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Articles 1807-1827 REVIEWER
Articles 1807-1827 REVIEWER
(1) Duty to act for common benefit. Rule: “if a member of a partnership avails
himself of information obtained by him in
A partner must act for the common benefit the course of the transaction of
of all and cannot apply exclusively to his partnership business which is within the
own individual benefit partnership assets or scope of the fi rm’s business, and
the results of the knowledge and information thereafter applies it to his own account
gained. without the consent or knowledge of his co-
partners, he is liable to account to the
Managing partners particularly owe a partnership for any benefit he may
fiduciary duty to inactive partners. obtain from the use of such information.”
(2) Duty begins during formation of (6) Duty to make full disclosure of
partnership. information belonging to partnership.
Partner is also subject to the fiduciary duty
Principle of utmost good faith covers: of undivided loyalty and complete disclosure
of information (Art. 1806)
➔ Dealings and transactions occurring
during the partnership Information - information which can be used
➔ Negotiations leading to the formation for the purposes of the partnership; belongs
of the partnership to the partnership in the sense of property in
which it has a valuable right, if it is of the
Except: where one partner procures the character which might be employed to the
other to sign an agreement, which is benefit of a partner (even after termination)
manifestly unjust and unfair, the agreement
will not be upheld (7) Duty not to acquire interest or right
adverse to partnership.
Has the obligation to account for
commissions and discounts received in A partner may not purchase or acquire a
acquiring property for the future partnership property for his own benefit without the
consent of the parties when the purchase or
transaction is acquired in behalf of the
(3) Duty continues even after dissolution benefit of the firm (as the partner is
of partnership. assigned the duty of acquiring lease,
The duty of a partner to act with utmost property or contract)
good faith towards his copartners continues
throughout the entire life of the partnership If the partner does so without the consent of
even after dissolution (until the termination the other partners, he is liable to account to
or winding up of the partnership) the firm for the profits of the transaction.
“the good faith and full disclosure exacted Required: “informed consent” with
by partners continues.” knowledge of the facts necessary to the
giving of an intelligent consent
by him in the course of the transaction of
the partnership business or by reason of his
ART. 1808. The capitalist partners cannot connection with the firm regarding the
engage for their own account in any business secrets and clientele of the firm to
operation which is of the kind of its prejudice.
business in which the partnership is
engaged, unless there is a stipulation to
the contrary. Any capitalist partner ART. 1809. Any partner shall have the
violating this prohibition shall bring to right to a formal account as to
the common funds any profits accruing partnership affairs: (1) If he is wrongfully
to him from his transactions, and shall excluded from the partnership business
personally bear all the losses. (n) or possession of its property by his
copartners; (2) If the right exists under
Prohibition against partners engaging in the terms of any agreement; (3) As
business. provided by Article 1807; (4) Whenever
other circumstances render it just and
(1) Prohibition relative. reasonable. (n)
(b) The law does not prohibit a partner from A formal account is a necessary incident to
engaging in enterprises on his own behalf; the dissolution of the partnership.
permits him to carry on a business activity
not connected or competing with that of the (2) Exceptions.
partnership, so long as the partnership
agreement does not prohibit such activity. The right of a partner to demand an
accounting without bringing about or
(c) The law is silent on whether a capitalist seeking a dissolution is a necessary
partner can engage in the same line of corollary to his right to share in the profits.
business for the account of another. It would
seem that the prohibition still applies. Ex. a partner has been assigned abroad for
a long period of time in connection with the
Reason: A partner occupies a fiduciary partnership business and the partnership
position with respect to his co-partners books during such period being in the
imposing duties of utmost good faith thus he possession of the other partner (Art. 1809)
cannot carry the same for another business
without stipulation or consent of other (3) Prescriptive period.
partners. Prescription begins to run only upon the
dissolution of the partnership when the final
accounting is done.
(2) Reason for the prohibition.
