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IX. ART.

1810 - 1814 (4) A partner's right in specific partnership property is not


subject to legal support under article 291. (n)
SECTION 2
Property Rights of a Partner Article 1812. A partner's interest in the partnership is his share of the
profits and surplus. (n)
Article 1810. The property rights of a partner are:
Article 1813. A conveyance by a partner of his whole interest in the
partnership does not of itself dissolve the partnership, or, as against
(1) His rights in specific partnership property;
the other partners in the absence of agreement, entitle the assignee,
during the continuance of the partnership, to interfere in the
(2) His interest in the partnership; and management or administration of the partnership business or affairs, or
to require any information or account of partnership transactions, or to
(3) His right to participate in the management (n) inspect the partnership books; but it merely entitles the assignee to
receive in accordance with his contract the profits to which the
Article 1811. A partner is co-owner with his partners of specific assigning partner would otherwise be entitled. However, in case of
partnership property. fraud in the management of the partnership, the assignee may avail
himself of the usual remedies.
The incidents of this co-ownership are such that:
In case of a dissolution of the partnership, the assignee is entitled to
(1) A partner, subject to the provisions of this Title and to any receive his assignor's interest and may require an account from the
agreement between the partners, has an equal right with his date only of the last account agreed to by all the partners. (n)
partners to possess specific partnership property for
partnership purposes; but he has no right to possess such Article 1814. Without prejudice to the preferred rights of partnership
property for any other purpose without the consent of his creditors under article 1827, on due application to a competent court by
partners; any judgment creditor of a partner, the court which entered the
judgment, or any other court, may charge the interest of the debtor
(2) A partner's right in specific partnership property is not partner with payment of the unsatisfied amount of such judgment debt
assignable except in connection with the assignment of rights with interest thereon; and may then or later appoint a receiver of his
of all the partners in the same property; share of the profits, and of any other money due or to fall due to him in
respect of the partnership, and make all other orders, directions,
(3) A partner's right in specific partnership property is not accounts and inquiries which the debtor partner might have made, or
subject to attachment or execution, except on a claim against which the circumstances of the case may require.
the partnership. When partnership property is attached for a
partnership debt the partners, or any of them, or the The interest charged may be redeemed at any time before foreclosure,
representatives of a deceased partner, cannot claim any right or in case of a sale being directed by the court, may be purchased
under the homestead or exemption laws; without thereby causing a dissolution:
(1) With separate property, by any one or more of the partners; (b) the right of access and inspection of partnership books (Art.
or 1805.);
(c) the right to true and full information of all things affecting the
(2) With partnership property, by any one or more of the
partnership (Art. 1806.);
partners with the consent of all the partners whose interests
are not so charged or sold. (d) the right to a formal account of partnership affairs under certain
circumstances (Art. 1809.); and
Nothing in this Title shall be held to deprive a partner of his right, if any, (e) the right to have the partnership dissolved also under certain
under the exemption laws, as regards his interest in the partnership. conditions. (Arts. 1830-1831.)
(n) (f)

1. RIGHT TO SPECIFIC PARTNERSHIP PROPERTY Property Rights of a Partner

(1810) (a) Example of “specific partnership property”: A and B each contributed


a car for the partnership. The two cars are specific partnership property.
(1) His rights in specific partnership property;
(2) His interest in the partnership; and (b) Example of “interest in the partnership” — the partner’s share of the
(3) His right to participate in the management. profits and losses (without mentioning any particular or specific
property).
Extent of property rights of a partner.
(c) Note that the right to participate in the management is a very
(1) Principal rights. — The property rights of a partner enumerated valuable property right.
under Article 1810 are as follows:
(2) Co-Ownership in Specific Partnership Property - The law says “a partner
(a) His rights in specific partnership property (Art. 1811.); is co-owner with his partners of specific partnership property.” What
(b) His interest in the partnership (Art. 1812.); and does this mean?
(c) His right to participate in the management. (Art. 1803.) ANS.: Simply that they are co-owners (tenants in common with
proportional, sometimes equal) right thereto. However, the rules on co-
(3) Related rights. — A partner has other rights which are related to ownership do not necessarily apply; the rules on “co-ownership in
the above, namely: partnership” are applicable. Said rules are detailed in the subsequent
paragraphs.
(a) the right to reimbursement for amounts advanced to the
partnership and to indemnification for risks in consequence of Rights of a Partner in Specific Partnership Property - (Example: a car
management (Art. 1796.); contributed by one of the partners to the partnership)
(a) In general, he has an equal right with his partners to possess the car 2. INTEREST IN THE PARTNERSHIP (1812)
but only for partnership purposes (not for other purposes, except if the
others expressly or impliedly give their consent). A Partner’s Interest in the Partnership - While in general, a partner’s interest in
specific partnership property cannot be assigned, cannot be attached, and is not
(b) He cannot assign his right in the car (except if all the other partners subject to legal support, a partner’s interest in the partnership (his share in the
assign their rights in the same property). profits and surplus) can in general be assigned, be attached, be subject to legal
support.
[NOTE: If this rule is violated, the assignment is VOID, where the other
partners were able to recover what had been sold or assigned. The same Nature of partner’s interest in the partnership.
rule applies if the right is mortgaged. The assignee or purchaser does NOT A partner’s right in specific partnership property belonging to the firm to be used
become a co-owner of the specific partnership property with the other for business purposes (supra.) is to be distinguished from a partner’s right to
partners.] share in the firm’s earned profits.

