LAW ON PARTNERSHIPS

Civil Code of the Philippines
Arts. 1767-1867
Note: This material, which is a compilation of various notes and lectures, is intended for the students of
SLU-SABM who are enrolled in Law 3A or Law 3 to aid them in their appreciation and better understanding
of the subject. This is not for sale.
CHAPTER 1 – GENERAL PROVISIONS
PARTNERSHIP - By the contract of partnership, two or more persons bind themselves to contribute money,
property or industry to a common fund, with the intention of dividing the profits among themselves. Two or
more persons may also form a partnership for the exercise of a profession (Art. 1767)
ESSENTIAL FEATURES:
1. There must be a valid contract
2. The parties must have legal capacity to enter into the contract
3. There must be a mutual contribution of money, property, or industry to a common fund
4. The object must be lawful
5. The purpose or primary purpose must be to obtain profits and divide the same among the parties
CNBOCPP

CHARACTERISTICS: Consensual, Nominate, Bilateral, Onerous, Commutative, Principal, Preparatory
DELECTUS PERSONAE – The principle of delectus personae (literally means “choice of person”) in
partnership relations refers to the rule which is inherent in every partnership that no one can become a member
of the partnership association without the consent of all the partners. Consequently, even if a partner will
associate another person in his share in the partnership, the associate shall not be admitted into the partnership
without the consent of all the partners, even if the partner having an associate should be a manager.

A partnership is a juridical person having a personality separate and distinct from that of each of the
partners, even in case of failure to comply with the requirements of Art. 1772, first paragraph ( the rule
that a partnership having a capital of P3,000 or more must appear in a public instrument & recorded
with the SEC).

PARTNERSHIP DISTINGUISHED FROM CO-OWNERSHIP AND CORPORATION
PARTNERSHIP
CO-OWNERSHIP
CORPORATION
Creation
Contract, by mere
Created by law
Created by law
agreement of the parties
Juridical Personality
Has a juridical personality
none
Has a juridical personality
separate and distinct from
separate and distinct from
that of each partner
that of the stockholders
Purpose
Realization of profits
Common enjoyment Depends on AOI
of a thing or right
Duration/Term of
No limitation
10 years maximum
50 years maximum extendible
existence
to not more than 50 years in
any one instance
Disposal/Transferability Partner may not dispose of
Co-owner may
Stockholder has a right to
of interest
his individual interest
freely do so
transfer shares without prior
unless agreed upon by all
consent of other stockholders
partners
Law3A – Notes on Partnerships

Atty. Jonathan B. Tambol

1773) a. The contributions of the partners shall not be confiscated unless they fall under no. 1769) 1. Both can only act through agents 3. Both are taxable as a corporation EFFECTS OF UNLAWFUL PARTNERSHIP (Art. 3. Both have juridical personality separate and distinct from that of the individuals composing it 2. Both organizations are composed of an aggregate of individuals (except corporation sole) 4. 1772) a. 1844) Law3A – Notes on Partnerships Atty. in money or property (Art. Where immovable property/real rights are contributed (Art. The contract is void ab initio and the partnership never existed in the eyes of the law 2. The profits shall be confiscated in favor of the government 3. signed by the parties and attached to the public instrument otherwise it is VOID 2. The instruments or tools and proceeds of the crime shall also be forfeited in favor of the government 4. of incorporators Minimum of 2 persons Commencement of juridical personality From the moment of execution of the contract of partnership Co-owner cannot represent the coownership Management is vested with the Board of Directors Death of co-owner does not necessarily dissolve coownership May be dissolved anytime by the will of any or all of the co-owners Minimum of 2 persons Death of stockholder does not dissolve corporation Can only be dissolved with the consent of the state Minimum of 5 incorporators From the date of issuance of certificate of incorporation by the SEC NO PRESUMPTION OF PARTNERSHIP FROM RECEIPT OF PROFITS: (Art. 5. 1770) 1. As consideration for sale of goodwill of business/other property by installments SIMILARITIES BETWEEN A PARTNERSHIP AND A CORPORATION 1. Inventory of the property contributed must be made. 1771) EXCEPTIONS: 1.Power to act with 3rd persons Effect of death In absence of stipulation to the contrary. Must be registered with SEC 3. Both can only be organized when there is a law authorizing their organization 6. 2. 3 FORM OF PARTNERSHIP CONTRACT GENERAL RULE: No special form is required for the validity of the contract (Art. Jonathan B. As wages or rent.000 or more. As interest on loan. Public instrument is necessary b. As debt by installment. Where capital is P3. Public instrument is necessary b. Both distribute profits to those who contribute capital to the business 5. As annuity. Tambol . 4. a partner may bind partnership (each partner is agent of the partnership) Death of partner results in dissolution of the partnership Dissolution May be dissolved at any time by the will of any or all of the partners No. Limited Partnership (Art.