Obligation to account: (a) managing or
The rule prevents a partner from availing active partner; (b) special task of a
himself personally of information obtained liquidating or surviving partner
(c) the right to true and full information of all
things affecting the partnership (Art. 1806.);
(4) Nature of action for accounting
(d) the right to a formal account of
● an action in personam - an action partnership affairs under certain
against a person for the circumstances (Art. 1809.); and
performance of a personal duty on
his part (e) the right to have the partnership
dissolved also under certain conditions.
● not an action in rem where the (Arts. 1830-1831.)
action is against the thing itself
Partnership property and partnership capital
action for accounting - asking that the distinguished.
assets of the partnership be accounted for,
sold and distributed according to the
Changes in Assets
agreement of the partners is a personal Value Included
action
Partnership variable — its includes not
Property value may vary only the
from day to original capital
day with contributions
SECTION 2. — Property Rights of a
changes in the of the
Partner. market value of partners, but
the partnership all property
assets subsequently
ART. 1810. The property rights of a acquired on
partner are: (1) His rights in specific account of the
partnership property; (2) His interest in partnership;
the partnership; and (3) His right to
partnership
participate in the management. (n) name and the
goodwill of the
Extent of property rights of a partner. partnership
(b) the right of access and inspection of Individual partner may allow his property to
partnership books (Art. 1805.); be used in the partnership business, without
intending to transfer ownership of it;
assignment of rights of all the partners
May also contribute to the partnership only in the same property; (3) A partner’s
the use or enjoyment of property, reserving right in specific partnership property is
the ownership thereof; not subject to attachment or execution,
except on a claim against the
may hold title to partnership property in his partnership. When partnership property
own name without having it belong to him. is attached for a partnership debt the
(see Art. 1819) partners, or any of them, or the
representatives of a deceased partner,
controlling factor: the intent of the cannot claim any right under the
parties homestead or exemption laws; (4) A
partner’s right in specific partnership
(2) Property acquired by a partner with property is not subject to legal support
partnership funds under article 291. (n)
In the absence of special agreement, (e) Where, however, none of the above
however, neither partner separately owns, reasons apply, an authorized assignment by
or has the exclusive right of possession of, a partner of his right in specific partnership
any particular partnership property; nor property is void, but it may be regarded as a
does he own any proportional part of any valid assignment of the partner’s interest in
particular partnership property, but each has the partnership
dominion over such property and over the
entire partnership property. “Where an assignment is not clearly
intended to convey a partner’s interest in
(2) Right not assignable. specific partnership property, that is, his
right to use partnership property for
- A partner cannot separately assign partnership purposes, but is intended to
his right to specific partnership convey some interest in partnership
property but all of them can assign property, the fact that the parties did not
their rights in the same property coach their assignment in proper terms
does not justify a court holding their
(a) A partner’s right in a specific partnership transaction void when there exists evidence
property is not assignable because it is establishing a basis upon which the
impossible to determine the extent of his transaction can be consistent and valid.’’
beneficial interest in the property until after
the liquidation of partnership affairs. The law allows a retiring partner to assign
his rights in partnership property to the
(b) The consent of all the partners, either partner or partners continuing the business.
express or implied, is the source and limit of (see Art. 1840[1, 2].)
a partner’s right to deal with partnership
property for any but a partnership purpose. (3) Right limited to share of what remains
after partnership debts have been paid.
(c) The primary reasons for the non-
assignability of a partner’s right in specific No particular partnership property or any
partnership property are: specific or an aliquot part thereof can be
considered the separate or individual
- prevents interference by outsiders in property of any partner. The whole of
partnership affairs; partnership property belongs to the
- it protects the right of other partners partnership considered as a juridical person
and partnership creditors to have (Art. 1768.), and a partner has no interest in
partnership assets applied to firm it but his share of what remains after all
debts; partnership debts are paid. (Art. 1812.)
