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PARTNERSHIP, AGENCY AND
CORP.
Course Syllabus
Course Requirements:
MIDTERM GRADE (50%) – 30% RECITATION AND 70% EXAM
FINAL GRADE (50%) – 30% RECITATION AND 70% EXAM
FINAL RATING = MIDTERM GRADE (50%) + FINAL GRADE (50%)
References:
De Leon and De Leon Jr., Comments and Cases on Partnership, Agency and Trusts
IV. RIGHTS AND OBLIGATIONS OF THE PARTNER
A. Rights of Partners
1. Partners in General
a. Mutual Agency
i. General Rule
Article 1803,
ART. 1803. When the manner of management has not been agreed upon, the following
rules shall be observed:
(1) All the partners shall be considered agents and whatever any one of them may do
alone shall bind the partnership, without prejudice to the provisions of Article 1801.
(2) None of the partners may, without the consent of the others, make any important
alteration in the immovable property of the partnership, even if it may be useful to the
partnership. But if the refusal of consent by the other partners is manifestly prejudicial to
the interest of the partnership, the court’s intervention may be sought. (1695a)
1818
Stratemeyer v. West 466 NE 2d 306
Cook v. Brundidge 533 SW2d 751
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ii. Exceptions
Article 1818
ART. 1818. Every partner is an agent of the partnership for the purpose of its business,
and the act of every partner, including the execution in the partnership name of any
instrument, for apparently carrying on in the usual way the business of the partnership
of which he is a member binds the partnership, unless the partner so acting has in fact
no authority to act for the partnership in the particular matter, and the person with
whom he is dealing has knowledge of the fact that he has no such authority.
An act of a partner which is not apparently for the carrying on of the business of
the partnership in the usual way does not bind the partnership unless authorized by
the other partners. Except when authorized by the other partners or unless they have
abandoned the business, one or more but less than all the partners have no authority
to:
(1) Assign the partnership property in trust for creditors or on the assignee’s
promise to pay the debts of the partnership;
(2) Dispose of the goodwill of the business;
(3) Do any other act which would make it impossible to carry on the ordinary
business of a partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a partnership claim or liability;
(6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership.
No act of a partner in contravention of a restriction
on authority shall bind the partnership to persons
having knowledge of the restriction. (n)
b. Share in Profits
Articles 1797, 1799
ART. 1797.
The losses and profits shall be distributed in conformity with the agreement. If
only the share of each partner in the profits has been agreed upon, the share of each in
the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and losses
shall be in proportion to what he may have contributed, but the industrial partner shall
not be liable for the losses. As for the profits, the industrial partner shall receive such
share as may be just and equitable under the circumstances. If besides his services he
has contributed capital, he shall also receive a share in the profits in proportion to his
capital. (1689a)
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b. Right to Associate Another/Authorize Admission
Article 1804
Every partner may associate another person with him in his share, but the associate
shall not be admitted into the partnership without the consent of all the other partners, even
if the partner having an associate should be a manager. (1696)
c. Access to Books and Information
Article 1805
The partnership books shall be kept, subject to any agreement between the
partners, at the principal place of business of the partnership, and every partner shall
at any reasonable hour have access to and may inspect and copy any of them. (n)
Bautista p. 199
d. Formal Account
ART. 1809. Any partner shall have the right to a formal account as to partnership
affairs: (1) If he is wrongfully excluded from the partnership business or
possession of its property by his copartners; (2) If the right exists under the
terms of any agreement; (3) As provided by Article 1807; (4) Whenever other
circumstances render it just and reasonable. (n)
e. Property Rights
SECTION 2. — Property Rights of a Partner.
ART. 1810. The property rights of a partner are: (1) His rights in specific partnership
property; (2) His interest in the partnership; and (3) His right to participate in the
management. (n)
i. Rights to Specific Partnership Property
Article 1811
ART. 1811. A partner is co-owner with his partners of specific partnership property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any agreement between
the partners, has an equal right with his partners to possess specific partnership
property for partnership purposes; but he has no right to possess such property
for any other purpose without the consent of his partners;
(2) A partner’s right in specific partnership property is not assignable except in
connection with the assignment of rights of all the partners in the same property;
(3) A partner’s right in specific partnership property is not subject to attachment
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or execution, except on a claim against the partnership. When partnership
property is attached for a partnership debt the partners, or any of them, or the
representatives of a deceased partner, cannot claim any right under the
homestead or exemption laws;
(4) A partner’s right in specific partnership property is not subject to legal
support under article 291. (n)
Bautista pp. 147-148, 155-156, 164
ii. Interest in the Partnership
Article 1812 -1814
ART. 1812. A partner’s interest in the partnership is his share of the profi ts and
surplus. (n)
ART. 1814. Without prejudice to the preferred rights of partnership creditors under
article 1827, on due application to a competent court by any judgment creditor of a
partner, the court which entered the judgment, or any other court, may charge the
interest of the debtor partner with payment of the unsatisfi ed amount of such
judgment debt with interest thereon; and may then or later appoint a receiver of his
share of the profi ts, and of any other money due or to fall due to him in respect of the
partnership, and make all other orders, directions, accounts and inquiries which the
debtor partner might have made, or which circumstances of the case may require.
