their comparative greater importance still a debt to the bank, this obligation is still demandable
than movable property. to the partnership and it shall pay for the debt

Second, because, in a proper case, they should be Rationale: If the admission is not the act of the
returned to the partners in the same condition as when partnership, it should NOT be evidence against it.
they were delivered to the partnership.
Since the partner shall only give the usufruct or right to
use and the same shall be returned to the partner upon Sept. 18, 2015
dissolution
Other Acts of a Partner that binds the partnership
Remedy of a partner if one of the partners object to the
important alteration and no alteration can be done: Art. 1821 Notice given by third persons
Court intervention,
If such objection is manifestly prejudicial to the Generally, notice to a partner is notice to the partnership
partnership
e.g. Deterioration on the not used part, but there might Reason: because of the existing fiduciary relationship, it
be termites on the deterioration, then court intervention is presumed that partners disclose to one another
may be sought relevant information concerning partnership business
Another act that may bind the partnership A third person need not to send notices to all partners
Art. 1820 Admission or Representation Made By a Conditions:
Partner
1. Notice must be related to partnership affairs
An admission, stipulation or statement by a partner is
admissible against the partnership under the conditions 2. The partner who receives notice is within the scope of
given: his authority
a. the admission must concern partnership affairs only e.g. Matter about a property, one of the partners is a
managing partner, it is within his scope of authority that
b. partner is acting within the scope of his authority he is notified of such matter, if the partner is notified,
---made to a third person is binding to the partnership
The partnership cannot claim ignorance of this notice
c. made by the partner while engaged in the partnership
As provided by Uniform Partnership Act
d. the existence of the partnership must be proved or
Knowledge of fact Notice of fact
established,
Actual knowledge of fact A person claiming the
but also when the partner benefit of the notice:
e.g. partner by estoppels, the admission may not be
has knowledge of other
binding to the partnership
facts A person states the fact to
such person and it is this
Restrictions on the Rule
There are other person who claims, and
information regarding such states it to another person
1. Admissions made BEFORE and going towards
fact
dissolution, and third party are going after the partnership,
Or delivers the fact
The admissions are binding only when the partner has
Maybe learned through through a written notice to
authority to act on that particular matter.
rumors or gossips his place of business or
residence
2. Admissions made AFTER dissolution are binding only
if the admissions were necessary to WIND UP the
business.

There might be notice but knowledge has been acquired
regarding an important matter,
Q: Does this knowledge without notice considered
knowledge of the partnership?
Yes, still considered knowledge of the partnership when:
1. The knowledge was acquired by a partner who is
acting in the particular matter involved.
Q: When is the knowledge acquired and that may bind
the partnership?
A: May have been acquired while already a partner, or
even PRIOR TO THAT TIME, provided present to his
mind,----he still remembers the knowledge.
2. The partner was present to his mind and remembers
the knowledge--- Prior to the partnership and the partner
is in authority to act for a particular matter
3. The knowledge was acquired by a partner not acting in
a particular matter
----while the partner is already in the partnership
e.g. The Y partner is authorized in the hiring and firing of
an employee, X partner came to know that one of the
employees has a criminal record,
X partner has the obligation to say about character of the
employee.
Scenario
P acquired some knowledge about Ss cre dit before P became
a partner.
Later P became a partner, and one day S had a transaction
with the firm. P never conveyed the information he knew to the
firm although he could have done so.
R was the person who dealt with Ss transaction.
Nobody else in the firm knew what P already knew.
Q: Is Ps knowledge also the knowledge of the partnership?
A: No, because P was not the partner acting in the particular
matter involved. He had acquired the knowledge BEFORE he
became a partner, not afterwards. The words present to his
mind (rememb ered) do not apply, for they apply only to the
person ACTING in the particular matter.
P has no obligation to disclose such information
Q: When is the knowledge not binding to the partnership?
A: The partner comes to know of an information, in case
the partner commits deliberate intent or fraud on the
partnership committed by or with the consent of the other
partner who knew such knowledge
Other acts of the partner that binds the partnership
15 | Partnership
Art. 1822. Wrongful Act or Omission of a Partner
Torts committed in the ordinary course of the business or
with the authority of the co-partners
The non-erring partners are also liable
e.g. A, B, and C were partners. While acting within the
scope of the firms business, A committed a tort against
X, a third person. Is the firm liable?
ANS.: Yes. Moreover A, B, and C, as well as the firm
itself, are liable solidarily.
When the Firm and the Other Partners are NOT Liable
a. If the wrongful act or omission was not done within the
scope of the partnership business and for its benefit or
with the authority of the co-partners.
b. If the act or omission was NOT wrongful.
There was no wrongful act
e.g. self-defense,
c. If the act or omission, although wrongful, did not make
the partner concerned liable himself----the partner is not
the reason for the act or omission
d. If the wrongful act or omission was committed after the
partnership had been dissolved and same was not in
connection with the process of winding up.
Art. 1823. Liability of Partnership for Misappropriation
entrusted by third persons given to the partnership
The partnership is bound to make good the loss:
(1) Where one partner acting within the scope of his
apparent authority receives money or property of a third
person and misapplies it; and
(2) Where the partnership in the course of its business
receives money or property of a third person and the
money or property so received is misapplied by any
partner while it is in the custody of the partnership.
Requisites of Art. 1823
1. Partner was acting within scope of his authority
2. There was receipt of money
3. The partner misapplied the money while it is in the
custody of the partnership
e.g Investment business, Z partner has the authority to
receive money, Z misappropriates by gambling
 16 | Partnership