- and it is often impossible to measure
or value a partner’s beneficial (a) “If a partner’s right in specific
interest in a particular partnership partnership property is not
asset assignable by voluntary assignment
for a separate purpose of the
(d) Why it is often impossible to determine a assigning partner, his separate
partner’s beneficial interest in a specific creditors should not be able to force
partnership property has been explained as an involuntary assignment. The
follows: beneficial rights of the separate
creditors of a partner in partnership
property should be no greater than adjusted. (see Art. 1839.) It is the excess of
the beneficial right of their debtor.” assets over liabilities. If the liabilities are
more than the assets, the difference
(b) For the same reason that the represents the extent of the loss.
property belongs to the partnership,
the partners cannot claim any right (2) Extent of the partner’s interest
under the homestead or exemption
laws when it is attached for
partnership debts. - proportion of the residue or balance
after an account has been taken of
Contrary Rule: allow the use of partnership the debits and credits, including the
property for other than partnership purposes amount paid by the several partners
and result in the diminution, as far as in liquidating firm debts or in making
partnership creditors are concerned, of advances to the partnership
partnership property to the extent of the
exemption granted - This interest in the surplus alone
which remains after the fi rm’s debts
(c) The right of the partners to specific have been paid and the equities
partnership property is not subject to legal between the partner and his co-
support under Article 1953 of the Family partners have been adjusted and the
Code. The reason is also because the partner’s share has been
property belongs to the partnership and not ascertained and set apart
to the partners.
(3) Partner’s interest not a debt due from
(d) The method of reaching a judgment partnership.
debtor’s interest in partnership property is
specifically set forth in Article 1814 - A partner is not a creditor of the
partnership for the amount of his
ART. 1812. A partner’s interest in the share.
partnership is his share of the profits - The interest of a partner in a going
and surplus. (n) partnership business where there
has been no settlement of his
Nature of partner’s interest in the account is not a debt due to the
partnership partner by partnership and,
therefore, is not subject to
A partner’s right in specific partnership attachment or execution
property belonging to the firm to be used for
business purposes (supra.) is to be ART. 1813. A conveyance by a partner of
distinguished from a partner’s right to share his whole interest in the partnership
in the firm's earned profits. does not of itself dissolve the
partnership, or, against the other
(1) Share of the profits and surplus. partners in the absence of agreement,
entitle the assignee, during the
The partner’s interest in the partnership continuance of the partnership, to
consists of his proportionate share in the interfere in the management or
undistributed profits during the life of the administration of the partnership
partnership as a going concern and his business or affairs, or to require any
share in the undistributed surplus after its information or account of partnership
dissolution. transactions, or to inspect the
partnership books; but it merely entitles
(a) Profit means the excess of returns over the assignee to receive in accordance
expenditure in a transaction or series of with his contract the profits to which the
transactions; or the net income of the assigning partner would otherwise be
partnership for a given period of time. entitled. However, in case of fraud in the
management of the partnership, the
(b) Surplus refers to the assets of the assignee may avail himself of the usual
partnership after partnership debts and remedies. In case of a dissolution of the
liabilities are paid and settled and the rights partnership, the assignee is entitled to
of the partners among themselves are receive his assignor’s interest and may
require an account from the date only of - if the assigning partner neglects his
the last account agreed to by all the partnership duties after assignment,
partners. (n) the other partners may dissolve the
partnership (Art. 1830)
Effect of assignment of partner’s whole
interest in partnership. (2) Dissolution of partnership intended.
(1) Rights withheld from assignee. (1) To receive in accordance with his
contract the profits accruing to the assigning
- This article permits the conveyance partner
by a partner of his whole interest in
the partnership (e.g., sale, donation, (2) To avail himself of the usual remedies
as collateral security for a loan) provided by law in the event of fraud in the
without causing dissolution. management;
However, such assignment does not
grant the assignee the right: (3) To receive the assignor’s interest in case
of dissolution; and
(a) To interfere in the management;
(b) To require any information or (4) To require an account of partnership
account; or affairs, but only in case the partnership is
(c) To inspect any of the partnership dissolved, and such account shall cover the
books. period from the date only of the last account
agreed to by all the partners.