(NOTE: Reason for rule of non-assignability: It is hard to determine how CHARGING ORDER -
much it exactly is until after liquidation.) “Art. 195. Subject to the provisions of the succeeding articles, the following are obliged to
support each other to the whole extent set forth in the preceding article:
(c) His right in the car is not subject to the attachment or execution
(except on a claim against the partnership). (1) The spouses;

(2) Legitimate ascendants and descendants;


(NOTE: If there is a partnership debt, the specific property can be
attached. Here, the partners or any of them or the representatives of a (3) Parents and their legitimate children and the legitimate and illegitimate children of the
latter;
deceased partner cannot claim any right under the homestead or
exemption laws. This is because in a sense, the property is not (4) Parents and their illegitimate children and the legitimate and illegitimate children of the
latter; and
considered their individual or separate property.)
(5) Legitimate brothers and sisters, whether of full or half-blood. (291a)”
[NOTE: Reason why in general, the right of the partner in the car cannot
(1) Share of the profits and surplus. — The partner’s interest in the partnership
be attached by his separate or individual creditor: If he cannot make a
consists of his proportionale share in the undistributed profits during the life of
voluntary assignment, neither should his separate creditors be allowed an
the partnership as a going concern and his share in the undistributed surplus
involuntary assignment because “the beneficial rights of the separate after its dissolution.
creditors of a partner in specific partnership property should be no
greater than the beneficial rights of their debtor.” (a) Profit means the excess of returns over expenditure in a transaction or
series of transactions; or the net income of the partnership for a given
(d) His right in the car is NOT subject to legal support under Art. 291 (said period of time. (see Webster’s 3rd Int. Dict., p. 1811.)
Article enumerates the people who are obliged to support each other).
(b) Surplus refers to the assets of the partnership after partnership debts 2) the partnership may be dissolved.
and liabilities are paid and settled and the rights of the partners among
(NOTE: However, such mere conveyance does NOT of itself dissolve the firm,
themselves are adjusted. (see Art. 1839.) It is the excess of assets over
therefore in general the partnership remains.)
liabilities. If the liabilities are more than the assets, the difference
represents the extent of the loss. (b) The assignee (conveyee) does not necessarily become a partner. The assignor
is still the partner, with a right to demand accounting and settlement.
(2) Extent of the partner’s interest. — Nothing is to be considered as the share
of a partner but his proportion of the residue or balance after an account has (c) The assignee cannot even interfere in the management or administration of
been taken of the debts and credits, including the amount paid by the several the partnership business or affairs.
partners in liquidating firm debts or in making advances to the partnership, and
until that occurs, it is impossible to determine the extent of his interest. (d) The assignee cannot also demand:

This interest in the surplus alone which remains after the firm’s debts have been 1) information;
paid and the equities between the partner and his co-partners have been
2) accounting
adjusted and the partner’s share has been ascertained and set apart, is available
for the satisfaction of the separate debts of the partners. (Art. 1814; 40 Am. Jur. 3) inspection of the partnership books.
209-210; Fish vs. Wood, 158 S.W. 267.)

(3) Partner’s interest not a debt due from partnership. — A partner is not a
creditor of the partnership for the amount of his share. (The Leyte-Samar Sales Rights of the Assignee
and K. Tomassi vs. S. Cea and O. Castrilla, 93 Phil. 100 [1953].) (a) To get whatever profits the assignor-partner would have obtained.
The interest of a partner in a going partnership business where there has been
no settlement of his account is not a debt due to the partner by partnership and, Question: Is he to be considered an outside creditor who would be
therefore, is not subject to attachment or execution on a judgment recovered entitled to collect before the partners get their own profits?
against the individual partner. (Northampton Brewery vs. Lande, 2A. 2d 553.)
ANS.: No, for he merely shares in the profits, the same as the assignor-
3. CONVEYANCE OR ASSIGNMENT OF A PARTNER’S partner whose share he (the assignee) will now get. Hence, outside
creditors would have to be preferred.
INTEREST
Effects of Conveyance By Partner of His Interest in the Partnership (1813) (b) To avail himself of the usual remedies in case of fraud in the
management.
(a) If a partner CONVEYS (assigns, sells, donates) his WHOLE interest in the (c) To ask for annulment of the contract of assignment if he was induced to
partnership (his share in the profits and surplus), either of two things enter into it thru any of the vices of consent (fraud, error, intimidation,
may happen: force, undue influence) or if he himself was incapacitated to give
1) the partnership may still remain; or consent (minor, insane).
(d) To demand an accounting — (but only if indeed the partnership is 4. RIGHT TO PARTICIPATE IN THE MANAGEMENT
dissolved, but even then, the account can cover the period only from
the date of the last accounting which has been agreed to by all the Charging the Interest of a Partner
partners). (Art. 1813, 2nd paragraph).
Example: A, B and C are partners. A personally owes X a sum of
Rule in Case of Mortgages - Does Art. 1813 cover also a case when the partner money. X sues A, and obtains a final judgment in this favor. But A has
merely mortgages his interest in the profits? no money. What can X do?
ANS.: Yes, but here said interest is not alienated; it is merely given as security,
ANS.: X may go to the same court (or any other court possessed of
and therefore the rules on securities for loans, etc. can properly apply.
jurisdiction) and ask that A’s interest in the partnership be “charged”
DELEON NOTES: (attached, or levied upon) for the payment to him (X) of whatever has
not yet been paid him with interest thereon.
Remedy of other partners.

