LAW ON PARTNERSHIP

Civil Code of the Philippines

Arts. 1767-1867
(updated notes)
Note: This material, which is a compilation of various notes and lectures, is intended
for the students of SLU-SABM who are enrolled in Law 3A or Law 3C to aid them in their
appreciation and better understanding of the subject. This is not for sale.
CHAPTER 2 OBLIGATIONS OF THE PARTNERS
Articles 1784-1827
RELATIONS CREATED BY A CONTRACT OF PARTNERSHIP
1.
2.
3.
4.

Relations
Relations
Relations
Relations

among the partners themselves

of the partners with the partnership
of the partnership with 3rd persons with whom it contracts
of the partners with such 3rd persons

Commencement of Partnership (Art. 1784):

GR: From the moment of the execution of the contract
Exception: Unless it is otherwise stipulated

7 MAJOR OBLIGATIONS OF A PARTNER: (CCU-ADDS)

1. To give his contribution (1786, 1788)
2. Not to convert firm money or property for his own use (1788)
3. Not to engage in unfair competition with his own firm (1789, 1808)
4. To account for and hold as trustee unauthorized personal profits (1807)
5. Pay for damages caused by his fault (1794)
6. Duty to credit to the firm payment made by a debtor who owes him and the firm
(1792)
7. To share with the other partners the share of the partnership credit which he has
received from an insolvent firm debtor (1793)

5 MAJOR RIGHTS OF A PARTNER: (PAIDD)

1. Property rights (1810)
a.) Rights in specific partnership property
b.) Interest in the partnership (1812)
c.) Right to participate in the management (1810)
2. Right to associate with another person in his share (1804)
3. Right to inspect and copy partnership books (1805)
4. Right to demand a formal account (1809)
5. Right to ask for the dissolution of the firm at the proper time (1830-1831)

A. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES (Section 1)

Obligations with respect to contribution of property (Art. 1786):
1. To contribute at the beginning of the partnership or at the stipulated time the money,
property or industry which he may have promised to contribute
2. To answer for eviction in case the partnership is deprived of the determinate property
contributed
3. To answer to the partnership for the fruits of the property the contribution of which he
delayed, from the date they should have been contributed up to the time of actual delivery
Law3A Notes on Partnership Law

Atty. Jonathan B. Tambol

4. To preserve said property with the diligence of a good father of a family pending
delivery to partnership
5. To indemnify partnership for any damage caused to it by the retention of the same or
by the delay in its contribution
Effect of Failure to contribute property promised:
1. Partners becomes ipso jure a debtor of the partnership even in the absence of any
demand
2. Remedy of the other partner is not rescission but specific performance with damages
from defaulting partner
Obligations with respect to contribution of money and money converted to personal use
(Art. 1788)
1. To contribute on the date fixed the amount he has undertaken to contribute to the
partnership
2. To reimburse any amount he may have taken from the partnership coffers and converted
to his own use
3. To pay for the agreed or legal interest, if he fails to pay his contribution on time or in
case he takes any amount from the common fund and converts it to his own use
4. To indemnify the partnership for the damages caused to it by delay in the contribution or
conversion of any sum for his personal benefits
PROHIBITION AGAINST ENGAGING IN BUSINESS
INDUSTRIAL PARTNER (Art. 1789)
PROHIBITION

Industrial partner cannot engage in business

(w/n same line of business with the partnership)
unless partnership expressly permits him to do
so

REMEDY

Capitalist partners may:

1. Exclude him from the firm;
2. Avail themselves of the benefits which he
may have obtained
3. Damages, in either case
N.B.: It is believed that industrial partners are
also entitled to the remedy granted since they
are equally prejudiced

CAPITALIST PARTNER (Art.

