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CIVIL LAW
PARTNERSHIP

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I. Contract of
Partnership
Article 1767. 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.
(1665a)
A. ELEMENTS:
(1) Two or more persons bind themselves to
contribute money, property, or industry to
a common fund,
(2) With the intention of dividing the profits
among themselves
Common Fund
The Civil Code requires the parties “bind
themselves to contribute” to a common
fund. The partnership may therefore exist
even before the common fund is created.
The common fund may not even come
from the partners themselves but may be
borrowed from third persons. The form of
the common fund may not even be cash
or property; it can be in the form of credit
or industry. [Lim Tong Lim v Philippine
Fishing Gear, G.R. No. 136448 (1999)]
Intention to Divide Profits
If the common fund’s work is
“indispensable, beneficial and
economically useful to the business” of
the partners and the profit motive is the
primordial reason to establish the
partnership, even if there are no actual
profits, then there is partnership. [AFISCO
v CA, G.R. No. 112675 (1999)]
B. ESSENTIAL FEATURES
(1) There must be a valid contract;
(2) The parties must have legal capacity;
(3) There must be a mutual contribution of
money, property, or industry to a common
fund;
(4) The object must be lawful;
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(5) The primary purpose must be to obtain
profits and to divide the same among the
parties;
(6) The partnership has a juridical
personality separate from individual
partners [Article 1768].
B.1. LAWFUL PURPOSE
Article 1770 (1). A partnership must have a
lawful object or purpose, and must be
established for the common benefit or
interest of the partners.
If there is no lawful purpose, then the
partnership agreement is void ab initio.
Contracts whose purpose is contrary to law
are void from the beginning. [Art1409 (1)].
Article 1770 (2). When an unlawful
partnership is dissolved by a judicial decree,
the profits shall be confiscated in favor of the
State, without prejudice to the provisions of
the Penal Code governing the confiscation of
the instruments and effects of a crime.
Upon the dissolution of an unlawful
partnership, the profits are simply
confiscated by the State. The previous rule is
to give such profits to a charitable institution.
The profit and tools/instruments in the
partnership with an unlawful purpose will be
confiscated in favor of the government but if
the partners were not in pari delicto, they may
be able to recover their contribution to the
partnership instead of it being forfeited as
well.
B.2. COMMON BENEFIT
Article 1770. A partnership must have a lawful
object or purpose, and must be established
for the common benefit or interest of the
partners.
A partnership must be established for the
common benefit of the partners. This
“common benefit” is always pecuniary based
on Art 1799.
Article 1799. A stipulation which excludes one
or more partners from any share in the profits
or losses is void.
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B.3. JURIDICAL PERSONALITY
Article 1768. The partnership has a juridical
personality separate and distinct from that of
each of the partners, even in case of failure to
comply with the requirements of article 1772,
first paragraph.
C. PARTIES
General Rule: Any person capacitated to
contract may enter into a contract of
partnership.
The following persons CANNOT enter into a
contract of partnership:
(1) Those suffering from civil interdiction;
(2) Minors;
(3) Insane or demented persons;
(4) Deaf-mutes who do not know how to
write;
(5) Incompetents who are under
guardianship.
Exceptions : The capacity of the following
persons to enter into a contract of
partnership, though capacitated to contract
generally, are limited:
(1) Those who are prohibited from giving
each other any donation or advantage
cannot enter into a universal partnership
[Article 1782];
(2) A corporation cannot enter into a
partnership in the absence of express
authorization by statute or charter.
Although a corporation cannot enter into a
partnership contract, it may, however,
engage in a joint venture with others
[Aurbach vs. Sanitary Wares Manufacturing
Corp, G.R. No. 75875 (1989)]
On the other hand, there is no prohibition
against a partnership being a partner in
another partnership [De Leon (2010)].
D. OBJECT
D.1. OBJECT OF UNIVERSAL PARTNERSHIP
A universal partnership may refer to:
(1) All present property :
(a) The partners contribute all the
property which belongs to them to a
common fund, with the intention of
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dividing the same among themselves,
as well as the profits they may
acquire therewith [Article 1778].
(b) The property contributed includes all
those belonging to the partners at
the time of the constitution of the
partnership.
(c) A stipulation for the common
enjoyment of any other profits may
also be made. However, the property
which the partners may acquire
subsequently by inheritance, legacy
or donation cannot be included in
such stipulation, except the fruits
thereof [Article 1779].
(2) All the profits:
(a) It comprises all that the partners may
acquire by their industry or work
during the existence of the
partnership.
(b) Only the usufruct over the property of
the partners passes to the
partnership [Article 1780].
When the articles of universal partnership do
not specify its nature (all present property or
all the profits), the partnership will be
considered as one only of all the profits
[Article 1781].
D.2. OBJECT OF PARTICULAR
PARTNERSHIP
A particular partnership has for its object
determinate things, their use or fruits, or a
specific undertaking, or the exercise of a
profession or vocation [Article 1783].
D.3. EFFECT OF UNLAWFUL OBJECT
If the partnership has an unlawful object or
purpose:
(1) The contract is void ab initio [Article
1409(1)].
(2) Once dissolved by judicial decree:
(a) The profits shall be confiscated by
favor of the State;
(b) The instruments or tools and
proceeds of the crime shall also be
forfeited in favor of the State [Article
1770].
(3) The contributions of partners shall not be
confiscated unless they are instruments
or tools of the crime [De Leon (2010)].
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E. FORM
General rule: The contract may be
constituted in any form [Article 1771].
Exceptions:
(1) Where immovable property or real rights
are contributed:
(a) The contract must appear in a public
instrument; and
(b) Attached to such instrument must be
an inventory, signed by the parties, of
the property contributed [Articles 1771
and 1773];
(2) Where the capital is at least P3,000, in
money or property:
(a) The contract must appear in a public
instrument; and
(b) It must be recorded in the Office of
the Securities and Exchange
Commission (SEC).
As to the second, failure to comply with these
requirements, however, does NOT affect the
liability of the partnership and the partners to
third persons [Articles 1768 and 1772].
F. DURATION
F.1. COMMENCEMENT
Art 1784. A partnership begins from the
moment of the execution of the contract,
unless otherwise stipulated
F.2. TERM
As to period, a partnership may either be:
(1) For a fixed term or particular
undertaking; or
(2) At will, the formation and dissolution of
which depend on the mutual desire and
consent of the parties. Any one of the
partners may, at his sole pleasure, dictate
the dissolution of the partnership, even in
bad faith, subject to liability for damages
[Ortega v. CA, G,R, No. 109248 (1995)].
F.3. EXTENSION
A partnership term may be extended by:
(1) Express renewal; or
(2) Implied renewal, when these requisites
concur:
(a) The partnership is for a fixed term or
particular undertaking;
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(b) It is continued after the termination of
the fixed term or particular
undertaking without any express
agreement [Article 1785].
G.RULES TO DETERMINE EXISTENCE
When the intent of the parties is clear, such
intent shall govern. When it does not clearly
appear, the following rules apply:
(1) Persons who are not partners to each
other are not partners as to third persons,
subject to the provisions on partnership
by estoppel.
(2) Co-ownership or co-possession does not
of itself establish a partnership, even
when there is sharing of profits in the use
of the property.
(3) Sharing of gross returns does not of itself
establish a partnership, even when the
parties have joint or common interest in
any property from which the returns are
derived.
(4) The receipt by a person of a share in the
profits of a business is prima facie
evidence that he is a partner.
As to the fourth, no such inference is drawn if
the profits are received in payment:
(1) As a debt by installments or otherwise;
(2) As wages of an employee or rent to a
landlord;
(3) As an annuity to a widow or
representative of a deceased partner;
(4) As interest on a loan, though the amount
of payment vary with the profits of the
business;
(5) As the consideration for the sale of a
goodwill of a business or other property
by installments or otherwise [Article
1769].
H. KINDS OF PARTNERSHIPS
H.1. AS TO THE LEGALITY OF ITS
EXISTENCE:
(1) Partnership de jure is one which has
complied with all the requisites for its
lawful establishment;
(2) Partnership de facto is one which failed to
so comply.
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H.2. AS TO ITS OBJECT: I. KINDS OF PARTNERS

(1) Universal partnership: (1) Capitalist partner, whose contribution is
(a) Of all present property; money or property;
(b) Of profits; (2) Industrial partner, contribution is only his
(2) Particular partnership. industry;
(3) General partner, whose liability to third
H.3. AS TO ITS DURATION: persons extends to his separate property;
(4) Limited partner, whose liability to third
(1) For a fixed term or particular persons is limited to his capital
undertaking; contribution;
(2) At will. (5) Managing partner, who was designated
to manage the affairs or business of the
H.4. AS TO THE LIABILITY OF THE partnership;
PARTNERS: (6) Liquidating partner, who takes charge of
the winding up of partnership affairs;
(1) General partnership, consisting of (7) Partner by estoppel, who is not really a
general partners only, who are liable pro partner but is liable as such for the
rata for partnership obligations with all protection of innocent third persons;
their after exhaustion of partnership (8) Continuing partner, who continues the
assets; business after dissolution of the
(2) Lim ited partnership, includes, aside partnership by admission of a new
from general partner/s, limited partners, partner, or retirement, death or expulsion
who are not personally liable for of existing partners;
partnership obligations. (9) Surviving partner, who remains a partner
after dissolution by death of any partner;
H.5. AS TO ITS PUBLICITY: (10) Subpartner, who is not a member of the
partnership but contracts with a partner
(1) Secret partnership, where the existence with regard to the share of the latter in
of certain persons as partners is not made the partnership;
known by the partners; (11) Ostensible partner, who takes active part
(2) Open or notorious partnership, the in the business of the partnership and is
existence of which is made known to the known by the public;
public by the partners. (12) Secret partner, who takes active part in
the business, but is unknown to the third
persons as a partner;
H.6. AS TO ITS PURPOSE: (13) Silent partner, who does not take active
1. Commercial or trading partnership, part in the business, but may be known to
for transaction of business; be a partner by third persons;
2. Professional or non-trading (14) Dormant partner, who does not take
partnership, for the exercise of active part in the business and is not
profession. known or held out as a partner;
(15) Original partner, who has been a partner
A profession has been defined as “a group since the constitution of the partnership;
of men pursuing a learned art as a common (16) Incoming partner, who is about to be
calling in the spirit of public service – no less taken as a member into an existing
a public service because it may incidentally partnership;
be a means of livelihood” [In the Matter of the (17) Retiring partner, who is withdrawing from
Petition for Authority to Continue Use of Firm the partnership.
name “Sycip, Salazar, etc.”/“Ozaeta, Romulo,
etc.” (1979)].