A. The property is in the name of the partnership or

Par. 1 Misappropriation is made by the receiving partner,
within the scope of his authority
Par 2. Misappropriation made culprit may be any partner
who receives money in the course of the business
Effect: same, the partnership is still liable
Remedy: The erring partner may be sued for damages
by the partnership or other partners
of
(Par. 1)
Any partner may convey title to such property by a
conveyance executed in the partnership name
With authority, the title passes to the buyer
Without authority, will it pass valid title to the buyer?
Yes, but the firm may recover the title land unless:

Art. 1824. All partners are liable solidarily with the 1. The partner was acting in the usual way of the
partnership for everything chargeable to the partnership business, e.g. real estate business
under Articles 1822 and 1823
---due to tort - the buyer does not know the lack of authority

Different from Art. 1816 2. The buyer already sold the property to a third person
-provides joint liability, partnership obligations the Who is a buyer in good faith, for value and has no notice
transactions that was entered by the partnership itself has that the partner has acted with lack of authority
and there is corresponding obligation
Ex. A, B, C, and D are partners of the firm Edimus.
A parcel of land registered under the name Edimus was
Obligation of the Partnership re: Workmens sold by A on behalf and in the name of the firm Edimus,
Compensation but without express authority. The purchaser is X. Does
X become the owner?
Scene:
there was illegal dismissal and the worker was able to A.: Ordinarily YES, but the firm may get back the land
obtain a favourable judgment unless:
a. the firm is engaged in the usual buying and selling of
The liability of the business partners should be land
SOLIDARY.
b. X had in turn sold the same land to Y for value and Y
Rationale: If the responsibility of the partners were to be did not know of As actual lack of authority.
merely joint and not solidary, and one of them happens
to be insolvent, the amount awarded to the dependents Reason: The property has in turn been conveyed by the
of the deceased employee would be only partially grantee (X) to a holder for value (Y) without knowledge
satisfied. that the partner, in making the conveyance, has
The law intends to give full protection to the employee. exceeded his authority.

Art. 1819 Conveyance B. The title is in the name of the partnership but was
-conveyance of real property through sale and donation sold in the name of the partner (Par. 2)

In partnership, if there is a specific authority to sell a real What passes to the buyer is only the equitable interest
property it includes the authority to mortgage over the property, such as beneficial interest of use and
fruits over the property
Real property may be registered or owned in the name of:
1. The partnership; Conditions
2. 1 or more but not all the partners; The partner was:
3. 1 or more, or all in trust;
4. All partners 1. acting with scope of his authority
2. in the usual way of the business of the partnership
What is equitable interest? 3. sells the property in his own name, instead of putting
-all interest which the partnership had, except TITLE, that the name of the partnership
is, the beneficial interests like use, fruits, but not the
naked ownership. Remedy of the buyer:
Reformation of the contract,
Rules:

The partnership shall execute a new contract changing
the name of the seller, to the name of the partnership
provided: other partners would not object to the
reformation of the contract
If the partners object: The buyer may use and have the
fruits of the property
The buyer is not entitled to equitable interest when:
1. The buyer knows the lack of authority of the partner
2. They are not in the usual manner of business, not in
the real estate business
3. When the buyer knows the lack of authority, and the
partnership is in the usual manner of the business.
C. One or more but not all of the partner and there is
no indication that the property is a partnership
property. (Par. 3)
e.g. A, B, C and D were partners in the real estate firm of
Edimus. Although a certain parcel of land really
belonged to the firm, it was registered in the name of A
and B.
Effect: any of the partners in whose name the title stands
or registered owner may convey title to property to the
buyer
The property may be subject to recovery of the
partnership if the buyer is in bad faith
exc:
1. The partner was acting in the usual way of the
business, e.g. real estate business
- the buyer does not know the lack of authority
2. The buyer already sold the property to a third person
Who is a buyer in good faith, for value and has no notice
has that the partner has acted with lack of authority
D. The title to real property is in the name of one
or more or all partners, or in a third person IN TRUST
for the partnership (Par. 4)
The registration is in trust
Ex. A, B, C, and D were partners in the real estate firm of
Edimus. A certain parcel of land was in the name of A,
in trust for the firm Edimus. If sold to X, X only acquires
equitable interest since A is a mere trustee.
As a trustee the beneficiary shall only be the partnership.
The benefits, e.g. fruits inured by the trustee shall also
inure to the benefit of the partnership
17 | Partnership
How does a buyer acquire valid title from a property sold
by a trustee?
There must be Ratification:
1. After the lapse of many years from the time of
execution of a conveyance by a partner purporting to act
for the partnership,
The partnership came to know the act of the trustee
laches will already apply
---reasonable time
2. At the time the document was given and executed to
the buyer, e.g. Deed of Sale, the partners was present
and there was no objection
Implied Ratification on the action of the trustee will validly
pass title
3. From the nature of the partnership business, and
where a firm is engaged in the business of buying and
selling real estate, a contract of sale executed by one of
the partners in the firm name is valid.
E. All the partners
Same as Rule in A. Title in the name of the partnership
Sept. 23, 2015
Co-ownership Rights
Art. 1811 A partner is co-owner with his partners of
specific partnership property.
-an extension to the right to participate in the
management of the partnership
- they are co-owners (tenants in common with
proportional, sometimes equal) right thereto.
-When a partner contributes real or personal property into
a common fund it becomes a common property they
become co-owners
Rules on co-ownership does not necessarily apply to
partnership,
Article 486 Each co-owner may use the thing owned in
common, provided he does so on accordance with the
purpose for which it is intended and in such a way as not
to injure the interest of the co-ownership or prevent the
other co-owners from using it according to their rights.
-Property once contribute is not subject to the sole will or
discretion of the contributing partner

Rights with respect to co-owned properties
A. Equal rights to possession
-anybody can use, possess for partnership purposes
Can they use it for personal use?
Yes, as long as there us consent of all the partners
e.g. ABC Partnership, A wants to loan money for his own
use and he makes use of the partnership property as the
security/collateral
A cannot use the property for his own use
If he uses loan for partnership purposes valid collateral.
Q: Can he use 1/3 of his interest over the property?
A: Depends,
If with consent of partners, he may use that 1/3 share as
a collateral for the loan
Will a bank accept such collateral? Depends
If without the consent then the partner cannot use if for
collateral
Reasons for the consent of the partner
1. The bank might not accept a portion over a co-owned
property
2. There is a difficulty to determine the exact beneficial
interest of a partner over specific partnership property
without dissolution of the partner
It is only during dissolution when there is liquidation that
a partner will know the exact
If there is a violation, what is the remedy?
1. The erring partner, must account to any benefits or
profits he gained for the use, and for any damages that
might have incurred for the wrongful use
2. The partners have the right to ask for an accounting, if
the erring partner does not account
3. The partners may apply for a dissolution of the
partnership, because there the decrease in the fiduciary
relationship in the trust and confidence on a partner
The right to use or posses may be given up by a partner
and surrender it to a managing partner
Death of a partner
18 | Partnership
e.g. ABC Partnership, A dies, B dies, C survived
Effect: The right of the partner over a specific property
will go to C for purposes of winding up.
When C dies, the rights of the partnership over the
partnership property shall go to the legal representative
of C, he was the last to die. The legal representative shall
be in charge in liquidating, dissolution.
B. Right over a specific partnership property is not
assignable
A partner cannot separately assign his right to specific
partnership property but all of them can assign their
rights in the same property
Reasons:
1. It is impossible to determine the extent of his beneficial
interest in the property until after the liquidation of
partnership affairs;
2. Prevents interference by third parties in partnership
affairs--- there is no fiduciary relationship;
3. It protects the right of other partners especially
partnership creditors to have partnership assets applied
to firm debt
----In partnership liabilities, partnership creditors are paid
before personal creditors
If assigned,
-The assignment is VOID and the partners may recover
that might have been assigned
The law allows a retiring partner to assign his rights in
partnership property to the partner or partners continuing
the business.
C. Right over a specific partnership property not
subject to attachment or execution
X has a creditor,
X is not an owner of the property even if it is through a
judgment
Q: When is it subject to attachment or execution?
A: Differentiate who is a Personal creditor and a
Partnership Creditor, upon dissolution, the latter can first
be satisfied.

