Business Laws and Regulations ATTY. JOHNSON A.H.

ONG, CPA, MBA

Law on Partnership 1ST Sem 2021-2022
LECTURE NOTES

PARTNERSHIP failure to comply with the requirements of article

1772, first paragraph (1768). However, Associations and
PARTNERSHIP societies, whose articles are kept secret among the members,
• By the contract of partnership two or more persons bind and wherein any one of the members may contract in his own
themselves to contribute money, property, or industry to a name with third persons, shall have no juridical personality.
common fund, with the intention of dividing the profits (1775)
among themselves. Two or more persons may also form a A partnership begins from the moment of the execution of
partnership for the exercise of a profession. (1767). the contract, unless it is otherwise stipulated. (1784)
2. Lawful object or purpose (1770). Any event which makes
Note: Since a partnership is a contract, all agreement between the it unlawful for the business of the partnership to be carried
parties has the force of law between the contracting parties on or for the members to carry it on in partnership caused for
(1159) provided it is not contrary to law, moral, good custom, automatic dissolution of the partnership. (1830)
public order and public policy. (1306)
Distinction between partnership and Co- ownership EFFECTS OF UNLAWFUL PARTNERSHIP
1. Creation 1. The contract is void ab initio and the partnership never
2. Juridical personality existed in the eyes of the law
3. Purpose 2. The profits shall be confiscated in favor of the
4. Duration government
5. Disposal of interest 3. The instruments or tools and proceeds of the crime shall
6. Power to act with third person also be forfeited in favor of the government
7. Effect of death 4. The contributions of the partners shall not be confiscated
Distinction between Partnership and conjugal partnership of gain unless they fall under no. 3
1. Parties 3. Contribution of money, property or industry to a common
2. Laws which govern fund.
3. Juridical personality Obligations with respect to contribution to partnership
4. Commencement capital
5. Purpose 1. Partners must contribute equal shares to the capital of the
6. Distribution of profits partnership unless there is stipulation to contrary. (Art
7. Management 1790).
8. Disposition of shares 2. Partners (capitalist) must contribute additional capital In
Distinction between partnership and voluntary association case of imminent loss to the business of the partnership
1. Juridical personality and there is no stipulation otherwise; refusal to do so
2. Purpose shall create an obligation on his part to sell his interest to
3. Contribution of members the other partners. (Art. 1791)
4. Liability of members Requisites:
a. There is an imminent loss of the business of the
Characteristics partnership
1. Consensual b. The majority of the capitalist partners are of the opinion
2. Nominate that an additional contribution to the common fund
3. Bilateral would save the business
4. Onerous c. The capitalist partner refuses deliberately to contribute
5. Commutative (not due to financial inability)
6. Principal d. There is no agreement to the contrary
7. Preparatory
RISK OF LOSS OF THINGS CONTRIBUTED
• A partnership may be constituted in any form, except where Contributed property Loss to be borne by
immovable property or real rights are contributed thereto, Partnership Partner
in which case a public instrument shall be necessary. (1771) Specific and determinate things √
• A contract of partnership is void, whenever immovable which are not fungible where
property is contributed thereto, if an inventory of said only the use is contributed
property is not made, signed by the parties, and attached to Specific and determinate things √
the public instrument. (1773) the ownership of which is
• Every contract of partnership having a capital of three transferred to the partnership
thousand pesos or more, in money or property, shall appear Fungible things (consumable) √
in a public instrument, which must be recorded in the Office Cannot be kept without √
of the Securities and Exchange Commission. deteriorating
• Failure to comply with the requirements of the preceding Things contributed to be sold √
paragraph shall not affect the liability of the partnership and Things brought and appraised in √
the members thereof to third persons. (1772) the inventory (limited to value
appraised)
Requisites • If one of the Partners refused to give contribution, the
1. Valid Contract other partner may compel him to deliver (Specific
The partnership has a judicial personality separate and performance) what he has promised.
distinct from that of each of the partners, even in case of • The partnership is dissolved when a specific thing which

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a partner had promised to contribute to the partnership, partnership itself. In such case, as if there is no agreement as
perishes before the delivery. (1830,4) to profit and loss and the profit and loss are distributed in
accordance with capital contribution.
4. Intent to divide the profit among the partners. (1767).
RULES FOR DISTRIBUTION OF PROFITS AND Test to determine whether partnership exists:
LOSSES 1. Persons who are not partners as to each other are not partners
DISTRIBUTION OF DISTRIBUTION OF as to third persons; except estoppels (1825).
PROFITS LOSSES 2. Co-ownership or co-possession does not of itself establish a
With According to According to agreement partnership, whether such-co-owners or co-possessors do or
agreement agreement do not share any profits made by the use of the property;
Without 1. Share of capitalist 1. If sharing of profits 3. The sharing of gross returns does not of itself establish a
agreement partner is in is stipulated - apply partnership, whether or not the persons sharing them have a
proportion to his to sharing of losses joint or common right or interest in any property from which
capital 2. If no profit sharing the returns are derived;
contribution stipulated - losses 4. The receipt by a person of a share of the profits of a business
2. Share of industrial shall be borne is prima facie evidence that he is a partner in the business,
partner is not according to capital but no such inference shall be drawn if such profits were
fixed - as may be contribution received in payment: (DRAWInG)
just and equitable 3. Purely industrial a. Debt by installments or otherwise;
under the partner not liable for b. As Rent to a landlord or
circumstances losses c. As an Annuity to a widow or representative of a
deceased partner;
Distribution of profit and losses: (1797) d. Wages of an employee
a. Profit or losses shall be distributed in conformity e. As Interest on a loan, though the amount of payment
with the agreement; vary with the profits of the business;
b. If only the share of each partner in the profits has f. As the consideration for the sale of a Goodwill of a
been agreed upon, the share of each in the losses business or other property by installments or otherwise.
shall be in the same proportion.
c. In the absence of stipulation, the share of each Reason: It s not merely the sharing of profits, but rather the
partner in the profits and losses shall be in sharing of them as a co-owner of the business that makes one a
proportion to what he may have contributed, but the partner. Hence, the test is “Does the recipient of profit received it
industrial partner shall not be liable for the losses. as co-owner/proprietor of the business”, if the answer is in
d. As for the profits, the industrial partner shall receive affirmative a partnership exists.
such share as may be just and equitable under the
circumstances. If besides his services he has Classifications of Partnership
contributed capital, he shall also receive a share in As to liability of partners
the profits in proportion to his capital. 1. General partnership - consists of general partners who are
liable pro rata and subsidiarily and sometimes solidarily with
Designation of profit and losses their separate property for partnership debts
1. The designation of losses and profits cannot be entrusted to 2. Limited partnership - one formed by 2 or more persons
one of the partners. having as members one or more general partners and one or
2. If the partners have agreed to entrust to a third person the more limited partners, the latter not being personally liable
designation of the share of each one in the profits and losses, for the obligations of the partnership
such designation may be impugned only when it is As to duration
manifestly inequitable. In no case may a partner who has 1. Partnership at will - one in which no time is specified and is
begun to execute the decision of the third person, or who has not formed for a particular undertaking or venture which may
not impugned the same within a period of three months from be terminated anytime by mutual agreement
the time he had knowledge thereof, complain of such 2. Partnership with a fixed term or particular undertaking - the
decision. (1798) term for which the partnership is to exist is fixed or agreed
upon or one formed for a particular undertaking
Nota Bene: As to extent of its subject matter
All partners, including industrial ones, shall be liable pro rata 1. Universal partnership is either
with all their property and after all the partnership assets a. Universal partnership of all present property - the
have been exhausted, for the contracts which may be entered property which belongs to each of the partners at the
into in the name and for the account of the partnership, under its time of the constitution of the partnership, becomes the
signature and by a person authorized to act for the partnership. common property of all the partners, as well as all the
However, any partner may enter into a separate obligation to profits which they may acquire therewith. (1779) A
perform a partnership contract. (1816) Any stipulation exempting stipulation for the common enjoyment of any other
any partner against the liability shall be void as far as 3 rd person profits may also be made (There must be a stipulation.
is concerned. But the stipulation is valid among the partners. e.g. salary that may be earn by the partner); but the
(1817) property which the partners may acquire subsequently by
inheritance, legacy, or donation cannot be included in
5. Established for the common benefit or interest of the such stipulation, except the fruits thereof. Articles of
partners. (1770) Hence, A stipulation which excludes one or universal partnership, entered into without specification
more partners from any share in the profits or losses is void. of its nature, only constitute a universal partnership of
(1799). profits. (1781)
Note: Only the agreement as to profit and loss is void not the b. Universal partnership of all profits - all that the partners

