1. Chapter 1 General ProvisionsArticle 1768 The partnership has a juridical personality separateArticle 1767and distinct from that of each of the partners, even in By the contract of partnership two or more persons case of failure to comply with the requirements of articlebind themselves to contribute money, property, or 1772, first paragraph. (n)industry to a common fund, with the intention ofdividing the profits among themselves.Example Two or more persons may also form a partnership-If A and B form a partnership with X & Co., the propertyfor the exercise of a profession. (1665a). of X & Co. is not A & Bs property and likewise, A & Bs property is not X & Co.s.NOMINATE-Since X & Co is a juridical entity, it can acquire any-There is a name given by the lawproperty since the partners are merely agents.-Contract of Partnership: CONSENSUAL (meaning it is -Thus the obligations of X & Co are not those of A & Bs. perfected by both parties) -The partnership of X & Co can file against A & B and bePERSONSsued by A & B, likewise, if a third party sues X & Co., A-Includes not only natural persons but also JURIDICAL& B are not affected. persons. A corporation may NOT be a partner but it may -The partnership will still be a juridical entity even without engage in JOINT VENTURES. compliance with A1772.BIND THEMSELVES -If X & Co. is exempted from certain things, it does not-Must be capable and competent, meaning, the following follow that A & B are included. may are not included:Consequences of being a Juridical Person 1. Minors-Can sue and be sued 2. Emancipated Minors-Acquire any kind of property 3. Those under civil interdiction accessory penalty of -Insolvency of a partnership does not mean that the being convicted of crimes partners themselves are insolvent. 4. Insane persons 5. Incompetent persons (see oblicon notes) Article 1769-HOWEVER, if the person is only a SUSPECT, he mayIn determining whether a partnership exists, these still bind himself into a contract since there is no final rules shall apply: verdict yet. (1) Except as provided by article 1825, persons who areTO CONTRIBUTE MONEY, PROPERTY OR INDUSTRYnot partners as to each other are not partners as to-Makes the contract onerous since this is MUTAL andthird persons. ALL must give either one of the above(2) Co-ownership or co-possession odes not of itself-Examples: establish a partnership, whether such co-owners or 1. A and B create a partnership with a promise of co-possessors do or do not share any profits made contributing P10,000 each in cash. A gave his by the use of the property share while B gave a check worth P10,000. Is the (3) The sharing of gross returns does not of itself issuance a contribution of money? establish a partnership, whether or not the persons No, unless the check is encashed. sharing them have a joint or common right or 2. Considering the same information above but with Binterest in any property from which the returns are contributing P10,000 in equivalent dollars. derived No, the contribution must be made using the legal(4) The receipt by a person of a share in the profits of a tender, in this case, Philippine pesos. business is prima facie evidence that he is partner-Property contributed may be movable, immovable or in the business, but no such inference shall be intangible property. (Ex: equipment, land, patents, etc.) drawn if such profits were received in payment:-If the partnership did not contribute money or property,(a) As a debt by installments or otherwise; then industry was contributed.(b) As wages of an employee or rent to a landlord-Note: Contributions may differ for each of the partners.(c) As an annuity to a widow or representative of aTO A COMMON FUND TO DIVIDE PROFITS AMONGSTdeceased partnerEACH OTHER (d) As interest on a loan, though the amounts of-The primary objective of partnerships is to make profits.payment vary with the profits of the business Sharing profits need not be equal.(e) As consideration for the sale of a goodwill of a-Sharing ratios are determined by the partners business or other property by installments or agreement, and if there was no agreement, then the otherwise. (n) ratios will be based on the ratio of the partners contributions. Provides the rule in determining partnerships-Sharing ratios for losses will be the same as the sharingExample for (1) ratios for profits.- If A & B say PUBLICLY that they are not partners, then-The industrial partner shall NOT share in losses.according to A1825, if they told C that they are and C-The industrial partner is exempt only to the partners butenters into a contract of partnership with them, then Ard not to 3 parties without prejudice to his right. A1816 and B are in a PARTNERSHIP OF ESTOPPEL.CONSENT (DELECTUS PERSONAE) Example for (2)-You cant join a partnership without the consent of ALL- If A & B inherited land from their parents and partners.subsequently leased the land out for P50,000/month, Why? then it can be said that they share profits, but are they in Because the partnership will need to be dissolveda partnership? before you are admitted and a new partnership will beNo, they are merely co-owners. The P50,000 profit is made in its place. merely incidental and besides, it was not derived fromBUSINESS OPERATIONS.

2. - If they bought the land for P1,000,000 each to build a Can a partnership be created orally?house but instead opted to sell it for P2,500,000 then Yes. A partnership may be constituted in any form (as statedthey have a profit of P500,000 but are they partners?in Article 1771)No, because even if there was a profit of P500,000, this Partnerships are not covered by the Statute of Fraud sinceis merely incidental to the sale and not from business these are not necessarily required to be in writing (contractoperations of A&B. of partnership can be in any form)- If the land was instead used to build an apartment thatIf immovable property and/or real rights are contributed tois rented out? the partnership, then the contract must be in a publicYes, because A & B share profits from RENTING, thisinstrument (notarized documents)can be considered as ordinary business operations. rd In order to bind 3 persons, the transfer of OWNERSHIP ofExample for (3)immovable property MUST BE REGISTERED with the- If a person owns a big tract of land for planting rice and REGISTRY OF PROPERTY in the province or city where theentered into an agreement with a farmer that they will property is locateddivide the harvest, is the farmer partners with the ownerThe article shows that partnerships can be perfected byof the land? MERE CONSENT.No because of the following reasons:(1) The farmer had no contribution Article 1772(2) The farmer has no say in the disposition of the land Every contract of partnership having a capital of(3) The farmer has no say in management P3,000.00 or more, in money or property, shall appear in(4) In case of loss, the owner shall carry the entire a public instrument, which must be recorded in the office burden and the farmer need not pay anythingof the Securities and Exchange Commission.Example for (4)Failure to comply with the requirements of the- A partnership borrowed P50,000 and instead of givingpreceding paragraph shall not affect the liability of thethe creditor a specific amount to be repaid, they agreedpartnership and the members thereof to third persons. (n)that the creditor will receive 1% of the partnershipsannual gross profit. Is the creditor a partner?If the partnerships capital is P3, 000.00 or more (in anyNo because the receipt of share in net income happensform), it must be in a public instrument, recorded with theto be because of an existing debt. SEC and note that property referred to here is MOVABLETo determine whether a person is a partner:since immovable property is covered by Article 1771.(1) Required contributionFailure to comply with the requirements of Article 1772 will(2) Say in managementrd not affect the liability of the partnership to 3 persons.(3) Share in losses Isnt this inconsistent with Article 1358?No, remember that in Article 1358, if the contract termsArticle 1770exceed P500.00 then the contract must be in writing. A partnership must have a lawful object or purpose,This is merely for purposes of convenience and notand must be established for the common benefit or validity or enforceability of the law. Also note thatinterest of the partners. according to Article 1768, the partnership will still be When an unlawful partnership is dissolved by a valid and have a juridical entity.judicial decree, the profits shall be confiscated in favor How do we reconcile this with Article 1358 and 1357?of the State, without prejudice to the provisions of theArticle 1358 is for purposes of convenience and not forPenal Code governing the confiscation of thevalidity or enforceability of the law.instruments and effects of a crime. (1666a) Article 1357 states that contracting parties have the rightto compel each other to place the contract into writing.The partnership must have a lawful object or purpose Purpose of Registration:- Lawful object refers to CAPITAL(1) Condition for obtaining a license to engage in business- Lawful purpose refers to the BUSINESS itselfand in tradeThere must be common interest and benefit rd (2) 3 persons want proof that the partnership is existent,Unlawfulness of the partnership will cause it to be dissolved who the partners are and what the capitalization isand profits shall be confiscatedbefore they enter into contracts/engage in business.Example of unlawful purpose: (3) The government requires this so that tax liabilities may- GAMBLINGnot be avoided (BIR)A & B are partners where A contributed P100,000 in Failure to comply with the Articles requirements will notcash and B contributes gambling paraphernalia. Theyprevent the formation of the partnershipwere raided and the gambling paraphernalia was The Statute of Fraud will only apply if there was anconfiscated. Can the P100,000 also be confiscated? agreement made by the contracting partiesNo because the P100,000 was not the reason for the Example:crime in anyway. The state is therefore required toA and B promise to contribute to their partnership moneyreturn this amount to A. worth P10,000.00 each within one year from theirLegal effects of a Judicial Dissolutionagreement. A contributes early but when the time comes for- Partnership is considered void from the beginningB to contribute his share, he refuses to do so. Can A compel- Profit and instrument of the crime is confiscatedB to give his contribution?