e.g. ABC Partnership, they entered into a transaction with
X, A has a personal debt to X, X will first be paid by the
ABC Partnership.
If ABC cannot pay, and X wins, since this is a partnership
credit, it will be subject to attachment.
X cannot run after the partnership property of A, the
partnership property is not owned only by A.
Remedy of Personal Creditor?
Go after the interest of this partner over the partnership,
Profits or Surplus
GR: Partnership Property cannot be attached
In the event that the partnership property will be attached,
the partners, or any of them, or the representatives of a
deceased partner, cannot claim any right under the
homestead or exemption laws;
Exc: But a partner s interest in the partnership itself may
be levied upon by a judgment creditor.
D. Partnership Property is not subject to legal
support
-it is a personal obligation a partner, cannot be used to
support the family
Art. 1812. Equity Rights
A partners interest in the partnership is his share of the
profits and surplus
Profit: excess of the receipts over expenses
Surplus: assets over liabilities
Interest
-it consists of the partners proportionate share in the
undistributed profits during the life of the partnership and
his share in the undistributed surplus after the dissolution
There is profit and surplus upon dissolution and
settlement of property debts and payment of credit to
partners and distribution of contribution then surplus
The right of each partner to the share of profits and
losses
Personal Property of the partner
-Once the interest or the share has been given
-Can be used by the partner as long as not contrary to
law, public policy, etc.
Art. 1813. Right of a partner in assigning his interest
over the partnership
19 | Partnership
Conveyance of his interest may be whole or partially, all
profits or surplus that he might derive, may be assigned
to third persons even without the consent of other
partners
It does not mean dissolution unless the partners clearly
shows that he want to withdraw from the partnership
His act of assigning his interest does not mean
dissolution but can be a reason for the dissolution
Allows a personal creditor the remedy to require the
partner or debtor to assign to him his partnership
interest---- it is a personal property.
Maybe assigned until the payment shall be fulfilled.
Effect to the assignee:
still not a partner and he cannot
a. interfere in the management;
b. cannot require any information or account on a
partnership transaction; or
c. inspect any of the partnership books--- he cannot
check the book of account.
Effect to assignors
1. He is still a partner
2. He may demand accounting and settlement of the
partnership affairs
Rights if an assignee
1. To receive in accordance with his contract the profits
accruing to the assignor
Q: Is an assignee considered as an outside creditor?
A: The assignee steps into the shoes of the partner thus
after the payment to the partnership creditor, the
payment to the assignee shall follow.
2. To avail himself of the usual remedies provided by law
in the event of fraud in the management
--run after managing partner
3. To receive the assignors interest in case of dissolution;
4. To require an account of partnership affairs, but only in
case the partnership is dissolved and shall cover the
period from the date only of the last account agreed to by
all the partners.
-no dissolution, no right to ask for an accounting
-accounting before is not included

5. To ask for annulment of the contract of assignment if
he was induced to enter into it thru any of the vices of
consent or if he himself was incapacitated to give
consent (minor, insane).
Remedy when one of the partners or partnership when
one of the partner assigns his interest,
Can they go after the assigned shares?
The partnership/partners may repeat all purchase of
equity, not to dissolution
1814. Judicial Remedy of a Personal Creditor of a
debtor-partner with respect to the partner
share/surplus
Allows the separate creditors to seize upon the property
rights of a partner without having disrupt the operations
of the partnership
How does this happen?
e.g. A, B and C are partners. A personally owes X a sum
of money. X sues A, and obtains a final judgment in this
favor.
But A has no money. What can X do?
X may go to the same court (or any other court
possessed of jurisdiction)
and ask that As interest in the partnership be charged
(attached, or levied upon) for the payment to him (X) of
whatever has not yet been paid him with interest thereon.
The court may even appoint receiver who may receive
the profits.
NOTE: While a partners interest in the partnership
(his share in the profits or surplus) may be charged or
levied upon, his interest in a specific partnership property
cannot be attached.
What the court may appoint a receiver, the receiver:
1. will receive in behalf of the creditor the payments;
2. has the right to demand payment from partners who
has existing credits against the partnership for their
existing loans;
3. Make all other orders, directions, accounts and other
inquiries
September 30, 2015
Partnership creditors are entitled to priority over
partnership assets (including the partners interest in the
profits), that is, the separate creditors will get only after
the firm creditors have been satisfied.
20 | Partnership
Redemption of the Interest Charged
Redemption
- the extinguishment of the charge or attachment
on the partner s interest in the profits.
How is this redemption made?
1. The charge may be redeemed or bought at anytime
BEFORE foreclosure; or
2. If there is court order, AFTER foreclosure, it may still
be bought, with:
a. separate property, by any one or more of the partners,
including the partner who assigned;
b. partnership property provided with consent of all the
other partners, does not need the consent of the partner
who assigned
Q: May the partner still avail himself of the exemption
laws regarding his interest in the partnership?
A: Yes, because in a sense, this is his private property.
Thus can be used as a defense in cases of attachment of
execution,
He cannot however avail himself of the exemption laws
insofar as his interest in specific partnership property is
concerned.
Art. 1797. Sharing of Profits and Losses
The share in profits and surplus is merely inchoate ---
mere expectancy, this is transferrable or assignable
This cannot be demanded even if promised,
Whatever profits should be earned, those will be
distributed.
Q: How do you determine the extent of the interest?
A: The share of a partner is in proportionate with the
residue or balance after the credits and debts of the
partnership have been taken into account
Q: On dissolution, who do you determine the extent?
A: After dissolution and the partnership accounts have
been settled, what will only be given are net profits
Rules on Profit Sharing
1. Based on the Agreement
If no agreement