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may acquire by their industry or work during the
existence of the partnership. Movable or immovable
property which each of the partners may possess at the
time of the celebration of the contract shall continue to
pertain exclusively to each, only the usufruct passing to
the partnership. (1780)
Note: Persons who are prohibited from giving each other any
donation or advantage cannot enter into universal partnership
The following cannot enter in a universal partnership:
a. Between those who were guilty of adultery or
concubinage;
b. Between those persons found guilty of the same criminal
offense (adultery or concubinage), in consideration
thereof;
c. Between a person and Public officer or his wife,
descendants and ascendants, by reason of his office.
(739)
2. Particular partnership – object determinate things, their use
or fruits, or specific undertaking, or the exercise of a
profession or vocation (1783)
As to representation to others
1. Ordinary or real partnership - one which actually exists
among the partners and also as to 3rd persons
2. Ostensible or partnership by estoppel - one which in reality is
not a partnership but is considered a partnership only in
relation to those who, by their conduct or omission, are
precluded to deny or disprove its existence
As to legality of existence
1. De jure partnership – comply all requirement of the law
2. De facto partnership – do not comply all requirement of the
law
As to publicity
1. Secret partnership - one wherein the existence of certain
persons as partners is not avowed or made known to the
public by any of the partners
2. Open or notorious partnership - one whose existence is
avowed or made known to the public by the members of the
firm
As to purpose
1. Commercial or trading partnership - one formed for the
transaction of business
2. Professional or non-trading partnership - one formed for the
exercise of a profession
Kinds of partners
1. Capitalist partner – One who contribute money or property
2. Industrial partner – One contribute industry. He is not liable
for loss as between the partners but liable pro rata as to 3 rd
person.
3. Capitalist-industrial partner – One who contribute money,
property or industry.
4. General partner – liable to the extent of his separate property
5. Limited partner – liable only to the extent of his capital
contribution. Not allowed to contribute industry.
6. Silent partner – do not participate in the management.
7. Continuing Partner - one who continues the business of a
partnership after it has been dissolved by reason of the
admission of a new partner, retirement, death or expulsion of
one of the partners
8. Surviving Partner - one who remains after a partnership has
been dissolved by death of any partner
9. Sub partner - one who is not a member of the partnership
who contracts with a partner with reference to the latter's
share in the partnership
10. Secret partner – not known by third person
11. Dormant partner – silent and secret
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12. Ostensible partner – participate in the management and
known by third person
13. Partners by estoppels or nominal partner – not really partners
but only as a result of misrepresentation to 3rd person
14. Managing partner – one manage the partnership
15. Liquidating partner – one who wind-up the affair of the
partnership
16. Retiring partner – one who retire in the partnership
17. Incoming partner – One who is admitted to the partnership
Multiple Choice
1. Strictly speaking, the following are all essential elements of a
partnership, except.
a. contract or voluntary agreement
b. contribution to a common fund
c. intention to divide profits
d. mutual agency
e. lawful object
2. Which of the following statements about a contract of
partnership having a capital of P3,000 or more in cash or
personal property is true?
a. It must be in writing even a private one to be valid.
b. It should appear in a public instrument which must be
recorded with the S.E.C.
c. It need not be in writing to be valid.
d. It should appear in a public instrument even if not
recorded with the S.E.C.
3. The following are all similarities between a partnership and a
corporation - choose the exception.
a. Both possess a juridical person separate and distinct
from the members.
b. Both are composed of an aggregate of persons
c. Both can act only through agents.
d. Both are easy to organize since the contracts creating
them are consensual in character.
4. This partner is not liable for losses among themselves:
a. industrial partner c. limited partner
b. capitalist partner d. none of them
5. In capital ratio, partners share in the profits and losses
according to:
a. beginning capital contribution
b. ending capital contribution
c. average capital contribution
d. agreed capital contribution
e. none of the above
6. In a partnership, the partners share in the profits
a. Equally
b. According to capital contribution
c. According to the contract or agreement
d. None of the above
7. In A, B, C and D partnership, only B did not deliver his
agreed capital contribution in the form of a specific house
and lot. The remedy against him is:
a. annulment of the partnership contract
b. for A, C and D to get back their contributions
c. for specific performance
d. dissolution of the partnership
8. This partner becomes liable to third persons for partnership
obligations up to the extent of their personal properties:
a. capitalist partner d. managing partner
b. industrial partner e. all of them
c. general partner
9. This is not really a partner, but is only so in regard to third
persons –
a. silent partner d. nominal partner
b. secret partner e. all of them
c. dominant partner
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10. This partner is really a partner in the partnership but is not
known as such to the public:
a. Silent partner c. Nominal partner
b. Secret partner d. Partner by estoppel
11. This indicates prima facie the existence of a partnership
contract
a. share in the net profits
b. co-ownership where the fruits are divided equally
c. share in the gross returns
d. all of the above
e. none of them
12. A partnership formed for the exercise of a profession which
is duly registered is an example of:
a. Universal partnership of profits.
b. Universal partnership of all present property.
c. Particular partnership.
d. Partnership by estoppel.
13. These persons cannot enter into a universal partnership
contract:
a. husband and wife
b. persons guilty of adultery and concubinage
c. persons who commit adultery in consideration thereof
d. public officials by reason of their office
e. all of them
14. Paul and Joven entered into a universal partnership of profits.
Subsequently, Paul won 1st prize in the lotto. Will the money
belong to the partnership?
a. Yes, because it is considered profit acquired by the
partner.
b. No, because it is not acquired by “industry or work”
c. Yes, because all profit acquired become part of common
fund.
d. No, because the profit was acquired only after the
constitution of the partnership.
15. Alexis and Bote entered into a universal partnership of all
present property. No stipulation was made regarding other
properties. Subsequently, Alexis received a parcel of land by
inheritance from his father; and another parcel of land from
“The Best Ito University” as remuneration for Alexis work as
professor therein.
a. The two parcel of land and their fruits are to be enjoyed
by the partnership because the contract entered is a
universal partnership of all present property.
b. The two parcel of land and their fruits will not be
enjoyed by the partnership because there is no
stipulation regarding future properties or their fruits.
c. The partnership is entitled only to the fruits but not to the
two parcel of land.
d. The partnership is entitled to use the two parcel of land
as usufructuary and also entitled to the fruits produced
by the property.
RELATIONS CREATED BY A CONTRACT OF
PARTNERSHIP
1. Relations among the partners themselves
2. Relations of the partners with the partnership
3. Relations of the partnership with 3rd persons with whom it
contracts
4. Relations of the partners with such 3rd persons
OBLIGATIONS OF PARTNERS
➢ A partnership begins from the moment of the execution of
the contract, unless it is otherwise stipulated. (1784)
➢ When a partnership for a fixed term or particular undertaking
is continued after the termination of such term or particular
undertaking without any express agreement, the rights and
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duties of the partners remain the same as they were at such
termination, so far as is consistent with a partnership at will.
A continuation of the business by the partners or such of
them as habitually acted therein during the term, without any
settlement or liquidation of the partnership affairs, is prima
facie evidence of a continuation of the partnership. (1785)
Obligations with respect to contribution of property:
1. To contribute at the beginning of the partnership or at
the stipulated time the money, property or industry
which he may have promised to contribute
2. To answer for eviction in case the partnership is
deprived of the determinate property contributed
3. To answer to the partnership for the fruits of the property
the contribution of which he delayed, from the date they
should have been contributed up to the time of actual
delivery
4. To preserve said property with the diligence of a good
father of a family pending delivery to partnership
5. To indemnify partnership for any damage caused to it by
the retention of the same or by the delay in its
contribution
➢ Every partner is a debtor of the partnership for whatever he
may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with
regard to specific and determinate things which he may have
contributed to the partnership, in the same cases and in the
same manner as the vendor is bound with respect to the
vendee. He shall also be liable for the fruits thereof from the
time they should have been delivered, without the need of
any demand. (1786)
Effect of Failure to contribute property promised:
1. Partners becomes ipso jure a debtor of the partnership
even in the absence of any demand
2. Remedy of the other partner is not rescission but specific
performance with damages from defaulting partner
Obligations with respect to contribution of money and
money converted to personal use
1. To contribute on the date fixed the amount he has
undertaken to contribute to the partnership
2. To reimburse any amount he may have taken from the
partnership coffers and converted to his own use
3. To pay for the agreed or legal interest, if he fails to pay
his contribution on time or in case he takes any amount
from the common fund and converts it to his own use
4. To indemnify the partnership for the damages caused to
it by delay in the contribution or conversion of any sum
for his personal benefits
➢ A partner who has undertaken to contribute a sum of money
and fails to do so becomes a debtor for the interest and
damages from the time he should have complied with his
obligation. (1788)
The same rule applies to any amount he may have taken from
the partnership coffers, and his liability shall begin from the
time he converted the amount to his own use.
➢ Unless there is a stipulation to the contrary, the partners shall
contribute equal shares to the capital of the partnership.
(1790)
➢ Art. 1791 - If there is no agreement to the contrary, in case of
an imminent loss of the business of the partnership, any
partner who refuses to contribute an additional share to the
capital, except an industrial partner, to save the venture,
shall he obliged to sell his interest to the other partners.
➢ Art. 1792 - If a partner authorized to manage collects a
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demandable sum which was owed to him in his own name, consequence of its Management. (1796)
from a person who owed the partnership another sum also ➢ Every partner may associate another person with him in his
demandable, the sum thus collected shall be applied to the share, but the associate shall not be admitted into the
two credits in proportion to their amounts, even though he partnership without the consent of all the other partners, even
may have given a receipt for his own credit only; but should if the partner having an associate should be a manager.
he have given it for the account of the partnership credit, the (1804)
amount shall be fully applied to the latter. ➢ The partnership books shall be kept, subject to any
The provisions of this article are understood to be without agreement between the partners, at the principal place of
prejudice to the right granted to the other debtor by article business of the partnership, and every partner shall at any
1252 (Application for payment), but only if the personal reasonable hour have access to and may inspect and copy
credit of the partner should be more onerous to him. any of them. (1805)
➢ Partners shall render on demand true and full information of
Obligation of managing partners who collects debt from all things affecting the partnership to any partner or the legal
person who also owed the partnership representative of any deceased partner or of any partner
1. Apply sum collected to 2 credits in proportion to their under legal disability. (1806)
amounts ➢ Every partner must account to the partnership for any
2. If he received it for the account of partnership, the whole benefit, and hold as trustee for it any profits derived by him
sum shall be applied to partnership credit without the consent of the other partners from any
Requisites: transaction connected with the formation, conduct, or
1. The partner who collects is authorized to manage and liquidation of the partnership or from any use by him of its
actually manages the partnership property. (1807)
2. The person owed him and the partnership ➢ Any partner shall have the right to a formal account as to
3. The partner issues a receipt in his own name only. partnership affairs: (1809)
4. The claim of the partnership and the partner are both due a. If he is wrongfully excluded from the partnership
and demandable. business or possession of its property by his co-partners;
b. If the right exists under the terms of any agreement;
➢ Art. 1793 - A partner who has received, in whole or in part, c. When any partner must account to the partnership from
his share of a partnership credit, when the other partners have profit derived by him without the consent of other
not collected theirs, shall be obliged, if the debtor should partners (1807);
thereafter become insolvent, to bring to the partnership d. Whenever other circumstances render it just and
capital what he received even though he may have given reasonable.
receipt for his share only.
Obligation of partner who receives share of partnership MANAGEMENT OF THE PARTNERSHIP RIGHTS AND
credit OBLIGATIONS WITH RESPECT TO MANAGEMENT
1. Obliged to bring to the partnership capital what he has Partner is Power of managing Vote of partners
received even though he may have given receipt for his appointed partner is representing
share only manager in the irrevocable without controlling
Requisites: articles of just/lawful cause; interest necessary
a. A partner has received in whole or in part, his share of partnership Revocable only to revoke power
the partnership credit when in bad faith
b. The other partners have not collected their shares Partner is Power is revocable
c. The partnership debtor has become insolvent appointed any time for any
manager after cause
➢ Every partner is responsible to the partnership for damages constitution of
suffered by it through his fault, and he cannot compensate partnership
them with the profits and benefits which he may have earned 2 or more persons Each may execute In case of
for the partnership by his industry. However, the courts may entrusted with all acts of opposition,
equitably lessen this responsibility if through the partner's management of administration decision of
extraordinary efforts in other activities of the partnership, partnership majority shall
unusual profits have been realized. (1794) without prevail; In case
➢ The risk of specific and determinate things, which are not specification of of tie, decision of
fungible, contributed to the partnership so that only their use duties/stipulation partners owning
and fruits may be for the common benefit, shall be borne by that each shall not controlling
the partner who owns them. act w/o the other's interest shall
If the things contribute are fungible, or cannot be kept consent prevail
without deteriorating, or if they were contributed to be sold, Stipulated that Concurrence of all Absence or
the risk shall be borne by the partnership. In the absence of none of the necessary for the disability of any
stipulation, the risk of the things brought and appraised in the managing partners validity of acts one cannot be
inventory, shall also be borne by the partnership, and in such shall act w/o the alleged unless
case the claim shall be limited to the value at which they consent of others there is imminent
were appraised. (1795) danger of grave
➢ The partnership shall be responsible to every partner for the or irreparable
amounts he may have disbursed on behalf of the partnership injury to
and for the corresponding interest, from the time the expense partnership
are made; it shall also answer to each partner for the Manner of 1. All partners are If refusal of
obligations he may have contracted in good faith in the management not agents of the partner is
interest of the partnership business, and for risks in agreed upon partnership manifestly

