General Provisions: Notes On de Leon Partnership Atty. J. Obieta

NOTES ON DE LEON PARTNERSHIP ATTY. J.
OBIETA
 a relation to clients in the highest fiduciary

CHAPTER 1 degree
GENERAL PROVISIONS  a relation to colleagues a the bar
characterized by candor, fairness, and
unwillingness to resort to current business
methods of advertising and encroachment on
Art. 1767. By the contract of partnership two or more their practice, or dealing directly with their
persons bind themselves to contribute money, clients.
property, or industry to a common fund, with
the intention of dividing the profits among CHARACTERISTICS / ELEMENTS OF PARTNERSHIP
themselves. 1. Consensual- perfected by mere consent express
Two or more persons may also form a or implied
partnership for the exercise of a profession. 2. Nominate- special name or designation in law
(1665a) 3. Bilateral- entered into by two or more persons and
the rights and obligations are reciprocal
4. Onerous- benefit by giving something
CONCEPT OF PARTNERSHIP 5. Commutative- undertaking of each partner is
 A partnership is a considered as equivalent of the others
1. Contract 6. Principal- does not depend on its existence on
2. Association other contracts
3. Legal Relation 7. Preparatory- means to an end
4. Status arising out of a contract 8. A contract of Agency
5. Organization
6. Entity distinct and apart from its members ESSENTIAL FEATURES OF PARTNERSHIP
7. Joint Undertaking to share in profit and loss 1. There must be a valid contract
2. The parties must have legal capacity to enter into
 CIVIL LAW CONCEPT AND AMERICAN CONCEPT the contract
OF PARTNERSHIP DISTINGUISHED 3. there must be mutual contribution of money,
 Basis of Concept property, industry to a common fund
4. the object must be lawful
5. the primary purpose must be to obtain profits and
Philippine American
to divide the same among themselves
Basis of CONTRACT RELATION 6. Articles of partnership must not be kept secret
Concept It is the Anglo American among the members otherwise there is no legal
agreement idea of partnership personality.
itself where is based on the
out of which it result of the juridical  EXISTENCE OF A VALID CONTRACT
is created relation growing out
from the express or
 Partnership relation fundamentally contractual
 There is no such thing as partnership created
implied agreement
by law or operation of law alone
of the parties
 Form – oral or written, express or implied
Possession Has a No separate subject to the provisions of 1771, 1773 and
of separate juridical personality. Statute of Frauds. Thus member need not sign
Separate juridical It is a mere articles of co-partnership to become a
Personality personality of extension of its member, election is sufficient.
its won, members. (Although  Articles of Partnership- A written document
distinct and some states unions embodying the terms of the association. It
separate from classify the contains: the name, nature, purpose location
that of each of partnership as a of the firm and defines the powers, rights,
the partners separate entity. duties and liabilities of the partners among
themselves, their contributions, the manner y
 PARTNERSHIP FOR THE PRACTICE OF LAW which the profits and losses are to e share and
 A mere association for non-business purpose- is in the procedure of dissolving the partnership.
the nature of a privilege or franchise.  Requisites as a contract: consent of at least
 cannot use nom de plume, assumed or trade two parties, object and cause which is
name, as compared to the practice of established.
accountancy  Partnership relation fiduciary in nature Voluntary
 Distinguished from business – not an ordinary association entered into by the associates.
money making trade  In general partnership there is the element of
 a duty of public service delecutus personae (choice of the person/s
 a relation as an officer of the court to the that law gives such wide authority to one
administration of justice involving sincerity, partner to bind another by contact or
integrity and reliability otherwise). Delectus personae allows one
2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 1

