PARTNERSHIP RED NOTES – FOR SAMCIS (BCM)

STATUTE OF FRAUDS IN A PARTNERSHIP (should be in writing, otherwise –

unenforceable)
a. sale of personal property when the price is not less than P500, unless there
is delivery of payment
b. sale of real property or any interest thereon Page | 1
c. promise to answer for the debt, default or miscarriage of another person
d. agreement to form a partnership shall be formed after 1 year
e. lease of partnership property for more than 1 year

SUMMATION NOTES: DUTIES AND RIGHTS OF PARTNERS

I. RELATIONSHIP AMONG PARTNERS

MAJOR DUTIES AMONG PARTNERS (FOC)

1. FIDUCIARY DUTY – duty of outmost loyalty, fairness, and good faith owed by
partners to each other and to the partnership; including duty not to appropriate
partnership opportunities, not to compete, not to have conflicts of interest, and
not to reveal confidential information
2. DUTY OF OBEDIENCE – duty to act in accordance with the partnership
agreement and any business decisions properly made by the partners
3. DUTY OF CARE – duty owed by partners to manage the partnership affairs
without gross negligence, reckless conduct, intentional misconduct, or knowing
violation of law

SPECIFIC OBLIGATIONS:
1. OBLIGATION WITH RESPECT TO CONTRIBUTION OF PROPERTY
a. to contribute what had been promised (Art. 1786, NCC)
b. to warrant property contributed in case of eviction (Art. 1786, NCC)
c. to deliver the fruits of the property from the time they should have been
delivered, without the need of any demand (Art. 1786, NCC)
d. when contribution is in goods, the amount thereof must be determined by
proper appraisal of the value thereof at the time of contribution (Art. 1787,
NCC)
e. to preserve the property with the diligence of a good father of a family
pending delivery to the partnership.
f. to indemnify for any damages caused by the retention of the property or by
delay in its contribution.
 PARTNERSHIP RED NOTES – FOR SAMCIS (BCM)

2. OBLIGATIONS WITH RESPECT TO CONTRIBUTION OF MONEY AND MONEY

CONVERTED TO PERSONAL USE
a. to contribute on the date due the amount promised to be given (Art. 1788,
NCC)
b. to reimburse any amount he may have taken from the partnership coffers Page | 2
and converted to his own personal use (Art. 1788, NCC)
c. to pay the agreed or legal interest, if he fails to pay in due time (Art. 1788,
NCC)
d. to indemnify the partnership for the damages caused to it by the delay in the
contribution.

3. OBLIGATION NOT TO ENGAGE IN OTHER BUSINESS FOR HIMSELF

a. 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 firm or avail themselves
of the benefits which he may have obtained in violation of this provision,
with a right to damages in either case (Art. 1789, NCC)

b. Capitalist Partner – the prohibition extends only to any operation which is of

the same kind of business in which the partnership is engaged unless there
is a stipulation to the contrary.

4. OBLIGATION TO CONTRIBUTE ADDITIONAL CAPITAL

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 (Art. 1791, NCC)

5. OBLIGATION OF MANAGING PARTNER WHO COLLECTS DEBT

Where a person is separately indebted to the partnership and to the
managing partner at the same time, any sum received shall be applied to the
two credits in proportion to their amounts, except where he received it
entirely for the account of the partnership, in which case the whole sum shall
be applied to the partnership credit only (Art. 1792, NCC)
 PARTNERSHIP RED NOTES – FOR SAMCIS (BCM)

6. OBLIGATION OF PARTNER WHO RECEIVES SHARE IN PARTNERSHIP CREDIT

A partner who has received, in whole or in part, his share of a partnership
credit, 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 Page | 3
only. (Art. 1793, NCC)

7. OBLIGATION OF PARTNER FOR DAMAGES TO PARTNERSHIP

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 (Art. 1794, NCC)

8. OBLIGATION TO ACCOUNT FOR ANY BENEFIT AND HOLD AS TRUSTEE

UNAUTHORIZED PERSONAL PROFITS
Every partner must account to the partnership for any benefit, and hold as
trustee for it any profits 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 (Art.
1807, NCC)

9. RENDER TRUE AND FULL INFORMATION OF ALL THINGS AFFECTING THE

PARTNERSHIP, UPON DEMANT OF ANY PARTNER OR HIS REPRESENTATIVE
10. SHARE IN THE LOSS OF THE PARTNERSHIP
ACTS OF STRICT DOMINION wherein CONSENT OF ALL PARTNERS SHALL BE
NECESSARY (Memorize – C2AR AID / ADD CES R)
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 for arbitration
7. Renounce a claim of the partnership.
 PARTNERSHIP RED NOTES – FOR SAMCIS (BCM)