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Partnership Joint venture

Industrial Capitalist Corporations may not Corporations may
partner partner enter into a partnership enter into joint
Form of contribution ventures
Industry Money or property
A joint venture is an agreement between
Share in profits two parties to enter into a commercial
Just and equitable According to undertaking. It may fall under a partnership
share agreement; if none, with a limited purpose.
in proportion to
contribution Under Philippine law, a joint venture is a form
Share in losses of partnership and should thus be governed
by the laws of partnership [Auerbach vs.
Exempted as to losses According to Sanitary Wares Manufacturing Corp].
as between partners, agreement; if none,
but liable to third in the same
Partnership Co-ownership
persons, without proportion as the
prejudice to agreed share in Generally created Generally created by
reimbursement from profits; if none, in by either express or law and may exist
capitalist partners proportion to implied contract even without a
contribution contract
Engagem ent in business Has a separate Has no separate
juridical personality juridical personality
Cannot engage in Cannot engage, for
business for himself, his own account, in Generally, the The purpose is the
unless the partnership the same kind of purpose is to obtain common enjoyment of
expressly permits him business as that of profits a thing or right
to do so; should he do the partnership, Duration has no An agreement to keep
so without permission, unless there is a limitation a thing undivided for
the capitalist partners stipulation to the more than ten years is
may: [1] exclude him contrary; should he not allowed, but may
from the firm; or [2] do so, he shall be extended
avail themselves of the bring to the
benefits obtained in common fund any There is mutual There is no mutual
violation of the profits accruing to agency between representation among
prohibition, with right him from his partners co-owners
to damages in either transactions and Death or incapacity Death or incapacity of
case [Article 1789] shall personally of a partner a co-owner does not
bear all the losses dissolves the dissolve the co-
[Article 1808] partnership ownership
A partner cannot A co-owner can
J. PARTNERSHIP, DISTINGUISHED dispose of his dispose of his share
interest, so as to without consent of
FROM OTHER CONTRACTS
make the assignee others
Partnership Joint venture a partner, without
consent of others
Operates with firm Operates without
name and legal firm name and
personality legal personality Partnership Corporation
Generally relates to a Usually limited to Has juridical personality separate and distinct
continuing business of a single from its individual members
various transactions of transaction Can only act through agents
a certain kind Composed of an aggregate of individuals

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Partnership Corporation
Distributes its profits to those who contributed Conjugal partnership of
Partnership
capital to the business gains

Can only be organized where there is a law Created by voluntary Arises in case the
authorizing its organization agreement of two or spouses, of opposite
more partners of sex, agree before
Taxable as in a corporation either sex marriage
Created by Created by operation of Governed by Governed by law
agreement law agreement
Involves at least Except for corporation Has juridical Has no juridical
two persons sole, requires at least 5 personality personality
incorporators
Commencement Commencement is on
Personality Personality commences date may be the date of the
commences from from the issuance of stipulated celebration of the
the moment of certificate of marriage and any
execution of the incorporation stipulation to the
contract contrary is void
Can exercise any Can exercise only Share in profits may Share in profits is equal
power authorized powers conferred by the be stipulated;
by partners Corporation Code or by otherwise, in
its articles of proportion to
incorporation, and such contribution
as are necessary or
incidental to the exercise Management shared Administration belongs
of such powers by all partners, to the spouses jointly,
unless otherwise but decision of
When management Management is vested agreed upon husband prevails in
is not agreed upon, in the board of directors case of disagreement
every partner may or trustees
act for the Partner can dispose Spouse cannot dispose
partnership of interest even of interest during
without consent of marriage, even with
Partners are Stockholders are liable others consent
generally liable for only to the extent of
partnership debts their shares
Partnership Voluntary association
A partner cannot A stockholder has the
dispose of his right to transfer his Has juridical Has no juridical
interest, so as to shares without consent personality personality
make the assignee of others Organized for profit Not always organized
a partner, without for profit
consent of others Capital is contributed Capital is not
Duration has no The term limit is 50 contributed, although
limitation years, but may be fees are collected from
extended members
May be dissolved at May only be dissolved The partnership is The members are
any time by one or with the consent of the primarily liable; the liable individually for
all of the partners state partners are liable debts which they
only subsidiarily authorized or ratified
Share in profits may Share in profits is
be stipulated; equal
otherwise, in
proportion to
contribution

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II. Rights and
Obligations of the
Partner
A. RIGHTS OF PARTNERS
A.1. MUTUAL AGENCY
Art 1803. When the manner of management
has not been agreed upon, the following
rules shall be observed:
(1) All the partners shall be considered agents
and whatever any one of them may do alone
shall bind the partnership, without prejudice
to the provisions of Article 1801.
(2) None of the partners may, without the
consent of the others, make any important
alteration in the immovable property of the
partnership, even if it may be useful to the
partnership. But if the refusal of consent by
the other partners is manifestly prejudicial to
the interest of the partnership, the court's
intervention may be sought.
Art 1818. Every partner is an agent of the
partnership for the purpose of its business,
and the act of every partner, including the
execution in the partnership name of any
instrument, for apparently carrying on in the
usual way the business of the partnership of
which he is a member binds the partnership,
unless the partner so acting has in fact no
authority to act for the partnership in the
particular matter, AND the person with whom
he is dealing has knowledge of the fact that
he has no such authority.
An act of a partner which is not apparently for
the carrying on of business of the partnership
in the usual way does not bind the
partnership unless authorized by the other
partners.
Except when authorized by the other partners
or unless they have abandoned the business,
one or more but less than all the partners
have no authority to:
(1) Assign the partnership property in trust for
creditors or on the assignee's promise to pay
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the debts of the partnership;
(2) Dispose of the goodwill of the business;
(3) Do any other act which would make it
impossible to carry on the ordinary business
of a partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a
partnership claim or liability;
(6) Submit a partnership claim or liability to
arbitration;
(7) Renounce a claim of the partnership.
No act of a partner in contravention of a
restriction on authority shall bind the
partnership to persons having knowledge of
the restriction.
An act is binding when:
(1) It is for the purpose of the partnership’s
business
(2) It is in the usual way of the business
(3) It is not in the usual way of the business
when:
a. Authorized by the other partners
b. Ratified by the other partners
Duties of 3rd persons:
(1) To inquire on the existence of a
partnership agreement.
(2) To ascertain if acts are in the usual way of
business
Presumptions (after ascertaining
partnership):
(1) Every partner is a general partner
(2) Every partner is an authorized agent
of the partnership.
A.2 SHARE IN PROFITS
Art 1797. The losses and profits shall be
distributed in conformity with the agreement.
If only the share of each partner in the profits
has been agreed upon, the share of each in
the losses shall be in the same proportion. In
the absence of stipulation, the share of each
partner in the profits and losses shall be in
proportion to what he may have contributed,
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but the industrial partner shall not be liable
for the losses. As for the profits, the industrial
partner shall receive such share as may be
just and equitable under the circumstances. If
besides his services he has contributed
capital, he shall also receive a share in the
profits in proportion to his capital.
Art 1799. A stipulation which excludes one or
more partners from any share in the profits or
losses is void.
If there is an agreement as to the distribution
of profits and losses, it shall be followed. If
there is an agreement as to the distribution of
the profits, it will also be followed as to the
losses. If there is no agreement, then profits
and losses will be divided according to their
contribution.
General Rule: Industrial partners will
receive a just and equitable share.
Exception: He shall receive a share in the
profits if such industrial partners also
contributed to the capital, aside from its
services.
A.3. RIGHT TO ASSOCIATE
ANOTHER/AUTHORIZE ADMISSION
Art 1804. Every partner may associate
another person with him in his share, but the
associate shall not be admitted into the
partnership without the consent of all the
other partners, even if the partner having an
associate should be a manager.
A.4. ACCESS TO BOOKS AND
INFORMATION
Art 1805. The partnership books shall be kept,
subject to any agreement between the
partners, at the principal place of business of
the partnership, and every partner shall at
any reasonable hour have access to and may
inspect and copy any of them.
Rule on where to keep partnership books:
General Rule: It must be kept at the
principal place of business of the partnership.
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Exception: The partners agree as to where
the partnership books shall be kept.
A.5. FORMAL ACCOUNT
Art 1809. Any partner shall have the right to a
formal account as to partnership affairs:
(1) If he is wrongfully excluded from the
partnership business or possession of its
property by his co-partners;
(2) If the right exists under the terms of any
agreement;
(3) As provided by article 1807;
(4) Whenever other circumstances render it
just and reasonable.
General Rule: A partner does not have a
right to a formal accounting.
Exceptions:
(1) If the partner is wrongfully excluded from:
a. The partnership business; or
b. If the partner is wrongfully
excluded from possession of
partnership property.
(2) The right exists under the partnership
agreement.
(3) In cases where another partner derives
any benefit without the consent of the
partners from:
a. Any transaction connected with
the formation, conduct, or
liquidation of the partnership; or
b. The use of partnership property.
(4) Whenever circumstances render it just
and reasonable.
(5) The partnership is dissolved.
A.6. PROPERTY RIGHTS
Art 1810. The property rights of a partner are:
(1) His rights in specific partnership property;
(2) His interest in the partnership; and
(3) His right to participate in the
management.
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partners, has an equal right with his