- The only returnable items are those that were neverNo, A cannot compel B to pay his contribution to therelated to or connected with the crime committed partnership. Why?Article 1771 Because the contract/agreement between the two parties A partnership may be constituted in any form, was purely ORAL and never really written, and it has alreadyexcept where immovable property or real rights are been one year since they agreed to their contract terms.contributed thereto, in which case, a public instrumentshall be necessary (1667a) 3. Article 1773(a) Universal Partnership of All Present Property A contract of partnership is void, wheneverdefined in Article 1778immovable property is contributed thereto, if an(b) Universal Partnership of All Profits defined ininventory of said property is not made, signed by the Article 1780parties and attached to the public instrument. (1668a)(c) Particular Partnerships defined in Article 1783(2) As to the Liability:Refers specifically where one or both of the parties(a) General general partners are liable PRO-RATAcontribute immovable property. The requirements are:and subsidiarily, sometimes solitarily, with their own(1) The contract must be in a public instrument property/assets if the partnership is insolvent. (may(2) An inventory of the immovable property must be made,include industrial partners)signed by BOTH parties and attached to the public (b) Limited limited partners are liable only up to theinstrument, otherwise the partnership is VOIDED.extent of their contributionActual Case in Applying Article 1773: (3) As to Duration:A and B agree to form a partnership engaging in a fish pond (a) At will no particular undertaking, can be dissolvedbusiness where both partners will contribute cash; the cash at any timeis later used to buy land that is converted into a fish pond. C (b) With a Fixed Term may only be dissolved uponcomes along and points out that the partnership is void the end of its term unless continued by the partnersbecause no inventory of the land was made. Is the (4) As to Legality of Existence:partnership really void?(a) De Jure complied with ALL requirementsNo, the partnership is not void because according to the(b) De Facto failed to comply with ALL requirementsSupreme Court, Article 1773 need not apply since the land (5) As to Representation to Others:was BOUGHT from the CASH CONTRIBUTION.(a) Ordinary/Real actually existsSuppose a partnership contributes immovable property but(b) Ostensible/by Estoppel exists only to partnersdoes not conduct an inventory and enters into a contract with (6) As to Publicity:A. The partnership does not fulfill its obligation to A and A (a) Secret some partners are not known to the publicsues the partnership. Was A right in suing the partnership? (b) Open/Notorious all partners are known to theNo, since the partnership was void from the beginning. Apublicshould instead file against the partners themselves. They (7) As to Purpose:will be sued under the legal basis of them being partners by(a) Commercial/Trading business transactionsestoppels, as stated in Article 1825. (b) Professional/Non-Trading exercise of professionsIf A wishes to be in a partnership with B and promises to Kinds of Partners:contribute land but subsequently sells the same plot to C,(1) Under the Civil Code:who immediately registers the transfer, who owns the land?(a) Capitalist contributes money/propertyC owns the land because A never registered the transfer.(b) Industrial contributes industryEstafa: when the owner of a property sells the same to two(c) General liability extends to personal assetsor more different persons.(d) Limited liability up to contribution only(e) Managing manages the partnershipArticle 1774(f) Liquidating responsible during dissolution Any immovable property or an interest therein may(g) By Estoppel not really a partnerbe acquired in the partnership name. Title so acquired(h) Continuing continues business after dissolutioncan be conveyed only in the partnership name. (n) (i) Surviving remains after partners death(j) Sub-partner contracts with partners, Article 1804Being a juridical entity, a partnership can acquire property(2) Other Classifications:and subsequently become its owner.(a) Ostensible active, known to the public(b) Secret active, unknown to the publicArticle 1775(c) Silent inactive, known to the public Associations and societies whose articles are kept (d) Dormant inactive, unknown to the publicsecret among members, and wherein anyone of the (e) Original member at time of organizationmembers may contract in his own name with third (f) Incoming about to become a memberpersons, shall have no juridical personality and shall be (g) Retiring about to withdrawgoverned by the provisions relating to co-ownership.(1669)Article 1777 A universal partnership may refer to all the presentThere is no juridical entity since the members can contract property or to all the profits. (1672) rdwith 3 persons in their own name without binding others.In a partnership: Article 1778(1) The partners are merely agents who cannot act aloneA partnership of all present property is that in which(2) Articles of Partnership are known to ALL partners AND the partners contribute all the property which actually to the GENERAL PUBLIC. belongs to them to a common fund, with the intention ofdividing the same among themselves, as well as theArticle 1776profits which they may acquire therewith. (1673) As to its object, a partnership is either universal orparticular. Article 1779 As regards to the liability of the partners, aIn a universal partnership of all present property,partnership may be general or limited. (1671a)the property which belongs to each of the partners atthe time of the constitution of the partnership becomesClassifications of Partnerships:the common property of all the partners, as well as all(1) As to the Object: the profits which they may acquire therewith. 4. A stipulation for the common enjoyment of anyIf the articles of universal partnership are doubtful or unclearother profits may also be made; but the property which then the presumption is that it is a universal partnership of allthe partners may acquire subsequently by inheritance,profits.legacy or donation cannot be included in such- Because a universal partnership of all profits requirestipulation, except the fruits thereof. (1674a)less obligations and is less onerous since the partners get to retain ownership over the property that theyWhy is the universal partnership of all present property not contribute.popular in the Philippines?Property owned at the time of contribution will become Article 1782common property of the partnership eventually because onlyPersons who are prohibited from giving each otherthe profits acquired through the contribution will becomeany donation or advantage cannot enter into a universalcommon property, unless there was a stipulation that sayspartnership. (1677)otherwise.Example: A husband and wife cannot join a universal partnership.A and B form a Universal Partnership of All Present Property - They are not allowed to donate to each other and aand stipulate that property and profits that are acquireduniversal partnership essentially requires that theduring business operations will become common property partners donate to each other.even if these were not due to their contributions and that if- They can join a particular partnership instead.anyone inherits property, it will become common property asA partnership formed in violation of this article shall be nullwell. A acquires land as part of his compensation packageand void. It shall not have any legal personality either.from AyalaLand and B inherits land from his parents. Whose Illustrative Case:property will become common property?A, B and C form a partnership to engage in the importation,Only As land will become common property because it was marketing and operation of automatic phonographs, radios,essentially PAYMENT while Bs was inherited. The article television sets, amusement machines and their partsprohibits donations to become common property, only fruits accessories, with B and C as limited partners. Subsequently,of such can become common property.A and B got married and thereafter, C sold his share to AIn a partnership, contributions must be determinate/certainand B for a nominal amount. Was the partnership dissolvedand partners are akin to donors. Donations cannotafter the marriage of A and B and Cs sale to them of hiscomprehend future property but profits can be stipulated.share in the partnership? No, the firm was not a universal partnership but a particularArticle 1780 one. A universal partnership of profits comprises all that Pertinent Legal Provisionsthe partners may acquire by their industry or work (1) Article 87: Every donation or grant of gratuitousduring the existence of the partnership. advantage, direct or indirect, between spouses during Movable or immovable property which each of the their marriage, valid or not, shall be void exceptpartners may possess at the time of the celebration of moderate gifts which the spouses may give each otherthe contract shall continue to pertain exclusively toon the occasion of any family rejoicing.each, only the usufruct passing to the partnership.(2) Article 739: The following donations shall be void:(1675) (a) Those made between persons who were guilty ofadultery or concubinage at the time of the donationExample: (b) Those made between persons found guilty of theSuppose A and B form a Universal Partnership of All Profits same criminal offense, in consideration thereofand A wins in the lotto, P100,000.00. B tries to share in 50%(c) Those made to a public officer or his wife,citing the existence of their partnership and that A used the descendants and ascendants by reason of hispartnerships money to purchase the lottery ticket. Can B officereally share in the lotto winnings?No, B cannot since it came from CHANCE, not WORK.Article 1783If the P100,000.00 instead came from As work in DLSU, can A particular partnership has for its objectB share in the profits of A?determinate things, their use or fruits, or a specificYes, because it came from WORK. undertaking, or the exercise of a profession or vocationAs long as it is PROFIT, the profit becomes common(1678)property to the partners UNLESS there was a stipulation intheir agreementDefines what a particular partnership isIf A and B form a Universal Partnership of All Profits for a Particular partnerships are those that are:Taxi-Cab business and both contribute vehicles that will -Neither a universal partnership for all present propertyserve as the taxi, what they were actually contributing is thenor a universal partnership for all profitsUSE or the RIGHT TO USE their vehicles. Upon dissolution,-Example: Those that are formed for the acquisition andthe vehicles will be returned to them since there was never a sale of property, Accounting Firms, Law Firms, etc.transfer of ownership. -Popular because it is easy to joinUnique feature of the Universal Partnership of All Profits:- The partners retain the title of ownership.Chapter 2 Obligations of the PartnersArticle 1781 Section 1 Obligations of the Partners amongst Articles of Universal Partnership, entered into Themselveswithout specification of its nature, only constitute a Relations created by a contract of partnershipuniversal partnership of profits (1676)(1) Relations among the partners themselves (2) Relations of the partners with the partnership (3) Relations of the partnership with third persons (4) Relations of the partners with third persons 5. Every partner is a debtor of the partnership forArticle 1784 whatever he may have promised to contribute thereto. A partnership begins from the moment of the He shall also be bound for warranty in case ofexecution of the contract, unless it is otherwiseeviction