Law on Business Organizations
Property carried in partnership books as
MIDTERMS Reviewer
I. Property rights of a Partner
Art. 1810. – Extent of property rights of partner
1. Principal rights
a. His rights in specific partnership property
b. His interest in the partnership
c. His right to participate in the management
2. Related rights
a. Right to reimbursement for amounts
advanced to the partnership and to
indemnification for risks in consequence of
management
b. Right of access to partnership books
c. Right to true and full things affecting
partnership
d. Right to formal account of partnership
affairs under certain circumstances
e. Right to dissolution
Partnership property vs. Partnership capital
1. Changes in value
a. Property- is variable, its value may vary
from day to day with changes in the market
value of partnership assets
b. Capital- constant; remains unchanged as
the amount fixed by partnership agreement
- not affected by fluctuations
2. Assets included
a. Property- includes not only the original
capital contributions of the partners, but all
the property subsequently acquired on
account of the partnership
b. Capital- the aggregate of the individual
contributions made by the partners.
Ownership of certain property
1. Property used by the partnership
- Partner may allow his separate property
to be used in the partnership business,
without intending to transfer ownership
of it
- Partner may hold title to partnership
property in his own name without
having it belong to him. (Intent of the
parties is the controlling factor)
2. Property acquired by partner with partnership
funds
- Presumption: partnership property
- Unless contrary intention appears
- If property was acquired after
dissolution but before winding up, it
would be his separate property but he
would be liable to account to the
partnership for the funds used in the
acquisition.
3.
partnership asset
- Partnership property
4. Other factors tending to indicate property
ownership
- If income generated by the property is
received by the partnership
- Taxes are paid by partnership
- The sole fact that partnership funds
were later used to repair and maintain
property isn’t sufficient
Art. 1811. –Nature of partner’s right in specific
partnership property
 A partner is a co-owner with his partners in
specific partnership property, but the rules on
co-ownership do not necessarily apply.
Legal incidents of this common right are distinctively
characteristic of the partnership relations:
1. Equal right of possession of the property for
partnership purposes
- Should any of them use it for own
profit, he must account to the
partnership the profits derived
- Any partner shall have a right to formal
account of partnership affairs if he is
wrongfully excluded from the
possession of its property by his
partners
- The wrongful exclusive possession of
P.Property may be a ground for
dissolution
- The right to possess specific partnership
property may be surrendered.
2. Assignment of right to the property
- A partner cannot assign his right to the
land, but all of the can assign their
rights in the same property
- Primary reasons for the non-
assignability of partner’s right: 1) it
prevents interference by outsiders in
partnership affairs, 2) it protects the
rights of other partners and partnership
creditors to have partnership assets
applied to firm debts, 3) it is often
impossible to measure or value a
partner’s beneficial interest in a
particular asset.
3. Attachment or execution
- Property is not subject to attachment or
execution except on a claim against the
partnership and not the partners.
4. Legal support
- The right to partnership property is not
subject to legal support under the
Family code, but their interest in the
partnership is subject to legal support.
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 5. Partner’s interest not a debt due from
partnership
- Separate creditors of an individual
partner cannot go after any specific
partnership property.
- A partner is not a creditor of the
partnership for the amount of his share
Art.1812. – Nature of Partner’s Interest in the
Partnership Property
1. Shares of the profits and surplus
- Proportionate share
- Profit = sales – expenditures
- Surplus= assets –liabilities
- Profits shared in conformity with the
agreement; otherwise, according to
capital contribution
2. Extent of the partner’s interest
- Until after an account has been taken of
the debts and credits et.al., it is
impossible to determine the extent of
the partner’s interest.