At common law, the mere assignment of a partner’s interest dissolved the [NOTE: While a partner’s interest in the partnership (his share in the
partnership because it was conceived to give rise to a situation incompatible with profits or surplus) may be charged or levied upon, his interest in a
the prosecution of a partnership. The law has been changed under the Uniform specific firm property cannot as a rule be attached.]
Partnership Act from which Article 1813 was taken.
Preferential Rights of Partnership Creditors
(1) Dissolution of partnership not intended. — The new rule is preferable
for many partnership assignments are made merely as security for The law says “without prejudice to the preferred rights of partnership
loans, the assigning partner never intending to destroy the partnership creditors under Art. 1827.”
relation. Moreover, if the assigning partner neglects his partnership
What does this mean?
duties after assignment, the other partners may dissolve the partnership
under Article 1830(1,C) which provides that “Dissolution is caused . . . by ANS.: This simply means that partnership creditors are entitled to
the express will of all the partners who have not assigned their interests, priority over partnership assets (including the partner’s interest in
or suffered them to be charged for their separate debts, either before or
the profits), that is, the separate creditors will get only after the firm
after the termination of any specified term or particular undertaking.”
creditors have been satisfied.
(Teller, op. cit., p. 53.)
(2) Dissolution of partnership intended. — A partner’s conveyance of his Art. 1827 reads: “The creditors of the partnership shall be preferred to
interest in the partnership operates as a dissolution of the partnership those of each partners as regards the partnership property. Without
only when it is clear that the parties contemplated and intended the prejudice to this right, the private creditors of such partner may ask the
entire withdrawal from the partnership of such partner and the attachment and public sale of the share of the latter in the partnership
termination of the partnership as between the partners. (Johnson vs. assets.”
Munsell, 104 N.W. 2d 314.)
NOTE: Exemption Laws - Regarding a partner’s interest in the partnership, may
the partner still avail himself of the exemption laws?
(a) Partnership creditors have preference in partnership assets.

(b) Separate or individual creditors have preference in separate or individual ANS.: Yes, because in a sense, this is his private property.
properties (not those included in the firm).] [NOTE: He cannot however avail himself of the exemption laws insofar as
Receivership his interest in specific partnership property is concerned. (Art. 1811, No.
3).]
(a) When the charging order is applied for and granted, the court MAY
(discretionary) at the same time or later appoint a receiver of the DE LEON NOTES
partner’s share in the PROFITS or other MONEY due him. (Art. 1814). Rights and obligations with respect management
(b) The receiver appointed is entitled to any RELIEF necessary to Unless the partnership agreement provides otherwise, each partner in a
conserve the partnership assets for partnership purposes. Thus, he may general partnership has a right to an equal voice in the conduct and
nullify all efforts to assign specific partnership property. management of the partnership business.
(c) Suppose the other partners owe the firm some money, may the This right is not dependent on the amount or size of the partner’s capital
receiver be authorized to demand that such amount be collected? HELD: contribution or services to the business. Of course, the partners may
Yes, for such credit forms part of the partnership assets. select a managing partner or make such allocation of functions as the
Redemption of the Interest Charged needs of the business dictate especially in a large partnership.