with regard to specific and determinate thingsstipulated. (1679) which he may have contributed to the partnership, in the same cases and in the same manner as the vendor isPartnership is perfected by mere consent and if ALL thebound with respect to the vendee. He shall also be liablerequirements are met for the fruits thereof from the time they should haveNotwithstanding the fact that the partners have not givenbeen delivered, without the need of any demand. (1681a)their contributions yetExample: Article 1787A and B agree to form a partnership that will begin onWhen the capital or a part thereof which a partner isDecember 1 and upon the arrival of certain machinery bound to contribute consists of goods, their appraisalneeded by the business. In this situation, are A and B inmust be made in the manner prescribed in the contractalready in a partnership?of partnership, and in the absence of stipulation, it shallAs long as the agreement remains executory, then A and B be made by experts chosen by the partners, andare NOT partners therefore there is no partnership yet.according to current prices, the subsequent changesPartners may agree to form a partnership to take effect in thereof being the account of the partnership. (n)the futureExample: Article 1788A and B agree to form a partnership 1.5 years later, with A partner who has undertaken to contribute a sumcontributions of P100,000.00 each. A contributes his share of money and fails to do so becomes a debtor for theearly but when the time comes for B to contribute his share, interest and damages from the time he should havehe refuses and says he no longer wants to partake in the complied with his obligation.partnership. Can A compel B to contribute his share to theThe same rule applies to any amount he may havepartnership? taken from the partnership coffers, and his liability shallNO. Because they cannot enforce the contract since it wasbegin from the time he converted the amount to his ownperfected 1.5 years ago and the contract was only oral.use. (1682)Since the contract was for 1.5 years, it was greater than 1year and should have been written instead. Suppose A, B and C are partners. A promises to contribute aThe Statute of Fraud does not usually apply but to someRED CAR, B promises to contribute GOODS WORTHparticular cases such as the example above, it will. P50,000.00 and C promises to contribute P50,000.00 INIf the contribution is immovable property, comply with Article CASH on October 2011. On October 2011, none of them1773 otherwise the partnership will be void. comply. What happens? A, B and C thus become debtors to the partnership.Article 1785 Suppose B and C contribute their parts but A does not. CanWhen a partnership for a fixed term or particularB and C ask for the recission or annulment of the contract? undertaking is continued after the termination of suchNO. If one of the partners fails to comply with his term or particular undertaking without any expressrequirements, then the others can request for specific agreement, the rights and duties of the partners remain performance with damages from the defaulting partner A. the same as they were at such termination, so far as is What are the obligations of A before October 2011? consistent with a partnership at will.(1) To contribute what he promisedA continuation of the business by the partners or(2) To be held liable to answer for eviction if the partnership such of them as habitually acted therein during the term, is deprived of his contribution without any settlement or liquidation of the partnership(3) To take care of the contribution with the diligence of a affairs, is prima facie evidence of a continuation of the good father of a family. partnership. (n)Suppose A leased the car out and gets it back by December 2011.A partnership with a fixed term/particular undertaking isThen A must deliver the car and the fruits (profits from lease)continued without express agreementto the partnership because there was a delay.rd-Rights and duties remain the same as they were at Suppose that after A contributes the car, a 3 person, D termination.claims to the real owner of the car and is able to prove so.Example: Then A is held liable for eviction because the partnership isIf A and B form a partnership to last until December 30, 2011deprived for a specific thing. A is also held liable forand A is the manager and they share profits 50-50 and afterdamages to BOTH the partnership and to D.December 30, 2011 they continue with their partnership.What about B? Can the partnership determine the value ofWhat happens?the goods he contributed?A and B retain their rights, meaning A is still the managerIn Article 1787, it clearly states that the goods SHOULD beand they still share profits 50-50.appraised by the partnership. If there was noIf there was express agreement for the term of existence,agreement/stipulation, then the partnership shall have thethen when the term expires, the partnership is dissolved and goods appraised by an expert.becomes a partnership at willWhat if the goods appreciate/depreciate?Continuation is when there is NO settlement/liquidation. It will be charged to the partnerships account.There must be prima facie evidence, meaning it must be What will happen if C fails to comply with his obligation?seen on first glance.C will be liable for his contribution plus interest and damages from the date he was supposed to contribute. The same ruleArticle 1786 will apply if the partners take money from the partnerships funds without everyones consent. He will however, not be charged for theft or estafa and his obligation will only be to 6. return the money he took plus interest and damages from the capital, except an industrial partner, to sav4e thethe time he took the money. venture, shall be obliged to sell his interest to the otherWhen will a partner be held criminally liable?partners. (n)Suppose the partners set aside P10,000.00 for payment toone of their creditors. A takes this amount from the fund and If there is an imminent loss in the partnership, the partneris subsequently discovered to have done so. who refuses to contribute additional funds, IF HE IS-Then A can be charged for estafa since heCAPABLE TO DO SO, shall sell his share TO THE misappropriated the money ALREADY SET ASIDE. PARTNERS, unless he is an industrial partner.-Imminent LossArticle 1789 There is a need for the capitalist partners to An industrial partner cannot engage in business forcontribute additional funds to save the partnershiphimself, unless the partnership expressly permits him to The industrial partner need not do so because hedo so; and if he should do so, the capitalist partnershas already given 100% of his effortsmay either exclude him from the firm or avail If the capitalist partner is WILLING but NOTthemselves of the benefits which he may have obtained FINANCIALLY CAPABLE, the article will NOT applyin violation of this provision, with a right to damages into him because he is already insolventeither case. (n)-Selling of interest Refusal to contribute additional funds to save theAn industrial partner contributes his industrypartnership means that the partner no longer has-Partnership has the EXCLUSIVE RIGHT to his industryany interest in the partnership-Prohibited from the engaging in business of ANY kind He should not be allowed to reap the benefits that unless the partnership has expressly permitted him tothe other partners have worked hard for because do so. he had not done anything to help anywayExample: He cannot complain of being removed from theSuppose that a partnership is engaged in a automobile partnership because he will be paid what is due torepair shop. A is the industrial partner (chief mechanic) and him for his share in the interest of the partnershipworks only up to 5PM every working day. Can he go home-Agreement that the partner need not contributeand work on the partnerships customers autos, even if he additional funds in cases of losssays it to the capitalist partners EVERY DAY before he The capitalist partner will not be required since itleaves? was in their agreement in the first place.The law says that there must be EXPRESSED permission, Note that more contribution to the partnershipin this situation, all A has is IMPLIED permission. The capital would mean you share more in the profitscapitalist partners remedy is therefore to either: (only one)but this should be voluntary(1) Avail of the benefits from As business Things to consider:(2) Exclude A from the partnership and demand for (1) There must be an IMMINENT LOSS damages(2) The partner who is unwilling to contribute must beCapitalist partners are prohibited from engaging in SIMILARSOLVENT/FINANCIALLY CAPABLEbusinesses only.(3) There was no agreement that the partners will not haveIndustrial partners have the same remedies as capitalist to contribute additional funds in cases of losspartners. If the purpose of additional contribution is simply to raisecapital, then this article will not apply.Article 1790 Unless there is a stipulation to the contrary, the Article 1792partners shall contribute equal shares to the capital of If a partner authorized to manage collects athe partnership. (n)demandable sum, which was owed to him in his ownname, from a person who owed the partnership anotherThe partners shall contribute to the capital of the partnership sum also demandable, the sum thus collected shall beas per their agreement, except if there was no agreement in applied to the two credits in proportion to their amounts,the first place, in which case, they shall contribute equally.even though he may have given a receipt for his ownExample:credit only; but should he have given it for the accountA and B decide to form a partnership and agree to contributeof the partnership credit, the amount shall be fullyto the capital in the ratio of 60:40, how much should the applied to the latter.partners contribute to the partnership?The provisions of this article are understood to beThe partners shall contribute in the ratio of 60:40, meaning if without prejudice to the right granted to the debtor bytheir partnership capital is a combined total of P10, 000.00Article 1252, but only if the personal credit of thatthen A contributed P6, 000.00 and B contributed P4, 000.00. partner should be more onerous to him. (1684)A and B decide to form a partnership but did not say howmuch the other should contribute, how much should eachA and B are in a partnership where A is the managingpartner contribute to the partnership?partner. C owes A a sum of P5,000.00 and the partnership aSince the partners did not give any sort of agreement as to sum of P10,000.00. The credit to A is due on September 1the ratio of their capital contribution, we shall assume that while the partnerships is due on September 15, both debtsthey will contribute in equal proportions, meaning if the are due and demandable. A collects from C a total ofpartnership capital is a combined total of P10, 000.00, thenP3,000.00 only and A subsequently issues a receipt in hiseach partner contributed P5, 000.00.name. Is the partnership entitled to share in the P3,000.00?Yes but in proportion to their respective debts so