MACATANGAY, MALABANAN, MENDOZA, MICIANO, TAPALES, TIJAM.
NOTES ON DE LEON PARTNERSHIP ATTY. J. OBIETA
partner the power (not the right) to dissolve  If object is unlawful, contract is inexistent and
partnership. void ab initio. The object is unlawful when it is
 Application of principles of estoppel contrary to law, morals, good customs, public
 a partner holds himself out or permits himself order, or public policy.
to be held out as a partner in an enterprise in
favor of third persons. Even if no real  PURPOSE TO OBTAIN PROFITS
partnership exists, they are bound to third  The very reason for the existence of partnership
persons by their conduct.  Need not only be the principal, not the exclusive
claim- there maybe incidental, moral, social or
 LEGAL CAPACITY OF THE PARTIES TO ENTER spiritual ends.
INTO THE CONTRACT
 Individuals with legal capacity- no unemancipated  SHARING OF PROFITS
minors, insane or demented persons, deaf mutes  Not necessarily in equal shares
who do not know how to write, persons who are  Not conclusive evidence of partnership
suffering from civil interdiction, incompetents under
guardianship  SHARING OF LOSSES
 Partnerships- no prohibition against a partnership  Necessary corollary of sharing in profits
being a partner with another partnership.  Agreement not necessary
 Corporations- Unless authorized by Statute or by its
charter, a corporation is without capacity or power
to enter into a contract of partnership based on Art. 1768 The partnership has a juridical personality
public policy. separate and distinct from that of each
 A corporation however may enter into Joint partners even in case of failure to comply with
Venture partnerships with another where the the requirements of Article 1772, first
nature of the venture is in line with the paragraph.
business authorized by its charter.
 Where the partnership agreement provides
that the two partners will manage the  PARTNERSHIP, A JURIDICAL PERSON
partnership so that the management of  A partnership duly formed under the law is a
corporate interest is not surrendered the juridical person to which the law grants a juridical
partnership may be allowed personality separate and distinct. As an
 Where the entry of the foreign corporation as a independent juridical person, a partnership may:
limited partner in a limited partnership is  Enter into contracts, acquire and possess
merely for investment purposes and it shall not property of all kinds in its name
take part in management and control. It shall
 Incur obligations
not be deemed as doing business in the  Bring civil or criminal actions in conformity with
Philippines hence no license is required. (RA the laws and regulations of its organizations.
7042 Foreign Investments Act)
 CONTRIBUTION OF MONEY, PROPERTY, Art. 1769. In determining whether a partnership exists,

OR INDUSTRY these rules apply:
 Existence of proprietary interest- they must (1) Except as provided by article 1825, persons
contribute capital who are not partners as to each other are not
 Money - must be in legal tender. Checks, partners as to third persons;
drafts, P/N payable to order and other (2) Co-ownership or co-possession does not of
mercantile documents must be cashed to itself establish a partnership, whether such
constitute contribution of money co-ownership or co-possessors do or do not
 Property - real, personal, corporeal or share any profits made by the use of the
incorporeal. Can be licenses, goodwill or property;
credit. (3) The sharing of gross returns does not of itself
 Industry - active cooperation which may be establish a partnership, whether or not the
either personal, manual efforts or intellectual persons sharing them have a joint or common
for which the partner receives share not right or interest in any property from which the
merely salary. Industrial partner must not be returns are derived;
subject to control. He shall be considered as a (4) The receipt by a person of a share of the
lessor of services if he is subject to the profits of a business is prima facie evidence
supervision of other partners. that he is a partner in the business, but no
such inference shall be drawn if such profits
 Proof of Contribution- proof that the contribution were received in payment:
was made with the intention of dividing profits (a) As a debt by installment or
obtained therefrom. otherwise;
(b) As wages of an employee or rent to a
 LEGALITY OF OBJECT landlord;

(c) As an annuity to a widow or of evidence to the contrary. The burden of

representative of a deceased proof is on the person claiming its termination.
partner;  Use of “Partner”
(d) As interest on a loan, though the  Person asserting the existence of partnership
amount of payment vary with the cannot prove it by just showing an agreement
profits of the business; wherein the parties call themselves ‘partners.’
(e) As the consideration for the sale of The use of the word ‘partners’ may be just for
goodwill of a business or other convenience and not necessarily to show the
property by installments or intention to create a partnership.
otherwise.  “Associate” means “partner,” but an employee
may also be an “associate”
RULES IN DETERMINING EXISTENCE OF PERSONS NOT PARTNERS

PARTNERSHIP AS TO EACH OTHER
 OVERVIEW  Persons who are partners as between
 In general, all essential characteristics of a themselves are partners as to third persons.
partnership must be present. Parties must Consequently, persons who are not partners
expressly agree to contribute money, property, as to each other, cannot be partners as to
or industry as co-proprietors, to carry on a third person.
business for profit, and to share the profits.  General Rule: Persons who are not partners
 An essential characteristic, by itself, does not as to each other cannot be partners as to third
prove the existence of a partnership persons.
 In case of doubt, Art. 1769 would apply.  Exception: If by their acts, consent,
representations, third persons were led to
 TEST TO DETERMINE THE EXISTENCE OF believe that they are partners in a non-existing
PARTNERSHIP partnership.
 The terms of the contract would determine the legal  Example: A and B are not partners. However,
nature of the contract A, with the consent of B, told X that they are
 Legal Intention is the crux of partnership partners. So as to X, A and B are partners.
 Existence of a partnership not always
dependent upon the personal arrangement or CO-OWNERSHIP OR CO-POSSESSION
understanding of the parties. Parties may call  INTENTION TO OBTAIN PROFITS
themselves partners, but their contract might  In partnership, the profits must be derived from
be adjudged something different. On the other the operation of a business or undertaking, and
hand, parties may expressly stipulate that their not merely from property ownership.
contract is not a partnership yet it may still be  80
considered a partnership based on the legal  There is no presumption of partnership between
intention. co-owners. Because there must be a clear
intention to for a partnership.
 INCIDENTS OF PARTNERSHIP
 Share in the profits and losses  EXISTENCE OF FIDUCIARY RELATIONSHIP
 Equal rights in management and conduct of the  There is no fiduciary relationship between co-
business (See art. 1803) owners.
 Persons may become co-owners without a
 Every partner is an agent of the partnership (See contract. For example, by inheritance. But they
art. 1818)
cannot be partners without a contract.
 All partners, except limited partners, are personally
liable for partnership debts with their separate
property (See art. 1816)
 There is a fiduciary relationship (See art. 1807)
 Partnership is not terminated upon dissolution. It
continues until the winding up is completed (See
art. 1828)
 PRESUMPTION AND BURDEN OF PROOF