Tambol . 1780) .a. As to representation to others Law3A – Notes on Partnerships Atty. must be signed and sworn to by the partners b.PARTNERSHIP WITH A FIXED TERM .DE JURE PARTNERSHIP . UNIVERSAL PARTNERSHIP i.PARTNERSHIP AT WILL . Such certificate must be filed with the Office of the SEC CLASSIFICATIONS OF PARTNERSHIP 1. 1783) .GENERAL PARTNERSHIP .PARTICULAR PARTNERSHIP (Art.LIMITED PARTNERSHIP .one formed by 2 or more persons having as members one or more general partners and one or more limited partners.one which has complied with all the legal requirements for its establishment b..one which has failed to comply with all the legal requirements for its establishment 5. Determinate things ii.DE FACTO .comprises all that the partners may acquire by their industry or work during the existence of the partnership Note: Persons who are prohibited from giving donations or advantage to each other cannot enter into a universal partnership (e.g.one in which no time is specified and is not formed for a particular undertaking or venture which may be terminated anytime by mutual agreement b.has for its objects: i. As to legality of existence a. Specific undertaking iv. Must be contained in a Certificate of Limited Partnership which states the matters enumerated under Article 1844. the latter not being personally liable for the obligations of the partnership 3. 1778-1779) . As to liability of partners a. husband and wife) b. As to extent of its subject matter a. Jonathan B. UNIVERSAL PARTNERSHIP OF PROFITS (Art.consists of general partners who are liable pro rata and subsidiarily and sometimes solidarily with their separate property for partnership debts b.UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY (Art.comprises the following: a) Property which belonged to each of the partners at the time of the constitution of the partnership b) Profits which they may acquire from all property contributed ii.the term for which the partnership is to exist is fixed or agreed upon or one formed for a particular undertaking 4. Their use or fruits iii. As to duration a. Exercise of profession or vocation 2.

CAPITALIST .one who manages the affairs or business of the partnership 6. Relations among the partners themselves Relations of the partners with the partnership Relations of the partnership with 3rd persons with whom it contracts Relations of the partners with such 3rd persons Law3A – Notes on Partnerships Atty.SURVIVING PARTNER .one who does not take any active part in the business although he may be known to be a partner 14.one who contributes only his industry or personal service 3.one whose liability to 3rd persons extends to his separate property 4.PARTNER BY ESTOPPEL .INDUSTRIAL .one which in reality is not a partnership but is considered a partnership only in relation to those who. retirement.GENERAL .SECRET PARTNERSHIP .one wherein the existence of certain persons as partners is not avowed or made known to the public by any of the partners b.one who is not really a partner but is liable as a partner for the protection of innocent 3rd persons 8.one formed for the transaction of business b.MANAGING .one which actually exists among the partners and also as to 3rd persons b.LIMITED .OPEN OR NOTORIOUS PARTNERSHIP .SILENT .ORDINARY OR REAL PARTNERSHIP .one who remains after a partnership has been dissolved by death of any partner 10.OSTENSIBLE OR PARTNERSHIP BY ESTOPPEL .one who takes charge of the winding up of partnership affairs upon dissolution 7.COMMERCIAL OR TRADING PARTNERSHIP .OSTENSIBLE .one who takes active part and known to the public as partner in the business 12.LIQUIDATING .one whose liability to 3rd persons is limited to his capital contribution 5. Jonathan B.PROFESSIONAL OR NON TRADING PARTNERSHIP . 2.one who is not a member of the partnership who contracts with a partner with reference to the latter's share in the partnership 11.DORMANT .CONTINUING PARTNER .a.one whose existence is avowed or made known to the public by the members of the firm 7. are precluded to deny or disprove its existence 6. by their conduct or omission.SUBPARTNER .one who contributes money or property to the common fund 2.SECRET . 3. Tambol .one who does not take active part in the business and is not known or held out as a partner CHAPTER 2 – OBLIGATIONS OF THE PARTNERS RELATIONS CREATED BY A CONTRACT OF PARTNERSHIP 1. 4.one formed for the exercise of a profession KINDS OF PARTNERS: 1.one who continues the business of a partnership after it has been dissolved by reason of the admission of a new partner. As to purpose a.one who takes active part in the business but is not known to be a partner by outside parties 13. death or expulsion of one of the partners 9. As to publicity a.