A getsArticle 1791P1,000.00 and the partnership gets P2,000.00. If there is no agreement to the contrary, in case of Supposing there was no mention as to who the managingimminent loss of the business of the partnership, any partner is, will the requisites of Article 1792 still be present?partner who refuses to contribute an additional share to 7. Yes, in the absence of information relating to the identity of painted RED. Damages are suffered by the partnership forthe managing partner, the assumption shall be that ALL P30,000.00 due to the repainting. Can A compensate thispartners are managing partners.loss using the profits he earned for the partnership?If A issues a receipt on the name of the partnership instead,A cannot compensate it with the profits he earned because itto whose credit will the P3,000.00 be put? is his obligation to bring profits in the first place. TheThe entire P3,000.00 will go to the partnership. responsibility of the P30,000.00, however, may be mitigatedSupposing the credit of A carries 18% while that of theby the court if by other activities, A is able to bring aboutpartnership carries only 10%. C pays A and says that the unusual or extraordinary profits, meaning, he may beP3,000.00 shall be applied to As credit. Is the partnership allowed by the courts to pay back just P15,000.00 instead.entitled to share in the P3,000.00 still?Follows that if the partner is guilty of fraud or damages, heNo, the debtor is given the right to apply payment toshall be liable for that.whichever debt is more onerous.Things to remember:Article 1795The two conditions should be both present in order for theThe risk of specific and determinate things whichArticle to apply, otherwise, the entire amount will go toare not fungible, contributed to the partnership so thatwhoever collects payment from the debtor.only their use and fruits may be for the common benefit,(1) 2 debts and both are due and demandableshall be borne by the partner who owns them.(2) The one collecting should be the managing partner If the things contributed are fungible, or cannot be kept without deteriorating, or if they were contributed toArticle 1793 be sold, the risk shall be borne by the partnership. In the A partner who was received, in whole or in part, hisabsence of stipulation, the risk of things brought andshare of a partnership credit, when the other partners appraised in the inventory, shall also be borne by thehave not collected theirs, shall be obliged, if the debtor partnership, and in such case the claim shall be limitedshould thereafter become insolvent, to bring to theto the value at which they were appraised. (1687)partnership capital what he received even though hemay have given receipt for his share only. (1685a) Refers to rules as to who bears the risks made by contributionsIn this case, there is only ONE debt but 2 or more debtors,If the contribution is determinate and non-fungible but onlyboth of which are partners.the use is contributed, when it is lost, then the one whoExample: contributes it is liable for it.A and B are partners and C owes the partnership a sum of If fungible things are contributed, the partnership shall be theP10,000.00. B is the managing partner but A collects his one to shoulder the risksshare in the P10,000.00 and C pays A P5,000.00 to which AThe partnership shall also be the one to bear the risk forissues a receipt in his name. When Bs turn to collect comes,items brought for sale in inventory for appraisal for the valueC is already insolvent. What should A do?at which they were appraised.A shall return his P5,000.00 to the partnership and split itwith B because C has already become insolvent. Article 1796Take not that whoever collects doesnt matter as it doesnt The partnership shall be responsible to everymake a differencepartner for the amounts he may have disbursed onIf you get your share early and the other parties cannot get behalf of the partnership and for the correspondingtheirs because the debtor has become insolvent, then you interest from the time the expenses are made; it shallmust return YOUR share to the partnership so that no one also answer to each partner for the obligations he maygets more than he should have. have contracted in good faith in the interest of the partnership business, and for the risks in consequenceArticle 1794 of its management. (1688a) Every partner is responsible to the partnership for Refers to the obligation of the partnership to the partnersdamages suffered by it through his fault, and he cannotThe partners are merely agents so they are not personallycompensate them with the profits and benefits which he liable except if they are at fault or if they exceeded theirmay have earned for the partnership by his industry. expressed authorityHowever, the courts may equitably lessen thisObligations of the Partnership:responsibility if through the partners extraordinary(1) To reimburse any amount disbursed by the partners inefforts in other activities of the partnership, unusual behalf of the partnershipprofits have been realized. (1686a) - Example:A partnership borrows from the bank a sum ofWhy compensation will not apply:P10,000.00 for additional funds but cannot pay itCompensation will not apply because in compensation, youback when it is due to be paid back. A pays backshould be both a debtor and a creditor at the same time.the P10,000.00 using his personal funds. Should heHowever, the partner here is only a DEBTOR for damagesbe reimbursed by the partnership?and he cannot compensate using his profits and benefits Yes, the partnership should reimburse A for theearned for the partnership because it IS HIS DUTY to do sosum of P10,000.00 PLUS legal interest startingin the first place. from the date A disbursed the P10,000.00.Responsibility may be equitably mitigated by the courts if,(2) To answer for any obligation contracted in good faiththrough extraordinary efforts of the partner, unusual profits - Example:are recognized/realized.A partnership needs office supplies so B contractsExample:for P10,000.00 worth of supplies. Who will pay forA partnership between A and B is engaged in an autoshop the contract price of P10,000.00?business. A customer brought his car in to be painted The partnership shall be the one to shoulder theYELLOW but A bought RED paint instead and the car iscost as it was made in good faith and B did notoverstep his authority. 8. If it was stated that the partners cannot contract for A P 30,000.00 3/6 P 7,500.00-P 7,500.00more than P5,000.00 worth of supplies and B stillcontracts for P10,000.00, how much will theB P 20,000.00 2/6 P 5,000.00-P 5,000.00partnership pay? C P 10,000.00 1/6 P 2,500.00P 2,000.00 P 4,500.00The partnership will only pay what was allowed,that is, P5,000.00 and B will pay the remaining P TOTAL P 60,000.00 6/6 P 15,000.00 P 2,000.00balance since B overstepped his authority.17,000.00(3) To answer for risks in management- Example: The same rules shall apply for losses in the partnershipsA partnership is engaged in selling goods and aoperations, however the industrial partner shall not share incustomer keeps asking for discounts and an the losses as there is no way for him to retract his industryargument ensues between the customer, C and theand in the event of losses, his efforts would have been forpartner A. A gets injured and is brought to thevain and it can thus be said that he has already shared.hospital. Who shall shoulder the hospital bills? What is the legal effect of having a stipulation that excludesThe partnership shall shoulder the hospital bills as it a partner from sharing in the profits or losses?was during As time in managing the business that Under Article 1799, the stipulation shall be void becausehe was injured. there must be mutual sharing of profits and losses.Article 1797 Can the partners appoint a 3rd person to designate the division of their profits and losses? The losses and profits shall be distributed in Yes and they will not be allowed to question his decisionsconformity with the agreement. If only the share of eachpartner in the profits has been agreed upon, the share ofunless the designation of shares is manifestly inequitable.each in the losses shall be in the same proportion.2 cases where partners ABSOLUTELY cannot question In the absence of stipulation, the share of eachdesignated shares by the 3rd parties:partner in the profits and losses shall be in proportion to(1) When a partner begins to execute the 3rd partyswhat he may have contributed, but the industrial partnerdecisionshall not be liable for the losses. As for the profits, the(2) When complaints are raised AFTER three months fromindustrial partner shall receive such share as may be the point of knowledge of the designationjust and equitable under the circumstances. If besides Can the partners designate one of themselves to distributehis services, he has contributed capital, he shall alsoprofits or losses?receive a share in the profits in proportion to his capital. No, the law prohibits this situation because there may be(1689a)disparities when it comes to the distribution of net profits.Article 1798 Article 1800 If the partners have agreed to entrust to a thirdThe partner who has been appointed manager in theperson the designation of the share of each one in the articles of partnership may execute all acts ofprofits and losses, such designation may be impugned administration despite the opposition of his partners,only when it is manifestly inequitable. In no case may a unless he should act in bad faith; and his power ispartner who has begun to execute the decision of the irrevocable without just and lawful cause. The vote ofthird person, or who has not impugned the same withinthe partners representing the controlling interest shalla period of three months from the time he hadbe necessary for such revocation of power.knowledge thereof, complain of such decision. A power granted after the partnership has been The designation of losses and profits cannot be constituted may be revoked any time. (1692a)entrusted to one of the partners. (1690) 2 Kinds of Managing Partners:Article 1799 (1) Appointed DURING the Constitution of the PartnershipA stipulation which excludes one or more partners from - May execute all administrative acts unless he acted inany share in the profits or losses is void. (1691)bad faith. His power may not be revoked unlessthere is a JUST and LAWFUL cause and the voteLays out the rules in the distribution of profits and lossesof the partners with controlling interestA, B and C are partners with the following capital - Even if there are objections as to his decisionscontributions, P30,000.00, P20,000.00 and P10,000.00coming from the partners, his authority will prevailrespectively, where C is a capitalist-industrialist partner. ForUNLESS he has acted in bad faithone year of their operations, their partnership had earned net - Acts of administration: ordinary business andprofits of P17,000.00. How shall these profits be divided administrative transactionsamong the partners? (C is entitled to receive P2,000.00 out- Why can he note be revoked for no reason?of the entire P17,000.00) Because if you revoke his power, you are in effect(1) In accordance with any existing agreement between the changing the terms of the contract of partnership. partners as to how they shall share.