Article 1807.

Every partner must account to the partnership for any benefit, and hold
as trustee for it any profits derived from him without the consent of the partners from any
transaction connected with the formation, conduct, or liquidation of the partnership or from
any use by him of his property. 

Fiduciary duties
The relation between the partners is essentially fiduciary involving trust and confidence,
each partner considered in law, as he is, in fact, the confidential agent of the others. The duties
of a partner are analogous to those of a trustee. 

A. Duty to act for common benefit.

It is the obligation of a partner to act for the common benefit of all in all transactions
relating to the partnership business or affairs.

B. Duty to account for secret and similar profits.

A partner who makes a secret profit or accepts a secret commission out of the business
operations, is duty bound to account such profit or commissions with his co-partners.

C. Duty to account for earnings accruing even after termination of partnership.

The duty of a former partner to share profits with his former associates may extend to
earnings accruing after the termination of the partnership.
D. Duty to make full disclosure of information affecting partnership.
A partner cannot, to the detriment of the other partners, apply exclusively to his own
benefit the results of knowledge and information gained in the character of the partner.
Illustrative Case:
Facts: Rody and Leni were partners in the operation of a cinema business. The theatre was
mortgaged to Harry who foreclosed the mortgaged debt. Rody, in his own behalf, redeemed the
property with his own private funds. Subsequently, Rody filed a petition for the cancellation of
the old title of the partnership and the issuance of another title in his name alone.

Issue: Did Rody become the absolute owner of the property?

Held: No. In this case, when Rody redeemed the property in question, he became a trustee for
the benefit of his co-partner Leni, subject to his right to demand from Leni her contribution to the
redemption price plus the legal interest.
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
profit accruing to him from his transactions and shall personally bear all the losses. 

The prohibition against the capital partner to engage in any business is relative unlike the
industrial partner who is absolutely prohibited from engaging in any business for himself.

General rule: The law does not prohibit a partner from engaging in enterprises in his own
behalf during the period that he is a partner but permits him to carry a business or activity not
connected or competing with that of partnership.
Exception: The partnership agreement prohibits such activity.

Note: The law is silent on whether a capitalist partner can engage in the same line of business
for the account of another. It is believed that the prohibition applies.

Effects of violation
(1) The violator shall bring to the partnership all the profits illegally obtained.
(2) He shall bear all the losses.
(3) The violator can be ousted from the firm on the ground of loss of trust and confidence
This course would result in the dissolution of the partnership.

Article 1809. Any partner shall have the right to a formal account as partnership affairs: 
(1) If he is wrongfully excluded from the partnership business or possession of its property
by his co-partner; 
(2) If the right exists under the terms of any agreement; 
(3) Provided by article 1807;
(4) Whenever other circumstances render it just and reasonable, Right of the partner to a
formal account. 

General rule: During existence of partnership, a partner is not entitled to a formal account of
partnership affairs. 
Reason: Rights of partner amply protected in Art.1805 and 1806. In addition, it would cause
much inconvenience and unnecessary waste of time. 
Exception: In the special and unusual situations enumerated under Art. 1809.

Note: A formal account is a necessary incident in the dissolution of a partnership.

SECTION 2. Property Rights of a Partner

Article 1810. The property rights of a partner are: 

(1) His rights in specific partnership property (Article 1811); 
(2) His interest in the partnership (Article 1812); 
(3) His right to participate in the management, extent of property rights of a partner (Article
1813). 

Enumerated in Article 1810 are the principal rights of a partner.

Related rights of a partner

(1) Right to reimbursement for amounts advanced to partnership and to indemnification for
risks inconsequence of management (art. 1796). 
(2) Right of access and inspection of partnership books (art. 1805).
(3) Right to true and full information of all things affecting partnership (art. 1806).
(4) Right to formal account of partnership affairs under certain circumstances (art.  1809). 
(5) Right to have partnership dissolved also under certain conditions (arts. 1830- 1831). 