(2) Status and rights of assignor as partner
unaffected ART. 1814. Without prejudice to the
preferred rights of partnership creditors
The legal effect of such a conveyance is the under article 1827, on due application to
same as that of a partner associating a competent court by any judgment
another in his share or interest. (Art. 1804.) creditor of a partner, the court which
Partnership is a relation in which delectus entered the judgment, or any other court,
personae is an important element. No one may charge the interest of the debtor
may be introduced into the firm as a partner partner with payment of the unsatisfied
without the unanimous consent of the other amount of such judgment debt with
partners. interest thereon; and may then or later
appoint a receiver of his share of the
- non-assigning partners with a profits, and of any other money due or to
ground for dissolving the partnership fall due to him in respect of the
if they so desire. (Art. 1830[1, c].) partnership, and make all other orders,
directions, accounts and inquiries which
Remedy of other partners the debtor partner might have made, or
which circumstances of the case may
The mere assignment of a partner’s interest require.
dissolved the partnership because it was
conceived to give rise to a situation The interest charged may be redeemed
incompatible with the prosecution of a at any time before foreclosure, or in case
partnership. (Uniform Partnership Act from of a sale being directed by the court,
which Article 1813) may be purchased without thereby
causing a dissolution: (1) With separate
(1) Dissolution of partnership not intended property, by any one or more of the
partners; or (2) With partnership
property, by any one or more of the
partners with the consent of all the
partners whose interests are not so The redeeming non-debtor partner, it is
charged or sold. Nothing in this Title believed, does not acquire absolute
shall be held to deprive a partner of his ownership over the debtor-partner’s interest
right, if any, under the exemption laws, but holds it in trust for him consistent with
as regards his interest in the principles of fi duciary relationship.
partnership. (n)
ART. 1816. All partners, including - the partners are liable as guarantors
industrial ones, shall be liable pro rata in favor of partnership creditors to
with all their property and after all the the extent that the assets of the firm
partnership assets have been exhausted, are not sufficient to meet its
for the contracts which may be entered obligations
into in the name and for the account of
the partnership, under its signature and
(3) Liability of an industrial partner. — way does not bind the partnership
Even the industrial partner who, ordinarily, unless authorized by the other partners.
is not liable for losses (Art. 1797.) would Except when authorized by the other
have to pay but, of course, he can recover partners or unless they have abandoned
the amount he has paid from the capitalist the business, one or more but less than
partners unless there is an agreement to the all the partners have no authority to:
contrary
(1) Assign the partnership property in
Distinction between a liability and a loss trust for creditors or on the assignee’s
promise to pay the debts of the
(1) The inability of a partnership to pay debt partnership;
to a third party at a particular time does not
necessarily mean that the partnership (2) Dispose of the goodwill of the
business, as a whole, has been operating at business;
a loss.
(3) Do any other act which would make it
(2) The exemption of the industrial partner impossible to carry on the ordinary
to pay losses relates exclusively to the business of a partnership;
settlement of the partnership affairs among
the partners themselves. An industrial (4) Confess a judgment;
partner is not exempted from liability to third
persons for the debts of the partnership. (5) Enter into a compromise concerning
a partnership claim or liability;
No distinction between obligations and
losses. (6) Submit a partnership claim or liability
to arbitration;
The gains or the losses are set off, the one
against the other, and the difference is (7) Renounce a claim of the partnership.
either in favor of or against the concern. No act of a partner in contravention of a
restriction on authority shall bind the
ART. 1817. Any stipulation against the partnership to persons having
liability laid down in the preceding article knowledge of the restriction. (n)
shall be void, except as among the
partners. (n) Power of partner as agent of partnership.