1789) Industrial partner cannot engage in business (w/n same line of business with the partnership) unless Law3A – Notes on Partnerships CAPITALIST PARTNER (Art. To preserve said property with the diligence of a good father of a family pending delivery to partnership 5. Remedy of the other partner is not rescission but specific performance with damages from defaulting partner Obligations with respect to contribution of money and money converted to personal use (Art. if he fails to pay his contribution on time or in case he takes any amount from the common fund and converts it to his own use 4. Some obligations of a partner: (CCU-ADDS) 1. Not to convert firm money or property for his own use (1788) 3. Duty to credit to the firm payment made by a debtor who owes him and the firm (1792) 7. To account for and hold as trustee unauthorized personal profits (1807) 5. To give his contribution (1786. Jonathan B. Pay for damages caused by his fault (1794) 6. property or industry which he may have promised to contribute 2. Tambol . Right to demand a formal account (1809) 5. Property rights (1810) a. 1788) 2. 1788) 1. To indemnify the partnership for the damages caused to it by delay in the contribution or conversion of any sum for his personal benefits PROHIBITION AGAINST ENGAGING IN BUSINESS PROHIBITION INDUSTRIAL PARTNER (Art. 1786): 1. Not to engage in unfair competition with his own firm (1789. To indemnify partnership for any damage caused to it by the retention of the same or by the delay in its contribution Effect of Failure to contribute property promised: 1. To share with the other partners the share of the partnership credit which he has received from an insolvent firm debtor (1793)  Some rights of a partner: (PAIDD) 1. To reimburse any amount he may have taken from the partnership coffers and converted to his own use 3. from the date they should have been contributed up to the time of actual delivery 4. Right to ask for the dissolution of the firm at the proper time (1830-1831) A.) Interest in the partnership (1812) c. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES (Section 1) Obligations with respect to contribution of property (Art. 1808) Capitalist partner cannot engage in business (with same kind of Atty. To answer to the partnership for the fruits of the property the contribution of which he delayed. Right to inspect and copy partnership books (1805) 4. Partners becomes ipso jure a debtor of the partnership even in the absence of any demand 2. To contribute on the date fixed the amount he has undertaken to contribute to the partnership 2. To contribute at the beginning of the partnership or at the stipulated time the money. To answer for eviction in case the partnership is deprived of the determinate property contributed 3. To pay for the agreed or legal interest. Right to associate with another person in his share (1804) 3. 1808) 4.) Rights in specific partnership property b.) Right to participate in the management (1810) 2.

Damages.: It is believed that industrial partners are also entitled to the remedy granted since they are equally prejudiced business with the partnership) for his own account. The capitalist partner refuses deliberately to contribute (not due to financial inability) d. The majority of the capitalist partners are of the opinion that an additional contribution to the common fund would save the business c. Avail themselves of the benefits which he may have obtained 3. unless there is a stipulation to the contrary Capitalist partner in violation shall: 1. one where the collecting partner is creditor and the other. There is no agreement to the contrary Obligation of managing partners who collects debt from person who also owed the partnership (Art. Partners (capitalist) must contribute additional capital In case of imminent loss to the business of the partnership and there is no stipulation otherwise.partnership expressly permits him to do so REMEDY Capitalist partners may: 1. 2. his share of the partnership credit b. 1790-1791) 1. Partners must contribute equal shares to the capital of the partnership unless there is stipulation to contrary 2. Tambol . Apply sum collected to 2 credits in proportion to their amounts 2. There exist at least 2 debts. Obliged to bring to the partnership capital what he has received even though he may have given receipt for his share only Requisites: a. Both debts are demandable c. Bear all losses Obligations with respect to contribution to partnership capital (Arts. Jonathan B. in either case N. the whole sum shall be applied to partnership credit Requisites: a. The partnership debtor has become insolvent RISK OF LOSS OF THINGS CONTRIBUTED (Art. and 2. 1795) Specific and determinate things which are not fungible where only the use is contributed Specific and determinate things the ownership of which is transferred to the partnership Fungible things (consumable) Law3A – Notes on Partnerships Risk is borne by partner Risk is borne by partnership Risk is borne by partnership Atty. There is an imminent loss of the business of the partnership b. If he received it for the account of partnership. Exclude him from the firm. Bring to common fund any profits accruing to him from said transaction.B. 1793) 1. refusal to do so shall create an obligation on his part to sell his interest to the other partners Requisites: a. The partner who collects is authorized to manage and actually manages the partnership Obligation of partner who receives share of partnership credit (Art. The other partners have not collected their shares c. 1792) 1. A partner has received in whole or in part. where the partnership is the creditor b.