partners to possess specific partnership
IN GENERAL
property for partnership purposes; but he
The property rights of a partner are: has no right to possess such property for
(1) Rights in specific partnership property; any other purpose without the consent of
(2) Interest in the partnership; and his partners;
(3) Right to participate in the management
(2) A partner's right in specific partnership
[Article 1810].
property is not assignable except in
connection with the assignment of rights of
PROPERTY AND CAPITAL
all the partners in the same property;
DISTINGUISHED
Partnership capital Partnership property (3) A partner's right in specific partnership
property is not subject to attachment or
With constant Value varies with
execution, except on a claim against the
value market conditions
partnership. When partnership property is
Includes only Includes the attached for a partnership debt the
actually contributions and partners, or any of them, or the
contributed and property acquired by representatives of a deceased partner,
promised capital the partnership cannot claim any right under the
homestead or exemption laws;
OW NERSHIP OF CERTAIN (4) A partner's right in specific partnership
PROPERTIES property is not subject to legal.
(1) The ownership of property used by the
partnership depends on the intention of (1) The partners have equal rights to possess
the parties, which may be drawn from an partnership property for partnership
express agreement or their conduct. purposes.
(a) A partner may allow the property to (2) For other purposes, the consent of his
be used by the partnership without partners is necessary.
transfer of ownership, contributing (3) If the partner is excluded, he may ask for:
only the use or enjoyment thereof. (a) Formal accounting [Article 1809]; or
(b) He may also hold title to partnership (b) Dissolution by judicial decree [Article
property, without acquiring 1831].
ownership thereof [Article 1819]. (4) A partner’s right in such property is not
(2) Property acquired by a partner with assignable, except when all the partners
partnership funds is presumed to be assign their rights in the same property;
partnership property. (5) The right is not subject to attachment or
(3) The same presumption also arises when execution, except on claim against the
the property is indicated in the partnership. In case of such attachment,
partnership books as partnership asset. the partners, or any of them, or the
(4) Other factors may be considered to representatives of a deceased partner,
determine ownership of the property. cannot claim any right under the
homestead or exemption laws.
Rights to Specific Partnership (6) The right is not subject to legal support
Property under Article 291 [Article 1811].
Art 1811. A partner is co-owner with his
partners of specific partnership property. Interest in the Partnership
Art 1812. A partner's interest in the
partnership is his share of the profits and
The incidents of this co-ownership are such surplus.
that:
(1) A partner, subject to the provisions of this
Title and to any agreement between the Art 1813. A conveyance by a partner of his
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whole interest in the partnership DOES NOT
of itself dissolve the partnership, OR, as
against the other partners in the absence of
agreement, entitle the assignee, during the
continuance of the partnership, to interfere in
the management or administration of the
partnership business or affairs, or to require
any information or account of partnership
transactions, or to inspect the partnership
books; but it merely entitles the assignee to
receive in accordance with his contract the
profits to which the assigning partner would
otherwise be entitled. However, in case of
fraud in the management of the partnership,
the assignee may avail himself of the usual
remedies.
In case of a dissolution of the partnership, the
assignee is entitled to receive his assignor's
interest and may require an account from the
date only of the last account agreed to by all
the partners.
Art 1814. Without prejudice to the preferred
rights of partnership creditors under Article
1827, on due application to a competent court
by any judgment creditor of a partner, the
court which entered the judgment, or any
other court, may charge the interest of the
debtor partner with payment of the
unsatisfied amount of such judgment debt
with interest thereon; AND may then or later
appoint a receiver of his share of the profits,
and of any other money due or to fall due to
him in respect of the partnership, and make
all other orders, directions, accounts and
inquiries which the debtor partner might have
made, or which the circumstances of the case
may require.
The interest charged may be redeemed at any
time before foreclosure, or in case of a sale
being directed by the court, may be
purchased without thereby causing a
dissolution:
(1) With separate property, by any one or
more of the partners; or
(2) With partnership property, by any one or
more of the partners with the
consent of all the partners whose interests
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are not so charged or sold.
Nothing in this Title shall be held to deprive a
partner of his right, if any, under the
exemption laws, as regards his interest in the
partnership.
The partnership books shall be kept:
(1) At a place agreed upon by the partners;
(2) When there is no such agreement, at the
principal place of business of the
partnership.
Every partner shall, at any reasonable hour,
have access to and may inspect and copy any
of them.
Any reasonable hour means reasonable
hours on business days throughout the year
[Pardo v. Lumber Co. (1925)].
A partner’s interest in the partnership is his
share of the profits and surplus [Article 1812].
ASSIGNMENT OF INTEREST
Assignment by a partner of his whole interest
in the partnership, of itself:
(1) Does not dissolve the partnership; or
(2) Does not entitle the assignee to:
(a) Interfere in the management or
administration of the partnership
business or affairs;
(b) Require information or account of
partnership; or
(c) Inspect the partnership books.
It merely entitles the assignee to:
(1) Receive the profits to which the assigning
partner was entitled;
(2) In case of fraud in management, avail
himself of the usual remedies;
(3) In case of dissolution:
(a) Receive his assignor’s interest; and
(b) Require an accounting from the date
only of the last account agreed to by
all the partners [Article 1813].
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CHARGING OF INTEREST BY
PERSONAL CREDITORS
General rule: Partnership creditors are
preferred over the personal creditors of the
partners as regards partnership property.
Exception: On due application by any
judgment creditor of a partner, a competent
court may:
(1) Charge the interest of the partner for the
satisfaction of the judgment debt;
(2) Appoint a receiver of the share of the
profits and of any other money due or to
fall due to the partner; and
(3) Make all other orders, directions,
accounts and inquiries, which the debtor
partner might have made, or which the
circumstances may require.
The interest charged may be redeemed
before foreclosure or, in case of sale directed
by the court, may be purchased without
causing dissolution:
(1) With separate property, by one or more of
the partners; or
(2) With partnership property, by one or
more of the partners, will consent of all,
except the debtor partner [Article 1814].
RIGHT TO PARTICIPATE IN THE
MANAGEMENT
Management of the partnership is primarily
governed by the agreement of the partners in
the articles of partnership. It may be
stipulated that the partnership will be
managed by:
(1) All the partners; or
(2) A number of partners appointed as
managers, which may be appointed:
(a) In the articles of partnership; or
(b) After constitution of the partnership.
POW ERS OF A MANAGING PARTNER
Art 1800. The partner who has been
appointed manager in the articles of
partnership may execute all acts of
administration despite the opposition of his
partners, unless he should act in bad faith;
and his power is irrevocable without just or
lawful cause. The vote of the partners
representing the controlling interest shall be
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necessary for such revocation of power.
A power granted after the partnership has
been constituted may be revoked at any time.
Art 1801. If two or more partners have been
intrusted with the management of the
partnership without specification of their
respective duties, OR without a stipulation
that one of them shall not act without the
consent of all the others, each one may
separately execute all acts of administration,
but if any of them should oppose the acts of
the others, the decision of the majority shall
prevail. In case of a tie, the matter shall be
decided by the partners owning the
controlling interest.
General rule: The partner designated as
manager in the articles may execute all acts
of administration despite opposition by the
other partners.
Exception: He cannot do so when he acts in
bad faith.
REVOCATION OF POW ER OF
MANAGING PARTNER
The powers of the managing partner may be
revoked:
(1) If appointed in the articles of partnership,
when:
(a) There is just or lawful cause for
revocation; and
(b) The partners representing the
controlling interest revoke such
power.
(2) If appointed after the constitution of the
partnership, at any time and for any
cause [Article 1800].
MANAGEMENT BY TW O OR MORE
PARTNERS
When there are two or more managing
partners appointed, without specification of
their duties or without a stipulation on how
each one will act:
(1) Each one may separately execute all acts
of administration.
(2) If any of them opposes the acts of the
others, the decision of the majority
prevails.
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(3) In case of a tie, the partners owning the
controlling interest will decide [Article
1801].
Requisites:
(1) Two or more partners have been
appointed as managers;
(2) There is no specification of their
respective duties; and
(3) There is no stipulation that one of them
shall not act without the consent of all
the others.
STIPULATION OF UNANIMITY
In case there is a stipulation that none of the
managing partners shall act without the
consent of others, the concurrence of all is
necessary for the validity of the acts.
The absence or disability of one cannot be
alleged, unless there is imminent danger of
grave or irreparable injury to the partnership
[Article 1802].
MANAGEMENT W HEN MANNER NOT
AGREED UPON
When there is no agreement as to the manner
of management, the following rules apply:
(1) All the partners are considered agents
[mutual agency]. Whatever any one does
alone binds the partnership, unless there
is a timely opposition to the act, under
Article 1801.
(2) Any important alteration in the
immovable property of the partnership,
even if useful to the partnership, requires
unanimity. If the alteration is necessary
for the preservation of the property,
however, consent of the others is not
required [De Leon (2010)].
If the refusal is manifestly prejudicial to the
partnership, court intervention may be
sought [Article 1803].
MUTUAL AGENCY
In addition to the Article 1801, there is
effectively a mutual agency in the following
cases:
(1) Partners can dispose of partnership
property even when in partnership name
[Article 1819].
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(2) An admission or representation made by
any partner concerning partnership
affairs is evidence against the partnership
[Article 1820].
(3) Notice to any partner of any matter
relating to partnership affairs is notice to
the partnership [Article 1821].
(4) Wrongful act or omission of any partner
acting for partnership affairs makes the
partnership liable [Article 1822].
(5) Partnership is bound to make good losses
for wrongful acts or misapplications of
partners [Article 1823].
A.7. CONVEYANCE OF PROPERTY IN
PARTNERSHIP NAME
Art 1774. Any immovable property or an
interest therein may be acquired in the
partnership name. Title so acquired can be
conveyed only in the partnership name.
Art 1819. Where title to real property is in the
partnership name, any partner may convey
title to such property by a conveyance
executed in the partnership name; but the
partnership may recover such property unless
the partner's act binds the partnership under
the provisions of the first paragraph of article
1818, or unless such property has been
conveyed by the grantee or a person claiming
through such grantee to a holder for value
without knowledge that the partner, in
making the conveyance, has exceeded his
authority.
Where title to real property is in the name of
the partnership, a conveyance executed by a
partner, in his own name, passes the
equitable interest of the partnership,
provided the act is one within the authority of
the partner under the provisions of the first
paragraph of Article 1818.
Where title to real property is in the name of
one or more but not all the partners, and the
record does not disclose the right of the
partnership, the partners in whose name the
title stands may convey title to such property,
but the partnership may recover such
property if the partners' act does not bind the
partnership under the provisions of the first
paragraph of Article 1818, unless the
purchaser or his assignee, is a holder for
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value, without knowledge.
Where the title to real property is in the name
of one or more or all the partners, or in a third
person in trust for the partnership, a
conveyance executed by a partner in the
partnership name, or in his own name, passes
the equitable interest of the partnership,
provided the act is one within the authority of
the partner under the provisions of the first
paragraph of Article 1818.
Where the title to real property is in the name
of all the partners a conveyance executed by
all the partners passes all their rights in such
property.
General Rule: If title is in the partnership
name, a partner may therefore convey in the
partnership name.
Exception: The partnership may recover if
(1) it was not in the usual way, or
(2) there was no authority + the grantee has
knowledge
B. OBLIGATIONS OF PARTNERS
B.1. CONTRIBUTION
CONTRIBUTION OF PROPERTY
With respect to contribution of property, a
partner is obliged to:
(1) To contribute, at the beginning of the
partnership or at the stipulated time, the
money, property or industry which he
undertook to contribute;
(2) In case a specific and determinate thing is
to be contributed:
(a) To warrant against eviction in the
same manner as a vendor; and
(b) To deliver to the partnership the fruits
of the property promised to be
contributed, from the time they
should have been delivered, without
need of demand [Article 1786];
(3) In case a sum of money is to be
contributed, or in case he took any
amount from the partnership coffers, to
indemnify the partnership for:
(a) Interest; and
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(b) Damages, from the time he should
have complied with his obligation, or
from the time he converted the
amount to his own use, respectively
[Article 1788].
AMOUNT OF CONTRIBUTION
General rule: Partners are to contribute
equal shares to the capital of the partnership.
Exception: When there is an agreement to
the contrary, the contribution shall follow
such agreement [Article 1790].
ADDITIONAL CAPITAL
CONTRIBUTION
Requisites:
(1) There is an imminent loss of the business
of the partnership;
(2) The majority of the capitalist partners are
of the opinion that an additional
contribution to the common fund would
save the business;
(3) The capitalist partner refuses deliberately
[not because of financial inability] to
contribute an additional share to the
capital; and
(4) There is no agreement that even in case
of imminent loss of the business, the
partners are not obliged to contribute.
Any partner who refuses to contribute an
additional share to the capital, except an
industrial partner, to save the venture, shall
be obliged to sell his interest to the other
partners, unless there is an agreement to the
contrary [Article 1791].
CONTRIBUTION OF INDUSTRY
An industrial partner is obliged to contribute
his industry at the stipulated time.
General rule: An industrial partner cannot
engage in business for himself. Should he do
so, the capitalist partners, as well as
industrial partners [De Leon (2010)] may
either:
(1) Exclude him from the firm; or
(2) Avail themselves of the benefit which he
may have obtained.
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Exception: He may engage in business for
himself when the partnership expressly
permits him to do so [Article 1789].
B.2. ALTERATION IN IMMOVABLE
PROPERTY
Art 1803 (2).
When the manner of management has not
been agreed upon, the following rules shall
be observed: xxx
(2) None of the partners may, without the
consent of the others, make any important
alteration in the immovable property of the
partnership, EVEN IF it may be useful to the
partnership. But if the refusal of consent by
the other partners is manifestly prejudicial to
the interest of the partnership, the court's
intervention may be sought.
B.3. BRING TO PARTNERSHIP CAPITAL
CREDIT RECEIVED
Art 1793. A partner who has received, in whole
or in part, his share of a partnership credit,
when the other partners have not collected
theirs, shall be obliged, if the debtor should
thereafter become insolvent, to bring to the
partnership capital what he received even
though he may have given receipt for his
share only.
A partner, authorized to manage or not, who
already received, in whole or in part, his share
of a partnership credit, is obliged to bring to
the partnership capital what he received
when:
(1) The other partners have not collected
their shares; and
(2) The partnership debtor has become
insolvent.
This obligation exists even when he issued a
receipt for his share only [Article 1793].
B.4. RESPONSIBLE FOR DAMAGE
SUFFERED BY THE PARTNERSHIP
Art 1794. Every partner is responsible to the
partnership for damages suffered by it
through his fault, and he cannot compensate
them with the profits and benefits which he
may have earned for the partnership by his
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industry. However, the courts may equitably
lessen this responsibility if through the
partner's extraordinary efforts in other
activities of the partnership, unusual profits
have been realized.
B.5. BEAR RISK OF LOSS OF SPECIFIC AND
DETERMINATE THINGS
Art 1795. The risk of specific and determinate
things, which are not fungible, contributed to
the partnership so that only their use and
fruits may be for the common benefit, shall
be borne by the partner who owns them. If
the things contribute are fungible, or cannot
be kept without deteriorating, or if they were
contributed to be sold, the risk shall be borne
by the partnership. In the absence of
stipulation, the risk of the things brought and
appraised in the inventory, shall also be
borne by the partnership, and in such case
the claim shall be limited to the value at
which they were appraised.
If not fungible: risk is borne by the partner
who owns them
If a) fungible, b) cannot be kept without
deteriorating, c) contributed to be sold, d)
brought and appraised in the inventory: risk
shall be borne by the partnership
B.6. SHARE IN LOSSES
RULES FOR DISTRIBUTION OF PROFITS
AND LOSSES
The distribution of profits and losses shall be
in accordance with the following rules:
(1) They shall be distributed in conformity
with the agreement.
(2) If only the share in profits has been
stipulated, the share in the losses shall
be in the same proportion.
(3) In the absence of any stipulation:
(a) The share in the profits of the
capitalist partners shall be in
proportion to their contributions.
(b) The losses shall be borne by the
capitalist partners, also in proportion
to the contributions.
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(c) The share of the industrial partners in
the profits is that share as may be just
and equitable. If he also contributed
capital, he will receive a share of the
profits in proportion to his
contribution; and
(d) The industrial partner, who did not
contribute capital, is not liable for
losses [Article 1797].
B.7. ACCOUNT FOR BENEFITS
Obligation to render information:
. True and full information of all things
affecting the partnership - only on demand.
. Accounting for benefits received pertaining
to the partnership or related to the use of
partnership property.
. Hold in trust any profits derived without
consent.
B.8. LIABLE FOR PARTNERSHIP
CONTRACTS
The partnership is primarily liable for
contracts entered into:
(1) In its name and for its account;
(2) Under its signature; and
(3) By a person authorized to act for it.
Upon exhaustion of its assets, all partners are
liable pro rata with all their property.
Any partner may enter into a separate
obligation to perform a partnership contract
[Article 1816].
NATURE OF INDIVIDUAL LIABILITY
I. SUBSIDIARY
General Rule: The partners are liable
subsidiarily. It only arises upon exhaustion of
partnership assets [Cia. Maritima v. Muñoz
(1907)].
Exceptions:
(1) A third person who transacted with the
partnership can hold the partners
solidarily [rather than subsidiarily] liable
for the whole obligation if the case falls
under Articles 1822 or 1823 [Muñasque v.
CA (1985)]. The provisions refer to
wrongful acts or omission and
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CIVIL LAW
misapplication of money or property by a
partner in the ordinary course of
business.
(2) A person admitted as a partner into an
existing partnership is liable for all the
obligations of the partnership arising
before his admission, except that his
liability shall be satisfied only out of
partnership property, unless there is a
stipulation to the contrary [Article 1826].
In other words, he is not personally liable.
II. PRO RATA
The partners are liable pro rata.
This liability is not increased even when a
partner:
(1) Has left the country and the payment of
his share of the liability cannot be
enforced [Co-Pitco v. Yulo (1907)]; or
(2) His liability is condoned by the creditor
[Island Sales v. United Pioneers (1975)].
LIABILITY OF AN INDU STRIAL
PARTNER
An industrial partner, who is not liable for
losses, is not exempt from this liability.
However, he can recover the amount he has
paid from the capitalist partners, unless there
is a stipulation to the contrary [Cia. Maritima
v. Muñoz (1907)].
STIPULATION AGAINST INDIVIDUAL
LIABILITY
Any stipulation against this liability is void
against third persons but valid among the
partners [Article 1817].
RESPONSIBILITY TO PARTNERS
In the absence of any stipulation to the
contrary, every partner is an agent of the
partnership for the purpose of its business. As
such, it is responsible to every partner:
(1) For amounts, and the corresponding
interest from the time the expenses were
made, which he may have disbursed on
behalf of the partnership;
(2) For obligations he may have contracted in
good faith in the interest of the
partnership business; and
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(3) For risks in consequence of the B.10. APPLICATION OF SUMS RECEIVED