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2. Unanimous prejudicial to 6. Submit a partnership claim or liability to arbitration;

consent required interest of 7. Renounce a claim of the partnership.
for alteration of partnership, No act of a partner in contravention of a restriction on authority
immovable court's shall bind the partnership to persons having knowledge of the
property intervention may restriction. (1818)
be sought
Appointment of managing partner
➢ The partner who has been appointed manager in the articles 1. Appointment in the article of incorporation (1800)
of partnership may execute all acts of administration despite a. Execute all act of administration despite opposition of
the opposition of his partners, unless he should act in bad his partners except he acted in bad faith.
faith; and his power is irrevocable without just or lawful b. His power is irrevocable without just or lawful cause.
cause. The vote of the partners representing the controlling c. Partners representing controlling interest shall be
interest shall be necessary for such revocation of power. necessary for revocation of power.
A power granted after the partnership has been constituted
may be revoked at any time. (1800) 2. Other appointment
➢ If two or more partners have been intrusted with the a. Revocable at any time, with or without just or lawful
management of the partnership without specification of their cause.
respective duties, or without a stipulation that one of them
shall not act without the consent of all the others, each one Two or more partners have been intrusted with the
may separately execute all acts of administration, but if any management
of them should oppose the acts of the others, the decision of Art. 1801 Article 1802
the majority shall prevail. In case of a tie, the matter shall be Without specification of their
decided by the partners owning the controlling interest. respective duties
(1801) Without a stipulation that one of There is stipulated that
➢ In case it should have been stipulated that none of the them shall not act without the none of the managing
managing partners shall act without the consent of the others, consent of all the others partners shall act without
the concurrence of all shall be necessary for the validity of the consent of the others
the acts, and the absence or disability of any one of them Rule: Rule:
cannot be alleged, unless there is imminent danger of grave a. Each one may separately a. The concurrence of
or irreparable injury to the partnership. (1802) execute all acts of all shall be necessary
➢ When the manner of management has not been agreed upon, administration. for the validity of the
the following rules shall be observed: (1803) b. But if any of them should acts.
a. All the partners shall be considered agents and whatever oppose the acts of the b. The absence or
any one of them may do alone shall bind the partnership, others, the decision of the disability of any one
without prejudice to the provisions of article 1801. majority shall prevail. of them cannot be
b. None of the partners may, without the consent of the c. In case of a tie, the matter alleged, unless there
others, make any important alteration in the immovable shall be decided by the is imminent danger
property of the partnership, even if it may be useful to partners owning the of grave or
the partnership. But if the refusal of consent by the other controlling interest. irreparable injury to
partners is manifestly prejudicial to the interest of the the partnership.
partnership, the court's intervention may be sought.
Prohibition against engaging in business
General Rule: Capitalist partner (1808) Industrial partner (1789)
When the manner of management has not been agreed upon, Cannot engage in same kind of Industrial partner cannot
all the partners shall be considered agents and whatever any business in which the engage in business for
one of them may do alone shall bind the partnership, without partnership is engaged except himself (any business)
prejudice to the provisions of article 1801. However, none of the if there is stipulation except if there is
partners may, without the consent of the others, make any stipulation
important alteration in the immovable property of the partnership, Reason: To avoid conflict of Reason: Industrial partners
even if it may be useful to the partnership. But if the refusal of interest must devote his entire
consent by the other partners is manifestly prejudicial to the industry to the partnership
interest of the partnership, the court's intervention may be sought. Violation Violation:
(1803) 1. Bring to the common 1. Exclude him from the
An act of a partner which is not apparently for the carrying on of funds any profits accruing firm
business of the partnership in the usual way does not bind the to him from his 2. Avail themselves of
partnership unless authorized by the other partners. transactions the benefits which he
Except when authorized by the other partners or unless they have 2. Shall personally bear all may have obtained
abandoned the business, one or more but less than all the partners the losses 3. Damages, in either
have no authority to (GARCI CA) case.
1. Assign the partnership property in trust for creditors or
on the assignee's promise to pay the debts of the partnership; Property Rights of a Partner (1810)
2. Dispose of the goodwill of the business; The property rights of a partner are:
3. Do any other act which would make it impossible to carry 1. His rights in specific partnership property
on the ordinary business of a partnership; A partner is co-owner with his partners of specific
4. Confess a judgment; partnership property. (1811)
5. Enter into a compromise concerning a partnership claim or • Equal right with his partners to possess specific
liability; partnership property for partnership purposes but not for