2. Right not assignable. decision of majority shall prevail. Share in the profits and surplus Law3A – Notes on Partnerships Atty. All partners are agents of the partnership Unanimous consent required for alteration of immovable property In case of opposition.Things contributed to be sold Things brought and appraised in the inventory Risk is borne by partnership Risk is borne by partnership RULES FOR DISTRIBUTION OF PROFITS AND LOSSES (Art. 1800-1803) Partner is appointed manager in the articles of partnership Partner is appointed manager after constitution of partnership 2 or more persons entrusted with management of partnership without specification of duties/stipulation that each shall not act w/o the other’s consent Stipulated that none of the managing partners shall act w/o the consent of others Manner of management not agreed upon Power of managing partner is irrevocable without just/lawful cause. not subject to legal support 3. Jonathan B. Share of industrial partner is not fixed – as may be just and equitable under the circumstances 1. Equal right to possession 2. revocable only when in bad faith Power is revocable any time for any cause Each may execute all acts of administration Vote of partners representing controlling interest necessary to revoke power Concurrence of all necessary for the validity of acts Absence or disability of any one cannot be alleged unless there is imminent danger of grave or irreparable injury to the partnership If refusal of partner is manifestly prejudicial to interest of partnership. If no profit sharing stipulated – losses shall be borne according to capital contribution 3. 1811) 1. His right to participate in the management Nature of partner's right in specific partnership property (Art. His interest in the partnership 3. In case of tie. Share of capitalist partner is in proportion to his capital contribution 2. Tambol . court's intervention may be sought 1. Purely industrial partner not liable for losses RIGHTS AND OBLIGATIONS WITH RESPECT TO MANAGEMENT (Arts. 1812) 1. Right limited to share of what remains after partnership debts have been paid Nature of partner's interest in the partnership (Art. not subject to attachment or execution. His rights in specific partnership property 2. If sharing of profits is stipulated – apply to sharing of losses 2. decision of partners owning controlling interest shall prevail B. 1797) With agreement Without agreement DISTRIBUTION OF PROFITS According to agreement DISTRIBUTION OF LOSSES According to agreement 1. PROPERTY RIGHTS OF A PARTNER (Section 2) 1.

The continued use of the name of a deceased partner is permissible provided that the firm indicates in all its communications that said partner is deceased (Art. (Art.) A partner commits a wrongful act or omission. A receiver of the debtor partner’s share of the profits may even be appointed. 2. To avail himself of the usual remedies in case of fraud in the management. 2. This charging order.) The partnership may be dissolved. accounting. is always subject to the preferred rights of partnership creditors. inspection of the partnership books.  Charging Order – refers to the remedy available to a judgment creditor of a debtor partner to charge the interest of the latter in the partnership by means of a court order for the purpose of satisfying the amount of the judgment. error. 1816) a. b. force. with a right to demand accounting and settlement. 4. OBLIGATION OF PARTNERS WITH REGARD TO THIRD PERSONS (Section 3) Nota Bene (Note well): 1. 1814) C. To get whatever profits the assignor-partner would have obtained. after all partnership assets have been exhausted (Art. Knowledge of partner acting in the particular matter acquired while a partner b. intimidation. To ask for annulment of the contract of assignment if he was induced to enter into it thru any of the vices of consent (fraud. Tambol . The assignee cannot even interfere in the management or administration of the partnership business or affairs. 1821): a. Rights of the Assignee: 1. The assignor is still the partner. Every partnership shall operate under a firm name. All partners (including Industrial partners) shall be liable for contractual obligations of the partnership with their property. Requisites: a. If a partner conveys his whole interest in the partnership. Admission or representation made by any partner concerning partnership affairs within scope of his authority is evidence against the partnership 4. either of 2 things may happen: a. 3. To demand an accounting (only if indeed the partnership is dissolved). however. 3. 1822). 4. 1815). The assignee does not necessarily become a partner. Notice to partner of any matter relating to partnership affairs operates as notice to partnership except in case of fraud (Art. Law3A – Notes on Partnerships Atty. Subsidiary 3. Knowledge of the partner acting in the particular matter then present to his mind c. The assignee cannot also demand information.) The partnership may still remain. Persons who include their names in the partnership name even if they are not members shall be liable as a partner. Jonathan B. 2. 1813): 1. Pro rata – based on the number of partners and not on the amount of their contributions b. insane). undue influence) or if he himself was incapacitated to give consent (minor.Effects of conveyance by partner of his interest in the partnership (Art. Partners and the partnership are solidarily liable to 3rd persons for the partner's tort or breach of trust (Art. Knowledge of any other partner who reasonably could and should have communicated it to the acting partner 5.