2. Share in proportion to their respective contribution,
Capitalist Partner
3. The Industrial Partner (IP) shall receive just and
equitable share based on the circumstances
-The IP share shall be given first before the share to the
Capitalist Partners
4. Both Capitalist and Industrial Partner
a. Determine his just and equitable share
b. Distribute share on the profits based on the
contribution
Rules on Loss Sharing
1. Based on the Agreement
2. If there is stipulation on the profit sharing ratio but no
agreement as to loss sharing--- use the profit sharing
ratio
If there is profit sharing agreement and the Industrial
Partner is entitled to profit ratio, he becomes liable to the
share, but this shall be borne out by the other Partners.
3. If no profit or loss sharing agreement---
it will now depend on the contribution of the partner
4. If there is no profit or loss sharing agreement---
The Industrial Partner shall be exempt from loss
Reason: While capitalist partners can withdraw their
capital, the industrial partner cannot withdraw any labor
or industry he had already exerted.
Moreover, he already has shared in the losses in that, if
the partnership shows no profit, this means that he has
labored in vain.
Situation
Sharing of Profits
A 40 %
B 30 % Capitalist Partner
C 20 %
D 10 % - Industrial Partner
Suppose the Partnership had a profit of an amount of
P50, 000
A 40 % of 50K = P20K
B 30 % of 50K = P15K
C 20 % of 50K = P10K
D 10 % of 50K = P5K
21 | Partnership
After two (2) years there was a loss of P30K
A 40 % of P30K = P12K
B 30 % of P30K = P9K
C 20 % of P30K = P6K
D 10 % of P30K = P3K
Although there was no agreement on loss sharing, there
was agreement of profit sharing--- Go to Rule # 2
D will also share in the loss because of the profit sharing
agreement. His exemption to the loss is immaterial due
to the agreement.
Q: The Industrial Partner is exempt from loss, how can
he recover?
A: Since he is exempted, he can recover from the P3K
from the other partners. Therefore he still does not bear
the loss
if there is no profit sharing agreement--- he is purely
exempted.
Art. 1798. Designation of Share to Profits and Losses
to be made by Third Persons
--- not a partner
One partner cannot upon his discretion designate the
share to avoid partiality
The third persons should be followed by the partners
unless:
The designation by 3rd party is manifestly
inequitable/unfair
When designation by third party cannot be question even
if manifestly inequitable:
1. if the aggrieved partner has already begun to
execute/implement the decision of distribution of profits;
2. or if he has not impugned/questioned the same within
a period of three months from the time they had
knowledge of the designation.
e.g. X made a designation today, but A partner only
came to know the designation during the distribution, he
may impugned during or within three (3) months
This Article is preposterous, disagreement to simple
matter of determining in profit sharing---bequeaths the
fiduciary relationship between the partners

