Short answer. Liable, but only up to what he put in. The Civil Code treats an incoming partner as though he had been a partner when the earlier obligations were incurred, then confines that liability to partnership property — so his personal assets are out of reach unless he agreed otherwise.
What the law says
A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred
Civil Code, Article 1826 — Liability of an Incoming Partner. Read the full provision →
What the law says
except that this liability shall be satisfied only out of partnership property, unless there is a stipulation to the contrary
Civil Code, Article 1826 — Liability of an Incoming Partner. Read the full provision →
The rule has two halves and both matter
Article 1826 provides that a person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred — and then immediately qualifies it: except that this liability shall be satisfied only out of partnership property, unless there is a stipulation to the contrary. Read only the first half and joining an indebted firm looks reckless. Read both and the position is coherent. You take on the old debts in the sense that the assets you contributed answer for them, and no further.
What that means for the money you put in
The practical effect is that a new partner's capital is at risk for obligations he had nothing to do with. Contribute cash and it can be used to pay a supplier who was owed before you had heard of the firm. That is not a defect in the arrangement; it reflects the fact that you bought into a going concern with a history, and the creditors of that history did not agree to be pushed behind you. What is protected is everything outside the partnership — your house, your salary, your other holdings — which remain beyond the reach of pre-admission creditors.
The words that undo the protection
Unless there is a stipulation to the contrary. The shield is a default, and defaults can be contracted away. A new partner who signs an admission agreement accepting existing liabilities, or who binds himself personally as surety on a bank facility or a lease that predates him, has stepped outside Article 1826's protection by consent. That personal undertaking is the usual route, because the lender will ask for it, the request will look routine, and the document will be presented alongside a dozen others. Read what is put in front of you at admission with this specific question in mind, and take advice before signing anything described as a formality.
Do the diligence before you join, not after
Since your contribution is exposed to debts already incurred, the size of those debts is part of the price of admission. Ask for the books, the list of creditors, the loan and lease documents, the tax position and any pending claims, and confirm which obligations the existing partners have secured personally. Where the picture is unclear, that is itself information. A lawyer reviewing the admission documents alongside the partnership agreement can tell you what you are agreeing to answer for — which is a far cheaper exercise before signing than a dispute about it afterwards.
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.
- Luzviminda J. Villareal, et al. vs. Donaldo Efren C. Ramirez, et al, G.R. No. 144214, July 14, 2003 — read the decision on LawPhil →