Art. 1813. –Effect of assignment of partner’s whole
interest in partnership
 Sale, donation, or as collateral security to a loan
without causing dissolution
 Rights withheld from assignee:
1. To interfere in the management
2. To require any information or account
3. To inspect any of the partnership books
 Status and rights of assignor in partnership is
unaffected
Rights of assignee of a partner’s interest:
1. To receive in accordance with his contract the
profits accruing to the assigning partner
2. To avail himself of the usual remedies provided
by law in the event of fraud in management
3. To receive the assignor’s interest in case of
dissolution
4. To require an account of partnership affairs, but
only in case the partnership is dissolved
Dissolution of the partnership
1. Dissolution not intended- if assigning partner
neglects his partnership duties after
assignment, the other partners may dissolve the
partnership.
2. Dissolution intended- only when it is clear that
the parties contemplated and intended the
entire withdrawal from the partnership of such
partner and the termination of the partnership
as between the partners.
Art. 1814. – Remedies of separate judgment creditor of
a partner
1. Application for a charging order after securing
judgment on his credit – subjecting the interest
of the debtor-partner in the partnership with
the payment of the unsatisfied amount of such
judgment with interest.
2. Claims of partnership creditors must be
satisfied first before the separate creditors of
the partners
3. The court may resort to other courses of action
provided (appointment of receiver, sale of
interest) if the judgment debt remains
unsatisfied.
Rule: no specific partnership property is attached.
Redemption or purchase of interest charged by court:
1. Redemptioner- the interest of the debtor-
partner may be redeemed with the separate
property of any one or more partners, or with
partnership property but with the consent of all
partners whose interests are not so charged or
sold.
2. Redemption price- market or actual value.
3. Right of redeeming non debtor partner- does
not acquire absolute ownership over the
debtor-partner’s interest but holds it in trust for
him consistent with the principles of fiduciary
relationship.
II. Obligations of Partners with Regard to
Third Persons
Art. 1815.- Partnerships operate under a firm
Firm – name, title, or style under which a company
transacts business. (Company)
 A firm name is necessary to distinguish the
partnership which has a distinct and separate
juridical personality from the individuals
composing the partnership and from other
partnerships.
 Such firm name must be registered with DTI
Right of partners to choose firm name:
1. Individual partner
2. Surnames of all the partners
3. Surname/s of one or more of the members with
the addition of “And company”
4. Individual names wholly distinct from the
names of any of the members
 Use of misleading name – it should not be
identical with or deceptively similar to a name
which was previously adopted by any other
entity, or interfere with the right of others, or is
contrary to law.
 Use of names of deceased persons –
permissible provided that the firm indicates in
all its communications that said partner is
already deceased.
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  Liability for inclusion of name in firm name –
they do not acquire the rights of a partner, but
they shall be subject to the liability of a partner
insofar as third persons without notice are
concerned
Art. 1816. – Liability for contractual obligations of the
partnership
1. Partnership Liability- Partners are liable to third
persons who have dealt with one of them.
- A partner has the right to make all
partners liable for contracts he makes
for the partnership
2. Individual liability- the partner is personally
bound by his contract even if only the
partnership is shown to have derived benefits
from it.
Nature of Individual liability of partners:
 all partners, including industrial partners, are
liable to creditors of the partnership for
obligations contracted in partnership’s name.
1. Pro rata- equally or jointly and not
proportionately; not on the amount of the
partner’s individual contributions to the
common fund
2. Subsidiary – the partners become personally
liable only after all the partnership assets have
been exhausted.
3. Liability of industrial partner – although not
liable for losses, he still has to pay but he can
recover the amount he has paid from the
capitalist partners unless there is an agreement
to the contrary.
Art. 1817. – Stipulation against liability
Any stipulation among partners contrary to the pro rata
and subsidiary liability expressly imposed by Art. 1816 is
void and has no effect insofar as it affects third persons.
It shall only be enforceable among the partners
themselves.
Art. 1818. – Power of the partner as an agent of the
partnership
 All partners have equal rights
 Limitations upon the authority of any of the
partners are not binding upon innocent third
persons.