management of the partnership [Article
1796].
B.9. SOLIDARILY LIABLE WITH THE
PARTNERSHIP FOR WRONGFUL ACTS OR
OMISSIONS
An admission or representation by any
partner may be used as evidence against the
partnership when:
(1) It concerns partnership affairs;
(2) Such affairs are within the scope of his
authority [Article 1820].
LIABILITY OF THE PARTNERSHIP FOR
W RONGFUL ACTS OF A PARTNER
The partnership is solidarily liable with the
partner who causes loss or injury to any
person not a partner, or incurs any penalty
through any wrongful act or omission:
(1) In the ordinary course of the business of
the partnership; or
(2) Not in such ordinary course of business,
but with the authority of his co-partners
[Article 1822].
LIABILITY OF THE PARTNERSHIP FOR
MISAPPLICATION OF MONEY OR
PROPERTY
The partnership is liable for losses suffered by
a third person whose money or property was:
(1) Received by a partner:
(a) Acting within the scope of his
apparent authority; and
(b) Misapplied it;
(2) Received by the partnership:
(a) In the course of its business; and
(b) Misapplied by any partner while it is
in the custody of the partnership
[Article 1823].
General Rule: A partner authorized to
manage, who collects a demandable sum
owed to him in his own name from a person
who also owes the partnership a demandable
sum, is obliged to apply the sum collected to
both credits pro rata, even if he issued a
receipt for his own credit only.
Requisites:
(1) There exist at least two debts, one where
the collecting partner is creditor, and the
other, where the partnership is the
creditor;
(2) Both debts are demandable; and
(3) The partner who collects is authorized to
manage and actually manages the
partnership.
Exceptions:
(1) In case the receipt was issued for the
account of the partnership credit only,
however, the sum shall be applied to the
partnership credit alone.
(2) When the debtor declares, pursuant to
Article 1252, at the time of making the
payment, to which debt the sum must be
applied, it shall be so applied [Article
1792].

LIABILITY OF THE OTHER PARTNERS

UNDER ARTICLES 1822 AND 1823
All partners are solidarily liable with the
partnership for its liabilities under Articles
1822 and 1823 [Article 1824].

This is without prejudice to the guilty partner

being liable to the other partners. However,
as far as third persons are concerned, the
partnership is answerable [De Leon (2010)].