1808)
Capitalist partner cannot
engage in business (with same
kind of business with the
partnership) for his own
account, unless there is a
stipulation to the contrary
Capitalist partner in violation
shall:
1. Bring to common fund
any profits accruing to
him from said
transaction, and
2. Bear all losses

Obligations with respect to contribution to partnership capital (Arts. 1790-1791)

1. Partners must contribute equal shares to the capital of the partnership unless there is
stipulation to contrary
2. Partners (capitalist) must contribute additional capital In case of imminent loss to the
business of the partnership and there is no stipulation otherwise; refusal to do so shall
create an obligation on his part to sell his interest to the other partners
Requisites:
a. There is an imminent loss of the business of the partnership
b. The majority of the capitalist partners are of the opinion that an additional
contribution to the common fund would save the business
c. The capitalist partner refuses deliberately to contribute (not due to financial
inability)
d. There is no agreement to the contrary

Law3A Notes on Partnership Law

Atty. Jonathan B. Tambol

Obligation of managing partners who collects debt from person who also owed the partnership
(Art. 1792)
1. Apply sum collected to 2 credits in proportion to their amounts
2. If he received it for the account of partnership, the whole sum shall be applied to
partnership credit
Requisites:
a. There exist at least 2 debts, one where the collecting partner is creditor and the
other, where the partnership is the creditor
b. Both debts are demandable
c. The partner who collects is authorized to manage and actually manages the
partnership
Obligation of partner who receives share of partnership credit (Art. 1793)
1. Obliged to bring to the partnership capital what he has received even though he may
have given receipt for his share only
Requisites:
a. A partner has received in whole or in part, his share of the partnership credit
b. The other partners have not collected their shares
c. The partnership debtor has become insolvent
RISK OF LOSS OF THINGS CONTRIBUTED (Art. 1795)
Specific and determinate things which are not fungible where only the
use is contributed
Specific and determinate things the ownership of which is transferred
to the partnership
Fungible things (consumable)
Things contributed to be sold
Things brought and appraised in the inventory

Risk is borne by partner

Risk is borne
partnership
Risk is borne
partnership
Risk is borne
partnership
Risk is borne
partnership

by
by
by
by

RULES FOR DISTRIBUTION OF PROFITS AND LOSSES (Art. 1797)

With
agreement
Without
agreement

DISTRIBUTION OF PROFITS
According to agreement

DISTRIBUTION OF LOSSES
According to agreement

1. Share of capitalist partner is in

proportion to his capital contribution
2. Share of industrial partner is not
fixed as may be just and equitable
under the circumstances

1. If sharing of profits is stipulated apply

to sharing of losses
2. If no profit sharing stipulated losses
shall be borne according to capital
contribution
3. Purely industrial partner not liable for
losses

RIGHTS AND OBLIGATIONS WITH RESPECT TO MANAGEMENT (Arts. 1800-1803)

Partner is appointed manager
in the articles of partnership
Partner is appointed manager
after constitution of
Law3A Notes on Partnership Law

Power of managing partner is

irrevocable without just/lawful
cause; revocable only when in
bad faith
Power is revocable any time for
any cause

Vote of partners representing

controlling interest necessary
to revoke power

Atty. Jonathan B. Tambol

partnership
2 or more persons entrusted
with management of
partnership without
specification of
duties/stipulation that each
shall not act w/o the others
consent
Stipulated that none of the
managing partners shall act
w/o the consent of others
Manner of management not
agreed upon

Each may execute all acts of

administration

In case of opposition, decision

of majority shall prevail; In
case of tie, decision of partners
owning controlling interest
shall prevail

Concurrence of all necessary

for the validity of acts

Absence or disability of any

one cannot be alleged unless
there is imminent danger of
grave or irreparable injury to
the partnership
If refusal of partner is
manifestly prejudicial to
interest of partnership, court's
intervention may be sought

1. All partners are agents

of the partnership
2. Unanimous consent
required for alteration
of immovable property