Tambol . His separate property for subsequent obligations 7. 6. Every partner is an agent of the partnership (Art. or 2. Conveyance executed in partnership name or in name of partners Law3A – Notes on Partnerships Conveyance passes title but partnership can recover if: 1. Conveyance in partnership name Title in partnership name. Buyer had knowledge of lack of authority Conveyance will only pass equitable interest Atty. His share in the partnership property for existing obligations b. or 2. Conveyance was not in the usual way of business. Do an act w/c would make it impossible to carry on ordinary business of partnership d. Conveyance was not in the usual way of business. or 2. Act w/c is not apparently for the carrying of business in the usual way 2. Renounce claim of partnership Acts in contravention of a restriction on authority Every partner is an agent and may execute acts with binding effect even if he has no authority Except: when 3rd person has knowledge of lack of authority Does not bind partnership unless authorized by other partners Partnership not liable to 3rd persons having actual or presumptive knowledge of the restrictions EFFECTS OF CONVEYANCE OF REAL PROPERTY BELONGING TO PARTNERSHIP (Art. Conveyance in partner's name Title in name of 1/ more partners. Buyer had knowledge of lack of authority Conveyance passes title but partnership can recover if: 1. Conveyance in name if partner/partners in whose name title stands Title in name of 1/more/all partners or 3rd person in trust for partnership. Confess a judgment e. Dispose of good-will of business c. Buyer had knowledge of lack of authority Conveyance does not pass title but only equitable interest. Enter into compromise concerning a partnership claim or liability f. Assign partnership property in trust for creditors b.) Loss or injury is caused to any third person. 1819) Title in partnership name. 1826): a. c. Submit partnership claim or liability to arbitration g. 1827) 8.b. Liability of incoming partner is limited to (Art. Conveyance was not in the usual way of business.) He is acting in the ordinary course of the business of the partnership or with the authority of his copartners. Jonathan B. 1818). Acts of strict dominion or ownership: a. Creditors of partnership preferred in partnership property & may attach partner's share in partnership assets (Art. 1818) Acts for carrying on in the usual way the business of the partnership 1. POWER OF PARTNER AS AGENT OF PARTNERSHIP (Art. unless: 1.

with the original members and the deceiver as partners.) Existing partnership and not all of the partners consented Separate liability a. To refund the amounts disbursed by partner in behalf of the partnership + corresponding interest from the time the expenses are made (loans and advances made by a partner to the partnership aside from capital contribution) Law3A – Notes on Partnerships Atty. Conveyance in name of all partners Conveyance will pass title PARTNER BY ESTOPPEL/PARTNERSHIP BY ESTOPPEL (ART. Statement of defendant not refuted D. Through estoppel. either express or implied. RESPONSIBILITY OF PARTNERSHIP TO PARTNERS 1.) Existing partnership but no one of the partners consented NOTA BENE: Estoppel does not create partnership. Indirectly represents himself by consenting to another representing him as a partner in an existing partnership or in a non-existing partnership PARTNERSHIP BY ESTOPPEL – arises when all the actual partners consented to the representation. Tambol . Elements to establish liability as a partner on ground of estoppel: 1. Liability is created only in favor of persons who. This is the only instance under our law when an existing partnership is bound by the representation made by or in behalf of a partner by estoppel.) No existing partnership and not all but only some of those represented as partners consented b. The law considers the persons involved as partners and the association as a partnership only in so far as it is favorable to third persons by reason of the equitable principle of estoppel. Directly represents himself to anyone as a partner in an existing partnership or in a non-existing partnership (with one or more persons not actual partners) 2. as a partner either in an existing partnership or in one that is fictitious or apparent. Jonathan B. Plaintiff relied on such representation 3.    Partnership liability – when all the actual partners consented to the representation Pro rata liability (Joint) a. gave credit to the actual or apparent partnership. or consents to another or others representing him to anyone. PARTNER BY ESTOPPEL – refers to a person who represents himself. an admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon. 1825) 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. Defendant represented himself as partner/represented by others as such and not denied/refuted by defendant 2. on the faith of the representation. Two Instances: 1.) No existing partnership and all those represented as partners consented b.Title in name of all partners.