 Existence of partnership is not presumed. It
must be proved.
 Persons who are acting as partners are
presumed to have entered into a contract of
partnership. The burden of proof is on the
party denying its existence.
 Once partnership is shown to exist, the
presumption is that it continues in the absence

 PARTNERSHIP DISTINGUISHED  Example: A is the owner of the building where

FROM CO-OWNERSHIP partnership X holds its office. As payment for
rent, A will receive a share of the net profits.
Partnership Co-ownership  Profits received as an annuity to a widow or
representative of a deceased partner
Creation Generally created by Always created by a  Example: A is the widow of a partner in
law. contract, either partnership X. A will receive an annuity based
It may exist without a express or implied on a certain percentage of the net profits in
contract. exchange for the continuation of the
Juridical Has a juridical No juridical partnership without liquidation and satisfaction
personality personality personality of the deceased partner’s interest.
Purpose To obtain profits Common enjoyment  Profits received as interest on a loan
of a thing, does not  Example: A is creditor of partnership X. A
necessarily involve agreed that the interest on the loan would be
sharing of profits taken from the net profits.
 Profits received as the consideration for the sale of
Duration No limitation Maximum is 10 a goodwill or other property by installments or
years otherwise
Disposal of A partner cannot May dispose his  Example: A sold a land to partnership X. A
interests dispose his interest interest agreed that the purchase price will be paid out
as to make the of the net profits.
transferee a partner
Power to act Partner may bind the Co-owner cannot
PARTNERSHIP DISTINGUISHED FROM OTHER LEGAL
with third partnership, unless represent the co- RELATIONSHIPS
persons there is a stipulation ownership  DISTINGUISHED FROM A LABOR UNION
to the contrary.  Definition
Effect of death Dissolves the Does not  A labor union is an association of employees,
partnership necessarily dissolve which exists in whole or in part, for the
the partnership purpose of collective bargaining agreement or
dealing with the employers concerning terms
SHARING OF GROSS RETURNS and conditions of employment.
 NOT PRESUMPTIVE EVIDENCE OF PARTNERSHIP  The difference between them is the purpose.
 Because in a partnership, the partners, being The purpose of a partnership is the realization
interested in the success and failure of the of profits whereas the purpose of a labor union
business, share in the profits only after satisfying is to negotiate with the employers, collective
all partnership liabilities. bargaining.
SHARING OF GROSS PROFITS  DISTINGUISHED FROM A BUSINESS TRUST

 PRIMA FACIE EVIDENCE OF PARTNERSHIP  Definition
 Sharing of profits and losses is strong  A trust is when the equitable ownership and
presumptive evidence of a partnership. the legal tile of a property are with two
Conversely, lack of such an agreement strongly different persons.
negates the existence of a partnership.  The difference is that partners are principals
 Sharing of profits and losses is not conclusive and agents of each other. While in trust, the
evidence. This may be rebutted by other trustee is just a principal, and not an agent.
circumstances.
 WHEN EXISTENCE OF PARTNERSHIP WILL NOT BE

INFERRED DESPITE SHARE IN THE PROFITS
 Profits received as payment of a debt by installment
or otherwise
 Example: A is a creditor of partnership X. A
was authorized to manage the business. A will
receive compensation, and a share in the net
profits as payment for the debt.
 Profits received as wages of an employee or rent to
a landlord
 Example: A is an employee of partnership X.
Instead of a fixed salary, A agreed to receive a
certain percentage of the monthly net profits.