Art. 1799 Stipulation Excluding a Partner from Profits
or Losses
GR: stipulation excluding one or more partners from any
share in the profits or losses is VOID
Exc: stipulation is on the exempting of the industrial
partner excludes from losses.
The law expressly provides the exemption,
a stipulation exempting the industrial partner from losses
is naturally valid.
Effect of the void stipulation exempting a partner from
profits or losses:
The Partnership will still subsist as if the stipulation was
not made, the profits will then be distributed according to
their contributions.
Unequal Sharing of Profits is allowed even if the
contributions were equal because what will always follow
shall be the agreement
Other Rights
Art. 1767. Reimbursement of Expenses made on
behalf o the partnership
The Partner has the right to demand reimbursement from
the partnership
Art. 1813 Right to assignment
Art. 1804. Right to associate of a Partner
Associate of Partner
a. For a partner to have an associate in his share,
consent of the other partners is not required.
b. For the associate to become a partner, ALL must
consent
Subpartner does not affect the partnership, if the
partnership has a debt, this subpartner is not affected.
The subpartner shall also receive profit from the share of
the partner with whom he associated with
Reasons:
1. mutual/fiduciary trust is the basis of partnership;
2. change in membership is a modification or novation of
the contract of partnership.
Art. 1805. Right of the partners to access the books
and records of the Partnership
Subject to the agreement where such books shall be kept
22 | Partnership
Absence of an agreement, it shall be kept in the principal
place of business
This book shall be kept by the managing partner or a
partner designated to hold the book
If none, any active partners in the partnership
When can they access?
At any reasonable hour/business hours, business days
throughout the year
This presupposes a going partnership, and not in the
process of dissolution
If in the process of dissolution/dissolved:
Only the courts may direct the partner to access on the
books.
Although the books belong to all the partners, still no
single partner is duty-bound to continue the place of
business for the benefit of the others.
A purchaser of the firms goodwill is not duty-bound to
keep the books for the inspection of the former partners.
(Sanderson v. Cooke)
A partner cannot use the information he obtain from the
books for non-partnership purposes
Value of the Partnership Books
Facts stated can be used an admission that can be
introduced as evidence against the keeper or maker of
the books or records.
e.g. Question on the distribution of profits, the partner
may access the partnership books and check all the
profits distributed to the partners---this can be presented
as evidence
If it is proven that the entries had been placed therein as
a result of fraud or mistake---this cannot be introduced as
evidence
Oct. 9, 2015
Art. 1806. Right to the true and full information
Reason: fiduciary nature of the partnership, a partner
must not conceal all transactions and even the condition
of partnership property
Who Can Demand Information:

a. any partner
b. legal representative of a deceased partner
-the legal representative may look into the profits
obtained by the partnership and know the share/interest
of the deceased of the partner to his estate
c. legal representative of any partner under legal
disability
Art. 1807. Duty to Account
Reason: The fiduciary relations between the partners are
relationships of trust and confidence which must not be
abused or used to personal advantage.
When a partner enters for his own benefit or use
partnership funds for his own benefit, he has a duty to:
1. account for all the benefits and profits he will derive out
of the transaction;
2. purchase in his name, he shall be considered as a
trustee for the partnership
Q: When should trust relations exist?
A: During the life of the partnership until termination
If entered into transactions before partnership, there
should be trust relations
A partner is prevented from using information obtained,
attained and learned information that might be used to
business transaction----any profits derived from the
information during the partnership--- should be accounted
to the partnership
Art. 1808 Business Prohibition on Capitalist Partner
The capitalist partner is prohibited from engaging for his
own account in any operation same or similar business
that may result in competition
Instances When There Is No Prohibition
a. When it is expressly stipulated that the capitalist
partner can so engage himself.
b. When the other partners expressly allow him to do so.
c. When the other partners impliedly allow him to do so.
e.g. When ALL of them are likewise violating the article
d. When the company ceases to be engaged in business
e. When the general-capitalist partner becomes merely a
limited partner in a competitive enterprise for after all, a
limited partner does not manage.
Effect of Violation:
23 | Partnership
a. the violator shall bring to the partnership all the profits
illegally obtained
b.but he shall personally bear the net losses.
c. The violator can be ousted from the firm on the ground
of loss of trust and confidence, particularly if the violation
is repeated after due warning.
Art. 1809 Right to Formal Accounting
GR: There is formal accounting when the partnership is
going towards dissolution
Exc:
There shall be formal accounting anytime
1. If he is wrongfully excluded from the partnership
business or possession of its property by his co-partners;
-in order to see the benefits that were derived by the
partnership during a transaction or use of partnership
property
-he may also look at the books of the partnership
2. If the right exists under the terms of any agreement;
3. A transaction was kept secret, there was use of
partnership funds so that there is a fair standing between
the partners
4. Whenever other circumstances render it just and
reasonable.
e.g. A partner who was outside of the country
There is the right to demand as long as the partnership is
in existence
Prescription begins to run only upon the dissolution of the
partnership when the final accounting is done
If there is no objection made before dissolution, the
partner waives the right to question the discrepancies in
an accounting.
If there is a timely objection, there can be another formal
objection
Remedy if denied the right to accounting:
File an application for dissolution, this right is an
important and there is loss of fiduciary trust and
confidence
An action for accounting, asking that the assets of the
partnership be accounted for, sold and distributed
according to the agreement of the partners is a personal
action (De Leon)
Obligations of the Partners to Third Parties