To answer for risks in consequence of its management CHAPTER 3 .Decree of court under art 1831 GROUNDS FOR DISSOLUTION BY DECREE OF COURT (Art.DISSOLUTION AND WINDING UP DISSOLUTION . either before or after the termination ofany specified term or particular undertaking d.Loss of specific thing promised by partner before its delivery 5.process of settling the business or partnership affairs after dissolution TERMINATION – the point in time when all partnership affairs are wound up.By the express will of all the partners who have not assigned their interest/charged them for their separate debts.Insolvency of a partner/partnership 7. Incapacity of partner to perform his part of the partnership contract 3. Tambol .By the express will of any partner. Anytime if partnership at will when interest was assigned/charging order issued Law3A – Notes on Partnerships Atty.In contravention of the agreement between the partners. partnership is not terminated but continues until the winding up of partnership affairs is completed WINDING UP . 1831) 1.2.change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business. where the circumstances do not permit a dissolution under any other provision of this article. After termination of specified term/particular undertaking 2. 1830): VIC LIED 1. Partner guilty of conduct prejudicial to business of partnership 4. Jonathan B.Death of any partner 6. by the express will of any partner at any time 3.By the expulsion of any partner from the business bonafide in accordance with power conferred by the agreement 2. Business can only be carried on at a loss 6. Other circumstances which render dissolution equitable Upon application by purchaser of partner's interest: 1. Willful or persistent breach of partnership agreement or conduct which makes it reasonably impracticable to carry on partnership with him 5.Without violation of the agreement between the partners a. who must act in good faith.Partner declared insane in any judicial proceeding or shown to be of unsound mind 2. By any event which makes it unlawful for business to be carried on/for the members to carry it on for the partnership 4. when no definite term or particular undertaking is specified c. CAUSES OF DISSOLUTION (Art.To answer for obligations partner may have contracted in good faith in the interest of the partnership business 3.By termination of the definite term/ particular undertaking specified in the agreement b.Civil interdiction of any partner 8.

To complete transactions not finished Qualifications: 1. when the ff. cases: (1) Transactions in connection to winding up partnership affairs/completing transactions unfinished (2) Transactions which would bind partnership if not dissolved. If due to ADI. Had no knowledge/notice of dissolution. AUTHORITY OF PARTNER TO BIND PARTNERSHIP General Rule: Authority of partners to bind partnership is terminated Exceptions: 1. Authority of partners to bind partnership by new contract is immediately terminated when dissolution is not due to ACT. 1835) Dissolution does not discharge existing liability of partner. Partner continues to bind partnership even after dissolution in ff. 1833). or (b) Situation 2 i. Had known partnership prior to dissolution iii. b. DEATH or INSOLVENCY (ADI) of a partner (Art. Did not extend credit to partnership prior to dissolution ii. except by transaction with one who: (a) Situation 1 i. With respect to persons not partners (Art. Had no knowledge/notice of dissolution. 1834) a. Had extended credit to partnership prior to dissolution & ii. or (b) Situation 2 i. Had no knowledge/notice of dissolution/fact of dissolution not advertised in a newspaper of general circulation in the place where partnership is regularly carried on B. Partner cannot bind the partnership anymore after dissolution: (1) Where dissolution is due to unlawfulness to carry on with business (except: winding up of partnership affairs) (2) Where partner has become insolvent (3) Where partner unauthorized to wind up partnership affairs.EFFECTS OF DISSOLUTION: A. partners are liable as if partnership not dissolved. Had extended credit to partnership prior to dissolution & ii. If cause is ACT of partner. To wind up partnership affairs 2. Did not extend credit to partnership prior to dissolution ii. Jonathan B. Tambol . when the other party/obligee: (a)Situation 1 i. concur: i. DISCHARGE OF LIABILITY (Art. Had known partnership prior to dissolution iii. With respect to partners – a. Had no knowledge/notice of dissolution/fact of dissolution not advertised in a newspaper of general circulation in the place where partnership is regularly carried on b. If cause is DEATH or INSOLVENCY. except by agreement between: (1) partner himself (2) person/partnership continuing the business Law3A – Notes on Partnerships Atty. acting partner must have knowledge/notice 2. acting partner must have knowledge of such dissolution ii.