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 ATTY. JOHNSON A.H. ONG (OCT 2021)

any other purpose without the consent of his partners. authority.

• Not assignable except in connection with the assignment 2. Real property was
of rights of all the partners in the same property transferred to 3rd
• Not subject to attachment or execution, except on a person in good faith.
claim against the partnership. But partnership property Any Partnershi Partne Passes the equitable
can be attached for partnership debt. partner p r interest of the
• Not subject to legal support partnership provided the
2. His interest in the partnership - A partner's interest in the conveyance was in the
partnership is his share of the profits and surplus. (1812) usual way of business.
• A conveyance by a partner of his whole interest in the By One or One or Title passes to the buyer
partnership does not of itself dissolve the partnership, or, partners more but more but the Partnership may
as against the other partners in the absence of agreement. whose not all but not recover
name title partner all Exception:
Right of the assignee: Entitles the assignee to receive in stands (no right partne 1. Conveyance was in
accordance with his contract the profits to which the of rs the usual way of
assigning partner would otherwise be entitled. partnershi business, except
p when the buyer has
Assignee has no right: disclose) knowledge of the
a. To interfere in the management or administration of the partner lack of
partnership business or affairs; authority.
b. To require any information or account of partnership 2. Real property was
transactions, transferred to 3rd
c. To inspect the partnership books; person in good faith
• In case of fraud in the management of the partnership, Partner One or Partne Passes the equitable
the assignee may avail himself of the usual remedies. more or rship/p interest of the
• In case of a dissolution of the partnership, the assignee is all the artner partnership, provided the
entitled to receive his assignor's interest and may require partners, own act is one within the
an account from the date only of the last account agreed or in a name authority of the partner.
to by all the partners. (1813) third (usual way of business)
3. His right to participate in the management (n) person in
Right of partner’s creditor (1814) trust for
Without prejudice to the preferred rights of partnership creditors, the
on due application to a competent court by any judgment creditor partnershi
of a partner, the court may charge the interest of the debtor p
partner with payment of the unsatisfied amount of such judgment All All All Passes all their rights in
debt with interest thereon; and may then or later appoint a partner partner partne such property
receiver of his share of the profits, and of any other money due or rs
to fall due to him in respect of the partnership, and make all other
orders, directions, accounts and inquiries which the debtor Obligation of the partners with regards to third person
partner might have made, or which the circumstances of the case • An admission or representation made by any partner
may require. concerning partnership affairs within the scope of his
The interest charged may be redeemed at any time before authority is evidence against the partnership. (1820)
foreclosure, or in case of a sale being directed by the court, may • Notice to any partner of any matter relating to partnership
be purchased without thereby causing a dissolution: affairs, and the knowledge of the partner acting in the
1. With separate property, by any one or more of the partners; particular matter, acquired while a partner or then present to
or his mind, and the knowledge of any other partner who
2. With partnership property, by any one or more of the reasonably could and should have communicated it to the
partners with the consent of all the partners whose acting partner, operate as notice to or knowledge of the
interests are not so charged or sold. partnership. (1821)
Exception: In case of fraud on the partnership, committed by
Rule on conveyance of real property (by any partner or all or with the consent of that partner.
partners) • All partners and the partnership are solidary liability for
Conveye Title of Execu Passing of title/Right of everything chargeable to the partnership. (1824)
d by real ted in the partnership a. Any wrongful act or omission of any partner acting in
property the the ordinary course of the business of the partnership or
name with the authority of co-partners, loss or injury is
of caused to any person, not being a partner in the
Any Partnershi Partne Title passes to the buyer partnership, or any penalty is incurred, the partnership
partner p rship but the Partnership may is liable therefor to the same extent as the partner so
recover acting or omitting to act. (1822)
Exception: b. Where one partner acting within the scope of his
1. Conveyance was in apparent authority receives money or property of a third
the usual way of person and misapplies it; (1823, 1)
business, except c. Where the partnership in the course of its business
when the buyer has receives money or property of a third person and the
knowledge of the money or property so received is misapplied by any
partner lack of

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 ATTY. JOHNSON A.H. ONG (OCT 2021)

partner while it is in the custody of the partnership. d. D after paying T for his share in the partnership
(1823,2) obligation cannot collect reimbursement from capitalist
• Partnership by estoppels partners A, B, C.
When a person represents himself or consent to another to 2. X, Y and Z entered into a contract of partnership. In the
another representing him to anyone (he is an agent of the agreement it was stipulated that X shall be excluded from his
persons consenting to such representation) as a partner in an share in the profits.
existing partnership, he is liable to a. The contract of partnership becomes null and void.
a. Any such persons to whom such representation has been b. Only the stipulation on how profits and losses will be
made. distributed is void, but the contract of partnership
b. The representation was made in a public manner, he is remains valid and, therefore, profits and losses shall be
liable to such person, whether the representation has or distributed equally.
has not been made or communicated to such person. c. The stipulation excluding X is valid together with the
Partnership liability result partnership contract and, therefore, only Y and Z shall
1. When all the members of the existing partnership share in the profits and losses.
consent to the representation. d. Correct answer not indicated.
2. Liable as though he were an actual member of the 3. A, B, C and D are partners where A, B, and C contributed
partnership P1,000,000 each and D his services. The partnership is
No partnership liability result engaged in the manufacture and export of garments. Due to a
1. He is liable pro rata with the other persons, if any, so very strong typhoon, the entire roofing of the factory was
consenting to the contract or representation as to incur blown by the strong winds and if not repaired immediately
liability, otherwise separately. would aggravate the damage. A, B, C and D agreed on an
additional contribution of P200,000 each in order to save the
Liabilities in estoppel business from imminent loss. Which of these is the correct
All partners consented to Partnership is liable statement?
representation a. D is duty bound to contribute 20% more of his time to
the business of the partnership.
No existing partnership & all Person who represented
b. If A no longer has money, he can be complied to sell his
those represented consented; himself & all those who
interest in the partnership to the other partners.
Not all partners of existing made representation liable
c. B can question the decision because he did not vote for
partnership consents to pro-rata/jointly
the additional contribution.
representation
d. If C still has money, but refuses to make the
No existing partnership & not all Person who represented contribution, he can be compelled to sell his interest in
represented consented; himself liable & those who the partnership to the other partners.
None of partners in existing made/consented to 4. X, Y, and Z are partners where X was appointed manager
partnership consented representation separately with authority to collect. D is indebted to XYZ partnership in
liable the amount of P100,000 which is already due and
demandable and is also indebted to X personally and
• A person admitted as a partner into an existing partnership is likewise due and demandable in the amount of P50,000. X
liable for all the obligations of the partnership arising collected from D P45,000. Which of these is not a correct
before his admission as though he had been a partner when statement?
such obligations were incurred, except that this liability shall a. If X gave a receipt in his own name, he is bound to give
be satisfied only out of partnership property, unless there XYZ partnership a proportionate which is P30,000.
is a stipulation to the contrary. (1826) b. If X gave a receipt in the name of partnership he has to
• The creditors of the partnership shall be preferred to give the P45,000 to XYZ partnership.
those of each partner as regards the partnership property. c. If X's credit to D carries an interest of 18% and XYZ
Without prejudice to this right, the private creditors of each partnership's credit to D has an interest of 14% only,
partner may ask the attachment and public sale of the share when X collects from D P15,000 and gives a receipt in
of the latter in the partnership assets. (1827) his own name he also has to share the collection with the
partnership in proportion.
Multiple Choice d. None of the above.
1. A, B, C and D verbally agreed to form a partnership where 5. A, B, C partnership has a partnership credit against X in the
A, B, C each contributed P1,000,000 and D his services. A, amount of P300,000. In the course of conducting the
B, C and D partnership became indebted to T in the amount business of the partnership. A, B, and C agreed equally to
of P5,000,000. If A, B, C and D cannot pay T then: divide the credit of P300,000 among themselves. A and B
a. T cannot hold A, B, C and D liable because the were able to collect from X P100,000 each, but C was not
partnership contribution being P3,000 or more the able to collect because X has already become insolvent. In
contract of partnership becomes void since it was this case:
entered into verbally. a. A and B should share their collection with C.
b. The partnership contract is nevertheless valid but T b. A and B should return to the partnership capital what
cannot hold D liable up to the extent of his personal they have collected.
property. c. A and B cannot be compelled to share their collection
c. The partnership contract is nevertheless valid and T after with C nor return it to the partnership capital because the
exhausting all assets of the partnership can hold A, B, C agreement to divide was made after the partnership was
and D jointly liable for the payment of the remaining dissolved and therefore, there is no more element of
partnership obligations. mutuality or reciprocity existing among the partners.
d. Correct answer not indicated