(a) “Redemption” here merely means the extinguishment of the charge Article 1800 speaks of two distinct cases of appointments.
or attachment on the partner’s interest in the profits. (1) Appointment as manager in the articles of partnership. — The
(b) How is this “redemption” made? partner appointed by common agreement in the articles of
partnership may execute all acts of administration (not those of
ANS.: strict ownership such as those enumerated in Art. 1818, par. 3.)
1. The “charge” may be “redeemed” or bought at any- time notwithstanding the opposition of the other partners, unless he
BEFORE foreclosure. should act in bad faith. His power is revocable only upon just and
2. AFTER foreclosure, it may still be “bought,” with separate lawful cause (see Art. 1920.) and upon the vote of the partners
property (by any one or more of the partners); or with representing the controlling interest.
partnership property (with consent of all the other partners).
(NOTE: The consent of the delinquent partner is not needed.)
The reason for this principle is that the revocation represents a Compensation for services rendered.
change in the terms of the contract. The law presumes that the
(1) Partner generally not entitled to compensation. — In the
appointment thus constituted is, in effect, one of the conditions
absence of an agreement to the contrary, each member of the
of the contract and it is only logical that such appointment should
partnership assumes the duty to give his time, attention, and skill
not be revoked without the consent of all the partners, including
to the management of its affairs, so far, at least, as may be
the partner thus appointed. It is an elementary rule that no party
reasonably necessary to the success of the common enterprise;
to a contract can violate the law of the contract without the
and for this service a share of the profits is his only
consent of the others. (11 Manresa 380.)
compensation.
In case of mismanagement, the other partners may avail of the
Each partner in taking care of the joint property, managing the
usual remedies allowed by law, including an application for
partnership affairs, and directing the partnership business is
dissolution of the partnership by a judicial decree. (see Art. 1831.)
practically taking care of his own interest or managing his own
business. He is not, in the absence of a contract, express or
(2) Appointment as manager after the constitution of the
implied, entitled to compensation beyond his share of the profits
partnership. — But the management granted by the partners
for services rendered by him to the partnership business,
after the partnership has been constituted independently of the
although the services rendered by him may be greater in
articles of partnership may be revoked at any time for any cause
proportion than the services rendered by other members of the
whatsoever.
partnership, by reason of having assumed the position of
managing partner, or even by reason of extra services
The reason for this provision is that in such case, the revocation
necessitated by his partner’s illness and consequent inability to
is not founded on a change of will on the part of the partners, the
render his own just share of the services. (40 Am. Jur. 213.)
appointment not being a condition of the contract. It is merely a
simple contract of agency, which may be revoked at any time.
In the absence of any prohibition in the articles of partnership for
(Art. 1920.) It is believed that the vote for revocation must also
the payment of salaries to general partners, there is nothing to
represent the controlling interest.
prevent the partners to enter into a collateral verbal agreement
to that effect.
It should be noted that Article 1800 refers to a partner, not a
stranger, who has been appointed manager. As a rule, a partner is
(2) Exceptions. — In proper cases, however, the law may imply a
not entitled to compensation for his services other than his share
contract for compensation. Thus:
of the profits.
(a) A partner engaged by his co-partners to perform services not other partners are burdened with greater work, is to calculate
required of him in fulfillment of the duties which the the value of the unperformed services, make it an asset of
partnership relation imposes and in a capacity other than that the partnership chargeable against the defaulting partner,
of a partner (e.g., to perform clerical services in carrying on and divide among all the partners (including the defaulting
the business of the firm) is entitled to receive the partner) as any other partnership profit. (Teller, op. cit., p. 77,
compensation agreed upon therefor. citing Olivier vs. Uleberg, [N.D.] 23 N.W. [2d] 39.)
(b) A contract for compensation may be implied where there is
extraordinary neglect on the part of one partner to perform (f) The rule requiring services of partners without compensation
his duties toward the firm’s business, thereby imposing the does not also apply where, by the contract of partnership,
entire burden on the remaining partner. one partner is exempted from the duty of rendering personal
(c) One partner may employ his co-partner to do work for him services to the concerned, if he afterwards does render such
outside of and independent of the co-partnership, and service at the instance and request of his co-partners (Ibid.,
become personally liable therefor. citing Lewis vs. Moffett, 11 Ill. 392.), or where the services
(d) Partners exempted by the terms of partnership from rendered are extraordinary. Thus, in a case, the surviving
rendering services to the firm may demand pay for services partner who discovered a firm claim more than thirteen years
rendered. after the liquidating partner’s death, and prosecuted it for
(e) Where one partner is entrusted with the management of the four years to a successful conclusion was allowed, because of
partnership business and devotes his whole time and the exceptional situation, extra compensation. (Ibid., citing
attention thereto, at the instance of the other partners who Zell’s Appeal, 126 Pa. 329.)
are attending to their individual business and giving no time
or attention to the business of the firm, the case presents
unusual conditions, is taken out of the general rule as to
compensation and warrants the implication of an agreement
to make compensation. In such cases, the amount of the
compensation depends, of course, upon the agreement of
the parties, express or implied, as well as upon the particular
circumstances of the case. (40 Am. Jur. 213-216.)

It has also been held that the way to deal with such a
situation or where a partner willfully fails to perform the
services which he agreed to perform, as a result of which the
X. ART. 1815 – 1827 Except when authorized by the other partners or unless they have
abandoned the business, one or more but less than all the partners
have no authority to:
SECTION 3
Obligations of the Partners with Regard to Third Persons
(1) Assign the partnership property in trust for creditors or on
the assignee's promise to pay the debts of the partnership;
Article 1815. Every partnership shall operate under a firm name, which
may or may not include the name of one or more of the partners.
(2) Dispose of the good-will of the business;
Those who, not being members of the partnership, include their names
(3) Do any other act which would make it impossible to carry on
in the firm name, shall be subject to the liability of a partner. (n)
the ordinary business of a partnership;
Article 1816. All partners, including industrial ones, shall be liable pro
rata with all their property and after all the partnership assets have (4) Confess a judgment;
been exhausted, for the contracts which may be entered into in the
name and for the account of the partnership, under its signature and by (5) Enter into a compromise concerning a partnership claim or
a person authorized to act for the partnership. However, any partner liability;
may enter into a separate obligation to perform a partnership contract.
(n) (6) Submit a partnership claim or liability to arbitration;

