Professional Documents
Culture Documents
Law on Partnership
1. Contract of Partnership is a contract of two or more persons who bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits among
themselves. It may also be formed by two or more persons for the exercise of a profession.
4. Delectus Personae means that a partner has a right to choose those whom he wants to be associated
with the partnership.
7. Generally, receipt by a person of share of the profits of a business is a prima facie evidence that
he is a partner. However, these are exceptional instances when the receipt by a person of a
share of the profits of a business shall not be considered a prima facie evidence that he is a
partner in a business:
a. As a debt by installment or otherwise
b. As wages of an employee
c. As rent to a landlord.
d. As an annuity to a widow or representative of a deceased partner.
e. As interest on a loan, though the amounts of payment vary with the profits of the business.
f. As the consideration for the sale of a goodwill of a business or other property by installment or
otherwise.
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8. Universal partnership of all present property is a partnership wherein all the partners contribute all
the property which actually belonged to them to the common fund, with the intention of dividing the
same among themselves, as well as the profits which they acquire therewith.
9. Properties that shall belong to the common fund in a universal partnership of all present
property
a. Property belonging to the partners at the time of the constitution of the partnership.
b. Profits that may be acquired from the present property.
c. Property acquired by each partner after the formation of the partnership if stipulated.
d. Profits and fruits from property acquired by each partner, even those from property acquired by
inheritance, legacy or donation after the formation of the partnership if stipulated.
10. Universal partnership of profits is a partnership whereby the common fund comprises all that the
partners may acquire by their work or industry during the existence of the partnership.
11. Properties that shall belong to the common fund in a universal partnership of profits
a. Profits obtained by the partners by their work or industry during the existence of the partnership.
b. The usufruct or use of the property belonging to each partner at the time of the constitution of
the partnership.
c. The profits and fruits from the properties mentioned in letter a and b.
d. The profits and fruits, if stipulated, of the property acquired by each partner after the
constitution of the partnership.
12. Persons who cannot enter into a universal partnership but can enter into a particular
partnership
a. Husband and wife
b. Persons who were guilty of adultery or concubinage at the time of formation
c. Persons who were guilty of the same criminal offense
d. Public officer or his wife, descendants or ascendants and another person by reason of the
public officer’s position
13. In case Universal Partnership is entered into without specification of the type of Universal Partnership, it
shall be presumed to be a Universal Partnership of Profits. Since Universal Partnership is a
gratuitous contract of donation, the ambiguity shall be interpreted in favor of least transmission of rights
and Universal Partnership of Profits involves lesser transmission of rights.
14. Particular partnership is a partnership which has for its object determinate things, their use or fruits,
or a specified undertaking, or the exercise of a profession. Example is General Professional
Partnership.
20. Status of Stipulation exempting a partner from share in partnership profit or partnership loss
a. Stipulation excluding any partner from share in partnership profit is void.
b. Stipulation excluding a capitalist partner from share in partnership loss is void.
c. Stipulation excluding an industrial partner from share in partnership loss is valid.
21. Rules in case of designation of profits or losses by a third person as agreed by the partners
a. If entrusted by the partners to a third person, it is binding upon the partners and may be
impugned only when it is manifestly inequitable.
b. If the designation by a third person is manifestly inequitable, it can no longer be impugned by a
partner who has begun to execute it.
c. If the designation by a third person is manifestly inequitable, it can no longer be impugned by
any partner if three months had already lapsed from the time he obtained knowledge thereof.
22. Prescriptive period to file an action to impugn or question the manifestly inequitable sharing of
partnership profits or losses designated by a third person
a. Within 3 months from the knowledge of such designation but it must be before the said partner
executes it.
23. Rules on partnership management when a partner has been appointed manager in the articles
of co-partnership
a. The managing partner may execute all acts of administration despite the opposition of his
partners unless he acts in bad faith.
b. With just or lawful cause, the revocation of the power of the managing partner can be made by
the vote of the partners representing the controlling interest.
c. Without just or lawful cause, the revocation of the power of the managing partner can be made
only with the consent of all the partners including the managing partner.
24. Rules on partnership management when a partner has been appointed manager after the
partnership has been constituted or has been appointed in a separate document other than
articles of co-partnership
a. The managing partner may execute all acts of administration.
b. In case of opposition to the decision of the managing partner on acts of administration, the
partners representing the controlling interest may resort to voting for his removal as manager.
c. He may be removed with or without just cause by the vote of the partners representing the
controlling interest.
25. Rules of management when two or more partners have been appointed as managers
a. When there is a specification of their respective duties, each managing partner shall perform
only the duties specified in his appointment.
b. When there is no specification of their respective duties and there is no stipulation that one shall
not act without the consent of the others, each one may separately execute all acts of
administration.
c. When there is no specification of their respective duties and there is no stipulation that one shall
not act without the consent of the others, the decision of the majority of the managing partners
shall prevail in case of opposition.
d. When there is no specification of their respective duties and there is no stipulation that one shall
not act without the consent of the others, the decision of partner owning the controlling interest
shall prevail in case of tie in voting.
e. When there is a stipulation that none of the managing partners shall act without the consent of
the others, the unanimous vote of all managing partners shall be necessary for the validity of the
acts. However, if there is imminent danger to the partnership involving an act of administration,
the absence of any of the managing partners may be alleged by the present partners to justify
the approval of act of administration despite the absence of one of the managing partners.