Apply partnership property to discharge liabilities of partnership 2. if any to pay in cash the net amount owed to partners c. if any to pay in cash the net amount owed to partners Rights of partner where dissolution in contravention of agreement 1.If business continued by others .may be exercised by: Law3A – Notes on Partnerships Atty. Right to subrogation in place of creditors after payment of partnership liabilities 3. Indemnity for damages caused by partner guilty of wrongful dissolution d. Partnership creditors 2. Partnership property (including goodwill) 2. Right of indemnification by guilty partner against all partnership debts & liabilities C. Partners as investors . WHEN BUSINESS OF DISSOLVED PARTNERSHIP IS CONTINUED (Art. Posses partnership property if business is continued 2. Continue business in same name during agreed term e.have the value of his interest at time of dissolution ascertained and paid in cash/secured by bond & be released from all existing/future partnership liabilities Rights of injured partner where partnership contract is rescinded on ground of fraud/misrepresentation by 1 party: 1. Partners as investors .apply partnership property to discharge liabilities of partnership & receive in cash his share of surplus less damages caused by his wrongful dissolution b. To have the value of his interest ascertained as of the date of dissolution b. Apply partnership property to discharge liabilities of partnership b.share of profits if any D. Partner who wrongly caused dissolution: a. Creditors of old partnership are also creditors of the new partnership which continues the business of the old one w/o liquidation of the partnership affairs Creditors have an equitable lien on the consideration paid to the retiring /deceased partner by the purchaser when retiring/deceased partner sold his interest w/o final settlement with creditors Rights if retiring/estate of deceased partner: a.If business not continued by others . at his option Right to Account. Partner who did not cause dissolution wrongfully: a. Partners as creditors 3. Right to lien on surplus of partnership property after satisfying partnership liabilities 2. Contributions of the partners Order of Application of Assets: 1. 1840): 1. SETTLEMENT OF ACCOUNTS BETWEEN PARTNERS (Art. 3. To receive as ordinary creditor the value of his share in the dissolved partnership with interest or profits attributable to use of his right. Apply surplus.(3) (3) partnership creditors Rights of partner where dissolution not in contravention of agreement 1. Jonathan B. 1839) Assets of the partnership: 1. Tambol . Apply surplus. 2.return of capital contribution 4.

1836) 1. 1843) CHARACTERISTICS: 1. of the business No participation in management Contribute cash.LIMITED PARTNERSHIP - One formed by two or more persons having as members one or more general partners and one or more limited partners wherein the limited partners as such shall not be bound by the obligations of the partnership beyond their capital contributions (Art. Winding up partner 2. 2. In absence of agreement. One or more limited partners contribute to the capital and share in the profits but do not participate in the management of the business and are not personally liable for partnership obligations beyond their capital contributions. 2. or 3. One or more general partners control the business. 5. property or industry Contribute cash or property but not industry Proper party to proceedings by/against partnership Not proper party Interest not assignable without consent of other Interest is highly assignable partners Name may appear in firm name Name must not appear in firm name (w/ exceptions) Prohibition against engaging in business No prohibition Law3A – Notes on Partnerships Atty. all partners who have not wrongfully dissolved the partnership.1. Surviving partner 3. Partners designated by the agreement. Manner of Winding Up 1. 3. 4. Person/partnership continuing the bus. May ask for the return of their capital contributions under conditions prescribed by law. Formed by compliance with statutory requirements. Extrajudicially Persons Authorized to Wind Up: (Art. not agreed upon. Jonathan B. Tambol . Legal representative of last surviving partner (who is not insolvent) – when all the partners are already dead CHAPTER 4 . all gen partners have an equal right in the mgt. Partnership debts are paid out of common fund and the individual properties of general partners DIFFERENCES BETWEEN GENERAL AND LIMITED PARTNER/PARTNERSHIP GENERAL LIMITED Personally liable for partnership obligations Liability extends only to capital contribution when manner of mgt. Judicially 2.