Article 1817. Any stipulation against the liability laid down in the (7) Renounce a claim of the partnership.
preceding article shall be void, except as among the partners. (n)
No act of a partner in contravention of a restriction on authority shall
Article 1818. Every partner is an agent of the partnership for the bind the partnership to persons having knowledge of the restriction. (n)
purpose of its business, and the act of every partner, including the
execution in the partnership name of any instrument, for apparently Article 1819. Where title to real property is in the partnership name,
carrying on in the usual way the business of the partnership of which any partner may convey title to such property by a conveyance
he is a member binds the partnership, unless the partner so acting has executed in the partnership name; but the partnership may recover
in fact no authority to act for the partnership in the particular matter, such property unless the partner's act binds the partnership under the
and the person with whom he is dealing has knowledge of the fact that provisions of the first paragraph of article 1818, or unless such property
he has no such authority. has been conveyed by the grantee or a person claiming through such
grantee to a holder for value without knowledge that the partner, in
An act of a partner which is not apparently for the carrying on of making the conveyance, has exceeded his authority.
business of the partnership in the usual way does not bind the
partnership unless authorized by the other partners. Where title to real property is in the name of the partnership, a
conveyance executed by a partner, in his own name, passes the
equitable interest of the partnership, provided the act is one within the Article 1822. Where, by any wrongful act or omission of any partner
authority of the partner under the provisions of the first paragraph of acting in the ordinary course of the business of the partnership or with
article 1818. the authority of his co-partners, loss or injury is caused to any person,
not being a partner in the partnership, or any penalty is incurred, the
Where title to real property is in the name of one or more but not all the partnership is liable therefor to the same extent as the partner so
partners, and the record does not disclose the right of the partnership, acting or omitting to act. (n)
the partners in whose name the title stands may convey title to such
property, but the partnership may recover such property if the partners' Article 1823. The partnership is bound to make good the loss:
act does not bind the partnership under the provisions of the first
paragraph of article 1818, unless the purchaser or his assignee, is a (1) Where one partner acting within the scope of his apparent
holder for value, without knowledge. authority receives money or property of a third person and
misapplies it; and
Where the title to real property is in the name of one or more or all the
partners, or in a third person in trust for the partnership, a conveyance (2) Where the partnership in the course of its business receives
executed by a partner in the partnership name, or in his own name, money or property of a third person and the money or property
passes the equitable interest of the partnership, provided the act is one so received is misapplied by any partner while it is in the
within the authority of the partner under the provisions of the first custody of the partnership. (n)
paragraph of article 1818.
Article 1824. All partners are liable solidarily with the partnership for
Where the title to real property is in the name of all the partners a everything chargeable to the partnership under articles 1822 and 1823.
conveyance executed by all the partners passes all their rights in such (n)
property. (n)
Article 1825. When a person, by words spoken or written or by
Article 1820. An admission or representation made by any partner conduct, represents himself, or consents to another representing him
concerning partnership affairs within the scope of his authority in to anyone, as a partner in an existing partnership or with one or more
accordance with this Title is evidence against the partnership. (n) persons not actual partners, he is liable to any such persons to whom
such representation has been made, who has, on the faith of such
Article 1821. Notice to any partner of any matter relating to partnership representation, given credit to the actual or apparent partnership, and if
affairs, and the knowledge of the partner acting in the particular matter, he has made such representation or consented to its being made in a
acquired while a partner or then present to his mind, and the public manner he is liable to such person, whether the representation
knowledge of any other partner who reasonably could and should have has or has not been made or communicated to such person so giving
communicated it to the acting partner, operate as notice to or credit by or with the knowledge of the apparent partner making the
knowledge of the partnership, except in the case of fraud on the representation or consenting to its being made:
partnership, committed by or with the consent of that partner. (n)
(1) When a partnership liability results, he is liable as though he
were an actual member of the partnership;
(2) When no partnership liability results, he is liable pro rata (b) Under Art. 126 of the Code of Commerce, the name of at least one of
with the other persons, if any, so consenting to the contract or the general partners in the general partner- ship should appear with the
representation as to incur liability, otherwise separately.
words “and company” (in case not all the partners were included). The
rule has now been changed. Thus, under the Civil Code, the firm name
When a person has been thus represented to be a partner in an
existing partnership, or with one or more persons not actual partners, may or may not include the name of one or more of the partners.
he is an agent of the persons consenting to such representation to bind
them to the same extent and in the same manner as though he were a (c) Suppose the firm name is changed in good faith but the members
partner in fact, with respect to persons who rely upon the remain the same, will the partnership under the new name retain all the
representation. When all the members of the existing partnership rights it had under the old name?
consent to the representation, a partnership act or obligation results;
but in all other cases it is the joint act or obligation of the person acting ANS.: Yes.
and the persons consenting to the representation. (n)
Liability of Strangers Who Include Their Names - Strangers (those not
Article 1826. A person admitted as a partner into an existing members of the partnership) who include their names in the firm are
partnership is liable for all the obligations of the partnership arising liable as partners because of estoppel (Art. 1815, par. 2) but do not have
before his admission as though he had been a partner when such the rights of partners for after all, they had not entered into any partner-
obligations were incurred, except that this liability shall be satisfied only ship contract. The purpose of the law is to protect customers from being
out of partnership property, unless there is a stipulation to the contrary.
misled as to whom they are dealing with.
(n)
[NOTE: If a person misrepresents himself as a partner, and as a
Article 1827. The creditors of the partnership shall be preferred to
consequence thereof, a stranger is misled, the deceiver is liable as a
those of each partner as regards the partnership property. Without
prejudice to this right, the private creditors of each partner may ask the partner (without the rights of a partner) and this is true, even if he did not
attachment and public sale of the share of the latter in the partnership include his name in the firm name.]
assets. (n)
[NOTE: Under Art. 1846, if a limited partner includes his name in the firm
name, he has obligations, but not the rights of, a general partner.] [NOTE:
The mere fact that a partnership has assumed a fictitious or assumed
1. LIABILITY FOR CONTRACTUAL OBLIGATIONS name, other than its real one, does not affect the validity of contracts
otherwise validly entered into.
(1815)
(1816)
Firm Name
Liability Distinguished from Losses While an industrial partner is
(a) This is the name of the juridical entity. exempted by law from losses (as between the partners), he is not
exempted from liability (insofar as third persons are concerned). This such liability being the cause for the reluctance and fear with which the
means that the third person can sue the firm and the partners, including formation of business partnerships has been regarded by all.”
the industrial partner. Of course, the partners will be personally liable
Partner Acting in His Own Name -Note that under Art. 1816, any partner
(jointly or pro rata) only after the assets of the partnership have been
may however “enter into a separate obligation to perform a partnership
exhausted. Even the industrial partner would have to pay, but of course
contract.” (Here, he does not act in behalf of the partner- ship; he acts in
he can recover later on what he has paid, from the capitalist partners,
his own name, although for the benefit of the partnership.)
unless there is contrary agreement.
(1817)
Liability of a Partner Who Has Withdrawn - A partner who withdraws is
not liable for liabilities contracted after he has withdrawn, for then he is Stipulation Eliminating Liability
no longer a partner. If his interest has not yet been paid him, his right to
the same is that of a mere creditor. Query: As among the partners, is it permissible to stipulate that a
capitalist partner be exempted from liability?
Unequal Contribution of Capitalist Partners - Suppose capitalist partners
had contributed unequally to the capital, will their liability to strangers be ANS.: The answer is YES, under Art. 1817. And yet under Art. 1799, a
equal or proportionate to their contributions? stipulation which excludes one or more partners (capitalist) from any
share in the profits or losses is VOID. How can these two articles be
ANS.: Proportionate for the law says “pro rata” (proportionate). (See Art. reconciled? It would seem that the only way to harmonize the two
1815). articles (insofar as capitalist partners are concerned) is this: it is
permissible to stipulate among them that a capitalist partner will be
Effect of Stipulation Exempting Liability to Third Persons - Suppose it is
exempted from liability in excess of the original capital contributed; but
stipulated that all the industrial partners and some of the capitalist
will not be exempted insofar as his capital is concerned.
partners would be exempted from liability insofar as third persons are
concerned, would the stipulation be valid? Example: A, B, and C, capitalist partners, each contributed P1 mil- lion.
The firm’s indebtedness amounts to P9 million. It was stipulated that A
ANS.: The stipulation would be null and void.
would be exempted from liability. Assuming that the capital of P3 million
Comment of the Code Commission - “The basic rule (formulated in Art. is still in the firm, what would be the rights of the firms creditors?
1698 of the old Code for civil partnerships) on the personal but subsidiary
ANS.: To get the P3 million and to get still P2 million each from the 3
liability of the partners pro rata for the obligations of the partnership has
partners (a total of P9 million). A will thus be liable to the third persons
been retained. The Commission considers the solidary liability laid down
for P2 million. How much, if any, can A recover from B and C? It is
in the Code of Commerce (for commercial partnerships) as inadvisable,
submitted that he can recover P2 million from B and C (P1 million each)
for as to liability as among them, he is exempted (Art. 1817) but he a. when the other partners do not object, although they have
cannot recover his original capital of P1 million. (Art. 1799). knowledge of the act;
b. when the act is for “apparently carrying on in the usual way the
‘Liability’ and ‘Losses’ Distinguished- Note that while in general “liability” business of the partnership.” (This is binding on the firm even if
refers to responsibility towards third persons, and “losses” refers to the partner was not really authorized, provided that the third
responsibility as among the partners, still Art. 1817, a new codal party is in GOOD FAITH.)
provision, can refer to “liability” as “among the partners.”
When Will the Act of the Partner Not Bind the Partnership
2. LIABILITY ARISING FROM PARTNER’S TORT OR (a) When, although for “apparently carrying on in the usual way the business of
BREACH OF TRUST the partnership,” still the partner has in fact NO AUTHORITY, and the 3rd party
knows that the partner has no authority. (This is to penalize customer or client in
(1818) bad faith.)