Art. 1815 Operation under a Firm Name
(Mandatory)
A firm name is necessary to distinguish the partnership
which has a distinct and separate juridical personality
from the individuals composing the partnership and from
other partnerships and entities.
Rules: A partnership may adopt any name,
it may be:
1. the name of an individual partner, the surnames of all
the partners, or the surname of one or more of the
members with the addition of and Company,
2. the individual names wholly distinct from the names of
any of the members
3. name purely fanciful or fictitious
Conditions in the use of the firm name:
1. It should not use misleading name
-The partners cannot use a name that is identical or
deceptively confusingly similar to that of any existing
partnership or corporation or to any other name already
protected by law or is patently deceptive, confusing or
contrary to existing laws, as to mislead the public by
passing itself off as another partnership or corporation, or
its goods or services as those of such other company.
e.g. Starbucks case
2. It should not use of the name of Deceased Partner
Re: Code of Professional Responsibility
The continued use of the name of a deceased partner is
permissible provided that the firm indicates in all its
communications that said partner is deceased.
3. Use of false or assumed name
-any transactions entered into using the fictitious name
shall be unaffected and considered valid
Additional Requirement re: Partnership Name:
Registered with the Department of Trade and Industry
(DTI), to avoid similar names
Liability of Strangers Who Include Their Names
Persons who, not being partners, include their names in
the firm name do not acquire the rights of a partner but,
they shall be subject to the liability of a nominal partner
insofar as third persons without notice are concerned.
Third persons may run after this partner .
24 | Partnership
Reason: for making this partner a nominal partner is to
protect the right of third persons
When does Art. 1815 not apply?
1. To Limited Partners because they
-do not have the rights of a general partner but has same
obligation
-his liability is limited only up to his contributions
-the third person cannot run after such partner
2. Persons who continues the partnership even of
dissolved
-the partnership or other partner will not be liable
3. If the person misrepresents himself as a partner---
partner by estoppels
Q: If a partnership changes its name, will the rights
acquired be passed to the new partnerhip?
A: Case Sharruf and Co. v. Baloise Fire Insurance Co.
(64 Phil. 258)
Facts: Sharruf and Eskenazi, partners under the name Sharruf
and Co., insured for P40,000 their goods. Later, the name was
changed to Sharruf and Eskenazi. The in sured goods were
subsequently burned, but the in surance company re fused to
pay on the ground that its name, having been changed, the
partnership now had no ju ridical personality to sue, nor did it
have insurable interest in the goods.
Held: The change of name was made in good faith, not having
been done to defraud the insurance company. Moreover,
composition of the partnership remained the same. Therefore,
the firm can collect the in surance indemnity.
Art.1816. Limited Liability of Partners for Contractual
Obligations
Payment of Contractual obligations entered into by the
partnership and being a member of the partnership the
industrial partner shall also be liable in the contractual
obligation
The partners are joint/pro-rata and subsidiary liable
Joint: A third persons may run after any of the partners
for his share, cannot get the whole amount, depending
on the agreement between the partners
Art. 1797. Industrial Partner is exempt from losses
Art. 1824. Solidary liability re: Torts and Misappropriation
Rules in respect to contractual liabilities
1. Partnership assets must be first exhausted
Primarily liable: Partnership
 25 | Partnership

A and D may be exempt and they may be refunded from

If the partnership assets are not enough
2. The Partners shall be subsidiarily liable pro-rata for the
net contractual liabilities to the extent of their personal
properties
Art. 1817. Stipulations exempting a partner from
sharing in the contractual obligations with respect a
third persons shall be VOID,
But respect to the partners, it shall be valid
e.g. A capitalist partner shall be exempted from sharing
in the contractual obligation
--- VOID with respect to a third person, the third person
may run after the partnership to fulfil the obligation
--- with respect to parties, since the stipulation is valid,
the Capitalist may not share see example below
B and C
A capitalist partner A who is exempt from a sharing in
the contractual obligation is only exempt beyond what he
contributed, therefore, the P150K is the partnership
assets which already included the contribution of A,
in this P150K he cannot claim exemption,
what A will be exempted shall be P50K.
A cannot claim a return of his contribution
Obligations of non-partners
Art. 1825. Partner/ship by estoppel
Estoppel
-a person is prevented from denying or alleging a fact in
consequence of his previous acts

Alpha Partnership How is a partnership by estoppel created?

borrowed an amount of P200K from Z 1. A third person allows himself to be represented as a
Upon maturity Partnership Assets: P150K partner as in an existing or non-existing partnership and
Balance: P50K--- considered as a loss he did not object, he:
Division: between the four partners a. directly represents himself to anyone as a partner in
an existing partnership or in a non-existing partnership
A- Capitalist P50K/4= P12,500 and the partners did not object; or
B- Capitalist P50K/4= P12,500 b. Indirectly represents himself by consenting to another
C- Capitalist P50K/4= P12,500 representing him as a partner in an existing partnership
D- Industrial P50K/4= P12,500 or in a non-existing partnership.