(2) Appointed AFTER the Constitution of the Partnership(2) If there was no agreement, then the partners shall share - May have his power revoked with or without cause on a pro-rata basis - Decided upon by those partners who own controlling(3) The industrial partner shall get what is JUST and interest in the partnership EQUITABLE in the circumstances. (BONUS TO PARTNER)Article 1801If two or more partners have been entrusted with the management of the partnership without specification ofSHARE INTOTALPCAPITAL RATIO DISTRIBUTABLE BONUS SHARE IN their respective duties, or without stipulation that one ofCONTRIBUTION PROFITPROFITS them shall not act without the consent of the others, each one may separately execute all acts of 9. administration, but if any of them should oppose the shall bind the partnership, without prejudice toacts of the others, the decision of the majority shall the provisions of article 1801.prevail. In case of tie, the matter shall be decided by the(2) None of the partners may, without the consent ofpartners owning the controlling interest. (1693a)the others, make any important alteration in the immovable property of the partnership, even if itAssume that A, B, C and D are all managing partners. A may be useful to the partnership. But if theappoints E as a secretary but B objects to this. Is therefusal of consent by the other partners isappointment of E valid?manifestly prejudicial to the interest of theYes since majority votes are first counted by head. If C&D partnership, the courts intervention may bewere the ones to object, and they owned a combined total ofsought. (1695a)51% of partnership interest, then the appointment will not bevalid. However, if B was still the one who objected and he If there is no agreement as to who will be the managingowns 51% of partnership interest, the appointment will still partners, during constitution and after constitution of thebe valid because majority votes are first counted by head. partnership, then the assumption shall be that ALL theIf the partnership cannot make a decision and ends up in a partners are managing partners, without prejudice to Articletie (head count and interest), then the partnership is to be 1801, meaning Article 1801 will then apply to their case.dissolved. This will be the only remedy, unless one of the The second paragraph of this article provides that theother partners will relent.partners cannot simply alter immovable property owned by the partnership without the consent of the other partnersArticle 1802 because this is NOT an act of administration but of In case it should have been stipulated that none of OWNERSHIP.the managing partners shall act without the consent of Note that consent here is no qualified, so it may bethe others, the concurrence of all shall be necessary forexpressed or it may be implied.the validity of the acts, and the absence or disability of Example:any one of them cannot be alleged, unless there is Suppose A, B, C and D are in a partnership where theimminent danger of grave or irreparable injury to themanaging partner is not specified and A decides to put up apartnership. (1694)warehouse in a piece of land owned by the partnership without consent of other partners because he believes it toThis is a case wherein two partners, A and B, stipulate that be useful and beneficial to the partnership. His partnersone cannot act without the consent of the other. Thus, there come over, once the warehouse is finished, to look at it andmust always be concurrence between the two before anydid not object to its existence. Was this valid?transactions may be entered into, the absence of the others Yes, since the partners did not object, then there is IMPLIEDconsent shall not be used as an excuse.consent. Since consent was never qualified in the article, it isIllustrative Case: assumed that implied consent is enough.A sold to B, one of the managing partners of Partnership X,Suppose before A builds the warehouse, he asks for thethe other being C, a certain number of mining claims without consent of the other partners, who refuse to give it. When Athe consent of C. In an action by A to recover the unpaidtries to convince them and asks why they refuse to givebalance of the purchase price against Partnership X, C consent, they simply say that they do not want it to be there,claims that the contract is not binding upon the partnership making their objection manifestly prejudicial, meaning, therefor the reason that under the articles of partnership, there isis really no reason for their objection, what then, is thea stipulation that one of the partners cannot bind the firm by remedy of A in this situation?a written contract without the consent of others. Is the A may bring the matter to court. If the court finds the othertransaction made by B binding upon the partnership?partners of having no solid reason to object, it may compelAccording to the Supreme Court, the stipulation applies only the other partners to give their consent.to B and C. A has the right to assume that B was authorizedto complete the transaction. Therefore, the partnership is Article 1804liable, and since B violated the terms of contract betweenEvery partner may associate another person withhimself and C, he is required to reimburse C for the amounthim in his share, but the associate shall not be admittedC will be paying A on behalf of the partnership, the reasoninto the partnership without the consent of all the otherbeing, it would be unfair to C who had no knowledge of Bs partners, even if the partner having an associate shouldtransaction to have to pay when he never agreed anyway.be a manager. (1696)The only instance in which a partner may transact withoutconcurrence is when there is imminent danger of grave or Refers to SUBPARTNERSHIPirreparable damage to the partnership if he does not do so.A, B and C are in a partnership wherein A is the managingHowever, the party involved must be able to prove so elsepartner. A enters into a contract with D that states D willhe shall become liable for what he has done. receive 50% of As share in partnership profits. Can A do thisExample: even without the consent of the other partners?A and B are in a partnership where they sell fruits, B notices Yes, because a sub-partnership will not affect thethat the fruits in the warehouse are starting to rot so, without composition of the partnership and D will not be able toconsent of A, he sells them. interfere with the partnerships management anyway.This will be alright because if the fruits rot, then it would have When are you required to share your partnership profits with rdbeen bad on the part of the partnership. 3 persons? rd When you contract with 3 persons because perhaps inArticle 1803 some past event you needed money and they provided you When the manner of management has not beenwith it, and in your contract, it was agreed upon that you willagreed upon, the following rules shall be observed:share in the partnership profits.rd (1) All of the partners shall be considered agentsThe 3 person can also opt to receive ALL profits. and whatever any one of them may do alone Can D become a partner without the consent of the other partners, if he associates with the managing partner? 10. No, D would need to get the consent of all partners because Example:this would change the partnership composition.A and B are partners engaged in the operation of a cinemabusiness. The theater was mortgaged to C who foreclosedArticle 1805the mortgaged debt. A, in his own behalf, redeemed the The partnership books shall be kept, subject to anyproperty with his own private funds. Subsequently, A files aagreement between the partners, at the principal placepetition for the cancellation of the old title of the partnershipof business of the partnership, and every partner shall and the issuance of a new title in HIS name alone. Did Aat any reasonable hour have access to and may inspect become the absolute owner of the property?and copy any of them. (n) No, the law says that he will only hold the property as thetrustee and will be entitled to reimbursement plus interestThe partnership books shall be kept in the following places,from the time he redeemed the property.in order:(1) In accordance with partnership agreements Article 1808(2) If there were no agreements, then the partnership booksThe capitalist partners cannot engage for their own shall be kept in the principal place of business of theaccount in any operation which is of the kind of partnership (ex: headquarters) business in any operation which is of the kind ofEach partner will have access to ALL partnership books. business in which the partnership is engaged, unlessWhen will the partner be allowed to access the partnershipthere is a stipulation to the contrary.books? Any capitalist partner violating this prohibition shallThe partner is allowed to access partnership books during bring to the common fund any profits accruing to himREASONABLE HOURS OF BUSINESS (8am-5pm), from his transaction, and shall personally bear all theaccording to the law. The one who is keeping the partnershiplosses. (n)books cannot state when it can be inspected.The article is with regards to a capitalist partner engaging inArticle 1806other businesses. Partners shall render on demand true and fullIs the capitalist partner allowed to engage in otherinformation of all things affecting the partnership to anybusinesses aside from the one he has with the partnership?partner or legal representative of any deceased partner Yes, as long as the business he engages in is somethingor of any partner under legal disability. (n) dissimilar or different from the of the partnerships.What will happen if the capitalist partner violates the lawThe article does not mean that the partners need wait for regarding his ability to engage in other businesses?demands before disclosing information, when they get hold Then he shall have to bring the profits he gained from theof the information, they should disclose it immediately,other business to the partnership and be liable for lossesalthough additional details may be demanded.suffered by the partnership.If information is not disclosed and it is found out later on, the Why is the capitalist partner not allowed to engage in apartner/s who did not disclose such will be held liable for itsimilar line of business?and be charged for misrepresentation. Because he might take advantage of the information in theSuppose A, B and C are in a partnership wherein A is sent topartnership or of their clients, resulting in a conflict of interestinspect partnership property in Mindanao. A realizes that the between himself and the other partners.property contains oil deposits and does not disclose this The capitalist partner can engage in a business similar to theinformation to B and C. He also lies and says that thepartnership if there was a stipulation in the contract ofproperty is completely useless for their business and offerspartnership and if the business he operates exists in ato buy B and Cs interests in the partnership. When A is thedifferent area or place.only one holding the business, he develops the land andgains substantial profits from the oil deposits. B and C laterArticle 1809on learn about the information A kept hidden from them and Any partner shall have the right to a formal accountdemand that they be given their shares in the oil profits. Theas to partnership affairs:question now is, can B and C, after having sold their(1) If he is wrongfully excluded from the partnershipinterests in the partnership, still share in the profits?business or possession of its property by his co-Yes, they will be allowed to share in the profits because thepartnersinformation regarding oil deposits was present when they (2) If the right exists under the terms of anysold their share to A, just that it was hidden from them.agreement (3) As provided by Article 1807Article 1807 (4) Whenever other circumstances render it just and Every partner must account to the partnership for reasonable. (n)any benefit, and hold as trustee for it any profits derivedby him without the consent of the other partners from General Rule:any transaction connected with the formation, conduct During existence, a partner is not required to demand for anor liquidation of the partnership or from any use by himaccounting because his interest is already protected by twoof its property. (n)Articles of the law, Article 1805 and Article 1806. But forspecific cases, the law provides that he can DEMAND for anA partner who receives benefits or profits derived withoutaccounting of the partnership books.consent of others shall account for it as the partnerships. 