Short answer. Yes. Where you rescind a partnership contract because you were induced to join by fraud or misrepresentation, the Civil Code entitles you to be indemnified by the guilty party against all debts and liabilities of the partnership, on top of getting back what you put in. The wrongdoer, not you, should bear the fallout.
What the law says
To be indemnified by the person guilty of the fraud or making the representation against all debts and liabilities of the partnership.
Civil Code, Article 1838 — Rescission for Fraud in Formation. Read the full provision →
Rescission for fraud triggers these rights
The remedy assumes a specific situation: you entered the partnership because of another party's fraud or misrepresentation, and you rescind the contract on that ground. The article then gives the deceived party a package of protections without prejudice to any other right. The centrepiece for your question is the entitlement to be indemnified by the person guilty of the fraud or making the representation against all debts and liabilities of the partnership. In plain terms, the person who tricked you into joining must shield you from the partnership's debts — you should not be left carrying obligations you took on only because you were deceived.
You also recover what you contributed
Indemnity against debts is only one of three protections. The provision also gives you a lien on, or right of retention of, the surplus of the partnership property after partnership liabilities to outsiders are satisfied, covering the money you paid for your interest and any capital or advances you contributed. And once those outside creditors are paid, you are placed in the place of the creditors of the partnership for payments you made toward partnership liabilities — a right of subrogation. Together these aim to return you, as far as possible, to the position you would have held had the fraud never drawn you in.
Creditors of the partnership come first
Notice a repeated theme: your recovery is measured against the surplus and takes effect after the partnership's liabilities to third persons have been satisfied. The law does not let a defrauded partner escape at the expense of innocent outsiders who dealt with the partnership. Those creditors are paid first from partnership property; your lien, retention, and subrogation rights operate on what remains and against the wrongdoer personally. So the indemnity is a real and strong right, but it runs primarily against the guilty party rather than allowing you to simply walk away while genuine creditors go unpaid.
Proving the fraud is the hard part
The rights in this article all hinge on establishing that you were induced to join by fraud or misrepresentation and are entitled to rescind. That is a factual battle: what was represented to you, how it was false, that you relied on it, and that the reliance is what brought you in. Keep the documents that drew you into the partnership — the proposals, statements, messages, and accounts you were shown — because they are what prove or sink the claim. If you believe you were deceived into a partnership now saddled with debt, take that record to a lawyer promptly, since delay can complicate a rescission.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Primelink Properties & Devt. Corp., et al. vs. Ma. Clarita T. Lazatin-Magat, et al, G.R. No. 167379, June 27, 2006 — read the decision on LawPhil →