Bautista 175-177
Bohonus v. Amerco 602 P2d 469
First National Bank v. District Court 652 P2d 613
iii. Right to Participate in the Management
See IV (A)( 1) (a)
f. Conveyance of Property in Partnership Name
Articles 1774, 1819
ART. 1774. Any immovable property or an interest therein may be acquired in
the partnership name. Title so acquired can be conveyed only in the partnership
name. (n)
ART. 1819. Where title to real property is in the partnership name, any partner
may convey title to such property by a conveyance executed in the partnership
name; but the partnership may recover such property unless the partner’s act
binds the partnership under the provisions of the fi rst paragraph of article 1818,
or unless such property has been conveyed by the grantee or a person claiming
through such grantee to a holder for value without the knowledge that the
partner, in making the conveyance, has exceeded his authority. Where title to real
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property is in the name of the partnership, a conveyance executed by a partner, in
his own name, passes the equitable interest of the partnership, provided the act is
one within the authority of the partner under the provisions of the fi rst
paragraph of article 1818. Where title to real property is in the name of one or
more but not all the partners, and the record does not disclose the right of the
partnership, the partners in whose name the title stands may convey title to such
property, but the partnership may recover such property if the partners’ act does
not bind the partnership under the provisions of the fi rst paragraph of Article
1818, unless the purchaser or his assignee, is a holder for value, without
knowledge. Where the title to real property is in the name of one or more or all
the partners, or in a third person in trust for the partnership, a conveyance
executed by a partner in the partnership name, or in his name, passes the
equitable interest of the partnership, provided the act is one within the authority
of the partner under the provisions of the fi rst paragraph of article 1818. Where
the title to real property is in the names of all the partners a conveyance executed
by all the partners passes all their rights in such property. (n)
Hodge v. Garett 614 P2d 420
Backowski v. Solecki 316 NW 2d 434
2. Right of Managing Partners
Article 1800-1801
ART. 1800. The partner who has been appointed manager in the articles of partnership
may execute all acts of administration despite the opposition of his partners, unless he
should act in bad faith; and his power is irrevocable without just or lawful cause. The
vote of the partners representing the controlling interest shall be necessary for such
revocation of power. A power granted after the partnership has been constituted may
be revoked at any time. (1692a)
ART. 1801. If two or more partners have been intrusted with the management of the
partnership without specifi cation of their respective duties, or without stipulation that
one of them shall not act without the consent of all the others, each one may separately
execute all acts of administration, but if any of them should oppose the acts of the
others, the decision of the majority shall prevail. In case of tie, the matter shall be
decided by the partners owning the controlling interest. (1693a)
B. Obligations of Partners
1. Partners in General
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a. Contribution
Articles 1786 par. 1, 1790
ART. 1786
Every partner is a debtor of the partnership for whatever he may have
promised to contribute thereto.
i. Sum of Money
ART. 1788
A partner who has undertaken to contribute a sum of money and fails to do so
becomes a debtor for the interest and damages from the time he should have complied
with his obligation.
The same rule applies to any amount he may have taken from the partnership
coffers, and his liability shall begin from the time he converted the amount to his own
use. (1682)
i. Specific and Determinate Things
Article 1786 par. 2
He shall also be bound for warranty in case of eviction with regard to specific and
determinate things which he may have contributed to the partnership, in the same cases
and in the same manner as the vendor is bound with respect to the vendee. He shall also
be liable for the fruits thereof from the time they should have been
ii. Goods
ART. 1787.
When the capital or a part thereof which a partner is bound to contribute consists
of goods, their appraisal must be made in the manner prescribed in the contract of
partnership, and in the absence of stipulation, it shall be made by experts chosen by the
partners, and according to current prices, the subsequent changes thereof being for the
account of the partnership.
b. Additional Capital
ART. 1791
If there is no agreement to the contrary, in case of an imminent loss of the
business of the partnership, any partner who refuses to contribute an additional share
to the capital, except an industrial partner, to save the venture, shall be obliged to sell
his interest to the other partners.
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c. Alteration in Immovable Property
Article 1803 (2)
When the manner of management has not been agreed upon, the following rules
shall be observed:
(2) None of the partners may, without the consent of the others, make any
important alteration in the immovable property of the partnership, even if it may
be useful to the partnership. But if the refusal of consent by the other partners is
manifestly prejudicial to the interest of the partnership, the court’s intervention
may be sought. (1695a)
d. Bring to Partnership Capital Credit Received
Article 1793
A partner who has received, in whole or in part, his share of a partnership, when
the other partners have not collected theirs, shall be obliged, if the debtor should
thereafter become insolvent, to bring to the partnership capital what he received even
though he may have given receipt for his share only.
e. Responsible for Damage Suffered by the Partnership
Article 1794
Every partner is responsible to the partnership for damages suffered by it
through his fault, and he cannot compensate them with the profits and benefits which
he may have earned for the partnership by his industry. However, the courts may
equitably lessen this responsibility if through the partner’s extraordinary efforts in
other activities of the partnership, unusual profits have been realized.
f. Bear Risk of Loss of Specific and Determinate Things
Article 1795
The risk of specific and determinate things, which are not fungible, contributed to
the partnership so that only their use and fruits may be for the Art. 1795 107 common
benefit, shall be borne by the partner who owns them.