26. Rules of management when the manner of management has not been agreed upon
a. All the partners shall be considered agents of the partnership or all of them are managers.
b. Whatever any of the partners may do alone shall bind the partnership.
c. In case of opposition of the other partners, the decision of the majority shall prevail and the
decision of the partners owning the controlling interest shall prevail in case of tie.
28. Acts that are not considered for apparently carrying on in the usual way of business of the
partnership and may not be performed by a partner unless he is authorized by all the other
partners or these are acts which require unanimous vote of the partners because they are
considered acts of strict ownership or acts of dominion
a. Assignment of partnership property in trust for creditors or on the assignee’s promise to pay the
debts of the partnership.
b. Disposition of the goodwill of the business.
c. Acts which would make it impossible to carry on the ordinary business of the partnership.
d. Confession of judgment.
e. Entering into a compromise concerning a partnership’s claim or liability.
f. Submission of a partnership claim or liability to arbitration.
g. Renunciation of a claim of the partnership.
31. Nature of liability of a general partner, whether capitalist or industrial, for the partnership debts
a. They shall be liable pro rata and subsidiarily with all their separate property and after all the
partnership assets have been exhausted.
33. Exceptional cases wherein the partnership shall be solidarily liable with all the partners and
wherein all partners are liable solidarily with the partnership for everything chargeable to the
partnership
a. For loss or injury caused to a third person or any penalty is incurred by reason of the wrongful
act or omission of any partner acting in the ordinary course of business of the partnership or
with the authority of his co-partners.
b. Where one partner acting within the scope of his apparent authority receives money or property
of a third person and misapplies it.
c. Where the partnership in the course of business receives money or property of a third person
and such money or property is misapplied by any partner while it is in custody of the
partnership.
39. Instances wherein any partner shall have the right to a formal account of the partnership affairs
40. The partnership shall bear the risk of loss for the following contributions of partners
a. Fungible things or those that cannot be kept without deteriorating.
b. Things contributed to be sold.
c. Things brought and appraised in the inventory unless there is a stipulation to the contrary but
the liability of the partnership is limited only to the value of the things at which they were
appraised.
42. Distinctions partner’s right to specific partnership property and partner’s interest in the
partnership
a. A partner cannot assign a partner’s right to specific partnership property but he can assign his
partner’s interest in the partnership.
b. A partner’s personal creditor cannot attach a partner’s right to specific partnership property but
such creditor can attach the partner’s interest in the partnership.
43. Rules for application of payment when a person owes separate demandable debts to the
partnership and to the partner authorized to receive also known as managing partner
a. If the partner authorized to receive issues the receipt for the partnership, payment shall be
applied to the partnership credit in its entirety.
b. If the partner authorized to receive issues his own receipt, payment shall be applied to the
partnership credit and partner’s credit proportionately
c. If the debt to the partnership is not yet due, the payment shall be applied to the partner’s credit
in its entirety.
d. If the debt owed to the partner is more onerous, the selection by the debtor of the more onerous
debt as to the application of payment shall be followed.
44. Rules for application of payment when a person owes separate demandable debts to the
partnership and to a partner not authorized to receive credit also known as non-managing
partner
a. If the debt is owed to a partner not authorized to receive payment and he issues his own receipt,
the payment shall be applied to the personal credit or the debt to the partner in its entirety.
45. An admission or representation made by any partner concerning partnership affairs within the
scope of his authority is evidence against the partnership. The following are the requisites in
order for an admission or representation of a partner to be used as evidence against the
partnership
a. The admission or representation must concern partnership affairs.
b. The admission must be made within the scope of the authority of the partner making the
admission.
c. The admission must be made during the existence of the partnership
46. As a general rule, notice to any partner of any matter relating to partnership affairs binds the
partnership. The following knowledge of a partner binds the partnership
a. The knowledge of a partner acting in the particular matter if he acquires the same while already
a partner.
b. The knowledge of a partner acting on a particular matter if he acquires it before his admission to
the partnership provided the same was still present on his mind.
c. The knowledge of any other partner not acting on a particular matter if he acquired the same
while already a partner and he could and should have reasonably communicated the same to
the partner acting on a particular matter.
52. Causes of dissolution of a partnership without violation of the agreement of the parties
a. By the termination of the definite term of the partnership.
b. By the attainment of the particular undertaking specified in the agreement.
c. By the express will of all the partners who have not assigned their interests or suffered them to
be charged for their separate debts, either before or after the termination of any specified term
or undertaking.
d. By the expulsion of any partner bona fide or in good faith from the business in accordance with
such power conferred by the agreement of the parties.
54. Grounds for court-ordered dissolution of partnership also known as non-automatic causes of
dissolution
a. A partner has been declared insane in any judicial proceeding or is shown to be of unsound
mind.
b. A partner becomes in any way incapable of performing his part in the partnership contract.