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III. Obligations of the
Partnership
A. OBLIGATION TO OPERATE UNDER A
FIRM NAME
Every partnership shall operate under a firm
name, which may or may not include the
name of one or more of the partners.
Those who, not being members of the
partnership, include their names in the firm
name, shall be subject to the liability of a
partner [Article 1815].
General rule: The partners may adopt any
firm name desired.
Exceptions:
(1) They cannot use a name which is
“identical or deceptively or confusingly
similar to an existing or corporation [or
partnership] or to any other name already
protected by law or is patently deceptive,
confusing or contrary to existing laws”
[Section 18, Corporation Code].
(2) Use of names of deceased partner in law
firms is “permissible provided that the
firm indicates in all its communications
that said partner is deceased” [Rule 3.02,
Code of Professional Responsibility].
B. LIABILITY OF PARTNERS FOR
PARTNERSHIP CONTRACTS
B.1. ACTS APPARENTLY FOR THE
CARRYING ON OF USUAL BUSINESS
General rule: Any act of a partner which is
apparently for the carrying on of the usual
business of the partnership binds the latter,
including the execution of any instrument in
the partnership name.
Exception: The partnership is not bound
when the following concur:
(1) The partner has in fact no authority to
act; and
(2) The person with whom he deals has
knowledge of such fact [Article 1818 (1)].
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B.2. ACTS NOT APPARENTLY FOR
CARRYING ON OF THE USUAL BUSINESS
General rule: Acts of a partner which is not
apparently for carrying on of the usual
business does not bind the partnership.
Exception: The partnership is bound if the
other partners authorized him to do the act
[Article 1818, 2nd par.].
B.3. ACTS OF STRICT DOMINION
General rule: One or some of the partners
have no authority to do the following acts of
strict dominion:
(1) Assign the partnership property in trust
for creditors or on the assignee’s promise
to pay the debts of the partnership;
(2) Dispose of the goodwill of the business;
(3) Do any other act which makes it
impossible to carry on the ordinary
business of the partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a
partnership claim or liability;
(6) Submit a partnership claim or liability to
arbitration;
(7) Renounce a claim of the partnership.
Exceptions: They may do so if:
(1) Authorized by all the partners; or
(2) The other partners have abandoned the
business [Article 1818, 3rd par.].
B.4. ACTS IN CONTRAVENTION OF A
RESTRICTION
Any act of a partner in contravention of a
restriction on authority does not bind the
partnership to persons having knowledge of
the restriction [Article 1818, 4th par.].
C. CONVEYANCE OF PARTNERSHIP
REAL PROPERTY
C.1. TITLE IN PARTNERSHIP NAME
Any partner may convey the real property in
the name of the partnership.
The partnership can recover it, except when:
(1) The act of the partner binds the
partnership, when he has authority to
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carry out the usual business of the
partnership, under Article 1818, 1st par.; or
(2) If not so authorized, the property has
been conveyed by the grantee, or a
person claiming under him, to a holder
for value and without knowledge that the
partner exceeded his authority [Article
1819, 1st par.].
A partner authorized to carry out the usual
business may convey, in his own name, the
equitable interest of the partnership [Article
1819, 2nd par.].
C.2. TITLE IN THE NAME OF OTHER
PERSONS
Where the title is in the name of one or more
but not all the partners, and the record does
not disclose the right of the partnership:
(1) The partners having title may convey title.
(2) The partnership may recover it when the
partners conveying title have no authority
to carry on the usual business of the
partnership, unless the purchaser or his
assignee is:
(a) A holder for value; and
(b) Without knowledge that the act
exceeded authority [Article 1819, 3rd
par.].
Where the title is in the name of one or more
or all the partners, or in a third person in trust
for the partnership a partner authorized to
carry on the usual business may convey
equitable title in the partnership name or in
his own name [Article 1819, 4th par.].
Where the title is in the names of all the
partners, a conveyance executed by all of
them passes all the rights to the property
[Article 1819, 5th par.].
D. LIABILITY OF THE PARTNERSHIP
FOR ADMISSION BY A PARTNER
E. LIABILITY IN CASE OF PARTNERSHIP
BY ESTOPPEL
E.1. PARTNER BY ESTOPPEL
A partner by estoppel is a person who, by
words spoken or written or by conduct [1]
represents himself as a partner or [2]
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PARTNERSHIP CIVIL LAW
consents to another representing him to
anyone as a partner:
(1) In an existing partnership; or
(2) With one or more persons not actual
partners [Article 1825, 1st par.].
E.2. LIABILITY OF A PARTNER BY
ESTOPPEL
I. PERSONAL REPRESENTATION
A partner by estoppel is liable to any such
persons:
(1) To whom such representation has been
made; and
(2) Who has, on the faith of such
representation, given credit to the actual
or apparent partnership [Article 1825, 1st
par.].
II. PUBLIC REPRESENTATION
If he has made such representation or
consented to its being made in a public
manner, whether the representation has or
has not been [personally] made or
communicated to such persons so giving
credit by or with his knowledge, and:
(1) Partnership liability results, he is liable as
though he were an actual member of the
partnership.
(2) No partnership liability results, he is
liable pro rata with the other persons, if
any, so consenting to the contract or
representation.
(3) When there are no such other persons, he
is separately liable [Article 1825, 1st par.].
E.3. EFFECT ON EXISTING PARTNERSHIP
OR OTHER PERSONS NOT ACTUAL
PARTNERS
(1) When a person has been represented to
be a partner (a) in an existing
partnership, or (b) with one or more
persons not actual partners, he is an
agent of the persons consenting to such
representation to bind them to the same
extent and in the same manner as though
he were a partner in fact, with respect to
persons who rely upon the
representation.
(2) When all the members of the existing
partnership consent to the
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representation, a partnership act or G. NOTICE TO OR KNOWLEDGE OF THE

obligation results. PARTNERSHIP
(3) In all other cases, it is the joint act or
obligation of the person acting and the The following operate as notice to or
persons consenting to the representation knowledge of the partnership:
[Article 1825, 2nd par.]. (1) Notice to any partner of any matter
relating to partnership affairs;
(2) Knowledge of the partner acting in the
E.4. NATURE OF LIABILITY particular matter acquired while a
Summarizing Article 1825, a partner by partner;
estoppel is liable in the following manner: (3) Knowledge of the partner acting in the
(1) He is liable as though he were a partner particular matter then present to his
when: mind; or
(a) There is an existing partnership; (4) Knowledge of any other partner who
(b) All the partners consented to the reasonably could and should have
representation; and communicated it to the acting partner.
(c) A partnership liability results. These do not apply in case of fraud on the
(2) He is liable jointly and pro rata (as though partnership committed by or with the consent
he were a partner in fact) with those who of the partner [Article 1821].
consented to the representation when:
(a) There is an existing partnership but
not all the partners consented; or
(b) There is no existing partnership and
all those represented as partners
consented to the representation.
(3) He is liable separately when:
(a) There is an existing partnership but
none of the partners consented; or
(b) There is no existing partnership and
not all of those represented as
partners consented to the
representation.

F. LIABILITY OF AN INCOMING
PARTNER
A person admitted as a partner is liable:
(1) For obligations incurred subsequent to
his admission as the other partners are
liable;
(2) For obligations incurred before his
admission, but will be satisfied only out
of the partnership property, unless
otherwise stipulated that he fully
assumes such obligations.

Ratio:
(1) The new partner partakes of the benefits
of the partnership property and an
already established business.
(2) He has every means of obtaining full
knowledge of the debts of the partnership
and remedies that amply protect his
interest [De Leon (2010)].