4 Cases where a partner can demand for an accounting:If particular property is mortgaged and foreclose, the partner(1) When he is wrongfully excluded from the partnershipwho uses personal funds is able to get the property back willoperations (business and property possession)not become the new owner, he will only be its trustee.(2) If the right exists under their agreementIf the partner gets the property back after ONE year from the (3) Under Article 1807rd3 party involved, then it shall become his as it was a private(4) Other circumstances which render it just andtransaction, so long as he uses his own funds. reasonable. 11. (1) DURING operations, the partners interest is his share inSection 2 Property Rights of a Partnerprofits and losses (2) AFTER operations/LIQUIDATION/DISSOLUTION, hisArticle 1810interest is in the surplus of partnership assets after all The property rights of a partner are:debts have been cleared. (1) His rights in specific partnership property Interest can be subject to attachment or execution because it (2) His interest in the partnership belongs to the partner, not the partnership. (3) His right to participate in the management. (n) Article 1813The partner has the following rights: A conveyance by a partner of his whole interest in(1) Right to the ownership of partnership property the partnership does not of itself dissolve the partner,(2) Right to his interest in the partnership or, as against the other partners in the absence of(3) Right to participate in partnership management agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management orArticle 1811 administration of the partnership business or affairs, or A partner is co-owner with his partners of specific to require any information or account of partnershippartnership property.transactions, or to inspect the partnership books but it The incidents of this co-ownership are such that: merely entitles the assignee to receive in accordance (1) A partner, subject to the provisions of this Titlewith his contract the profits to which the assigning and to any agreement between the partners, haspartner would otherwise be entitled. However, in case of an equal right with his partners to possess fraud in the management of the partnership, the specific partnership property for partnership assignee may avail himself of the usual remedies. purposes; but he has no right to possess suchIn case of dissolution of the partnership, the property for any other purpose without theassignee is entitled to receive his assignors interest consent of his partners;and may require an account from the date only of the (2) A partners right in specific partnership last account agreed to by all the partners. (n) property is not assignable except in connection with the assignment of rights of all the partners How can a partner convey his interest in the partnership in the same property; without getting the partnership dissolved? (3) A partners right in specific partnershiprd (1) By selling it to a 3 person rd property is not subject to attachment or(2) By donating it to a 3 person rd execution, except on a claim against the(3) By using it as security on a loan from a 3 person partnership. When partnership property is Example: attached for a partnership debt the partners, orD offers to buy As interest of P50,000.00 for P1,000,000.00 any of them, or the representatives of aand A agrees to sell his interest. What happens now? deceased partner, cannot claim any right underD becomes the assignee and A becomes the assignor but the homestead or exemption laws;the partnership will not be dissolved because his interest in (4) A partners right in specific partnership profits and surplus is the one being sold. A will also continue property is not subject to legal support underto be the partner but D will be the one to receive his profits. Article 291. (n)This is similar to sub-partnerships, so the consent of others is not required for interest to be conveyed.The partners are considered co-owners of specificThe assignee does not have any say in the managementpartnership property Rights of the Assignee:If A, B and C are partners who own specific property under (1) He shall get the assignors share in profits/surplusthe partnerships name, what are their rights? (2) He may avail of legal remedies of the partners in cases(1) They can use it for partnership business purposes of fraud by the assignor(2) They cannot use it for personal purposes WITHOUT the (3) He can demand for an accounting upon dissolution but consent of others. only starting from the date of the last accountingWhy cant A simply assign his right with respect to the undertaken by the partnershippartnerships property?(4) Can ask for the dissolution of the partnership if it has(1) It doesnt belong to himreached the end term or anytime if the partnership is(2) The extent of his interest with regards to the property one at will, because he is interested in the surplus. cannot be determined before dissolution The assignee, however, cannot become a partner withoutrdThe partnership can altogether assign a 3 party with the the consent of the other partners because it will entail aright to use the property for partnership business purposes. change in the partnerships composition.The right of the partners as to the property is not subject toattachment unless it is a claim against the partnership due to Article 1814the reason that any one partner is not the owner of it. Without prejudice to the preferred rights of aUnder Article 291, the specific partnership property cannotpartnership creditor under Article 1827, on duebe used as the subject of legal support because it does notapplication to a competent court by any judgmentbelong to any one of the partners. creditor of a partner, the court which entered the judgment, or any other court, may charge the interest ofArticle 1812 the debtor partner with payment of the unsatisfied A partners interest in the partnership is his share of amount of such judgment debt with interest thereon;the profits and surplus. (n) and may then or later appoint a receiver of his share of the profits, and of any other money due or to fall due toThe article defines what the partners interest in the him in respect of the partnership, and make all otherpartnership is.orders, directions, accounts and inquiries which theWhat is the partners interest in the partnership? 12. debtor partner might have made, or which theAny stipulation against the liability laid down in thecircumstances of the case may require.preceding article shall be void, expect as among theThe interest charged may be redeemed at any timepartners. (n)before foreclosure, or in case of a sale being directed by rdthe court, may be purchased without thereby causing As to 3 persons, ALL partners are liable pro-rata anddissolution:subsidiary, but as to each other, they are liable in proportion(1) With separate property, by any one or more of to their capital contribution.the partnersExamples:(2) With partnership property, by any one or more of(1) A, B and C are in a partnership where C is the industrialthe partners with the consent of all the partnerspartner and a sum of P26,000.00 is owed to D. A and Bwhose interests are not so charged or sold contributed P15,000.00 and P5,000.00 respectively.Nothing in this Title shall be held to deprive a How shall the debt be shared?partner of his right, if any, under the exemption laws, as As to D, the partners will share equally in the debt leftregards his interest in the partnership. (n) after exhausting all assets (P6,000.00) so they will each have to pay P2,000.00 regardless of C being an rdRefers to a partner who obtained a loan from a 3 personindustrial partner. If C is insolvent, or if B died, or if Aand was unable to repay such.has left the country, the liability of the partners cannotFor example, PARTNER A failed to pay CREDITOR C abe increased.sum of P50,000.00, so C files against A, knowing that A, As to each other, they are liable in proportion to theirbeing a partner, will receive his interest. C wins the case butcapital contribution, so B and C will be reimbursed by A.A is still unable to pay, so C asks that As interest be(2) A, B, C, D and E are sued in court but E is later clearedattached so that it goes to C and cancels out As debt.of his charges. The court orders A, B, C and D to pay-Done to protect Cs interesttheir creditor, but C moves to reconsider that all should-Attached interest can be redeemed using the property of be charged, but this move was denied. Can A, B, C and the partners or the partnerships property, as long as allD alone be liable for the debt? partners consent to this, and are given reimbursement According to the Supreme Court, the 4 partners cannot from the defaulting partner alone be liable for the debt because in excluding E, they-Amount charged must e sufficient to pay the loan plus have increased the other partners liability and this is legal interestprohibited by the law. The law states that the liability of the partners cannot be increased such that theyrdSECTION 3 Obligations of the Partners as to 3 Personsshoulder the liability of another partner.