If the things contributed are fungible, or cannot be kept without deteriorating, or
if they were contributed to be sold, the risk shall be borne by the partnership. In the
absence of stipulation, the risks of things brought and appraised in the inventory, shall
also be borne by the partnership, and in such case the claim shall be limited to the
value at which they were appraised. (1687)
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g. Share in Losses
Articles 1797- 1799
ART. 1797.
The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the losses
shall be in the same proportion.
ART. 1798.
If the partners have agreed to in trust to a third person the designation of the share of
each one in the profits and losses, such designation may be impugned only when it is
manifestly inequitable. In no case may a partner who has begun to execute the decision
of the third person, or who has not impugned the same within a period of three
months from the time he had knowledge thereof, complain of such decision.
ART. 1799.
A stipulation which excludes one or more partners from any share in the profits or
losses is void
h. Account for Benefits
Article 1807
Every partner must account to the partnership for any benefi t, and hold as
trustee for it any profi ts derived by him without the consent of the other partners from
any transaction connected with the formation, conduct, or liquidation of the
partnership or from any use by him of its property. (n
i. Liable for Partnership Contracts
Article 1816- 1817
ART. 1816.
All partners, including industrial ones, shall be liable pro rata with all their property
and after all the partnership assets have been exhausted, for the contracts which may
be entered into in the name and for the account of the partnership, under its signature
and by a person authorized to act for the partnership. However, any partner may enter
into a separate obligation to perform a partnership contract.
ART. 1817.
Any stipulation against the liability laid down in the preceding article shall be void,
except as among the partners.
De Leon & De Leon Jr. p. 170
Muñasque v. CA, G.R. No. L-39780, November 11, 1985
j. Solidarily Liable with the Partnership for Wrongful Acts or Omissions
Articles 1822- 1824
ART. 1822.
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Where, by any wrongful act or omission of any partner acting in the ordinary course of
the business of the partnership or with the authority of his co-partners, loss or injury is
caused to any person, not being a partner in the partnership, or any penalty is incurred,
the partnership is liable therefor to the same extent as the partner so acting or omitting
to act.
ART. 1823. The partnership is bound to make good the loss:
(1) Where one partner acting within the scope of his apparent authority receives
money or property of a third person and misapplies it; and
(2) Where the partnership in the course of its business receives money or
property of a third person and the money or property so received is misapplied
by any partner while it is in the custody of the partnership. (n)
ART. 1824. All partners are liable solidarily with the partnership for everything
chargeable to the partnership under articles 1822 and 1823.
2. New Partners
Article 1826
A person admitted as a partner into an existing partnership is liable for all the
obligations of the partnership arising before his admission as though he had been a
partner when such obligations were in Art. 1826 205 curred, except that this liability
shall be satisfied only out of partnership property, unless there is a stipulation to the
contrary
3. Industrial Partners
Article 1789
An industrial partner cannot engage in business for himself unless the
partnership expressly permits him to do so; and if he should do so, the capitalist
partners may either exclude him from the fi rm or avail themselves of the benefits
which he may have obtained in violation of this provision, with a right to damages in
either case.
4. Managing Partners
a. Application of Sums Received
Articles 1792, 1252, 1292
ART. 1792.
If a partner authorized to manage collects a demandable sum, which was owed to
him in his own name, from a person who owed the partnership another sum also
demandable, the sum thus collected shall be applied to the two credits in proportion to
their amounts, even though he may have given a receipt for his own credit only; but
should he have given it for the account of the partnership credit, the amount shall be
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fully applied to the latter.
The provisions of this article are understood to be without prejudice to the right
granted to the debtor by Article 1252, but only if the personal credit of the partner
should be more onerous to him
b. Concurrence of Other Managing Partners
Article 1802
In case it should have been stipulated that none of the managing partners shall
act without the consent of the others, the concurrence of all shall be necessary for
validity of the acts, and the absence or disability of any one of them cannot be alleged,
unless there is imminent danger of grave or irreparable injury to the partnership.
5. Capitalist Partner
Article 1808
The capitalist partners cannot engage for their own account in any operation
which is of the kind of business in which the partnership is engaged, unless there is a
stipulation to the contrary. Any capitalist partner violating this prohibition shall bring
to the common funds any profits accruing to him from his transactions, and shall
personally bear all the losses.