RIGHTS AMONG PARTNERS, including Property Rights of a Partner

1. RIGHTS IN SPECIFIC PARTNERSHIP PROPERTY – partners have the right to use
and possess partnership property for partnership purposes
Implications:
✓ has an equal right with other partners to possess specific partnership Page | 4
property for partnership purposes;
✓ not assignable, except in connection with the assignment or rights of all
partners in the same property
✓ not subject to attachment or execution, except on a claim against the
partnership
✓ not subject to legal support

2. TRANSFERABLE INTEREST IN PARTNERSHIP – partners’ right to share profits and

surplus may be transferred
Contract of Sub-Partnership – one formed between a member of the partnership
and a third person for a division of profits coming to him from the partnership. It
is a partnership within a partnership, distinct and separate from the main or
principal partnership.

Effects of conveyance by a partner of his interest in the Partnership:

- conveyance of his whole interest – partnership may either remain or be dissolved
- assignee does not necessarily become a partner
- assignee cannot interfere in the management or administration of the partnership
business or affairs
- assignee cannot also demand information, accounting and inspection of the
partnership books

3. DISTRIBUTIONS – transfer of partnership property from the partnership to a

partner
a. PROFITS – each partner is entitled to share in the profits; stipulation not
to receive profits - VOID
b. CAPITAL – a partner does not have a right to receive a distribution of the
capital contributions in his account before his withdrawal or the liquidation
of the partnership
c. ADVANCES – if a partner makes an advance (loan) to the firm, he is entitled
to repayment of the advance plus interest
 PARTNERSHIP RED NOTES – FOR SAMCIS (BCM)

d. COMPENSATION – unless otherwise agreed, no partner is entitled to

payment for services rendered to the partnership
4. MANAGEMENT – each partner has equal rights in management of the
partnership unless otherwise agreed (exclude limited, silent, dormant partners)
5. CHOICE OF ASSOCIATES – under the doctrine of delectus personae, no person Page | 5
can become a member of a partnership without the consent of all the partners
6. ENFORCEMENT RIGHTS
a. INFORMATION – each partner has the right
i. without demand, to any information concerning partnership and
reasonably required for the proper exercise of the partner’s rights and
duties and
ii. on demand, to any other information concerning the partnership
b. Inspect the partnership books at any reasonable hour – for partnership
purposes
c. LEGAL ACTIONS – a partner may maintain a direct suit against the
partnership or another partner for legal or equitable relief to enforce the
partner’s rights; the partnership itself may maintain an action against a
partner for any breach of the partnership agreement or for the violation of
any duty owed to the partnership
7. DEMAND FORMAL ACCOUNTING EVEN BEFORE DISSOLUTION
a. if the partner is wrongfully excluded from the partnership business or
possession of its property by his co-partners
b. If the right exists under the terms of any agreement
c. If a partner has derived profits from any transaction connected with the
formation, conduct, or liquidation of the partnership or from any use by
him of his property
d. whenever other circumstances render it just and reasonable
8. ASK FOR DISSOLUTION OF THE FIRM BY COURT DECREE
 PARTNERSHIP RED NOTES – FOR SAMCIS (BCM)

RELATIONSHIP BETWEEN PARTNERS/PARTNERSHIP AND THIRD PARTIES

-Supplemented by the Law on Agency – mutual agency
PARTNERSHIP AGENCY
Has juridical personality separate and No juridical personality
distinct from the partners Page | 6
Partners are agents for the partnership Agent is not a principal himself
and for other partners; he is a principal
as to himself
Partner is part co-owner with his co- Agent is not a co-owner of the principal
partners with respect to partnership
property for partnership purposes
Power of attorney, is not required for a Power of attorney is ordinarily required
partner to act, provided the act is before an agent can act in behalf of the
within the scope of partnership principal

OBLIGATIONS OF PARTNERSHIP/PARTNERS TO THIRD PERSONS

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 (Art. 1815)
2. UNLIMITED LIABILITY:
All partners (including industrial ones, excluding limited partners) shall be
liable pro-rata with all their separate property for all contractual obligations
of the partnership after all partnership assets have been exhausted. (Art.
1816, NCC) – PRO-RATA AND SUBSIDIARY
*In compensation cases under the Workmen’s Compensation Act, the
liability of business partners should be solidary, otherwise the right of the
employee may be defeated or at least crippled.
3. All partners, including industrial partners, are personally liable with all their
property. Their individual liability is pro rata and subsidiary, unless otherwise
stipulated. Stipulation against liability shall be void except as among partners. (Art.
1817, NCC)