55. Grounds for dissolution that will terminate all authority of any partner to act for the partnership
in so far as the partners themselves are concern but not as to third person
a. When the cause of dissolution is not by the act, insolvency or death of a partner.
b. When the cause of dissolution is by the act, insolvency or death of a partner, the person acting
had knowledge of dissolution, death or insolvency of a partner.
56. Ground for dissolution that will not terminate the authority of any partner to act for the
partnership
a. When the cause of dissolution is by the act, insolvency or death of a partner, the person acting
had no knowledge of dissolution, death or insolvency of a partner.
57. Proper order of payment of partnership liabilities and equity in General Partnership in
Liquidation
I. Those owing to the creditors other than partners.
II. Those owing to partners other than for capital and profits.
III. Those owing to partners in respect of capital.
IV. Those owing to partners in respect of profits.
60. Instances when a limited partner may demand from the partnership the return of his capital
contribution
a. On the dissolution of a partnership
b. When the date specified in the certificate for its return has arrived
c. After he has six months' notice in writing to all other members, if no time is specified.
d. Any of the above.
61. Order on priority of claims against the separate property of a partner who is insolvent or whose
estate is insolvent.
I. Those owing to separate creditors.
II. Those owing to partnership creditors.
III. Those owing to partners by way of contribution.
62. Persons who have right or authority to liquidate or wind up the partnership affairs
a. The liquidating partner agreed upon by the partners.
b. The partners who have not wrongfully dissolved the partnership.
c. The legal representative of the last surviving partner, not insolvent
63. Limited Partnership is a partnership where there is at least one general partner, who is liable up to the
extent of his separate assets after the exhaustion of partnership assets, and there is at least one limited
partner, who is liable only up to the extent his capital contribution.
64. Formality of Limited Partnership - A certificate of limited co-partnership must be signed under oath
by the partners and must be recorded with the SEC for it to be considered a limited partnership.
65. Effect if there is no substantial compliance with the registration of certificate of limited co-
partnership with the SEC
a. The partnership will be considered a general partnership as to third persons.
67. As a general rule, the surname of a limited partner shall not appear in the limited partnership
name. Instances when the limited partner’s name appear in the partnership name without
increasing the liability of such limited partner to a general partner:
a. If the name of limited partner is also the surname of a general partner.
b. If prior to the time when the limited partner became such, the business has been carried on
under a name in which his surname appeared.
68. Effect if a limited partner’s name appears in the limited partnership name contrary to allowed instances
provided by law
a. The limited partner is liable pro-rata and subsidiarily to partnership creditors who extend credit to the
partnership without actual knowledge that he is not a general partner.
69. Instances when a limited partner is liable pro-rata and subsidiarily like a general partner to the
partnership creditors
a. If he allows his name to be included in the partnership name contrary to allowed instances of law.
b. If he takes part in the control or management of the business.
70. A general partner shall have all the rights and powers and be subject to all the restrictions and liabilities
of a partner in a partnership without limited partners. However, the following acts can only be made by a
general partner if there is written consent or ratification by all the limited partners
a. Do any act in contravention of the certificate of limited co-partnership
b. Do any act which would make it impossible to carry on the ordinary business of the partnership
c. Confess a judgment against the partnership
d. Possess partnership property, or assign their rights in specific partnership property, for other than a
partnership purpose
e. Admit a person as a general partner
f. Admit a person as a limited partner, unless the right so to do is given in the certificate of limited co-
partnership
g. Continue the business with partnership property on the death, retirement, insanity, civil interdiction or
insolvency of a general partner, unless the right so to do is given in the certificate
71. Rights enjoyed by a limited partner which are also enjoyed by a general partner
a. Right to have the partnership books kept at the principal place of business of the partnership
b. Right at a reasonable hour to inspect and copy any of them any partnership book
c. Right to have on demand true and full information of all things affecting the partnership
d. Right to a formal account of partnership affairs whenever circumstances render it just and reasonable
e. Right to have dissolution and winding up by decree of court.
f. Right to receive his share in net income.
g. Right to receive his share in net assets after the liquidation.
72. Nature of Limited Partner's Interest - Limited partner's interest is assignable. Substituted Limited Partner
refers to the person admitted to all the rights of a limited partner who has died or has assigned his interest in a
partnership.
73. As a general rule, assignee of a limited partner is not a substituted limited partner. The following are the
instances when an assignee of a limited partner may become a substituted limited partner
a. If all the members of the partnership consent thereto.
b. If the assigning limited partner or assignor is empowered to admit the assignee as substituted limited
partner as provided in the certificate of limited co-partnership and gives the assignee that right.
c. When the articles of certificate of co-partnership is appropriately amended in accordance with law.
75. Instances when certificate of limited co-partnership may be amended only but not cancelled
a. There is a change in the name of the partnership or in the amount or character of the contribution of any
limited partner
b. A person is substituted as a limited partner
c. An additional limited partner is admitted
d. A person is admitted as a general partner
e. A general partner retires, dies, becomes insolvent or insane, or is sentenced to civil interdiction and the
business is continued under article 1860
f. There is a change in the character of the business of the partnership