(3) What if there was an agreement that stated B is onlyArticle 1815 liable up to P5,000.00? How will A, B and C share in Every partnership shall operate under a firm name,their liability? rdwhich may or may not include the name of one or more The stipulation shall be void as to 3 persons, so theyof the partners. will still share pro-rata. Anyway, B and C will be Those who, not being members of the partnership,reimbursed by A, because as among themselves, theinclude their names in the firm name, shall be subject tostipulation is valid and C is an industrial partner.the liability of a partner. (n)Article 1818Firm names are required for partnerships because they areEvery partner is an agent of the partnership for thejuridical persons in need of separate names so that they arepurpose of its business, and the act of every partner,distinguishable from the partners and other partnerships. including the execution in the partnership name of anyrdThe name can come from any of the partners or 3 persons.instrument, for apparently carrying on in the usual wayrdIf a 3 persons name is used with his consent, then he shallthe business of the partnership of which he is a memberbe liable as a partner without the rights of a partner becausebinds the partnership, unless the partner so acting hasthe partnership uses his name.in fact no authority to act for the partnership in thePartnership name must be registered with the (DTI)particular matter, and the person with whom he isDEPARTMENT OF TRADE AND INDSUTRY because if dealing has no knowledge of the fact that he has nothere was already such an existing name, there might be such authority.cases of duplication.An act of a partner which is not apparently for theYou cannot choose the name of a deceased partner as his carrying on of business of the partnership in the usualdeath caused the partnerships dissolution. way does not bind the partnership unless authorized bySample General and Limited Partnership Names: the other partners.(1) GENERAL A & CompanyExcept when authorized by the other partners or(2) LIMITED A, Ltd. unless they have abandoned the business, one or morebut less than all the partners have no authority to:Article 1816 (1) Assign the partnership property in trust for All partners, including industrial ones, shall be creditors or o the assignees promise to pay theliable pro-rata with all their property and after all thedebts of the partnershippartnership assets have been exhausted, for the(2) Dispose of the goodwill of the businesscontracts which may be entered into in the name and for(3) Do any other act which would make impossiblethe account of the partnership under its signature and to carry on the ordinary business of aby a person authorized to act for the partnership. partnershipHowever, any partner may enter into a separate (4) Confess a judgmentobligation to perform a partnership contract. (n)(5) Enter into a compromise concerning a partnership claim or liabilityArticle 1817 (6) Submit a partnership claim or liability to arbitration 13. (7) Renounce a claim of the partnership(4) Land title belongs to one or more or all of the partners or rdNo act of a partner in contravention of a restrictiona 3 person in trust for the partnership.on authority shall bind the partnership to persons Only the equitable title will pass to D if the seller had nohaving knowledge of the restriction. (n) authority to sell such to D. (5) A, B and C ALL sell the land to D, with the land titleQualifies the authority of partners. belonging to ALL of them.Authority must be in the usual course of business. Title passes to D because ALL partners sell to him.Transactions beyond a partners authority is binding if it is inrd Article 1820the usual course of business because the 3 person isassumed to have no knowledge of his lack of authority.An admission or representation made by anyWhen are transactions not binding? partner concerning the partnership affairs within the(1) When a transaction is not in the usual course of scope of his authority in accordance with this Title isbusiness and has no consent from all other partnersevidence against the partnership. (n) rd(2) When the 3 person had knowledge of the lack ofauthority of the acting partnerAnything a partner says or admits, as long as it is concerning the partnership affairs and it is within the scope of hisArticle 1819 authority, is sufficient evidence against the partnership. Where title to real property is in the partnershipThis article is a rule of evidencename, any partner may convey title to such property by In order that admission/representation made can be used asa conveyance executed in the partnership name; but the evidence, the existence of the partnership must bepartnership may recover such property unless the established and proved first.partners act binds the partnership under the provisions Example:of Article 1818, or unless such property has been(1) Partner A borrows money from the bank and declaresconveyed by the grantee or a person claiming throughthat the money borrowed is for the partnership.such grantee to a holder for value without knowledgeThis statement, made by A, is enough evidence againstthat the partner, in making the conveyance, has the partnership and the bank may use this in case theexceeded his authority. partnership does not pay back the money borrowed. Where title to real property is in the name of the(2) A, B, and C are partners. A told D, a 3rd person, that thepartnership, a conveyance executed by a partner, in his debtor already paid his obligation to the partnership. Isown name, passes the equitable interest of thethis enough evidence against the partnership?partnership, provided the act is one within the authority YES, since it concerns partnership affairs and theof the partner under the provisions of Article 1818.partner has authority to say so. Where title to real property is in the name of one ormore but not all the partners, and the record does not Article 1821disclose the right of the partnership, the partners inNotice to any partner of any matter relating towhose name the title stands may convey title to such partnership affairs, and the knowledge of the partnerproperty, but the partnership may recover such propertyacting in the particular matter, acquired while a partnerif the partners act does not bind the partnership under or then present to his mind, and the knowledge of anyArticle 1818, unless the purchaser of his assignee, is a other partner who reasonably could and should haveholder for value without knowledge.communicated it to the acting partner, operate his Where title to real property is in the name of one or notice to or knowledge of the partnership, except in themore or all partners, or in a 3trd person in trust for the case of a fraud on the partnership, committed by or withpartnership, a conveyance executed by a partner in the the consent of that partner. (n)partnership name, or in his name, passes the equitableinterest of the partnership, provided the act is one IN SHORT, notice to ANY of the partners is notice to thewithin the authority of the partner under Article 1818.partnership. (You dont have to notify EVERY partner in Where title to real property is in the names of all the relation to partnership affairs).partners a conveyance executed by all the partners Knowledge of a partner acting in a particular mannerpasses all their rights in such property. (n)(meaning the partner is a managing partner), or knowledge of any partner who SHOULD HAVE communicated it to theRefers to the conveyance of immovable property managing partner, is knowledge to the partnership.Suppose A, B and C are partners engaged in the buying andThis is so EVEN IF the non-managerial partner does notselling of property, and the following situations occur: communicate the information he knows regarding(1) A, without authority, sells land to D in the partnerships partnershipaffairs.ThepartnerSHOULD have name but D immediately sells it to E. The land title wascommunicated this. Non knowledge by other partners is not originally under the partnerships name. Can thea reason to evade from obligations. partnership recover the land? If notice is delivered to a partner, that is an effective Title passes to D, then to E. The partnership cannotcommunication to the partnership, notwithstanding the failure recover the land once it has transferred to E but if theof the partner to communicate such notice or knowledge to land was still with D, they could have recovered it if thethe other partners. contract was not binding .Example:(2) What if A sells the property under his name? (1) A, B, and C are partners where B is the managing Only the equitable title passes to D.partner. D, a 3rd person, filed a case against the(3) What if A sells the property and the land title ispartners AND the partnership for some unknown registered under his name? reason. Does D need to notify all of them? Title passes to D because land is registered under the If this is done, D just needs to notify either A, B, or C, partners names. This will hold true if A, B and C are co- but doesnt have to notify ALL OF THEM (imagine if owners of the land, even if only A sold it to D. there are 100 partners, it would be burdensome andcostly to notify all 100). So if A is notified about the 14. case, that is considered by D as notice to EVERYONE(a) A, B, and C are partners. A made an act ofeven if A is not a managerial partner (since A should omission with D as the victim. He causedcommunicate this to all partners).P50,000 worth of injury to D. What can D do?(2) Suppose D wants to sell a piece of land to the D can go to A for the full amount of P50,000partnership and notifies B (the managing partner) about OR FROM B OR C.it, but warns him that the land is under litigation and(b) Can D go to B for the whole e P50,000 since Bthere is a possibility of the land to be claimed by E. Bis the richest among the partners?took the risk and purchased the land. Later on, E still This is allowable since the partners have aclaimed the land. Can the partners reclaim this?solidary obligation through As act of omission.Even though ALL partners were not informed about theB will be entitled for reimbursement from thelitigation, the partnership cannot get the land anymore one responsible, A.since B was informed about it. Notice to B, the acting - Any one of A, B, OR C, or all partners including thepartner, is already notice to the partnership. partnership can pay without prejudice to the rights(3) Suppose before B became a partner, D was able to talkof partners to get reimbursement from the oneto him about the piece of land under litigation. Later on, responsible for the crimeB became a managing partner and purchased the land (2) A partner, within the scope of his authority, receivesD told him about a long time ago. E won the litigation money or property from a third person and misapplies it.and was able to claim the land. Can the partnership- Example:reclaim the land?A partnership is engaged in a pawnshop business.The partnership cannot get it anymore. Even if D was D, a 3rd person, pawned his watch to A and A sellsnot informed WHILE he was a partner, the information it. Who is liable for the watch?was still present in his mind. The issue here would be: If All partners are solidarily liable to D since AB can still recall the conversation he had with D before misapplies the watch received from D.he became a managing partner.