Q: If on maturity who will be liable? How is representation made?

A: Alpha partnership 1. Orally
2. In writing
Remedy of D: 3. In the conduct of the partners
The 50K is considered as a loss, D also has to pay to Z,
D may go after A, B, and C for the refund of the P12, 500 Rules as to partner/ship by estoppel (De Leon):

Suppose there is a stipulation 1. Partnership by estoppel=Partnership liability

A- Capitalist 40% If by reason of the representation by the third persons
B- Capitalist 30% and ALL the partners did not object/
C- Capitalist 30% The representation made by the partnership was not
D- Industrial exempted objected by the partner was not objected
-There was a transaction and partnership liability arises
Z may still run after D, as this stipulation is void as to Z, -The third person may run after primarily the partnership,
third person, if there is balance, the partners and the partner by
but between Alpha Partnership, this stipulation is valid, estoppel, subsidiary
D may run after A, B and C 2. Equal or pro-rata share to the partners who consented
AND the person who represented himself

When there is no existing partnership and all those

Suppose there is a stipulation represented as partners consented to the representation,
A- Capitalist exempted OR not all of the partners of an existing partnership
B- Capitalist 50% consented to the representation
C- Capitalist 50%
D- Industrial exempted

For Z, this is Void, he may run after A, B, C and D,

 26 | Partnership

e.g. ABC Partnership, D I am part of the partnership, Sharing between A, B and C could be equally or pro-rata
ABC heard, A objected to this representation by D, ABC depending on the agreement
represented that D is partner and D objected.
Q: Does the admission of a new partner dissolve the old
3. Separate liability of those who consented or the person firm and create a new one? (Reason for Art. 1826)
who represented himself A: Yes, since the old firm is dissolved, the previous or the
old creditors are given preference or protected.
When there is no existing partnership and some of those
represented as partners consented to the representation, Art. 1827 Preference of Credits of the Partnership
OR none of the partners in an existing partnership
consented to such representation. 1. The partnership creditors shall have first priority over
partnership assets
Estoppel does not create partnership
E.g. Dissolution and there is liquidation
To invoke liability: Alpha Partnership
Third persons should be innocent--- they are not aware B, C and D
of such partner/ship by estoppel Partnership Assets: P200K
Liabilities:
Burden of proof: Partnership creditors
The creditor, or whoever alleges the existence of a X P50K
partner or partnership by estoppel has the burden of Y P100K
proving the existence of the misrepresentation and the Z P50K
innocent reliance on it.
Partnership borrowed money from Partner B= P100K
Art. 1826. Obligations of subsequently admitted
partners The first that shall be paid out from the partnership
assets shall be partnership creditors, X, Y and Z
GR: A newly admitted partner shall be liable also for
obligations already existing before he was admitted, the 2. Personal Assets
extent of his liability is limited to his share in the
partnership property
Exc: there is a stipulation, that a newly admitted partner e.g.
will still share in the obligations beyond his contribution
Alpha Partnership, B, C and D
Example. Partnership Asset= P150K
Partnership Creditor= P200K
Alpha Partnership Balance= P50K
A, B, C Partners The balance shall be distributed between B, C and D
Oct. 9, 2015: Loan of 200K from Z C has a personal credit of P50K from P
Dec. 31, 2015: Maturity of the loan Personal Asset: P30K
Nov. 1, 2015: Admission of D to the Alpha Partners
with P20K Case of C:
C shall pay first P with his P30K before his share on the
Q: Who will be liable of the obligation of 200K from Z? P50K
A: Alpha Partnership
Remedy of the Personal Creditor:
If the partnership assets is able, okay! Cannot attach the partnership asset
But if Partnership assets as of Dec. 31, 2015: P160K
Balance: P40K You can attach the interest of the partner over the share
in the profits and surplus of the partner

Q: What happened to the P20K?

A: It was included in the P160K partnership assets as of
Dec. 31, 2015

Therefore, the balance of P40K shall be only shared

between A, B and C unless there is a stipulation