Partnership Property and Partnership Capital distinguished

Partnership Property Partnership Capital
Changes in value Variable. Its value may vary Constant. It remains unchanged
form day to day with changes in as the amount fixed by the
the market value. agreement of the partners.
Assets included 1. Original Capital contributions 1. Aggregate capital
contributions made by
2. All property subsequently partners which has been
acquired on account of the fixed by agreements.
partnership or with
partnership funds including
the partnership name and
the goodwill.

Ownership of certain property

(1) Property used by the partnership.
The use of such property by the partnership does not constitute ownership unless there
is an express agreement.
Note: The intent of the parties –whether the property in question shall belong to the
partnership shall belong to the partnership or themselves- is the controlling factor.

(2) Property acquired by a partner with partnership funds.

The property is presumed to be partnership property unless a contrary intention
appears.
Note: If the property is 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 acquisition.

(3) Property carried in the partnership books as partnership asset.

 This fact creates a very strong inference that it is the partnership property. The
inference is stronger if the records carry as a partnership liability an unpaid balance on
the property.

(4) Other factors tending to indicate property ownership.

The fact that the income generated by the property is received by the partnership or the
taxes thereon are paid by the partnership is evidence that the partnership is the owner.
Note: If the partnership funds were later used to repair or maintain a property
purchased by funds of an individual partner, it is not sufficient to assume that the
property belongs to the partnership.

Article 1811. A partner is co-owner with his partners of specific partnership property.
The incidents of his co-ownership is 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 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. (Civil Code; Republic Act No. 386)

Note: Article 1811 contemplates tangible property but not intangible things. A partner is a
co-owner with his partners of specific partnership property, but the rules on co-ownership
do not necessarily apply. The legal incidents of this tenancy in partnership are
distinctively characteristic of the partnership relation. They are as follows: 

1. Equal rights of possession –

Ordinarily, a partner has an equal right to possess specific partnership property for
partnership purposes. None of the partners can possesses and uses the specific
partnership property other than for partnership purposes without the consent of the other
partners.
 Should any of them use the property for his own benefit, he must account, like a
stranger, to the others for the profits derived there from or the value of his
wrongful possession or occupation.
 A partner wrongfully excluded from possession of partnership property by a co-
partner has a right to formal account and may even apply for a judicial decree of
dissolution.
 The wrongful exclusive possession of a partnership property by one or more
partners may be a ground for dissolution.
  By agreement, the right to possess specific partnership property may be
surrendered.

2. Rights not assignable

A partner cannot separately assign his right to specific partnership property but all of
them can assign their rights in the same property. 

Illustrative Example:
In Partnership ABC, Partner A, B, or C cannot assign his right to the land but all of
them can assign their rights in the same property.

Reasons for non-assignability: 

 It prevents interference by outsiders in partnership affairs; 
 It protects the right of other partners and partnership creditors to have
partnership assets applied to firm debts; 
 It is often impossible to determine the extent of a partner’s beneficial interest
in a particular partnership asset.

Reason for impossibility:
Each partner, having a beneficial interest in the partnership property
considered as a whole, has a beneficial interest in each part.

Note: The law allows a retiring partner to assign his rights in partnership property to
the partner(s) continuing the business. 

3. Attachment or Execution
A partnership property may be subject to attachment or execution only on claim against
the partnership and not of the partners.

Illustrative Example:
In the same example above, the land is not considered the separate property of A, B,
and C. It belongs to the partnership as a juridical person and a partner has no interest
in it but his share of what remains after all partnership debts are paid. Consequently,
the land is not subject to attachment or execution except a claim against partnership.

4. Legal support
In the same example above, the right of A, B, and C to the land is not subject to any
legal support. But their interest in the partnership is of course, subject to legal support.

5. Partner’s interest not a debt due from partnership

A partner is not a creditor of the partnership for the amount of his share.
 Article 1812. A partner’s interest in the partnership is his share of the profits and surplus. 

Profits: The excess of returns over expenditure in a transaction or series

of transactions; or the net income of the partnership for a given period. 