(c) One or more or all the partners, or in a (2) Admissions by another are received
third person in trust for the partnership (par. against a party if the former is acting in the
4.); or capacity of agent of the latter
(d) All the partners. (par. 5.) (3) When a partner makes admissions for
himself only without purporting to act for the
partnership, he alone shall be chargeable (1) Knowledge of the partner acting in the
with his admissions particular matter acquired while a partner;
(4) After dissolution, admission made by a (2) Knowledge of the partner acting in the
partner will bind the co-partners if particular matter then present to his mind;
connected with the winding up of
partnership affairs (3) Knowledge of any other partner who
reasonably could and should have
Existence of partnership must be communicated it to the acting partner.
proved.
ART. 1822. Where, by any wrongful act
(1) Before the partnership can be charged or omission of any partner acting in the
with the admission of a partner under Article ordinary course of the business of the
1820, the partnership relation must be partnership or with the authority of his
shown and proof of that fact must be made co-partners, loss or injury is caused to
by evidence other than the admission itself any person, not being a partner in the
partnership, or any penalty is incurred,
(2) Once the existence of the partnership the partnership is liable therefor to the
relation has been proven by other same extent as the partner so acting or
independent evidence, statements or omitting to act. (n)
admissions, made by any partner speaking
for the partnership concerning ART. 1823. The partnership is bound to
make good the loss: (1) Where one
(3) Admissions or declarations made in the partner acting within the scope of his
presence of the person to be charged as a apparent authority receives money or
partner are admissible to prove the property of a third person and
existence of the partnership misapplies it; and (2) Where the
partnership in the course of its business
(4) It has been held that an admission made receives money or property of a third
by a partner who was no longer a partner at person and the money or property so
the time of the declaration is not admissible received is misapplied by any partner
in evidence against the partnership while it is in the custody of the
partnership. (n)
ART. 1821. Notice to any partner of any
matter relating to partnership affairs, and ART. 1824. All partners are liable
the knowledge of the partner acting in solidarily with the partnership for
the particular matter, acquired while a everything chargeable to the partnership
partner or then present to his mind, and under articles 1822 and 1823. (n)
the knowledge of any other partner who
reasonably could and should have Liability arising from a partner's
communicated it to the acting partner, wrongful act or omission or breach of
operate as notice to or knowledge of the trust.
partnership except in the case of a fraud
on the partnership, committed by or with (1) Solidary liability.
the consent of that partner. (n) - provide for the solidary liability of the
partners and also the partnership to
Notice to, or knowledge of, a partner of third persons (Art. 1824.) for the
matter affecting partnership affairs. wrongful act or omission (Art. 1822.)
or breach of trust (Art. 1823.) of a
Like the law of agency, the law of partner acting within the scope of the
partnership imputes notice to, or knowledge fi rm’s business or with the authority
of, any partner of any matter relating to of his co-partners
partnership affairs to the partnership except
in case of fraud. (2) Different from liability under Article
1816
Cases of knowledge of a partner. Article
1821 speaks of three cases of knowledge, - While the liability in Article 1816
namely: refers to partnership obligations, this
article covers the liability of the
partnership arising from the wrongful Under Article 1823, the partnership is liable
acts or omissions of any partner. for any losses suffered by a third person
The act or omission is called “quasi- whose money or property is
delict’’ or “tort’’ when it does not misappropriated by a partner who received
constitute a crime or felony it within the scope of his authority or by any
punishable by law other partner after it was received by the
partnership in the ordinary course of
(3) Reason for imposition of wider business while in its custody.
liability.