B. PROPERTY RIGHTS OF A PARTNER (Section 2)

1. His rights in specific partnership property
2. His interest in the partnership
3. His right to participate in the management
Nature of partner's right in specific partnership property (Art. 1811)
1. Equal right to possession
2. Right not assignable, not subject to attachment or execution, not subject to legal support
3. Right limited to share of what remains after partnership debts have been paid
Nature of partner's interest in the partnership (Art. 1812)
1. Share in the profits and surplus
Effects of conveyance by partner of his interest in the partnership (Art. 1813):
1. If a partner conveys his whole interest in the partnership, either of 2 things may happen:
a.) The partnership may still remain,
b.) The partnership may be dissolved.
2. The assignee does not necessarily become a partner. The assignor is still the partner, with
a right to demand accounting and settlement.
3. The assignee cannot even interfere in the management or administration of the
partnership business or affairs.
4. The assignee cannot also demand information, accounting, inspection of the partnership
books.
Rights of the Assignee:
1. To get whatever profits the assignor-partner would have obtained.
2. To avail himself of the usual remedies in case of fraud in the management.
3. To ask for annulment of the contract of assignment if he was induced to enter into it thru
any of the vices of consent (fraud, error, intimidation, force, undue influence) or if he
himself was incapacitated to give consent (minor, insane).
4. To demand an accounting (only if indeed the partnership is dissolved).

Charging Order refers to the remedy available to a judgment creditor of a debtor

partner to charge the interest of the latter in the partnership by means of a court order for
the purpose of satisfying the amount of the judgment. A receiver of the debtor partners

Law3A Notes on Partnership Law

Atty. Jonathan B. Tambol

share of the profits may even be appointed. This charging order, however, is always
subject to the preferred rights of partnership creditors. (Art. 1814)

C. OBLIGATION OF PARTNERS WITH REGARD TO THIRD PERSONS (Section 3)

Nota Bene (Note well):
1. Every partnership shall operate under a firm name. Persons who include their names in the
partnership name even if they are not members shall be liable as a partner. The continued
use of the name of a deceased partner is permissible provided that the firm indicates in all
its communications that said partner is deceased (Art. 1815).
2. All partners (including Industrial partners) shall be liable for contractual obligations of the
partnership with their property, after all partnership assets have been exhausted (Art.
1816)
a. Pro rata based on the number of partners and not on the amount of their contributions
b. Subsidiary
3. Admission or representation made by any partner concerning partnership affairs within
scope of his authority is evidence against the partnership
4. Notice to partner of any matter relating to partnership affairs operates as notice to
partnership except in case of fraud (Art. 1821):
a. Knowledge of partner acting in the particular matter acquired while a partner
b. Knowledge of the partner acting in the particular matter then present to his mind
c. Knowledge of any other partner who reasonably could and should have communicated it
to the acting partner
5. Partners and the partnership are solidarily liable to 3rd persons for the partner's tort or
breach of trust (Art. 1822).
Requisites:
a.) A partner commits a wrongful act or omission;
b.) He is acting in the ordinary course of the business of the partnership or with the
authority of his co-partners;
c.) Loss or injury is caused to any third person.
The requisites must be present to make the partnership and the other partners solidarily
liable with the acting partner.
6. Liability of incoming partner is limited to (Art. 1826):
a. His share in the partnership property for existing obligations
b. His separate property for subsequent obligations
7. Creditors of partnership preferred in partnership property & may attach partner's share in
partnership assets (Art. 1827)
8. Every partner is an agent of the partnership (Art. 1818).
POWER OF PARTNER AS AGENT OF PARTNERSHIP (Art. 1818)
Acts for carrying on in the usual way the business of
the partnership