When A Partner Can Bind or Cannot Bind the Firm - This Article speaks of: (b) When the act is NOT for “apparently carrying on in the usual way” of the
partnership and the partner has NO AUTHORITY.
(a) the fact that the partner is an agent;
(NOTE: Here, whether or not the 3rd party knows of the LACK of AUTHORITY is
(b) the instances when he can bind the partnership;
NOT IMPORTANT. As long as there was really no authority, the firm is not
(c) the instances when he cannot bind the partnership (in which case, should he bound.)
enter into the contract, he alone, and not the firm nor the partner would be
[NOTE: The 7 kinds of acts enumerated in Art. 1818 are instances of acts which
liable).
are NOT for “apparently carrying on in the usual way the business of the
Agency of a Partner partnership.” In those seven instances, the authority must be UNANIMOUS (from
ALL the partners) except if the business has been abandoned.]
It has been truthfully said that a partnership is a con- tract of “mutual agency,”
each partner acting as a principal on his own behalf, and as an agent for his co- Reasons Why the 7 Acts of Ownership are “Unusual”
partners or the firm.
(a) “assign the partnership property” — the firm will virtually be dissolved
When Can a Partner Bind the Partnership
(b) “dispose of the goodwill” — goodwill is valuable property
A partner binds the partnership when the following requisites are present:
(c) “do any other act which would make it impossible to carry on” — this is
A) when he is expressly authorized or impliedly authorized; evidently prejudicial
B) when he acts in behalf and in the name of the partner- ship. Instances of
(d) “confess a judgment” — if done before a case is filed, this is null and void; if
implied authorization:
done later, the firm would be jeopardized (e) “compromise” — this is an act of
ownership and may be said to be equivalent to alienation (which may not be
justified) (f) “arbitration” — this is also an act of ownership which may not be c) one, some, or not all the partners;
justified
d) one, some, or not all the partners in TRUST for the partnership;
(g) “renounce a claim” — why should a partner renounce a claim that does not
e) third person in TRUST for the partnership.
belong to him but to the partnership?
Notice also the act of conveyancing may be in the name of the registered owner
(1819)
or in the name of the partners all together, or in the name of one, some but not
Conveyance of Real Property all of the partners, or in the name of the partnership (the registration being
apparently disregarded).
(a) This is a particular elaboration of Art. 1818, but is applicable to real property
alone. (1820)