PAGE 405 OF 574

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IV. Dissolution
A. CONCEPTS
Dissolution – the change in the relation of
the partners caused by any partner ceasing to
be associated in the carrying on of the
business. It is different from the winding-up
of the business [Article 1828]. It does not
terminate the partnership, which continues
until the winding up of partnership affairs is
completed [Article 1829].
W inding up – the actual process of settling
the partnership business or affairs after
dissolution. It involves collection and
distribution of partnership assets, payment of
debts, and determination of the value of the
interest of the partners in the partnership.
Termination – the point in time when all
partnership affairs are completely wound up
and finally settled. It signifies the end of the
partnership life [De Leon (2010)].
B. CAUSES OF DISSOLUTION
B.1. WITHOUT VIOLATION OF THE
AGREEMENT
(1) By the termination of the definite term or
particular undertaking specified in the
agreement;
(2) By the express will of any partner, who
must act in good faith, when no definite
term or particular is specified.
(3) 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
particular undertaking;
(4) By the expulsion of any partner from the
business bona fide in accordance with
such a power conferred by the agreement
between the partners [Article 1830(1)].
If, after the expiration of the definite term or
particular undertaking, the partners continue
the partnership without making a new
agreement, the firm becomes a partnership
at will [Article 1785].
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Any one of the partners may, at his sole
pleasure, dictate the dissolution of the
partnership at will. He must, however, act in
good faith, not that the attendance of bad
faith can prevent the dissolution of the
partnership but that it can result in a liability
for damages [Ortega v. CA (1995)].
B.2. IN CONTRAVENTION OF THE
AGREEMENT
Where circumstances do not permit
dissolution under any other provision of
Article 1830, it may also be dissolved by the
express will of any partner at any time.
Thus, even if there is a specified term, one
partner can cause its dissolution by expressly
withdrawing even before the expiration of the
period, with or without justifiable cause. If the
cause is not justified or no cause was given,
the withdrawing partner is liable for damages
but in no case can he be compelled to remain
in the firm [Rojas v. Maglana (1990)].
B.3. BY OPERATION OF LAW
(1) By any event which makes it unlawful for
the business of the partnership to be
carried on or for the members to carry it
on in partnership;
(2) When a specific thing which a partner
had promised to contribute, perishes
before delivery, or by the loss of the thing,
only the use or enjoyment of which has
been contributed; the loss of a specific
thing, however, does not dissolve the
corporation after its ownership has
already been transferred to the
partnership;
(3) By the death of any partner;
(4) By the insolvency of any partner or of the
partnership;
(5) By the civil interdiction of any partner;
B.4. BY DECREE OF COURT
A partner may apply for dissolution in court
when:
(1) A partner has been declared insane in
any judicial proceeding or is shown to be
of unsound mind;
(2) A partner becomes in any other way
incapable of performing his part of the
partnership contract;
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(3) A partner has been guilty of such conduct
as tends to affect prejudicially the
carrying on of the business;
(4) A partner willfully or persistently commits
a breach of the partnership agreement, or
otherwise so conducts himself in matters
relating to the partnership business that
it is not reasonably practicable to carry on
the business in partnership with him;
(5) The business of the partnership can only
be carried on at a loss;
(6) Other circumstances render a dissolution
equitable.
A person who acquires the interest of a
partner may likewise apply:
(1) After the termination of the specified
term or particular undertaking;
(2) At any time if the partnership was a
partnership at will when the interest was
assigned or when the charging order was
issued
B.5. OTHER CAUSES
(1) When a new partner is admitted into an
existing partnership;
(2) When any partner retires;
(3) When the other partners assign their
rights to the sole remaining partner;
(4) When all the partners assign their rights
in the partnership property to third
persons [Article 1840].
The statutory enumeration of the causes of
dissolution is exclusive [De Leon (2010)].
C. EFFECTS OF DISSOLUTION
C.1. ON AUTHORITY OF THE PARTNERS
In general, upon dissolution, the authority of
the partners to represent the partnership is
confined only to acts necessary to:
(1) Wind up partnership affairs; or
(2) Complete transactions begun but not
then finished [Article 1832, 1st. par.].
C.1.A. W ITH RESPECT TO PARTNERS
The authority of partners to act for the
partnership is terminated, with respect to
partners:
(1) When the dissolution is not by the act,
insolvency or death of a partner; or
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(2) When the dissolution is by such act,
insolvency or death, when the partner
acting for the partnership has knowledge
or notice of the cause [Articles 1832 and
1833].
In other cases, each partner is still liable for
his share in the liability created by the partner
acting for the partnership [Article 1833].
C.1.B. W ITH RESPECT TO THIRD
PERSONS
With respect to persons not partners:
(1) After dissolution, a partner can bind the
partnership by any act appropriate for:
(a) Winding up partnership affairs; or
(b) Completing transactions unfinished
at dissolution.
(2) He can also bind it by any transaction
which would bind the partnership as if
dissolution had not taken place, provided
the other party to the transaction:
(a) Had extended credit to the
partnership prior to dissolution and
had no knowledge or notice thereof;
or
(b) Had not so extended credit but had
known of the partnership prior to
dissolution, and having no knowledge
or notice of dissolution, the fact had
not been advertised in a newspaper
of general circulation in the place [or
in each place if more than one] at
which the partnership business was
regularly carried on [Article 1834, 1st
par.].
Note the character of the notice required:
(1) As to persons who extended credit to the
partnership prior to dissolution, notice
must be actual.
(2) As to persons who merely knew of the
existence of the partnership, publication
in a newspaper of general circulation in
the place of business of the partnership is
sufficient.
C.2. ON LIABILITY FOR
TRANSACTIONS AFTER DISSOLUTION
The liability of a partner, in general, is the
same as in ordinary contracts (pro rata and
subsidiary).
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In the following cases, however, the liability (1) The dissolution being by act of any
shall be satisfied out of the partnership partner, the partner acting for the
assets alone (i.e., there is no subsidiary partnership had knowledge of the
liability): dissolution; or
1. When the partner had been, prior to the (2) The dissolution being by death or
dissolution, unknown as a partner to insolvency of a partner, the partner acting
the person with whom the contract is for the partnership had knowledge or
made; notice of the death or insolvency [Article
2. When the partner had been, prior to the 1833].
dissolution, so far unknown or inactive
in partnership affairs that the business
reputation of the partnership could not C.4. ON EXISTING LIABILITY OF
be said to have been in any degree due PARTNERS
to his connection with it [Article 1834].
General rule: Dissolution does not of itself
discharge the existing liability of any partner.
Any act of a partner after dissolution in no
case binds the partnership in the following
Exception: A partner may be relieved when
cases:
there is an agreement to that effect between:
(1) Where the partnership is dissolved
(1) Himself;
because it is unlawful to carry on the
(2) The partnership creditor; and
business, unless the act is appropriate for
(3) The person or partnership continuing the
winding up partnership affairs;
business.
(2) Where the partner has become insolvent;
(3) Or, where the partner has no authority to
Such agreement may be inferred from the
wind up partnership affairs, except by a
course of dealing between the creditor having
transaction with one who:
knowledge of the dissolution and the person
(a) Had extended credit to the
or partnership continuing the business.
partnership prior to dissolution and
had no knowledge or notice of his
In case of dissolution by death, the individual
want of authority; or
property of a deceased partner is liable for
(b) Had not extended credit to the
obligations of the partnership incurred while
partnership prior to dissolution, and,
he was a partner, after payment of his
having no knowledge or notice of his
separate debts [Article 1835].
want of authority, the fact of his want
of authority has not been advertised
[Article 1834]. D. WINDING UP PARTNERS
D.1. WHO MAY WIND UP
Article 1834 does not affect the liability under
Article 1825 of any person who, after The following partners have the right to wind
dissolution, represents himself or consents to up the partnership affairs:
another representing him as a partner in a (1) Those designated in an agreement;
partnership engaged in carrying on business (2) Those who have not wrongfully dissolved
[Article 1834]. the partnership; or
(3) The legal representative of the last
surviving partner, who was not insolvent.
C.3. ON LIABILITY FOR CONTRACTS
AFTER DISSOLUTION BY SPECIFIC
Any partner or his legal representative or
CAUSES
assignee may obtain winding up by the court,
General rule: A contract entered into by a upon cause shown [Article 1836].
partner acting for the partnership after
D.2. MANNER OF WINDING UP
dissolution by act, death or insolvency of a
partner binds the other partners. 1. Extrajudicial, by the partners themselves;
or
Exceptions:

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2. Judicial, under the control and direction
of the proper court.
The action for liquidation of the partnership is
personal. The fact that sale of assets,
including real property, is involved does not
change its character, such sale being merely
a necessary incident of the liquidation of the
partnership, which should precede and/or is
part of its process of dissolution [Claridades v.
Mercader (1966)].
E. RIGHTS OF PARTNERS IN CASE OF
DISSOLUTION
E.1. DISSOLUTION WITHOUT VIOLATION
OF THE AGREEMENT
Each partner may have:
(1) The partnership property applied to
discharge the partnership liabilities; and
(2) The surplus applied in cash to the net
amount owing to the respective partners.
This is a right as against his co-partners and
all partners claiming through them in respect
of their interests in the partnership. It cannot
be availed if there is an agreement to the
contrary [Article 1837 (1)].
E.2. DISSOLUTION IN CONTRAVENTION OF
THE AGREEMENT
I. PARTNER W HO DID NOT CAUSE
THE DISSOLUTION
The partners who did not cause the
dissolution wrongfully has the following
rights:
(1) To demand the right under Article 1837,
1st par.;
(2) To be indemnified for damages for breach
of the agreement against the partner who
caused the dissolution wrongfully [Article
1837(1)];
(3) To continue the business:
(a) In the same name;
(b) By themselves or jointly with others;
(c) During the agreed term for the
partnership.
For the purpose of continuing the business,
the said partners may possess the
partnership property provided:
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PARTNERSHIP CIVIL LAW
(1) They secure the payment by bond
approved by the court; or
(2) They pay any partner who has caused the
dissolution wrongfully the value of his
interest in the partnership, less any
damages recoverable, and indemnity
against all present or future partnership
liabilities [Article 1837(2)].
II. PARTNER W HO CAUSED THE
DISSOLUTION
The partner who caused the dissolution
wrongfully has the following rights:
(1) If the business is not continued, all the
rights Article 1837, 1st par., subject to
liability for damages;
(2) If the business is continued, the right, as
against his co-partners and all claiming
through them, to:
(a) Ascertainment, without considering
the value of the goodwill of the
business, and payment to him in cash
the value of his partnership interest,
less any damage, or have the
payment secured by a bond approved
by the court; and
(b) Be released from all existing
liabilities of the partnership [Article
1837(3)].
The goodwill of a business may be
defined to be the advantage which it has from
its establishment or from the patronage of its
customers, over and above the mere value of
its property and capital. The goodwill [which
includes the firm name] is part of the
partnership assets and may be subject of sale
[De Leon (2010)].
F. RIGHTS OF PARTNERS IN CASE OF
RESCISSION
A partner, who is induced by fraud or
misrepresentation to become such partner,
may rescind the contract. Without prejudice
to any other right, he is entitled:
(1) To a lien on, or right of retention of, the
surplus of the partnership property after
satisfying the partnership liabilities to
third persons for any sum of money paid
by him for the purchase of an interest in
the partnership and for any capital or
advances contributed by him;
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(2) To stand, after all liabilities to third
persons have been satisfied, in the place
of the creditors of the partnership for any
payments made by him in respect of the
partnership liabilities; and
(3) To be indemnified by the person guilty of
the fraud or making the representation
against all debts and liabilities of the
partnership [Article 1838].
G. SETTLING OF ACCOUNTS BETWEEN
PARTNERS
Subject to any agreement to the contrary, the
following rules shall be observed in settling
accounts between partners after dissolution.
G.1. COMPOSITION OF PARTNERSHIP
ASSETS
(1) The partnership property; and
(2) The contributions of the partners
necessary for the payment of all the
liabilities [Article 1839(1)].
In accordance with the subsidiary liability of
the partners, the partnership property shall
be applied first to satisfy any liability of the
partnership [Article 1839(3)].
G.2. AMOUNT OF CONTRIBUTION FOR
LIABILITIES
The rules for distribution of losses shall
determine the contributions of the partners
[Article 1839(4)]. As such:
(1) The contribution shall be in conformity
with the agreement.
(2) If only the share in profits has been
stipulated, the contribution shall be in
the same proportion.
(3) In the absence of any stipulation, the
contribution shall be in proportion to the
capital contribution [Article 1797].
G.3. ENFORCEMENT OF CONTRIBUTION
The following persons have the right to
enforce the contributions:
(1) An assignee for the benefit of creditors;
(2) Any person appointed by the court; or
(3) To the extent of the amount which he has
paid in excess of his share of the
partnership liability, any partner or his
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legal representative [Article 1839(5) and
(6)].
The individual property of a deceased partner
shall be liable for the contributions [Article
1839(7)].
G.4. ORDER OF APPLICATION OF ASSETS
The partnership liabilities shall rank, in order
of payment, as follows:
(1) Those owing to creditors other than
partners;
(2) Those owing to partners other than for
capital and profits;
(3) Those owing to partners in respect of
capital;
(4) Those owing to partners in respect of
profits [Article 1839(2)].
G.5. DOCTRINE OF MARSHALING OF
ASSETS
When partnership property and the individual
properties of the partners are in possession of
a court for distribution:
(1) Partnership creditors have priority on
partnership property;
(2) Separate creditors have priority on
individual property, saving the rights of
lien of secured creditors.
(3) Anything left from either shall be applied
to satisfy the other [Article 1839(8)].
G.6. DISTRIBUTION OF PROPERTY OF
INSOLVENT PARTNER
Where a partner has become insolvent or his
estate is insolvent, the claims against his
separate property shall rank in the following
order:
(1) Those owing to separate creditors;
(2) Those owing to partnership creditors;
(3) Those owing to partners by way of
contribution [Article 1839(9)].
H. RIGHTS OF CREDITORS OF
DISSOLVED PARTNERSHIP
H.1. AS CREDITORS OF THE NEW
PARTNERSHIP
In the following cases, creditors of the
dissolved partnership are also creditors of the
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person or partnership continuing the
business:
(1) When the business is continued without
liquidation, and the cause of dissolution
is:
(a) Admission of a new partner into the
existing partnership;
(b) Retirement or death of any partner,
and his rights to partnership property
are assigned to [1] two or more of the
partners, or [2] one or more of the
partners and one or more third
persons;
(c) Retirement of all but one partner,
and their rights to partnership
property are assigned to the
remaining partner, who continues the
business, either alone or with others;
(d) Wrongful dissolution by any partner,
and the remaining partners continue
the business, either alone or with
others;
(e) Expulsion of a partner, and the
remaining partners continue the
business, either alone or with others.
(2) When the cause of dissolution is the
retirement or death of any partner, and
business is continued with the consent of
the retired partner or the representative
of the deceased partner, without
assignment of their rights to partnership
property.
(3) When the cause of dissolution is the
assignment by all the partners or their
representatives of their rights in
partnership property to one or more third
persons who promise to pay the debts
and who continue the business of the
partnership [Article 1840, 1st par.].
H.2. LIABILITY OF A NEW PARTNER
The liability to the creditors of the dissolved
partnership of a new partner in the
partnership continuing the business shall be
satisfied out of the partnership property
alone. However, he may, through agreement,
assume individual liability [Article 1840, 2nd
par.].
H.3. PRIORITY OF CREDITORS OF
DISSOLVED PARTNERSHIP
Creditors of the dissolved partnership have
prior right to any claim of the retired partner
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or the representative of the deceased partner
against the person or partnership continuing
the business [Article 1840, 3rd par.].
This is without prejudice to the right of
creditors to set aside any assignment on the
ground of fraud [Article 1840, 4th par.].
I. RIGHTS OF A RETIRED PARTNER OR
A REPRESENTATIVE OF DECEASED
PARTNER
Unless otherwise agreed upon, when any
partner retires or dies, and the business is
continued without any settlement of accounts
as between him or his estate and the person
or partnership continuing the business, he or
his legal representative, as against such
person or partnership, subject to the prior
rights of creditors of the dissolved
partnership:
(1) May have the value of his interest at the
date of dissolution ascertained; and
(2) Shall receive as an ordinary creditor:
(a) An amount equal to the value of his
interest in the dissolved partnership
with interest; or
(b) At his option or at the option of his
legal representative, in lieu of
interest, the profits attributable to the
use of his right in the property of the
dissolved partnership [Article 1841].
J. RIGHT TO AN ACCOUNT
In the absence of any agreement to the
contrary, the right to an account of his
interest shall accrue to any partner, or his
legal representative at the date of
dissolution, as against:
(1) The winding up partners;
(2) The surviving partners; or
(3) The person or partnership continuing the
business [Article 1842].
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V. Limited Partnership C. GENERAL AND LIMITED PARTNERS