Third persons:
1. No duty to make inquiries as to acting partner’s
authority
2. Presumption that acting partner has the
authority to bind partnership
3. No right to assume that acting partner has
unlimited authority
Liability of partners for acts of partners:
1. If any partner acts in the usual/ ordinary course
of business
- Binds the partnership
2. If act is in the usual way of business but partner
has no authority
- Binds the partnership
3. If act is in usual way of business, partner has no
authority and third person has knowledge that
the partner has no authority
- Does not bind partnership
4. Act not in the usual way of business
- Does not bind partnership
5. Act not in the usual way of business but partner
has the authority
- Binds the partnership
Two requisites in order that the partnership will not be
liable:
1. The partner so acting has, in fact, no authority
2. The third person knows that the acting partner
has no authority
 Acts of strict dominion or ownership =
authorization of ALL of the partners
 Liability of partner acting without authority – he
is personally liable to the contract. Such partner
binds himself in no matter what name he
contracts
Art. 1819. – Conveyances of Real Properties
Real properties can be registered through the ff:
1. In the name of the partnership
2. In the name of one or more but not all partners
3. All partners
4. One or more or all of the partners or in trust to
a third person
Examples of conveyances:
1. Title in partnership name, conveyed in
partnership name
- The conveyance passes the title to the
third person, but the partnership can
recover the property if the conveyance
was not in the usual way of business
and the third person has knowledge of
partner’s lack of authority.
2. Title in partnership name, conveyance in
partner’s name
- The third person does not become the
owner of the property. He only gets the
equitable interest of the firm, assuming
that the selling of the property is in the
usual course of business.
- Third person will not be entitled to
equitable interest if the selling is not in
the usual course of business and he had
knowledge of the partner’s lack of
authority although the sale was made in
the usual course of business.
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 3. Title in name of one or more partners,
conveyance in name of partner or partners
whose name title stands
- The title is conveyed to the third
person.
4. Title in name of one or more or all partners or a
third person in trust for partnership,
conveyance in the partnership name or in name
of partner
- The conveyance will pass only the
equitable interest of the firm.
5. Title in the name of all partners, conveyance in
the name of all partners
- Passes title to the third person
- Even if done not in the usual way of
business
Protection of innocent purchasers for value:
1. Legal title to partnership property in partner
making the conveyance
2. Legal title of property in partnership name,
conveyed in partnership name
3. Authorization or ratification of conveyance
Art. 1820- Admissions made by a person in regard to
the liability of a third person shall take no effect
 A person is not bound by the act, admission,
statement or agreement of another of which he
has no knowledge.
 Partnership – exception to the general rule
above because all partners are agents of the
partnership (contract of agency)
 If it happens during the existence of the
partnership, it can be used as evidence against
the partnership.
 Necessity of proving existence of partnership:
1. Evidence other than the admission itself
2. Declaration made by the partner acting for
partnership – any partner speaking for the
partnership concerning partnership affairs,
while acting with the scope if his authority.
3. Declaration made in the presence of a
partner
Art. 1821- Notice to, or knowledge of, a partner of
matter affecting partnership affairs
 Operates as a notice to, or knowledge of the
partnership except in cases of fraud (fraud by a
third person to the partnership)
 If notice is delivered to a partner by a third
person, that is an effective communication to
the partnership, notwithstanding the failure of
the partner to communicate such notice or
knowledge to his co-partners.
Three cases of Knowledge of a partner
1. Knowledge of the partner acting in the
particular matter acquired while a partner
2. Knowledge of the partner acting in the
particular matter then present to his mind
- May be acquired before the partnership
and the same was then present to his
mind
3. Knowledge of any other partner who
reasonably could and should have
communicated it to the acting partner
Art. 1822- Liability arising from partner’s wrongful act
or omission, or breach of trust
Solidary liability- the creditor may proceed against any
one of the solidary debtors or some or all of them
simultaneously.