CONTRACTS OF PARTNERSHIP
PARTNERS’ LIABILITY – if the partnership is contractually bound, each
partner has joint and several, unlimited personal liability
JOINT AND SEVERAL LIABILITY – a creditor may sue the partners jointly
as a group or separately as individuals
 PARTNERSHIP RED NOTES – FOR SAMCIS (BCM)

1. LIABILITY OF PARTNERSHIP FOR ACTS OF PARTNERS (Art. 1818, NCC)

a. ACTS FOR APPARENTLY CARRYING ON IN THE USUAL WAY THE BUSINESS
OF THE PARTNERSHIP
GENERAL RULE: Act binds the partnership Page | 7
EXCEPTION: Acting partner has in fact no authority and when the third
person knows that the acting partner has no authority

b. ACTS OF STRICT DOMINION OR OWNERSHIP

GENERAL RULE: Act does not bind the partnership
EXCEPTION: The act is authorized by all the partners; or they have
abandoned the business

c. ACTS IN CONTRAVENTION OF A RESTRICTION ON AUTHORITY

Partnership is not liable to third persons having actual or presumptive
knowledge of the restrictions.

AUTHORITY TO BIND PARTNERSHIP – a partner who has actual authority

(express or implied) or apparent authority may bind the partnership
*Actual Express Authority – authority set forth in the partnership agreement,
in additional agreements among the partners, or in decisions made by a
majority of the partners regarding the ordinary business of the partnership
*Actual Implied Authority – authority that is reasonably deduced from the
nature of the partnership, the terms of the partnership agreement, or the
relations of the partners
*Apparent Authority – an act of a partner for apparently carrying on in the
ordinary course the partnership business or business of the kind carried on
by the partnership – binds the partnership, so long as that third person has
no knowledge or notice of the lack of actual authority
Partnership by Estoppel – imposes partnership duties and liabilities on
a non-partner who has either represented himself or consented to be
represented as a partner

TORTS AND CRIMES OF PARTNERSHIP

 PARTNERSHIP RED NOTES – FOR SAMCIS (BCM)

TORTS – the partnership is liable for loss or injury caused by any wrongful act or
omission or other actionable conduct of any partner while acting within the
ordinary course of the business or with the authority of her co-partners; the
partners are jointly and severally liable (Art. 1822, NCC)
BREACH OF TRUST – the partnership is liable if a partner in the course of the Page | 8
partnership’s business or while acting with authority of the partnership breaches a
trust by misapplying money or property entrusted by a third person; the partners
are jointly and severally liable (Art. 1823, NCC)
CRIMES – a partner is not criminally liable for the crimes of her partners unless she
authorized or participated in them

EFFECT OF ADMISSION OR REPRESENTATION MADE BY ANY PARTNER

CONCERNING PARTNERSHIP AFFAIRS WITHIN THE SCOPE OF HIS AUTHORITY is
evidence against the partnership. (Art. 1820, NCC)

NOTICE TO A PARTNER (Art. 1821, NCC)

BINDS PARTNERSHIP – a partnership is bound by a partner’s knowledge, notice, or
receipt of a notification of a fact relating to the partnership EXCEPT IN CASE OF
FRAUD.

NOTICE – a person has notice of a fact if the person

(1) knows of it – KNOWLEDGE OF PARTNER ACTING IN THE PARTICULAR
MATTER ACQUIRED WHILE A PARTNER,
(2) has received a notification of it – KNOWLEDGE OF ANY OTHER PARTNER
WHO REASONABLY COULD AND SHOULD HAVE COMMUNICATED IT TO THE
ACTING PARTNER, or
(3) has reason to know it exists from all of the facts known to the person at
the time in question – KNOWLEDGE OF THE PARTNER ACTING IN THE
PARTICULAR MATTER THEN PRESENT TO HIS MIND

LIABILITY OF INCOMING PARTNER

ANTECEDENT LIABILITIES – the liability of an incoming partner for antecedent
liabilities of the partnership is limited to his capital contribution, unless otherwise
stipulated
SUBSEQUENT LIABILITIES – the liability of an incoming partner for subsequent
liabilities of the partnership is unlimited, unless admitted as a limited partner