Page 8 of 15 ATTY. ONG


6. A, B, C partnership has a partnership credit against X in the
amount of P300,000. In the course of conducting the
business of the partnership. A, B, and C agreed equally to
divide the credit of P300,000 among themselves. A and B
were able to collect from X P100,000 each, but C was not
able to collect because X has already become insolvent.
However, the agreement to divide the partnership credit was
made after the dissolution of the partnership, then in that
case:
a. A and B should share their collection with C.
b. A and B should return to the partnership capital what
they have collected.
c. A and B cannot be compelled to share their collection
with C or return it to the partnership capital since they
exercised due diligence in collecting early on what was
due them from X while he was still solvent.
d. Since the agreement to divide was entered into when the
partnership was already dissolved, the element of
mutuality no longer exists and, therefore, according to
Manresa, A and B can keep their collection to
themselves.
7. P misrepresented himself to T as a partner in XYZ
partnership which is testified to by X and Y where in truth
and in fact he is not. T gave to P a loan of P500,000.
a. Only P is liable to T for P500,000.
b. P and XYZ partnership become liable to T for P500,000
c. P and X and Y become liable to T for P500,000 when T
gave the money to P, no partnership liability was
incurred.
d. Irregardless of whether or not a partnership liability
arose, P and X and Y become liable to T for P500,000
for the purpose of protecting the rights of an innocent
third person.
8. A, B, C and D are partners where A contributed P400,000 B
and C P200,000 each D is an industrial partner. ABCD
partnership became indebted to T in the amount of
P1,800,000.
a. T can hold A, B and C liable for P1,800,000 for being
the capitalist partners.
b. T must first exhaust the partnership assets amounting to
P800,000 and then hold A, B and C as the capitalist
partners liable jointly for the payment of P1,000,000.
c. T must first exhaust the partnership assets amounting to
P800,000 and then hold A, B, C and D jointly liable for
the balance of P1,000,000.
d. T must first exhaust the partnership assets amounting to
P800,000 and then hold A, B,C and D jointly liable for
the balance of P1,000,000. d after paying T P250,000
can hold liable A, B and C for reimbursement so that in
the end as industrial partner he does not become liable
for losses among themselves.
9. If in the above partnership, there is an agreement that A, B
and c shall share 30% each and D as industrial partner 10%
in the profits, but then ABCD partnership suffered a loss of
P1,000,000.
a. A shall share P45,000, B and C P225,000 each and D
P100,000.
b. A, B and C shall share in the losses P300,000 each and
P100,000.
c. A, B and C shall share in the losses in this proportion;
P500,000 for A and B and C, P250,000; none for D
d. A, B and C shall share in the losses P333,333 & 33/xx
each and none for D the industrial partner.
10. A, B and C are partners in an import and export business
where customers desiring to place an order are required to
make a deposit of 30% to the partnership. T, a regular
customer deposited P300,000 to partner A who, instead of
Page 9 of 15
ATTY. JOHNSON A.H. ONG (OCT 2021)
turning over the money to ABC partnership, misappropriated
it for his own use. In this case:
a. T should sue alone A the misappropriating partner for
the amount of P300,000.
b. T can sue A or B or C the partnership of ABC solidarity
for the amount of P300,000
c. T can only sue partners A, B and C jointly for P300,000.
d. Correct remedy not indicated.
11. X, Y and Z are partners in a business with a total capital
contribution of P3,000,000. In the course of operating the
business, the partnership became indebted to C in the amount
of P4,500,000. subsequently, W was admitted as a new
partner with contribution of P1,000,000. Much later, the
partnership became indebted to T in the amount of
P4,000,000. The partnership is insolvent and the only asset is
the original capital of P3,000,000 plus the newly contributed
capital of P1,000,000 of P1,000,000 by W.
a. W is not liable for the obligation of P4,500,000 in favor
of C since he was not yet a partner when it was incurred.
b. W is liable for the obligation of P4,5000,000 although
contracted before he became a partner but only up to the
extent of his contribution.
c. W is liable for the obligation of P4,500,000 although
contracted before he became a partner up to the extent of
his personal property.
d. W is liable for the obligation of P4,500,000 although
contracted before he became a partner but only up to the
extent of his contribution. With respect to the
P4,000,000 debt in favor of T, W will be liable for its
payment jointly and subsidiarily up to the extent of his
personal property because it was incurred when he was
already a partner in XYZ partnership.
12. A, B, C and D are partners where D is an industrial partner.
Without the consent of A, B and C D engaged in another
business for his personal interests where he made a profit of
P2,000,000.
a. The partnership can only avail itself of D's in his
separate business with damages.
b. The partnership can only oust D from the partnership
with damages.
c. The partnership can avail itself of D's profit plus out him
from the partnership.
d. The partnership can either avail itself of D's profit in the
separates business or oust him from the partnership with
damages.
13. TREAT Company, a partnership engaged in the distribution
of battery, is composed of Troy, Rolly, Ester, Aler and
Trisha. Troy is the managing partner. During the month of
May, the following transactions were entered into by the
following partners in behalf of the partnership without any
authority:
I. The sale of a battery by Troy to Pedro Dela Cruz who
was not aware that Troy had no authority. Pedro Dela
Cruz has paid for the battery which is due for delivery.
II. The purchase of a car by Rolly from Honda Motors
whose owner was not aware of Rolly's lack of
authority. The car and the price are due for delivery and
payment, respectively.
Based on the foregoing, the partnership is bound by:
a. Transaction I only.
b. Transaction II only.
c. Both Transactions I and II.
d. Neither of Transaction nor II.
14. X, Y, and Z are partners in a partnership where X engaged
for himself in a business which is the same as that of the
partnership. In this case:
a. X can be ousted from the partnership.
ATTY. ONG