DISTINGUISHED
(1) A partnership;
(2) Formed by two or more persons; General partner Limited partner
(3) Having as members: Extent of liability
(a) One or more general partners; and
Personally, but Liable only to the
(b) One or more limited partners.
subsidiarily, liable extent of his capital
for obligations of contributions
The limited partners as such shall not be
the partnership
bound by the obligations of the partnership
[Article 1843]. Right to participate in m anagem ent
Unless otherwise No right to participate
B. CHARACTERISTICS agreed upon, all in management
general partners
(1) A limited partnership is formed by have an equal right
compliance with the statutory to manage the
requirements [Article 1844]. partnership
(2) The business is controlled or managed by
one or more general partners, who are Nature of contribution
personally liable to creditors [Articles Cash, property or Cash or property only,
1848 and 1850]. industry not industry
(3) One or more limited partners contribute Proper party in proceedings by or
to the capital and share in the profits but against partnership
do not manage the business and are not
personally liable for partnership Proper party Not proper party,
obligations beyond their capital unless [1] he is
contributions [Articles 1845, 1848 and also a general partner;
1856]. or [2] where the object
(4) Obligations or debts are paid out of the of the proceedings is
partnership assets and the individual to enforce his right
property of the general partners [Article against or liability to
1843]. the partnership
(5) The limited partners may have their Firm nam e
contributions back subject to conditions
prescribed by law [Articles 1844 and 1957]. Name may appear Name must not appear
in the firm name in the firm name
A limited partnership has the following Prohibition to engage in other business
advantages: Prohibited [subject Not prohibited
(1) For general partners, to secure capital to qualifications]
from others while retaining control and
supervision for the business; Effect of retirem ent, death, insanity or
(2) For limited partners, to have a share in insolvency
the profits without risk of personal Dissolves Does not dissolve
liability. partnership partnership; rights
transferred to executor
or administrator for
selling his estate
Assignability of interest
Not assignable Assignable

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D. GENERAL AND LIMITED recognized that the firm is a limited