(b) The Article was adopted to do away with the existing uncertainty Admission or Representation Made By a Partner - Generally, an admission by a
surrounding the subject of the conveyance of real property belonging to the partner is an admission against the partnership under the conditions given:
partnership
(a) the admission must concern partnership affairs
(c) It will be noticed that in some instances, what is conveyed is TITLE, and in
(b) within the scope of his authority
other instances, what is conveyed is merely the “EQUITABLE INTEREST.” What
does this phrase mean? ANS.: An equitable interest or title is one not only Restrictions on the Rule
recognized by law, but also by the principles of equity. (See 30 C.J.S. 401).
Evidently, as used in Art. 1819, it refers to “all interest which the partnership had, (a) Admissions made BEFORE dissolution are binding only when the partner has
except TITLE,” that is, the beneficial interests like use, fruits, but not the naked authority to act on the particular matter.
ownership.
(b) Admissions made AFTER dissolution are binding only if the admissions were
(d) Art. 1819 speaks of “to convey” or a “conveyance.” Doubt- less this includes a necessary to WIND UP the business.
sale, or a donation. Does it include a mortgage?
Reason: If the admission is not the “act of the partnership (thru the partner), it
ANS.: While under the rules of agency, a special power to sell does not include should NOT be evidence against it.” The words “within the scope of his
the power to mortgage, and vice uersa (Art. 1879), still Art. 1819 has been authority” produce this result.
interpreted in the U.S. to include under the term “conveyance” the right to
Previous Admission - When is a previous admission (not present court
mortgage. (See Bosler v. Sealfrom, 1923, 92 Pa. Super. Ct. 254).
testimony) of a partner admissible in evidence against the partnership?
(e) Notice that real property may be registered or owned in the name of:
ANS.: When it was made WITHIN the scope of the partnership, and DURING its
1) the partnership; existence, provided of course that the existence of the partnership is first proved
by evidence OTHER than such act or declaration.
2) all the partners;
(1821) Service of Pleading on a Partner in a Law Firm - It has been held that service of
pleadings on the partner in a law firm is also service on the whole firm and the
Effect of Notice to a Partner
other partners. (As a matter of fact, service on the firm, as evidenced by the
(a) In general, notice to a partner is notice to the partner- ship, that is, a signature of the receiving clerk of the firm who received in behalf of the firm, is
partnership cannot claim ignorance if a partner knew. BUT this rule has indeed service on the law partners, and this is true whether or not the clerk
restrictions and qualifications. forgot to inform the partners.) It has also been held that service on a partner is
effectual not only to bind the party served but also to reach the assets of the
(b) Notice to a partner, given while ALREADY a partner, is a notice to the partnership
partnership, provided it relates to partnership affairs.

Effect of Knowledge Although No Notice Was Given - It may be that no notice has
3. CRIMINAL LIABILITY OF PARTNERSHIP
been given, but knowledge has been somehow acquired. (Thus, while nobody (1822)
made any notification, still the partner perhaps because of analysis or deduction
came to know of something.) Is this knowledge of a partner also to be considered Wrongful Act or Omission of a Partner - Example: A, B, and C were partners.
knowledge of the partnership? While acting within the scope of the firm’s business, A committed a tort against
X, a third person. Is the firm liable?
ANS.: Knowledge of the partner is also knowledge of the firm provided:
ANS.: Yes. (Art. 1822). Moreover A, B, and C, as well as the firm itself, are liable in
(a) The knowledge was acquired by a partner who is acting in the particular solidum. (Art. 1824). Note that even the innocent partners are civilly personally
matter involved. (NOTE: The knowledge may have been acquired while already a liable, without prejudice of course to their right to recover from the guilty
partner, or even PRIOR TO THAT TIME, provided he still remembers the same, partner. (See Art. 1217).
that is, “present to his mind.”)
Injury to an Employee - The law speaks of an injury to “any person, not being a
(b) Or the knowledge may have been acquired by a partner NOT acting in the partner.” Does Art. 1822 apply to an injury to an employee, not a partner, of the
particular matter involved. But here it is essential that “the partner having firm?
‘knowledge’ had reason to believe that the fact related to a matter which had
some possibility of being the subject of the partner- ship business, and then only ANS.: It would seem that the answer is YES, for a mere employee is not
if he was so situated that he could communicate it to the partner acting in the necessarily a partner.
particular matter before such partner gives binding effect to his act. The words
When the Firm and the Other Partners are NOT Liable
“who reasonably could and should have communicated it to the acting partner
accomplish this result.” (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-
NOTE: Here, the knowledge must have been obtained while ALREADY a partner,
partners. (Art. 1822).
because the phrase “then present to his mind” applies only to the partner
(b) If the act or omission was NOT wrongful. (See Art. 1822 which uses the
ACTING in the particular matter involved
term “wrongful”.)
(c) If the act or omission, although wrongful, did not make the partner 4. PARTNERSHIP BY ESTOPPEL
concerned liable himself.
(d) If the wrongful act or omission was committed after the firm had been (1825)
dissolved (stopped its business) and same was not in connection with
Partner and Partnership By Estoppel - This Article refers to a “partner by
the process of winding up.
estoppel” and to a “partnership by estoppel.”
(1823)
How the Problem May Arise - A person may:
Liability of Partnership for Misappropriation - The difference between par. 1 and
(a) represent himself as a partner of an existing partnership, with or
par. 2 is that in the former the misappropriation is made by the receiving
without the consent of the partnership.
partner, while in the latter, the culprit may be any partner. The effect however is
the same in both cases, as can be seen from Art. 1824. NOTE: If a third person is misled and acts because of such misrepresentation, the
deceiver is a partner by estoppel. If the partnership consented to the
(1824)
misrepresentation, a partnership liability results. We have here a case of
Solidary Liability of the Partners With the Partnership “partnership by estoppel” with the original members and the deceiver as
partners. If the firm had not consented, no partnership liability results, but the
(a) While in torts and crimes, the liability of the partners is solidary, in
deceiver is considered still as a “partner by estoppel,” with all the obligations but
contractual obligations, it is generally merely joint. (Art. 1816). While Art. 1816
not the rights of a partner.)
speaks of pro rata li- ability of the partners, and while the Code Commission says
that pro rata in this article means “in proportion to their contribution” till the (b) represent himself as a partner of a non-existent partner- ship. (Here,
Supreme Court has ruled that “pro rata” here means joint, such that if 5 partners clearly no partnership liability results, but the deceiver and all persons
are liable, each would be responsible for 1/5 of the debt (regardless of amount of who may have aided him in the misrepresentation are still liable.)
contribution) and if one of the five would be excused (as when the plaintiff after
(NOTE: The liability in such a case would be joint or pro rata.)
suing the five partners dismisses the claim against one of them, each of the
remaining four would be responsible for 1/5. Thus “pro rata” is used in the sense When Estoppel Does Not Apply - When although there is misrepresentation, the
of “joint” to distinguish the same from solidary liability. third party is not deceived, the doctrine of estoppel does not apply. Note that
the law says “liable to any such persons to whom such representation has been
(b) Note that torts and crimes result from individual acts of the partners; while
made, who has, on the faith of such representation, given credit as to the actual
contractual liabilities arise from partnership obligations.
or apparent partnership.” (Art. 1825).
(c) Note that it is not only the partners that are liable in solidum; it is also the
Burden of Proof - The creditor, or whoever alleges the existence of a partner or
partnership.
partnership by estoppel has the burden of proving the existence of the
misrepresentation and the innocent reliance on it.