b. The partnership can only avail of X's profits in his
separate business.
c. The partnership can avail of X's profits in the separate
business plus oust him from the partnership.
d. Because X is a capitalist partner, there is no sanction that
his co-partners can legally impose on him.
15. A, B and C are partners in a bakery business where A attends
to the store, B is the baker, C is the driver of the delivery van
which distributes the products to the various areas in Metro
Manila. due to the negligence of C in driving the delivery
van he ran over T who was injured physically and suffered
damages amounting to P120,000. In this case:
a. T can only sue C for he is the only one involved.
b. T can hold liable C and the partnership ABC for
P120,000 jointly.
c. T can hold solidarity liable A or B or C or ABC
partnership for the full amount of P120,000.
d. Correct answer not indicated.
16. In ABC and D partnership, A contributed P400,000; B
P200,000; C P100,000 and D is an industrial partner. The
share of D, the industrial partner, in the profits should be –
a. Equal to the share of C as the partner with the least
contribution.
b. That which is in accordance with what is just and
equitable under the circumstances as determined by
capitalist partners A, B and C only.
c. That which is in accordance with what is just and
equitable under the circumstances as determined by all
of A, B, C and D.
d. That which is in accordance with what is just and
equitable under the circumstances as determined by all
of A, B, C and D but if no agreement is reached by the
decision of the courts.
17. ABC are partners for a three year period where A and B are
capitalist partners and C is an industrial one. In the
agreement, the partners are to share 1/3 of the profits. In the
first year, the partnership made a profit made a profit of
P300,000, but in the second year suffered a loss of P150,000;
in the third year, it was break even. The share of C is –
a. P100,000 as share in the profits of the first year but none
in the second year in so far as the loss is concerned.
b. P50,000 as his share in the profits for the entire
operation.
c. P100,000 if there is an express agreement to share in the
profits on a year to year basis.
d. P50,000 if there is an express agreement to share in the
profits based on the entire operation.
e. Both C and D
18. In A, B and c partnership, A was appointed sole manager of
its tailoring business. A as such manager can execute all acts
of administration despite the operation of b and C. Which of
the following acts cannot be done by A alone?
a. To buy textile materials for use of the tailoring on credit.
b. To buy much needed Singer sewing machines for cash.
c. To pay for the salaries of the employees.
d. To transfer the location of the tailoring from the
university belt to Makati Avenue.
e. None of the above.
19. In which of these cases are the partners solidarity liable for
the payment of partnership obligations?
a. Where the partnership obligation arose out of contract.
b. Where the partnership obligation arose out of equal
contract.
c. Where the partnership obligation arose out of delict.
d. Where the partnership obligation arose out of quasi
delict.
e. Both C and D
Page 10 of 15
ATTY. JOHNSON A.H. ONG (OCT 2021)
20. All partners are liable solidarity with the partnership for the
purpose of making good the loss:
a. Where one partner acting within the scope of his
apparent authority receives money or property of a third
person and misapplies it.
b. Where the partnership in the course of its business
receives money or property of a third person and the
same is misappropriated by any partner while it is in the
custody of the partnership.
c. Where by any wrongful act or omission of any partner
acting in the ordinary course of the business of the
partnership or with the consent of his copartners loss or
injury is caused to any person who is not a partner in the
partnership.
d. All of the above
21. A is owner of a department store in Manila valued at
P10,000,000 and B is the owner of another department store
in Makati valued at P20,000,000. A and B agreed that they
will share their profits in both business. Due to business
reverses, B is now indebted to Bank of P.I P50,000,000 and
cannot pay because of insolvency:
a. Only B is liable to Bank of P.I because there is no
partnership between him and A.
b. The fact that A and B are sharing in the profits of their
business show that there is a partnership.
c. Bank of P.I shall first exhaust all the assets of A and B,
if not enough, hold them liable for the balance of
P50,000,000 debt.
d. Bank of P.I can hold A and B solidarily liable for the
payment of P50,000,000.
22. The rule is that the designation of the share of the partners in
the profits and losses cannot be entrusted to only one of the
partners but to all. However, the rule allows the designation
of the share of the partners to be entrusted to a third which
can be questioned or impugned by the partners if such
designation is manifestly inequitable. Within what time
should the action or question be brought?
a. Within one (1) month from the time he had knowledge.
b. Within two (2) months from the time he had knowledge.
c. Within three (3) months from the time he had
knowledge.
d. Within six (6) months from the time he had knowledge.
e. Within one (1) year from the time he had knowledge.
23. Partner shall have the right:
a. To ask that the books of the partnership be kept at the
principal place of business of the firm, and at any
reasonable hour have access to and inspect and copy any
of them.
b. To demand true and full information of all things
affecting the partnership.
c. To share in the profits and surplus assets of the firm.
d. All of the above.
DISSSOLUTION
Dissolution is change in the relation of the partners caused by
any partner ceasing to be associated in the carrying on as
distinguished from the winding up of the business. (1828) On
dissolution the partnership is not terminated, but continues until
the winding up of partnership affairs is completed. (1829)
Automatic dissolution (1830) Judicial dissolution
(1831)
1. Without violation of the 1. A partner has been
agreement between the declared insane in
partners: any judicial
a. By the termination of the proceeding or is
definite term or shown to be of
ATTY. ONG

particular undertaking
specified in the
agreement;
b. By the express will of
any partner, who must
act in good faith, when
no definite term or
particular is specified;
c. By the express will of all
the partners who have
not assigned their
interests or suffered
them to be charged for
their separate debts,
either before or after the
termination of any
specified term or
particular undertaking;
d. By the expulsion of any
partner from the
business bona fide in
accordance with such a
power conferred by the
agreement between the
partners
2. In contravention of the
agreement between the
partners, where the
circumstances do not permit
a dissolution under any other
provision of this article, by
the express will of any
partner at any time;
3. 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
4. When a specific thing which
a partner had promised to
contribute to the partnership,
perishes before the delivery;
in any case by the loss of the
thing, when the partner who
contributed it having
reserved the ownership
thereof, has only transferred
to the partnership the use or
enjoyment of the same; but
the partnership shall not be
dissolved by the loss of the
thing when it occurs after the
partnership has acquired the
ownership thereof;
5. Death of any partner;
6. Insolvency of any partner or
of the partnership;
7. Civil interdiction of any
partner;
Effect of dissolution
General Rule: Dissolution terminates all authority of any partner
to act for the partnership: (1832)
Exception:
1. By any act appropriate for winding up partnership affairs or
completing transactions unfinished at dissolution;
2. By any transaction which would bind the partnership if
Page 11 of 15
ATTY. JOHNSON A.H. ONG (OCT 2021)
unsound mind; dissolution had not taken place, provided the other party to
2. A partner becomes the transaction:
incapable of a. Had extended credit to the partnership prior to
performing his part dissolution and had no knowledge or notice of the
of the partnership dissolution; or
contract; b. Though he had not so extended credit, had nevertheless
3. A partner has been known of the partnership prior to dissolution, and,
guilty of such having no knowledge or notice of dissolution, the fact of
conduct as tends to dissolution had not been advertised in a newspaper of
affect prejudicially general circulation in the place (or in each place if more
the carrying on of than one) at which the partnership business was
the business; regularly carried on.
4. A partner willfully Liability of a partner shall be satisfied out of partnership
or persistently assets alone when such partner had been prior to dissolution
commits a breach 1. Unknown as a partner to the person with whom the
of the partnership contract is made; and
agreement, or 2. So far unknown and inactive in partnership affairs that
otherwise so the business reputation of the partnership could not be
conducts himself in said to have been in any degree due to his connection
matters relating to with it.
the partnership
business that it is 1. With respect to the partners,
not reasonably a. When the dissolution is not by the act, insolvency or
practicable to carry death of a partner; or
on the business in b. When the dissolution is by such act, insolvency or death
partnership with of a partner, each partner is liable to his co-partners for
him; his share of any liability created by any partner acting
5. The business of the for the partnership as if the partnership had not been
partnership can dissolved unless: (1833)
only be carried on 1. The dissolution being by act of any partner, the
at a loss; partner acting for the partnership had knowledge of
6. Other the dissolution; or
circumstances 2. The dissolution being by the death or insolvency of
render a dissolution a partner, the partner acting for the partnership had
equitable. knowledge or notice of the death or insolvency.
On the application of 2. With respect to persons not partners, the partnership is in no
the purchaser of a case bound by any act of a partner after dissolution:
partner's interest under a. Where the partnership is dissolved because it is unlawful
article 1813 or 1814: to carry on the business, unless the act is appropriate for
1. After the winding up partnership affairs; or
termination of the b. Where the partner has become insolvent; or
specified term or c. Where the partner has no authority to wind up
particular partnership affairs; except by a transaction with one who
undertaking; -
2. At any time if the 1. Had extended credit to the partnership prior to
partnership was a dissolution and had no knowledge or notice of his
partnership at will want of authority; or
when the interest 2. Had not extended credit to the partnership prior to
was assigned or dissolution, and, having no knowledge or notice of
when the charging his want of authority, the fact of his want of
order was issued. authority has not been advertised in the manner
provided for advertising the fact of dissolution.
• The dissolution of the partnership does not of itself discharge
the existing liability of any partner (1835)
Exception:
A partner is discharged from any existing liability upon
dissolution of the partnership by an agreement to that effect
between himself, the partnership creditor and the person or
partnership continuing the business; and such agreement may
be inferred from the course of dealing between the creditor
having knowledge of the dissolution and the person or
partnership continuing the business.
• The individual property of a deceased partner shall be liable
for all obligations of the partnership incurred while he was a
partner, but subject to the prior payment of his separate
debts. (Ibid)
ATTY. ONG
 ATTY. JOHNSON A.H. ONG (OCT 2021)