) A general partner may contribute money. Character of business c. death. Admit person as general partner.) The name of a general partner may appear in the firm name. 1844) 1. not services. 1850): 1. Right to admit additional partners l. whereas a limited partner does not.) There is a limitation on the right of a general partner to engage in another business or in the same kind of business as that in which the partnership is engaged. 4. Jonathan B. Certificate of articles of the limited partnership must state the ff. insanity of gen partner dissolves partnership Does not have same effects. 5. Right of limited partners (if given) to priority for contributions m. Right of remaining gen partners (if given) or continue business in case of death. as such. Term for partnership is to exist f. can contribute money or other property only. Right of limited partner (if given) to demand/receive property/cash in return for contribution 2. whereas there is no such limitation in the case of a limited partner. 5. Possess partnership property/assign rights in specific partnership property other than for partnership purposes. whereas a limited partner cannot be held liable as such. REQUIREMENTS FOR FORMATION OF LIMITED PARTNERSHIP (Art. 2. Additional contributions h. 3. civil interdiction. 4. matters: a. Law3A – Notes on Partnerships Atty. Sharing of profits/other compensation j. whereas a limited partner. rights transferred to legal representative General Partner vs. 2. 3. retirement. Do any act which would make it impossible to carry on the ordinary business of the partnership. Do any act in contravention of the certificate. insolvency. insolvency n. Confess judgement against partnership. Amount of cash/value of property contributed g. Right of limited partner (if given) to substitute an assignee k. property or industry to the common fund. Location of principal place of business d." b. insanity.) A general partner may participate in the management of the partnership. Tambol .Retirement. Limited Partner: The 2 may be distinguished from each other in the following ways: 1.Time agreed upon to return contribution of limited partner i. Certificate must be filed with the SEC WHEN GENERAL PARTNER NEEDS CONSENT/RATIFICATION OF ALL LIMITED PARTNERS (Art. Name/place of residence of members e. Name of partnership + word "ltd. whereas that of a limited partner does not.) A general partner can be held personally liable for partnership obligations after all of the assets of the partnership have been exhausted.

Those due to limited partners in respect of their share in profits/compensation 3. including limited partners 2. civil interdiction. 2.Those due to limited partners of return of capital contributed Law3A – Notes on Partnerships Atty. Right to have formal account of partnership affairs whenever circumstances render it just and reasonable 5. Right to inspect/copy books at reasonable hour 3. 3. Right to have partnership books kept at principal place of business 2.6. 1857): 1. Continue business with partnership property on death. Deficiency in Specific property stated as contributed but not yet cont. Right to have on demand true and full info of all things affecting partnership 4.Those due to creditors. Receiving pro rata share of partnership assets with general creditors if he is not also a general partner 2. wrongfully paid/conveyed to him on account of his contribution DISSOLUTION OF LIMITED PARTNERSHIP Priority in Distribution of Assets: 1. retirement. at least sufficient to cover them. Receiving/holding partnership property as collateral security. Tambol . Unpaid contribution Money/other prop. Certificate is cancelled or amended as to set forth the withdrawal or reduction of contribution LIABILITY OF LIMITED PARTNER (Art. Transacting business with partnership. Granting loans to partnership. Consent of all members has been obtained. Allowed: a. All liabilities of partnership have been paid/if not yet paid. release from liability if it will prejudice right of third persons REQUISITES FOR RETURN OF CONTRIBUTION OF LIMITED PARTNER (Art. Jonathan B./wrongfully returned contribution 2. Right to ask for dissolution and winding up by decree of court 6. 1858) As Creditor As Trustee 1. 1851): 1. 7. conveyance. Right to receive share of profits/other compensation by way of income 7. Prohibited: a. c. Admit person as limited partner . Receiving any payment. b. 1854) 1.unless authorized in certificate. Right to receive return of contributions provided the partnership assets are in excess of all its liabilities LOAN AND OTHER BUSINESS TRANSACTIONS WITH LIMITED PARTNERSHIP (Art. insanity or insolvency of general partner unless authorized in certificate SPECIFIC RIGHTS OF LIMITED PARTNERS (Art. b.

Partner 3.Those due to general partner other than capital & profits 5. partner & business is continued 6. Change in name of partnership. Partner 4. Partnership is dissolved other than by reason of expiry of term 2. partner 5. Time is fixed for dissolution of partnership. False/erroneous statement in certificate 8. Change in other statement in certificate Law3A – Notes on Partnerships Atty. Tambol . amount/character of contribution of ltd.Those due to general partner for return of capital contributed AMENDMENT/CANCELLATION OF CERTIFICATE Cancelled: 1.4. Admission of gen. Substitution of ltd. Death. Change in character of business 7. insolvency.Those due to general partner in respect to profits 6. Partner 2. Jonathan B. All limited partners cease to be such Amended: 1. insanity. Change in time as stated in the certificate for dissolution of partnership/return of contribution 9. civil interdiction of gen. Admission of additional ltd. time specified 10. Return of contribution if no orig.