1. Act w/c is not apparently for the carrying of

Law3A Notes on Partnership Law

Every partner is an agent and may execute

acts with binding effect even if he has no
authority
Except: when 3rd person has
knowledge of lack of authority
Does not bind partnership unless
Atty. Jonathan B. Tambol

business in the usual way

2. Acts of strict dominion or ownership:
a. Assign partnership property in trust for
creditors
b. Dispose of good-will of business
c. Do an act w/c would make it impossible to
carry on ordinary business of partnership
d. Confess a judgment
e. Enter into compromise concerning a
partnership claim or liability
f. Submit partnership claim or liability to
arbitration
g. Renounce claim of partnership
Acts in contravention of a restriction on authority

authorized by other partners

Partnership not liable to 3rd persons having

actual or presumptive knowledge of the
restrictions

EFFECTS OF CONVEYANCE OF REAL PROPERTY BELONGING TO PARTNERSHIP (Art. 1819)

Title in partnership name, Conveyance in
partnership name

Title in partnership name, Conveyance in

partner's name

Title in name of 1/ more partners, Conveyance

in name if partner/partners in whose name
title stands

Title in name of 1/more/all partners or 3rd

person in trust for partnership, Conveyance
executed in partnership name or in name of
partners
Title in name of all partners, Conveyance in
name of all partners

Conveyance passes title but partnership can

recover if:
1. Conveyance was not in the usual way of
business, or
2. Buyer had knowledge of lack of authority
Conveyance does not pass title but only
equitable interest, unless:
1. Conveyance was not in the usual way of
business, or
2. Buyer had knowledge of lack of authority
Conveyance passes title but partnership can
recover if:
1. Conveyance was not in the usual way of
business, or
2. Buyer had knowledge of lack of authority
Conveyance will only pass equitable interest

Conveyance will pass title

PARTNER BY ESTOPPEL/PARTNERSHIP BY ESTOPPEL (ART. 1825)

ESTOPPEL a bar which precludes a person from denying or asserting anything contrary to that
which has been established as the truth by his own deed or representation, either express or
implied. Through estoppel, an admission or representation is rendered conclusive upon the person
making it and cannot be denied or disproved as against the person relying thereon.
PARTNER BY ESTOPPEL refers to a person who represents himself, or consents to another or
others representing him to anyone, as a partner either in an existing partnership or in one that is
fictitious or apparent.
Law3A Notes on Partnership Law

Atty. Jonathan B. Tambol

Two Instances:
1. Directly represents himself to anyone as a partner in an existing partnership or in a
non-existing partnership (with one or more persons not actual partners)
2. Indirectly represents himself by consenting to another representing him as a partner in
an existing partnership or in a non-existing partnership
PARTNERSHIP BY ESTOPPEL A legal, binding partnership that may occur where previously, no
formal partnership agreement was in place. A person who exhibits such conduct, or says words
which represent, or allow him to be represented, as a partner in any firm becomes liable to any
loans or credits that are obtained by the firm. It is also known as the presumption of partnership.

Partnership liability when all the actual partners consented to the representation
made by the deceiver. This is the only instance under our law when an existing
partnership is bound by the representation made by or in behalf of a partner by
estoppel.
Pro rata liability (Joint)
a.) No existing partnership and all those represented as partners consented
b.) Existing partnership and not all of the partners consented
Separate liability
a.) No existing partnership and not all but only some of those represented as partners
consented
b.) Existing partnership but no one of the partners consented

NOTA BENE: Estoppel does not create partnership. The law considers the persons involved as
partners and the association as a partnership only in so far as it is favorable to third persons by
reason of the equitable principle of estoppel. Liability is created only in favor of persons who, on
the faith of the representation, gave credit to the actual or apparent partnership.
Elements to establish liability as a partner on ground of estoppel:
1. Defendant represented himself as partner/represented by others as such and not
denied/refuted by defendant
2. Plaintiff relied on such representation
3. Statement of defendant not refuted
D. RESPONSIBILITY OF PARTNERSHIP TO PARTNERS
1. To refund the amounts disbursed by partner in behalf of the partnership + corresponding
interest from the time the expenses are made (loans and advances made by a partner to the
partnership aside from capital contribution)
2.To answer for obligations partner may have contracted in good faith in the interest of the
partnership business
3.To answer for risks in consequence of its management

Law3A Notes on Partnership Law

Atty. Jonathan B. Tambol