Requisites for liability:
1. The partner must be guilty of wrongful act or
omission
2. He must be acting in the ordinary course of
business or with the authority of his co-partners
even if the act is not connected with the
business
Art. 1823- the partnership is liable for any losses
suffered by a third person whose money or property is
misappropriated by:
1. a partner who received it within the scope of his
authority
2. any other partner after it was received by the
partnership in the ordinary course of business
while in its custody
ex. Misappropriation of ring as a security for a loan
obtained from a pawnshop
Art. 1824. – Solidary liability
 All partners are liable solidarily with the
partnership for everything chargeable to the
partnership under art. 1822 and 1823
 Even innocent partners are personally liable
without prejudice to their right to recover from
the guilty partner.
Art. 1825- Partner by estoppel
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.
- To protect third persons
1. Liability pro rata- when there is no existing
partnership and all those represented as
partners consented to the representation, or
not all partners consented to the
representation
- Liability of partner by estoppel and all
those who consented to such
representation is joint and pro rata
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 2. Liability separate- there is an existing
partnership, person acted alone in the
representation; there is no existing partnership
and not all but only some of those represented
consented
- Person who represented himself +
those who consented to his being a
partner are liable.
 A partnership liability results if all partners
consent to the representation.
Art. 1826.- Liability of incoming partner for existing
obligations
1. Limited to his share in partnership property for
existing obligations- unless there is a stipulation
to the contrary
2. Extends to his separate property for subsequent
obligations
Art. 1827- Preference of partnership creditors in
partnership property
-Partnership creditors are entitled to priority of
payment over those creditors of each partner
-The partnership, treated as a legal entity distinct and
separate from the members composing it, should apply
its property to the payment of its debts in preference to
the claim of any partner or his creditors.
Remedy or private creditors of partner:
 The creditors of each partner may ask for the
attachment and public sale of the share of the
latter in the partnership assets.
III. Dissolution and Winding Up
Art. 1828. – Terms defined
1. Dissolution- the change in the relation of the
partners caused by any partner ceasing to be
associated in the carrying on of the business.
-That point where partners cease to carry on
the business together. It represents the demise
Civil interdiction- deprives the offender during the time
of the partnership.
of his sentence of the right to manage his property and
2. Winding up- the process of settling the business
dispose of such property by any act or conveyance inter
or partnership affairs after dissolution
vivos to take effect during his lifetime.
3. Termination- is that point in time when all
partnership affairs are completely wound up
and finally settled. It signifies the end of the
partnership life.
Art. 1829.- Partnership not terminated by dissolution
- No new partnership business should be
undertaken, but affairs should be
liquidated and distribution made to
those entitled to the partner’s interest
- The partnership continues until the
winding up is completed.
Art. 1830- Causes of dissolution
1. Without violation of the agreement between
the partners
a. Termination of definite term- partnership
with a fixed term
b. Express will of any partner- provided that it
is a partnership at will and there must be
good faith
c. Express will of all partners- this happens
before the termination of the specific term
or particular undertaking of the partners
and must be unanimous
d. Expulsion of any partner- Good faith, a
partner expelled in bad faith can claim for
damages.
2. Dissolution effected in contravention of the
partnership agreement
- Delectus personae- Power of
dissolution always exists
- Withdrawing partner- liable for
damages for unjustified dissolution but
in no case shall he be compelled to
remain in the partnership
3. Business becomes unlawful
- Happens when a supervening event
makes the business itself unlawful
4. Loss of a specific thing- loss before delivery
-loss after delivery – partnership not dissolved
-loss where only use or enjoyment is
contributed – owner is in default with respect
to his contribution, partner bears lost alone
5. Death of any partner- winding up
- Partnership agreement may provide
that it will not effect a dissolution
6. Insolvency of any partner or of partnership
- Liability exceeds assets
7. Civil interdiction of any partner
- A partnership requires the capacity of
the partners. A convicted person
suffering from the accessory penalty of
civil interdiction cannot validly give
consent as his capacity to act is limited.
8. By decree of court under the following article
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