• Where a partnership contract is rescinded on the ground of 11. When the interest of one 11. When the interest of
the fraud or misrepresentation of one of the parties thereto, of the general partner is the limited partner is
the party entitled to rescind is, without prejudice to any other charged, his interest may charged, the interest
right, entitled: (1838) be redeemed with separate may be redeemed
1. To a lien on, or right of retention of, the surplus of the property of one or more with the separate
partnership property after satisfying the partnership partners or; partnership property of any
liabilities to third persons for any sum of money paid by property with the consent general partner, but
him for the purchase of an interest in the partnership and of all partners whose may not be redeemed
for any capital or advances contributed by him; interest is not so charged with partnership
2. To stand, after all liabilities to third persons have been or sold. (1814) property. (1862)
satisfied, in the place of the creditors of the partnership
for any payments made by him in respect of the General Rule:
partnership liabilities; and The limited partners as such shall not be bound by the obligations
3. To be indemnified by the person guilty of the fraud or of the partnership.(1843)
making the representation against all debts and liabilities
of the partnership. Exception:
• The name of the partnership failed to add the word ”Limited”
LIMITED PARTNERSHIP or “Ltd”.
Members one or more general partners and one or more limited • Failure to file the article of co-partnership to the SEC.
partners. • The contributions of a limited partner may be cash or
property, but not services. (1845)
General Partner/partnership Limited • The surname of a limited partner appear in the partnership
partner/partnership name unless:
1. General partner is 1. Limited partner’s (1) It is also the surname of a general partner, or
personally liable for the liability extends only (2) Prior to the time when the limited partner became such,
partnership obligation to his capita the business has been carried on under a name in which his
contribution surname appeared. (1846)
2. When management has not 2. Limited partner has • A limited partner takes part in the control of the business.
been agreed upon, all no share in the (1848)
general partner have equal management of a Right of General partner Right of limited
right in the management of limited partnership partner (Art. 1851)
the partnership. 1. The partnership books shall A limited partner
3. General partner may 3. Limited partner must be kept, subject to any shall have the same
contribute money, contribute money or agreement between the rights as a general
property or industry property but not partners, at the principal place partner to:
industry of business of the partnership, (1) Have the
4. General partner is a proper 4. Limited partner is not and every partner shall at any partnership books
party to proceeding by or a proper party to reasonable hour have access kept at the principal
against a partnership proceedings by or to and may inspect and copy place of business of
against a partnership. any of them. (1805) the partnership, and
5. General partner may 5. Limited partner name 2. Partners shall render on at a reasonable hour
appear in the firm name must not appear in the demand true and full to inspect and copy
firm name information of all things any of them;
6. General partner cannot 6. No prohibition in affecting the partnership to (2) Have on
engage in a business which case of Limited any partner or the legal demand true and full
is of the kind of business partner representative of any deceased information of all
in which the partnership is partner or of any partner things affecting the
engage. under legal disability. (1806) partnership, and a
7. Retirement, death, insanity 7. Do not the same 3. Any partner shall have the formal account of
or insolvency of general effect, executor or right to a formal account as to partnership affairs
partner dissolves the administrator shall partnership affairs: whenever
partnership have all the rights of a. If he is wrongfully circumstances render
a limited partner for excluded from the it just and reasonable;
the purpose of setting partnership business or and
his estate. possession of its property (3) Have
8. Can be constituted in 8. Must follow all the by his co-partners; dissolution and
whatever form requirement of the b. If the right exists under winding up by decree
law for limited the terms of any of court.
partnership agreement; A limited partner
9. Composed of all general 9. Composed of at least c. As provided by article shall have the right to
partner one general partner 1807; receive a share of the
and at least one d. Whenever other profits or other
limited partner circumstances render it compensation by way
10. No need to include in the 10. Must include in the just and reasonable. of income, and to the
partnership name the word partnership name the A general partner shall have all return of his
“LTD” word “LIMITED” or the rights and powers and be contribution, (1851)
“LTD” provided that after

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subject to all the restrictions and such payment is concerned) (1854)

liabilities of a partner in a made, whether from • A limited partner may receive from the partnership the share
partnership without limited property of the of the profits or the compensation by way of income
partners. However, without the partnership or that of stipulated for in the certificate. (provided that Partnership
written consent or ratification of a general partner, the assets > All outside liabilities) (1856)
the specific act by all the limited partnership assets are • Where there are several limited partners the members may
partners, a general partner or all of in excess of all agree that one or more of the limited partners shall have a
the general partners have no liabilities of the priority over other limited partners as to the return of their
authority to: partnership except contributions, as to their compensation by way of income, or
(1) Do any act in liabilities to limited as to any other matter. If such an agreement is made it shall
contravention of the partners on account be stated in the certificate, and in the absence of such a
certificate; of their contributions statement all the limited partners shall stand upon equal
(2) Do any act which would and to general footing. (1855)
make it impossible to partners (1856). • Requisites for return of contribution of limited partner.
carry on the ordinary (1857)
business of the a. All liabilities of the partnership, except liabilities to
partnership; general partners and to limited partners on account of
(3) Confess a judgment their contributions, have been paid or there remains
against the partnership; property of the partnership sufficient to pay them;
(4) Possess partnership b. The consent of all members is had, unless the return of
property, or assign their the contribution may be rightfully demanded under the
rights in specific provisions of the second paragraph; and
partnership property, for c. The certificate is cancelled or so amended as to set forth
other than a partnership the withdrawal or reduction.
purpose; • Return of contribution of limited partner as a matter of
(5) Admit a person as a right - Limited partner may rightfully demand the return of
general partner; his contribution: (1857)
(6) Admit a person as a a. On the dissolution of a partnership; or
limited partner, unless the b. Arrival of the date specified in the certificate for its
right so to do is given in return;
the certificate; c. After he has six months' notice in writing to all other
(7) Continue the business members, if no time is specified in the certificate, either
with partnership property for the return of the contribution or for the dissolution of
on the death, retirement, the partnership.
insanity, civil interdiction • Liability of limited partner to the partnership (1858)
or insolvency of a general a. For the difference between his contribution as actually
partner, unless the right made and that stated in the certificate as having been
so to do is given in the made, and
certificate. (1850) b. For any unpaid contribution which he agreed in the
certificate to make in the future at the time and on the
• A person may be a general partner and a limited partner in conditions stated in the certificate
the same partnership at the same time, provided that this fact Liability limited partner as trustee – A limited partner is
shall be stated in the certificate. considered as trustee for the partnership.
• A person who is a general, and also at the same time a a. Specific property stated in the certificate as contributed
limited partner, shall have all the rights and powers and be by him, but which was not contributed or which has
subject to all the restrictions of a general partner; except that, been wrongfully returned, and
in respect to his contribution, he shall have the rights against b. Money or other property wrongfully paid or conveyed
the other members which he would have had if he were not to him on account of his contribution.
also a general partner. (1853) Requisites for waiver or compromise
• Allowable transaction of limited partner (not also general a. Consent of all members;
partner) b. It does not affect the right of a creditor of a partnership
a. Loan money to the partnership who extended credit or whose claim arose after the
b. Transact other business with the partnership, filing and before a cancellation or amendment of the
c. Received a pro rata share of the assets with the general certificate, to enforce such liabilities.
creditors (if he is not also a general partner) • A limited partner's interest is assignable. (1859)
• Prohibited transactions • An assignee, who does not become a substituted limited
a. Receive or hold as collateral security and partnership partner, has no right to require any information or account of
property, or the partnership transactions or to inspect the partnership
b. Receive from a general partner or the partnership any books; he is only entitled to receive the share of the profits or
payment, conveyance, or release from liability if at the other compensation by way of income, or the return of his
time the assets of the partnership are not sufficient to contribution, to which his assignor would otherwise be
discharge partnership liabilities to persons not claiming entitled. (Right are similar to those of a person to whom a
as general or limited partners partner conveyed his whole interest in the partnership)
The receiving of collateral security, or payment, conveyance,
or release in violation of the foregoing prohibition is a fraud A substituted limited partner - is a person admitted to all the
on the creditors of the partnership. (Reason 3 rd persons enjoy rights of a limited partner who has died or has assigned his
preferential rights insofar as a partnership assets are interest in a partnership

