Partnership debts: partners answer with their own estate

It is Article 1451 of the Civil Code of 2020: how the partnership operates, what the partners answer with, which agreement is void, when it is bound towards third parties, who collects first and what the "S.E." initials do.

Partners in a partnership governed by the Puerto Rico Civil Code, and those who contract with it or lend it money.

• The partners answer with their personal estate for the partnership’s debts in a subsidiary, joint and unlimited manner.Verified against the official source
• That rule does not limit a partner’s liability for their own personal acts.Verified against the official source
• Any agreement excluding a partner from sharing in the profits is null and held as not written.Verified against the official source
• The partnership is bound towards a third party only where the partners act jointly or where it is made to appear to the third party that the partner is authorised to bind it.Verified against the official source
• The partnership’s creditors rank ahead of each partner’s creditors over the partnership’s property.Verified against the official source

• The partnership contract: it determines the partners’ rights, obligations, powers and internal liability.
• The record that the third party was made aware the partner was authorised, if a single partner bound the partnership.

1. 1

   Step 1: The partners decide how it operates

   First paragraph: the partnership’s operation is verified as the partners agree, among the known forms or those that may be established through freedom of will. The Code imposes no structure.

2. 2

   Step 2: What the partners answer with

   Second paragraph: with their personal estate, in a subsidiary, joint and unlimited manner. Three adjectives to read together: subsidiary means the partnership’s estate goes first; joint and unlimited, that theirs then comes in with no cap. The article uses those words and does not define them here.

3. 3

   Step 3: And for what one does on their own

   The second sentence of the same paragraph: this rule does not limit a partner’s liability for their own personal acts. Being a partner does not dilute what one answers for personally.

4. 4

   Step 4: The internal side is fixed by the contract

   Third paragraph: the partners’ rights and obligations are those agreed in the contract; their powers and internal liability are also determined there. That is why a written partnership contract matters so much.

5. 5

   Step 5: The agreement that does not hold

   Fourth paragraph: any agreement excluding a partner from sharing in the profits is null and held as not written. It need not be challenged to fall: the Code holds it as not written.

6. 6

   Step 6: When the partnership is bound

   Fifth paragraph: only where the partners act jointly or where it is made to appear to the third party that the partner is authorised to bind the partnership. A partner acting alone, without that authorisation appearing to the third party, does not bind the partnership under this paragraph.

7. 7

   Step 7: Who collects first from the partnership’s property

   Sixth paragraph: the partnership’s creditors rank ahead of each partner’s creditors over the partnership’s property. The preference is written over that property, not over each partner’s personal assets.

8. 8

   Step 8: The "S.E." initials and what they do

   Seventh paragraph: those who agree a special partnership created under the special laws, meeting all the requirements those laws establish, and express it with the initials "S.E." after the name, are not liable beyond their contribution for the partnership’s debts and obligations where the partnership estate does not suffice. It is the exception this article makes to unlimited liability.

9. 9

   Step 9: But the Code does not say which those laws are

   The paragraph speaks of "the special laws" and "all the requirements those laws establish" without naming one. We did not read them for this guide, so none is named here and this guide does not explain how an S.E. is formed or what requirements must be met: it says the paragraph exists and what effect it has once they are met.

10. 10

    Step 10: What this article does not carry

    It does not define subsidiary or joint, does not say in what proportion the joint liability is divided, describes no procedure for a creditor to reach the partners’ estates, and does not say how the authorisation is "made to appear" to the third party. None of that is here.

None of this is filed with an agency: the Code names none for this chapter. Creditor claims against the partnership or the partners, and disputes between partners, are decided by the Court of First Instance. The special partnership of the seventh paragraph is created under special laws the Code does not name.

• Believing being a partner protects your personal estate: you answer with it subsidiarily, jointly and without limit.
• Thinking the partnership absorbs what you do on your own: the rule does not limit liability for personal acts.
• Signing an agreement leaving a partner out of the profits: it is null and held as not written.
• Leaving powers and internal liability unwritten, which the article refers to the contract.
• Assuming any partner alone binds the partnership towards a third party.
• Not recording that the third party was made aware the partner was authorised.
• Trusting that a partner’s personal creditors will collect from the partnership’s property before its own.
• Adding the "S.E." initials to the name without having met the requirements the special laws the Code demands.
• Confusing this partnership with an LLC or a corporation, governed by other statutes.

These are the government pages this guide is based on.

• Poder Judicial de Puerto Rico

  Poder Judicial

  bvirtualogp.pr.gov