- Based on public policy; the rule of ART. 1825. When a person, by words
respondeat superior (also called spoken or written or by conduct,
the rule of vicarious liability) represents himself, or consents to
applies to the law of partnership in another representing him to anyone, as a
the same manner as other rules partner in an existing partnership or with
governing the agency relationship. one or more persons not actual partners,
he is liable to any such persons to whom
- obligation is solidary because the such representation has been made, who
law protects him who, in good faith, has, on the faith of such representation
relied upon the authority of a given credit to the actual or apparent
partner, whether such authority is partnership, and if he has made such
real or apparent representation or consented to its being
made in a public manner he is liable to
(3) Injured party may proceed against the such person, whether the representation
partnership or any partner. has or has not been made or
communicated to such person so giving
- Since the partners are liable credit by or with the knowledge of the
solidarily, the party aggrieved has apparent partner making the
his election to sue the firm or to sue representation or consenting to its being
one or more of its members. made:
(4) When liability pro rata. - When Domicile - at the place where it
there is no existing partnership and conducts its business so that
all those represented as partners registration of a chattel mortgage therein
consented to the representation, or
not all of the partners of an existing Elements to establish liability as a
partnership consented to the partner on ground of estoppel
representation
(1) Proof by plaintiff that he was individually
(5) When liability separate. When aware of the defendant’s representations as
there is no existing partnership and to his being a partner or that such
not all but only some of those
representations were made by others and creditors have rights against the separate
not denied or refuted by the defendant; estate of the newly admitted partner.
(2) Reliance on such representations by the (1) Where business is continued. — liability
plaintiff; and for persons continuing the business
(3) Lack of any denial or refutation of the (2) Where the incoming partner has
statements by the defendant; such denial assumed the obligation of retiring partner.
need not precede plaintiff’s acting thereon if
the denial was forthcoming promptly upon (3) Reason for rule making the new partner
hearing of the representations, and if, by liable.
prudence and diligence the plaintiff might
have learned of the truth or untruth of the - He “partakes from the benefits of the
representations. partnership property and an
established business. He has every
means of obtaining full knowledge of
Liability as general partners of persons the debts of the partnership and
who assume to act as a corporation protecting himself because he may
insist on the liquidation or settlement
“Sec. 21. Corporation by estoppel. — All of existing partnership debts. On the
persons who assume to act as a corporation other hand, these means are not
knowing it to be without authority to do so afforded the creditor.”
shall be liable as general partners for all
debts, liabilities and damages incurred or Liability of outgoing partner/ incoming
arising as a result thereof: Provided, partner.
however, That when any such ostensible
corporation is sued on any transaction (1) Contract made before retirement or
entered by it as a corporation or on any tort withdrawal. — Where a partner gives notice
committed by it as such, it shall not be of his retirement or withdrawal from the
allowed to use as a defense its lack of partnership, he is freed from any liability on
corporate personality.” contracts entered into thereafter, but his
liability on existing incomplete contracts
ART. 1826. A person admitted as a continues.
partner into an existing partnership is
liable for all the obligations of the (2) Performance after admission of new
partnership arising before his admission partner. — In the case of an incoming
as though he had been a partner when partner, he is not personally liable for the
such obligations were incurred, except existing partnership obligations unless there
that this liability shall be satisfied only is a stipulation to the contrary (see Art.
out of partnership property, unless there 1840, par. 2.), but in a parallel situation
is a stipulation to the contrary. (n) above, he is liable for goods delivered to the
partnership after his admission to it, where
Liability of incoming partner for the goods so delivered are in the
partnership obligations. performance of a contract made before his
admission.
(1) Limited to his share in partnership
property for existing obligations The result is that both the retiring and the
incoming persons are liable for the debt
(2) Extends to his separate property for created by delivery of such goods.
subsequent obligations
ART. 1827. The creditors of the
Rights of existing and subsequent partnership shall be preferred to those of
creditors. each partner as regards the partnership
property. Without prejudice to this right,
It, therefore, results that existing and the private creditors of each partner may
subsequent creditors have equal rights as ask for the attachment and public sale of
against partnership property and separate the share of the latter in the partnership
property of the previously existing members assets. (n)
of the partnership while only subsequent
Preference of partnership creditors in
partnership property.