Surplus: Tthe assets of the partnership after partnership debts and liabilities are paid
and settled and the rights of the partners among themselves are adjusted. It is the excess of
assets over liabilities. If the liabilities are more than the assets, the difference represents the
extent of the loss.

Article 1813. A conveyance by a partner of his whole interest in the partnership does not of itself
dissolve the partnership, or, as against the other partners in the absence of agreement, entitle the
assignee, during the continuance of the partnership, to interfere in the management or
administration of the partnership business or affairs, or to require any information or account of
partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to
receive in accordance with his contract the profits to which the assigning partner would otherwise be
entitled. However, in case of fraud in the management of the partnership, the assignee may avail
himself of the usual remedies.
In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's
interest and may require an account from the date only of the last account agreed to by all the
partners.

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. 

Note: The assignment does not divest the assignor of his status and rights as a partner nor
operate as dissolution. 

Rights of assignee of partner’s interest

1. To receive in accordance w/ 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 the
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, and such account shall cover the period from the date only of the last account
agreed to by all partners. The purchaser of a partner’s interest may apply to the court for
dissolution after the termination of the specified term or undertaking or at any time if the
partnership is one at will. 

Note: The mere assignment of a partner's interest does not dissolve the partnership.
Article 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 unsatisfied amount of such judgment debt with interest thereon; and may
then or later appoint a receiver of his share of the profits, 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 the circumstances of the case
may require.
The interest charged may be redeemed at any time before foreclosure, or in case of a
sale being directed by the court, may be purchased without thereby causing a dissolution:
(1) With separate 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 charged or sold.
Nothing in this Title shall be held to deprive a partner of his right, if any, under the
exemption laws, as regards his interest in the partnership.

Remedies of separate judgment creditor of a partner

a. Application for a charging order after securing judgment on this credit.
A separate creditor of a partner cannot attach or levy upon specific partnership property for
the satisfaction of his credit. He can however secure a judgment on his credit and then apply
to the court for a charging order subjecting the interest of a debtor-partner in the partnership
with the payment of the unsatisfied amount of such judgment with interest thereon.

b. Preferred rights of partnership creditors

The claims of partnership creditors must be satisfied first before the separate creditors of the
partners can be paid out of the interest charged.

c. Availability of other remedies

Illustrative example:
Facts: Xi recovers a judgement against Rody, a member of partnership PH composed of Rody
and Leni, on Rody’s individual liability. The partnership is very profitable and Leni is solvent, but
Rody is in deep financial trouble.
Isuue: May Xi attach any portion of the partnership property or execute against the same, or go
after A’s share of the partnership assets/
Held: No. Xi’s remedy is to apply for a charging order from a court against the partnership. No
specific property is attached. The partnership continues and Xi’s judgment is satisfied out of
partnership assets. Under the charging order, Rody’s share in the profits is paid to Xi until the
claims of Xi are fully paid. The partnership need not be necessarily dissolved. Leni is protected.
Rody, the debtor, only suffers.
Redemption or purchase of interest charged.
1. Redemptioner- The interest of the debtor-partner so charged may be redeemed with
the separate property of anyone or more of the or with partnership property but with the
consent of all the partners whose interests are not so charged or sold.

2. Redemption price- In an ordinary sale the price of the thing sold theoretically
represents its market or actual value. However, in a foreclosure sale, it will be dependent
on the amount of the unsatisfied judgment debt.

3. Right of redeeming non-debtor-partner- the redeeming non-debtor-partner, it does not

acquire absolute ownership over the debtor-partner's interest but hold it in trust for him
consistent with the principles of fiduciary relationship.

Right of partner on the exemption laws

Under article 1811 a partner cannot claim any right under the homestead loss or exemption lost
one specific partnership property is a task for partnership debt. With respect, however, the
partner's interest in the partnership as distinguished from his interest in specific partnership
property, the partner may avail himself of the exemption laws after partnership debts have been
paid. A partner's interest or share in a partnership is really his property.