(1826)
Entry of a New Partner Into an Existing Partnership property employed in the business. All creditors of the business, irrespective of
the times when they became creditors, and the exact combinations of persons
Example: A, B, and C are partners. D is admitted as a new partner. Will D be liable
then owning the business, should have equal rights in such property. The
for partnership obligations contracted PRIOR to his admission to the partnership?
recognition of this principle solves one of the most perplexing problems of the
ANS.: Yes, but his liability will extend only to his share in the partnership partnership law.”
property, not to his own individual proper- ties. (Art. 1826). (NOTE: Had he been
Liability of New Partner for Previous Obligations - Is not the rule of holding the
an original partner, he would be liable both insofar as his share in the firm is
new partner liable (with his share of the firm’s assets) for PREVIOUS obligations
concerned, and his own individual property.)
of the firm unduly harsh on said new partner?
(NOTE: It is understood that the newly admitted partner would be liable as an
ANS.: No, it is not unduly harsh. After all “the incoming partner partakes of the
ordinary original partner for all partnership obligations incurred AFTER his
benefit of the partnership property, and an established business. He has every
admission to the firm.)
means of obtaining full knowledge and protecting himself, because he may insist
Creation of a New Partnership in View of the Entry - Does the admission of a on the liquidation or settlement of existing partnership debts. On the other hand,
new partner dissolve the old firm and create a new one? ANS.: Yes, and it is the creditors have no means of protecting themselves
precisely because of this principle that Art. 1826 has been enacted. The reason is
(1827)
simple: since the old firm is dissolved, the original creditors would not be the
creditors of the new firm, but only of the original partners; hence, they may lose Reason for the Preference of Partnership Creditors - After all, the partnership is
their preference. To avoid this injustice, under the new Civil Code (together with a juridical person with whom the creditors have contracted. Moreover, the
the new creditors of the new firm), they are also considered creditors of the assets of the partnership must first be exhausted.
NEW firm. (See also Art. 1840, which among other things provide that generally
Reason Why Individual Creditors May Still Attach the Partner’s Share - After all,
“creditors of the dissolved partnership are also creditors of the person or
the remainder (after paying partnership obligations) really belongs to the
partnership continuing the business.”) Thus, it is essential that the partnership
partners.
assets of the new firm (with the capital of the new partner) be available even to
the old creditors. (NOTE: The purchaser at the public sale does not necessarily become a partner.)
[NOTE: It is wrong to state that “the theory that a new firm is created by the Sale by a Partner of His Share to a Third Party - If a partner sells his share to a
admission of a new partner, has been abandoned.” It is wrong because indeed a third party, but the firm itself still remains solvent, creditors of the partnership
new firm is created; but the old creditors of the firm retain their preference as can- not assail the validity of the sale by alleging that it is made in fraud of them,
partnership creditors.] since they have not really been prejudiced.
“Art. 1826 should be read together with Art. 1840. Both are based on the
principle that there has been one continuous business. The fact that A has been
admitted to the business, or C ceased to be connected with it, should not be
allowed to cause endless confusion as to the claims of the creditors on the