PARTNERSHIP DISTINGUISHED partnership; and
(2) As between the partners, the partnership
General Limited remains limited, since they are bound by
partnership partnership their agreement [De Leon (2010)].
Creation
May be Partners must: [1] sign E.2. PURPOSE OF FILING
constituted in any and swear to a certificate (1) To give actual or constructive notice to
form, subject to in compliance with potential creditors or persons dealing
exceptions Article 1844; and [2] file with the partnership; and
the certificate for record (2) To acquaint them with its essential
in the SEC features, including the limited liability of
Com position limited partners [De Leon (2010)].
Only general One or more general,
partners and one or more limited E.3. FIRM NAME
partners
General rule: The surname of a limited
Firm nam e partner shall not appear in the partnership
Must contain the Must include the word name.
word “Company” “Limited” [SEC Memo.
[SEC Memo Circ Circ. No. 14-00] Exceptions:
No. 14-00], (1) It is also the surname of a general
except for Must not include name partner; or
professional of limited partners, (2) Prior to the time when the limited partner
partnerships unless: [1] it is also the became such, the business had been
surname of a general carried on under a name in which his
May or may not partner, or [2] prior to surname appeared.
include the name the time when the
of one or more of limited partner became A limited partner whose surname appears in
the partners such, the business has a partnership name contrary to this
been carried on under a prohibition is liable as a general partner to
name in which his partnership creditors who extend credit
surname appeared without actual knowledge that he is not a
general partner.
Rules governing dissolution
Articles1828-1842 Articles 1860-1863
E.4. FALSE STATEMENT IN THE
CERTIFICATE
E. FORMATION If the certificate contains a false statement,
E.1. GENERAL REQUIREMENTS one who suffers loss by reliance thereon may
hold liable any party to the certificate who
Two or more persons desiring to form a knew the statement to be false:
limited partnership shall: (1) At the time he signed the certificate; or
(1) Sign and swear to a certificate stating the (2) Subsequently, but within a sufficient time
items in Article 1844; and before the statement was relied upon to
(2) File for record the certificate in the SEC enable him to cancel or amend the
[Article 1844]. certificate, or to file a petition for its
cancellation or amendment [Article 1847].
A limited partnership is formed if there is
substantial compliance in good faith with the
requirements. When there is failure to
substantially comply with the requirements:
(1) In relation to third persons, the
partnership is general, unless they
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Requisites:
(1) The partner knew the statement to be
false:
(a) At the time he signed the certificate;
or
(b) Subsequently, but having sufficient
time to cancel or amend it, or file a
petition for its cancellation or
amendment, and he failed to do so;
(2) The person seeking to enforce liability
has relied upon the false statement in
transacting business with the
partnership; and
(3) The person suffered loss as a result of
reliance upon such false statement.
E.5. GENERAL AND LIMITED PARTNER AT
THE SAME TIME
A person may be a general and a limited
partner in the same partnership at the same
time. This fact must be stated in the
certificate.
A person who is a general, and also at the
same time a limited partner, shall have all
the rights and powers, and be subject to all
the restrictions of a general partner, except
that, in respect to his contribution as a
limited partner, he shall have the rights
against the other members which he would
have had if he were not also a general partner
[Article 1853].
F. MANAGEMENT
Only general partners have the right to
manage the partnership. If a limited partner
takes part in the control of the business, he
becomes liable as a general partner [Article
1848].
A general partner shall have the rights and
powers and be subject to all restrictions and
liabilities of a partner in a partnership without
limited partners. Thus, he has general
authority over the business.
However, written consent or ratification by all
limited partners is necessary to authorize the
general partners to:
(1) Do any act in contravention of the
certificate;
(2) Do any act which would make it
impossible to carry on the ordinary
business of the partnership;
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(3) Confess a judgment against the
partnership;
(4) Possess partnership property, or assign
their rights in specific property, for other
than a partnership purpose;
(5) Admit a person as a general partner;
(6) Admit a person as a limited partner,
unless the right to do so is given in the
certificate;
(7) 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
G. OBLIGATIONS OF A LIMITED
PARTNER
G.1. OBLIGATIONS RELATED TO
CONTRIBUTION
The contributions of a limited partner may be
cash or other property, but not services
[Article 1845].
A limited partner is liable for partnership
obligations when he contributes services
instead of only money or property to the
partnership [De Leon (2010)].
A limited partner is liable to the partnership:
(1) For the difference between his actual
contribution and that stated in the
certificate as having been made; and
(2) For any unpaid contribution which he
agreed in the certificate to make in the
future at the time and on the conditions
stated in the certificate [Article 1858, 1st
par.].
He holds as trustee for the partnership:
(1) Specific property stated in the certificate
as contributed by him, but which was not
contributed or which has been wrongfully
returned; and
(2) Money or other property wrongfully paid
or conveyed to him on account of his
contribution [Article 1858, 2nd par.].
These liabilities can be waived or
compromised only by the consent of all
members. Such waiver or compromise,
however, shall not affect the right to enforce
said liabilities of a creditor:
(1) Who extended credit; or
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(2) Whose claim arose, after the filing or
before a cancellation or amendment of
the certificate, to enforce such liabilities
[Article 1858, 3rd par.].
Even after a limited partner has rightfully
received the return in whole or in part of his
capital contribution, he is still liable to the
partnership for any sum, not in excess of such
return with interest, necessary to discharge
its liabilities to all creditors:
(1) Who extended credit; or
(2) Whose claims arose before such return
[Article 1858, 4th par.].
A person who has contributed capital to a
partnership, erroneously believing that he
has become a limited partner, but his name
appears in the certificate as a general partner
or he is not designated as a limited partner, is
not personally liable as a general partner by
reason of his exercise of the rights of a limited
partner, provided:
(1) On ascertaining the mistake, he promptly
renounces his interest in the profits of the
business or other compensation by way of
income [Article 1852];
(2) He does not participate in the
management of the business [Article
1848]; and
(3) His surname does not appear in the
partnership name [Article 1846].
G.2. LIABILITY TO PARTNERSHIP
CREDITORS
General rule: A limited partner is not liable
as a general partner. His liability is limited to
the extent of his contributions [Article 1843].
Exceptions: The limited partner is liable as
a general partner when:
(1) His surname appears in the partnership
name, with certain exceptions [Article
1846, 2nd par.].
(2) He takes part in the control of the
business [Article 1848].
G.3. LIABILITY TO SEPARATE CREDITORS
On due application to a court of competent
jurisdiction by any separate creditor of a
limited partner, the court may:
(1) Charge his interest with payment of the
unsatisfied amount of such claim;
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(2) Appoint a receiver; and
(3) Make all other orders, directions and
inquiries which the circumstances of the
case may require.
The interest so charged may be redeemed
with the separate property of any general
partner, but may not be redeemed with
partnership property [Article 1862].
Note: In a general partnership, the interest
may be redeemed with partnership property
with the consent of all the partners whose
interests are not charged [Article 1814].
H. RIGHTS OF A LIMITED PARTNER
H.1. IN GENERAL
A limited partner shall have the same rights
as a general partner to:
(1) Require that the partnership books be
kept at the principal place of business of
the partnership;
(2) To inspect and copy any of them at a
reasonable hour;
(3) To demand true and full information of
all things affecting the partnership;
(4) To demand a formal account of
partnership affairs whenever
circumstances render it just and
reasonable;
(5) To ask for dissolution and winding up by
decree of court;
(6) To receive a share of the profits or other
compensation by way of income; and
(7) To receive the return of his contribution
provided the partnership assets are in
excess of all its liabilities [Article 1851].
H.2. RIGHT TO TRANSACT BUSINESS WITH
THE PARTNERSHIP
A limited partner may:
(1) Loan money to the partnership;
(2) Transact other business with the
partnership; and
(3) Receive a pro rata share of the
partnership assets with general creditors
if he is not also a general partner [Article
1854, 1st par.].
Lim itations: A limited partner, with respect
to his transactions with the partnership,
cannot:
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(1) Receive or hold as collateral security any
partnership property; or
(2) Receive any payment, conveyance, or
release from liability if it will prejudice the
right of third persons [Article 1854, 1st
par.].
Violation of the prohibition is considered a
fraud on the creditors of the partnership
[Article 1854, 2nd par.].
H.3. RIGHT TO SHARE IN PROFITS
A limited partner may receive from the
partnership the share of the profits or the
compensation by way of income stipulated
for in the certificate.
This right is subject to the condition that
partnership assets will still be in excess of
partnership liabilities after such payment
[Article 1856]. The partnership liabilities being
referred to exclude the liabilities to the
limited and general partners.
Ratio: Otherwise, he will receive a share to
the prejudice of third-party creditors.
H.4. RIGHT TO RETURN
CONTRIBUTION
A limited partner may have his contributions
withdrawn or reduced when:
(1) All the liabilities of the partnership,
except liabilities to general partners and
to limited partners on account of their
contributions, have been paid or there
remains property of the partnership
sufficient to pay them;
(2) The consent of all members is had, unless
the return may be demanded as a matter
of right; and
(3) The certificate is cancelled or so amended
as to set forth the withdrawal or
reduction [Article 1857, 1st par.].
The return of his contributions may be
demanded, as a matter of right [i.e., even
when not all the other partners consent],
when (1) and (2) above are complied with:
(1) On the dissolution of the partnership;
(2) Upon the arrival of the date specified in
the certificate for the return; or
(3) After the expiration of a 6-month notice
in writing given by him to the other
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partners, if no time is fixed in the
certificate for:
(a) The return of the contribution; or
(b) The dissolution of the partnership
[Article 1857, 2nd par.].
General rule: A limited partner, irrespective
of the nature of his contribution has only the
right to demand and receive cash in return for
his contribution.
Exceptions: He may receive his contribution
in a form other than cash when:
(1) There is a statement in the certificate to
the contrary; or
(2) All the members of the partnership
consent [Article 1857, 3rd par.].
H.5. PREFERENCE OF LIMITED PARTNERS
General rule: The limited partners stand on
equal footing.
Exception: By an agreement of all the
partners [general and limited] in the
certificate, priority or preference may be given
to some limited partners over others with
respect to:
OF
(1) The return of contributions;
(2) Their compensation by way of income; or
(3) Any other matter [Article 1855].
H.6. RIGHT TO ASSIGN INTEREST
The interest of a limited partner is assignable.
The assignee may become:
(1) A substituted limited partner; or
(2) A mere assignee.
A substituted limited partner is a person
admitted to all the rights of a limited partner
who has died or has assigned his interest in a
partnership. He has all the rights and powers,
and is subject to all the restrictions and
liabilities of his assignor, except those
liabilities which:
(1) The assignee was ignorant of; and
(2) Cannot be ascertained from the
certificate [Article 1859, 2nd and 6th
pars.i.
An assignee is only entitled to receive the
share of the profits or other compensation by
way of income, or the return of contribution,
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to which the assignor would otherwise be
entitled. He has no right:
(1) To require any information or account of
the partnership transactions;
(2) To inspect the partnership books [Article
1859, 3rd par.].
An assignee has the right to become a
substituted limited partner if:
(1) All the partners consent thereto; or
(2) The assignor, being empowered to do so
by the certificate, gives him that right
[Article 1859, 4th par.].
An assignee becomes a substituted limited
partner when the certificate is appropriately
amended [Article 1859, 5th par.].
H.7. RIGHT TO ASK FOR DISSOLUTION
A limited partner may have the partnership
dissolved and its affairs wound up when:
(1) He rightfully but unsuccessfully demands
the return of his contribution; or
(2) He has a right to contribution but his
contribution is not paid because the
partnership property is insufficient to pay
its liabilities [Article 1857, 4th par.].
I. DISSOLUTION
A limited partnership is dissolved in much the
same way and causes as an ordinary
partnership [De Leon (2010)].
General rule: The retirement, death,
insolvency, insanity or civil interdiction of a
general partner dissolves the partnership.
Exception: It is not so dissolved when the
business is continued by the remaining
general partners:
(1) Under a right to do so stated in the
certificate; or
(2) With the consent of all members [Article
1860].
Upon the death of a limited partner, his
executor or administrator shall have:
(1) All the rights of a limited partner for the
purpose of settling his estate; and
(2) The power to constitute an assignee as a
substituted limited partner, if the
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deceased was so empowered in the
certificate.
The estate of a deceased limited partner shall
be liable for all his liabilities as a limited
partner [Article 1861].
J. SETTLEMENT OF ACCOUNTS
J.1. ORDER OF PAYMENT
In settling accounts after dissolution, the
liabilities of the partnership shall be
entitled to payment in the following
order:
(1) Those to creditors, including limited
partners except those on account of their
contributions, in the order of priority as
provided by law;
(2) Those to limited partners in respect to
their share of the profits and other
compensation by way of income in their
contributions;
(3) Those to limited partners in respect to the
capital of their contributions;
(4) Those to general partners other than for
capital and profits;
(5) Those to general partners in respect to
profits;
(6) Those to general partners in respect to
capital [Article 1863, 1st par.].
Note: In settling accounts of a general
partnership, those owing to partners in
respect to capital enjoy preference over those
in respect to profits.
J.2. SHARE IN THE PARTNERSHIP ASSETS
The share of limited partners in respect to
their claims for capital, profits, or for
compensation by way of income, is in
proportion of their contribution, unless:
(1) There is a statement in the certificate as
to their share in the profits; or
(2) There is a subsequent agreement fixing
their share [Article 1863].
K. AMENDMENT OR CANCELLATION
OF CERTIFICATE
K.1. CANCELLATION OF CERTIFICATE
The certificate shall be cancelled when:
(1) The partnership is dissolved; or
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(2) All limited partners cease to be such order the SEC to record the cancellation or
limited partners. amendment if it finds that the petitioner has
a right to have the writing executed.
K.2. AMENDMENT OF CERTIFICATE
From the moment the amended
A certificate shall be amended when: certificate/writing or a certified copy of a
(1) There is a change in the name of the court order granting the petition for
partnership or in the amount or character amendment has been filed, such amended
of the contribution of any limited partner; certificate shall thereafter be the certificate of
(2) A person is substituted as a limited partnership [Article 1865].
partner;
(3) An additional limited partner is admitted;
(4) A person is admitted as a general
partner;
(5) A general partner retires, dies, becomes
insolvent or insane, or is sentenced to
civil interdiction and the business is
continued;
(6) There is a change in the character of the
business of the partnership;
(7) There is a false or erroneous statement in
the certificate;
(8) There is a change in the time as stated in
the certificate for the dissolution of the
partnership or for the return of a
contribution;
(9) A time is fixed for the dissolution of the
partnership, or the return of a
contribution, no time having been
specified in the certificate; or
(10) The members desire to make a change in
any other statement in the certificate in
order that it shall accurately represent
the agreement among them [Article
1864].

K.3. REQUIREMENTS FOR AMENDMENT

OR CANCELLATION
To amend or cancel a certificate:
(1) The amendment or cancellation must be
in writing;
(2) It must be signed and sworn to by all the
members including the new members,
and the assigning limited partner in case
of substitution or addition of a limited or
general partner; and
(3) The writing to amend (with the certificate,
as amended) or to cancel must be filed
for record in the SEC.

When a person required to sign the writing, a

person desiring the cancellation or
amendment may petition the court to order
cancellation or amendment. The court shall
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