Article 1815. Every partnership shall operate under a firm name, which may or may not
include the name of one or more of the partners, those who, not being members of the
partnership, include their names in the firm name, shall be subject to liability of a partner.

Meaning of word “firm” – The name, title, or style under which a company
transacts business; a partnership of two or more persons; a commercial house. In its
common acceptation, the term implies a partnership. The term is also used as synonymous
with “company,” “house,” and “concern.” 

Importance of having a firm name - 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 and entities. 

General Rule: The partners have the freedom in the selection of partnership name.
Exception: The name chosen is not similar to a name which was previously adopted by any
other entity, or interfere with the rights of others, or is contrary to law.
Note: The used of names of deceased partners is permissible provided that the firm indicates in
all communications that said partner is deceased.

Illustrative Example:
SGV & Co. is an example of firm who uses names of deceased persons as their firm name.
SyCip, Gorres, and Velayo were all deceased.
Liability inclusion of name in the firm name 
Persons who, not being partners, include their names in the firm name do not acquire the rights
of a partner but shall be subject to the liability of a partner insofar as third persons without notice
are concerned. Such persons become partners by estoppel.

Note: Article 1815 does not cover the case of a limited partner who allows his name to be
included in the firm name, or of a person continuing the business of a partnership
after dissolution, who uses the name of the dissolved partnership or the name of a deceased
partner as part thereof. 

Article 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.
General Rule: The partner has the right to make all partners liable for contracts he makes for
the partnership in the name and for the account of partnership.
Exception: A partner may make himself solidarily liable when he assumes a separate
undertaking in his name with a third party to perform a partnership contract.

The liability of partners to creditor is pro rata and subsidiary.

1. Pro rata liability – Literally, pro rata liability means proportionate distribution of
liability.
2. Subsidiary or secondary- The partners become personally liable only after all the
partnership assets have been exhausted.
Note: Industrial partners are still liable to the creditors but are entitled for reimbursement
from the capitalist partners unless there is a stipulation (Art 1816) but the latter are not
entitled for losses (Art 1797).

Illustrative Example:
U and I are capitalist partners, with X as an industrial partner. U and I contributed P10,000
each to the capital of the partnership. A contractual liability of P26,000 was incurred by the
partnership in favor D.

Under Article 1816, Creditor D, can sue the firm and all the partners including X, the
industrial partner. The capital assets of P20,000 shall be first exhausted thereby leaving an
unsatisfied liability of P6,000. D can recover the amount from partners U, I, and D jointly or
pro rata at P2,000 each. After the payment, X can recover for reimbursement of P1,000
each from Partners U and I.
 I. True or False
1. Each partner, under the rule of law, is considered a confidential agent of
the other partners.
2. A capitalist partner is absolutely prohibited to engage in any other
business.
3. A partner has a right to constantly demand for formal account as to
partnership affairs.
4. The assignee cannot avail himself of the usual remedies in case of fraud
in the management.
5. A partner’s right in a specific property is subject to legal support.
6. Surplus is the net income of the partnership for a given period of time.
7. The assignment of a partner's interest does not dissolve the partnership.
8. As a general rule, all partners shall be liable pro rata for the partnership
liability.
9. An assignee can interfere in the management with consent of the
assignor.
10. A partner can assign his right to a specific partnership property.
II. Enumeration
1. Principal rights of a partner (3)
2. Partner’s interest in the partnership (2)
3. Rights withheld from the assignee (3)

Answer Key
I. True or False
1, 7, 8 True
2-6,9,10 False

II. Enumeration
1. Principal rights of a partner
(a) His rights in specific partnership property
(b) His interest in the partnership
(c) His right to participate in the management, extent of property rights of a partner

2. Partner’s interest in the partnership

(a) His share in profits
(b) His share in the surplus

3. Rights withheld from the assignee

(a) To interfere in the management.
(b) To require any information or account.
(c) To inspect any of the partnership books.