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Requisites when assignee become substituted limited partner d. Return of capital contribution; then payment of creditors
a. All the members consent thereto or if the assignor, being who are not partners; then creditors who are partners and
thereunto empowered by the certificate, gives the distribution of profits.
assignee that right. 2. This is a ground for automatically dissolving a partnership:
b. An assignee becomes a substituted limited partner when a. Death c. Insolvency
the certificate is appropriately amended in accordance b. Civil interdiction d. All of them
with article 1865. 3. A partnership is dissolved on the death of a:
c. The certificate as amended must be registered in the a. General partner
SEC. b. Industrial partner
c. General-Limited partner
• The retirement, death, insolvency, insanity or civil d. Limited partner
interdiction of a general partner dissolves the partnership, e. a, b or c
unless the business is continued by the remaining general 4. In winding-up or liquidation of the partnership after
partners: dissolution, which is the correct order of payment?
(1) Under a right so to do stated in the certificate, or a. Pay the creditors who are partners, then creditors who
(2) With the consent of all members. (1860) are third persons; then return of capital contribution and
• On the death of a limited partner his executor or then distribution of profits.
administrator shall have all the rights of a limited partner for b. Pay to creditors who are not partners; then the creditors
the purpose of setting his estate, and such power as the who are partners; then distribution of profits and return
deceased had to constitute his assignee a substituted limited of capital contribution.
partner. c. Pay to creditors who are not partners; then the creditors
• The estate of a deceased limited partner shall be liable for all who are partners; then return of capital contribution and
his liabilities as a limited partner. (1861) then distribution of profits.
d. Return of capital contribution; then payment of creditors
Liabilities of the partnership shall rank in order of payment who are not partners; then creditors who are partners and
General partnership (1839) Limited partnership (1863) distribution of profits.
a. Those owing to creditors a. Those to creditors, in the 5. A, B and C formed a universal partnership of all present
other than partners; order of priority as property on February 14, 2020. The following are the
b. Those owing to partners provided by law, except existing property of the partners: A P500,000, B a car worth
other than for capital and those to limited partners on P500,000 and C Equipment worth P500,000. The partners
profits; account of their executed an article of co-partnership in private instrument
c. Those owing to partners in contributions, and to After operation for two (2) months, A and B got married. Did
respect of capital; general partners; the marriage dissolve the partnership?
d. Those owing to partners in b. Those to limited partners in a. Yes, the partnership is dissolved by the marriage,
respect of profits. respect to their share of the because there is a change in equity among the partners.
profits and other b. No, the marriage did not dissolve the partnership
compensation by way of c. No, because spouses can enter into a universal
income on their partnership
contributions; d. Yes, because it becomes unlawful for the business of the
c. Those to limited partners in partnership to be carried on or for the members to carry
respect to the capital of it on in partnership.
their contributions; 6. Which of the following losses will not cause the dissolution
d. Those to general partners of a partnership?
other than for capital and a. Loss before delivery of a specific thing which a partner
profits; has promised to contribute to the partnership.
e. Those to general partners b. Loss after delivery of a specific thing where the partner
in respect to profits; contributed only its use and enjoyment and he
f. Those to general partners reserved the ownership thereof.
in respect to capital. c. Loss before delivery of a specific thing where the partner
promised to contribute only its use and enjoyment,
reserving the ownership thereof.
Note: In general partnership, the payment of capital is preferred d. Loss of a specific thing after its delivery to and
than with respect to profits. In limited partnership, the payment acquisition of its ownership by the partnership from
of profit has preference over capital. partner who contributed the same.
7. A, B, C and D were partners. A assigned his interest in the
Multiple Choice partnership to his son S. S now wanted to join in the
1. In winding-up or liquidation of the partnership after management of the enterprise. B, C and D refused. Is the
dissolution, which is the correct order of payment? partnership necessarily dissolved?
a. Pay the creditors who are partners, then creditors who a. The partnership is dissolved because of the conveyance
are third persons; then return of capital contribution and by A.
then distribution of profits. b. The mere assignment did not dissolve the firm. This is so
b. Pay to creditors who are not partners; then the creditors even if B, C and D did not allow S to participate in the
who are partners; then distribution of profits and return firm’s business conduct.
of capital contribution. c. The partnership is not dissolve provided B, C and D will
c. Pay to creditors who are not partners; then the creditors allow S to join the management of the enterprise.
who are partners; then return of capital contribution and d. The conveyance of interest by A automatically dissolved
then distribution of profits. the partnership.

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8. The following are all grounds for a judicial decree of d. Both partnership property and separate property of the
dissolution except: general partner alternatively
a. where a partner is guilty of such conduct as tends to 15. The certificate shall be cancelled when:
prejudicially affect the partnership a. There is change in the name of the partnership
b. when the business can only be carried at a loss b. Additional limited partner is admitted
c. by any event which makes it unlawful for the partnership c. All limited partner cease to be such.
to carry on the business d. There is a false or erroneous statement in the certificate.
d. where a partner is rendered incapable of performing his 16. Without the written consent or ratification of the specific act
part of the agreement by all the limited partners, a general partner or all of the
e. where a partner is judicially shown to be insane general partners have no authority to:
9. Which of these partners is not entitled to direct access to a. Do any act in contravention of the certificate.
books and records of the partnership or to ask for formal b. Do any act that would make it impossible to carry on the
accounting or for dissolution, etc. ordinary business of the partnership.
a. General partner c. Confess a judgment against the partnership.
b. Assigned limited partner d. All of the above.
c. Substituted limited partner
d. All of the above
10. A limited partnership was orally agreed upon by A, B and C
as general partners and D, E and F as limited partners. Which
of these is a correct statement?
a. A valid limited partnership is nevertheless formed.
b. The oral agreement is void under the law and no
partnership whether limited or general will exist.
c. No valid limited partnership is created and there will
exist a general partnership where only A, B and C will
be regarded as general partners.
d. No valid limited partnership is created but there will
exist a general partnership where all of A, B, C, D, E and
F will be regarded as general partners.
11. In a limited partnership, a limited partner may demand for
the return of his capital contribution:
a. When a define period for such return has been agreed
upon, and the period has arrived.
b. When no period is agreed upon, on a written demand
within six months.
c. Upon dissolution of the partnership.
d. All of the above.
12. General partners shall have no right to perform the following
acts without the written consent or ratification by all the
limited partners, except:
a. Admit a person as a general partner.
b. Admit a person as a limited partner, unless the right to
do so is given in the certificate.
c. Continue the business with partnership property on the
death, retirement, insanity, civil interdiction or
insolvency of a general partner, unless the right to do so
is given in the certificate.
d. To have the partnership books kept at the principal place
of business of the partnership, and at a reasonable hour
to inspect and copy any of them.
13. A, B and C wish to go into the business together to bottle
mineral water. Each contributed P50,000, but C wanted to
limit his liability to the extent of his contribution, and his
name to appear in the partnership name. Which form of
partnership as business organization should they choose?
a. General partnership
b. Limited partnership
c. No partnership organization is available
d. Limited
14. In a limited partnership, the creditor of a limited partner may
charge the interest of the indebted limited partner, the
interest so charged may be redeemed with:
a. Partnership property
b. Separate property of any general partner
c. Both partnership property and separate property of the
general partner cumulatively

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