(3) The partnership, in its ordinary course of business, rd(4) Suppose D informed C (who is not a managing partner) receives money or property from a 3 person and aabout the land under litigation. Later on, D sold the land partner misapplies it while in the custody of theto B, the managing partner, without informing him that partnership.the land was under litigation (take note: the information- Example:was given to C). Is notice to C, a notice to B?The partnership is engaged in a pawnshopYES, because C should have communicated thebusiness where it received a watch from D to beinformation. pawned. The watch is placed in the partnershipIn cases (2), (3) and (4), the partnership cant file action VAULT. B, a partner, gets the watch from the vaultfor damages against D since the "partnership had and sells it. Who is liable for the watch?knowledge" about the litigation but the partners still tookAll partners are solidarily liable.the risk of buying the land. Article 1825Article 1822When a person, by words spoken or written or by Where, by any wrongful act or omission of any conduct, represents himself, or consents to anotherpartner acting in the ordinary course of the business of representing him to anyone, as a partner in an existingthe partnership or with the authority of his co-partner, partnership or with one or more persons not actualloss or injury is caused to any person, not being apartners, he is liable to any such persons to whom suchpartner in the partnership, or any penalty is incurred, therepresentation has been made, who has, on the faith ofpartnership is liable therefore to the same extent as thesuch representation, given credit to the actual orpartner so acting or omitting to act. (n)apparent partnership, and if he has made such representation or consented to its being made in aArticle 1823 public manner he is liable to such person, whether the The partnership is bound to make good the loss: representation has or has not been made or (1) Where one partner acting within the scope of hiscommunicated to such person so giving credit by or apparent authority receives money or property ofwith the knowledge of the apparent partner making the a third person and misapplies it; and representation or consent to its being made: (2) Where the partnership in the course of its (1) When a partnership liability results, he is liable business receives money or property of a third as though he were an actual member of the person and the money or property so received ispartnership; misapplied by any partner while it is in the (2) When no partnership liability results, he is liable custody of the partnership. (n)pro rata with the other persons, if any, soconsenting to the contract or representation asArticle 1824to incur liability, otherwise separately. All partners are liable solidarily with the partnershipWhen a person has been thus represented to be afor everything chargeable to the partnership under partner in an existing partnership, or with one or moreArticles 1822 and 1823. (n)persons not actual partners, he is an agent of the persons consenting to such representation to bind themIn the following cases, obligation is not pro-rata or equal, but to the same extent and in the same manner as thougha solidary obligation. Any partner MAY pay for the obligationhe were a partner in fact, with respect to persons who(Unlike in article 1816, each partner should only pay for theirrely upon the representation. When all the members ofSHARE):the existing partnership consent to the representation, a(1) When by an unlawful act or omission, loss or injury is partnership act or obligation results; but in all otherrd caused to 3 person. cases it is the joint act or obligation of the person acting - Example:and the persons consenting to the representation. (n) 15. 2 things being mentioned: Personal creditors of partners have BETTER RIGHT than a(1) PARTNERSHIP by estoppelspartnership creditor with regards to PERSONAL PROPERTY - There is an existing partnership, and partners of the partner. misrepresent themselves together with a 3rdEXAMPLE: person. (1) A, B, and C are partners. A OWES E P6,000.00. The - EXAMPLE:PARTNERSHIP OWES D P28,000.00. The total (a) Suppose there is a partnership, X, with partnership assets amount to P40,000.00. Who haspartners A, B, and C. D told E that he is abetter right to the partnership property?partner of A, B, and C. E verified from theIn this case, D, the partnership creditor, has a betteractual partners of X partnership if D is really aright to the partnership property. When obligation to Dpartner, A, B, and C consented. E entered in a is paid, what will be left for the partners to share iscontract with D, believing he was a partner. P4,000.00. If E, the personal creditor of A, demandsThis is partnership by estoppels since A, B, to be paid out of partnership property, he will only getand C verified D as a partner. In this case, E P4,000.00 from it since the priority is the partnershipcan go after A, B, and C.creditor. The P2,000.00 will be paid out from As (b) Suppose only A and B consented, is there apersonal property.partnership by estoppels?(2) If total partnership assets is only P28,000.00, and theThere will be no partnership by estoppels sinceliability of the partnership is P40,000,, how shall theonly A and B, not all partners, consented to Ds debt be paid?misrepresentation. A, B, and C will have to pay E P6,000.00 each.(2) PARTNERS by estoppels(3) If A only had P6,000.00 of personal property, who will - 2 or more persons pretend to be partners in the eyeshave the better right to this? rd of 3 persons. As priority is his personal creditor, E. So D cannot - Example:collect As share of P4,000.00. D cannot, also, A, B, AND C said they were partners to D andincrease the obligation of the other partners to be able entered in a contract with the partners. When itto collect their debt. was time for them to pay D for their obligation, they cannot for the reason that they are not partners.Chapter 3 Dissolution and Winding Up What is their obligation to D? Their obligation to D will be pro rata, as if they wereArticle 1828 partners (since they are partners by estoppels) The dissolution of a partnership is the change in therelation of partners caused by any partner ceasing to beArticle 1826associated in the carrying on as distinguished from the A person admitted as a partner into an existingwinding up of business. (n)partnership is liable for all the obligation of thepartnership arising before his admission as though he Article 1829had been a partner when such obligation were incurred, On dissolution, the partnership is not terminated,except that this liability shall be satisfied only out of but continues until the winding up of partnership affairspartnership property, unless there is a stipulation to theis completed. (n)contrary. (n)Article 1830A new partner admitted to an existing partnership is alsoDissolution is caused:liable to the obligations existing before he was admitted, but (1) Without violation of the agreement between thehis liability only extends to his contribution to the partnershippartners:UNLESS stipulated. (2) In contravention of the agreement between theA new partner is liable to his separate property when thepartners, where the circumstances do notobligation was incurred when he was already a partner. permit a dissolution under any other provisionExampleof this article, by the express will of any partnerA, B, and C are the original partners of the partnership X at any time;with contributions of P10,000.00 each. X partnership owes(3) By any event which makes it unlawful for theD P40,000.00. Later on, E entered the partnership andbusiness of the partnership to be carried on orcontributed P4,000.00. How shall the debt be paid? the members to carry it on in partnership;P34,000.00 will be paid to D out of the partnership assets,(4) When a specific thing, which a partner hadand the P6,000 will be paid through A, B, and Cs personal promised to contribute to the partnership,assets. The P6,000.00 will be divided among the 3 original perishes before the delivery; in any case by thepartners pro rata. loss of the thing, when the partner who contributed it having reserved the ownershipArticle 1827 thereof, has only transferred to the partnership The creditors of the partnership shall be preferred the use or enjoyment of the same; but theto those of each partner as regards the partnershippartnership shall not be dissolved by the loss ofproperty. Without prejudice to this right, the private the thing when it occurs after the partnershipcreditors of each partner may ask for the attachment has acquire the ownership thereof;and public sale of the share of the latter in the(5) By the death of any partner;partnership assets. (n)(6) By the insolvency of any partner or of the partnershipPartnership creditors have BETTER RIGHTS to partner(7) By the civil interdiction of any partner;obligation WITH REGARD TO PARTNERSHIP PROPERTY.(8) By degree of court under the following article. (1700a and 1701a) 16. Dissolution is usually caused by change a change of relation(1) After the termination of the specific term orbetween partners. particular undertakingIf there is dissolution, no new partnership business may be (2) At any time the partnership was a partnership atundertakenwill when the interest was assigned or when theUpon dissolution, partnership continues until winding up andcharging order was issued. (n)liquidation is completed.CAUSES OF DISSOLUTION:When can a partnership be dissolved judicially?(1) WITHOUT VIOLATION OF AGREEMENT(1) When a partner is DECLARED insane (a) Termination/expirationof termorspecific(2) When he becomes incapable of performing his part in undertakingthe partnership (b) Upon express will of any partner if there is no term (3) Misconduct of a partner prejudicially to the business or specific undertaking AS LONG AS PARTERS (4) Persistent breach of partnership agreement ACT IN GOOD FAITH. (5) The business can only be carried out on a loss (c) Upon the will of the partners whose interest is not(6) Other circumstances: assigned or charged. (a) Abandonment of the business - Example: (b) Fraud A sold his interest to E, and Bs interest is(c) Refusal to render an accountingrd charged to F because he borrowed P50,000 (7) On application of 3 parties (who purchased or have from him. C and D are the only ones who cancharged a partners interest) right as per Articles 1813 ask for dissolution since their interest is notand 1814 assigned or charged. (d) Expulsion bona fide of a partner (a partner is Article 1832 expelled in good faith in accordance with Except so far as may be necessary to wind up agreement. partnership affairs or to complete transactions begun (e) Expulsion has the effect of decreasing the # ofbut not then finished, dissolution terminates all partners.authority of any partner to act of the partnership:(2) IN VIOLATION OF THE AGREEMENT(1) With respect to the partners - Example:(a) When the dissolution is not by the act,A, B, and C agreed that the term of theirinsolvency or death of a partner partnership is only until Dec. 31, 2011. A goes to(b) When the dissolution is by such act, premature resignation (resigns early from insolvency or death of a partner, in cases partnership). No one can prevent A from resigning,where Article 1833 so requir