 DISTINGUISHED FROM CONJUGAL PARTNERSHIP  DISTINGUISHED FROM A CORPORATION

OF GAINS
Partnership Corporation
Partnership Conjugal Manner of By agreement of the By law or operation of
Partnership of Gains creation parties law
Parties 2 or more partners of Future spouses – a Number of At least 2 persons. At least 5
either sex man and a woman incorporators incorporators
Laws which Stipulation of the By law Commence- From the execution of Only from the date of
govern parties ment of the contract of issuance of the
Juridical Has a juridical No juridical juridical partnership. The certificate of
personality personality personality personality parties may stipulate incorporation by the
Commence-ment From the moment of From the date of otherwise. SEC
execution of the celebration of the Powers Those authorized by Only those expressly
contract. marriage. Any the partners granted by law, and
The parties may stipulation to the those implied from
stipulate otherwise. contrary is void. those granted and
Purpose To obtain profits To regulate property those incidental to its
relations during existence.
marriage Manage-ment Every partner is an Vested with the
Distribution of According to their Divided equally agent of the Boards of Directors or
profits agreement, or in partnership, if there is Trustees
proportion to their no agreement as to
capital contributions. management
Management Shared equally by all Administration Effect of Partner can use the Suit against member
partners unless one belongs to both Mismanage- partner who of the BOD or BOT
or some are spouses. But ment mismanages must be in the name
appointed managers. husband’s decision of the corporation
will prevail in case of Right of No right of succession Has a right of
disagreement. succession succession
Disposition of Entire interest may Share of each Extent of Partners, except Stockholders liable
shares be disposed of even spouse cannot be liability to third limited partners, are only to the extent of
without the consent disposed of during persons liable personally and their subscribed
of the other partners. the marriage, even subsidiarily shares
with the consent of Transfera-bility Partner cannot Stockholder can
the other. of interest transfer his interest so transfer his shares
as to make the without the consent of
 DISTINGUISHED FROM A VOLUNTARY transferee a partner the other stockholders
ASSOCIATION without the consent all
the other partners
Partnership Voluntary Association Term of For any period as may Maximum is 50 years,
Juridical Has a juridical No juridical personality existence be agreed by the extendible for another
personality personality parties 50 years
Purpose For pecuniary profit No such objective Firm name Limited partnership May adopt any name
required to add “Ltd.” as long as it is not the
Contributions There is a No contribution, although To its name same as or similar to
of members contribution of fees are usually collected any registered firm
money, property or name
services.
Dissolution At anytime by the will Only with the consent
Liability of Partnership is Members are individually of any or all of the of the State
members liable first for liable for debts of the partners
partnership debts. association, authorized or
subsequently ratified by Governing law Civil Code Corporation Code
them
 SIMILARITIES BETWEEN A PARTNERSHIP AND A

CORPORATION
 Both have a juridical personality separate and
distinct from the individuals composing it.
 Both can act only through their agents
 Both are organizations composed of an aggregate
of individuals
 Both distribute its profits to those who contribute
capital to the business
 Both can be organized only when there is a law
authorizing its organization

Art. 1770. A partnership must have a lawful object or RIGHT TO RECEVE PROFITS WHERE
purpose, and must be established for the PARTNERSHIP IS UNLAWFUL
common benefit or interest of the partners.  Art. 1770 permits no action for the purpose of
When an unlawful partnership is obtaining the earnings made by an unlawful
dissolved by a judicial decree, the profits shall partnership, because the partner will have to
be confiscated in favor of the State, without base his action upon the partnership contract
prejudice to the provisions of the Penal Code which is null and without legal existence; and
governing the confiscation of the instruments what does not exist cannot be a cause of action.
and effects of a crime. (1666a)  Profits earned in the course of the partnership do
not constitute or represent the partner’s
contribution but are the result of the industry,
OBJECT OF PURPOSE OF PARTNERSHIP business, or speculation which is the object of the
 The parties possess absolute freedom to choose partnership.
the transactions they must engage in. The only  It would be immoral and unjust for the law to
limitation is that the object must be lawful and for permit profit from an industry that is prohibited.
the common benefit of the partners.  The courts will not aid either party to an illegal
 Illegality of the object will not be presumed; it agreement.
must appear to be of the essence of the
relationship. EFFECT OF PARTIAL ILLEGALITY OF
PARTNERHIP BUSINESS
EFFECTS OF AN UNLAWFUL PARTNERSHIP  An account of that which is legal may be had.
 CONSEQUENCES:  Where, without the knowledge or participation of
 The contract is void ab initio and the partnership the partners, the firm’s profits in a lawful business
never existed in the eyes of the law. have been increased by wrongful acts, innocent
 The profits shall be confiscated in favor of the partners are not precluded as against the guilty
government partners from recovering their share of profits.
 The instruments or tools and proceeds of the
EFECT OF SUBSEQUENT ILLEGALITY OF
crime shall also be forfeited in favor of the
government PARTNERSHIP BUSINESS
 The happening of an event subsequent to the
 The contributions of the partners shall not be making of a valid partnership contract which
confiscated unless they fall under number 3.
would render illegal the business of the
partnership as planned, will not nullify the
 JUDICIAL DECREE UNECESSARY
contract.
 A judicial decree is not necessary to dissolve an
 Where the business for which the partnership is
unlawful partnership.
formed is legal when the partnership is entered
 Third persons who deal with the partnership
into, but afterwards becomes illegal, an
without being aware of its illegal purpose or
accounting may be had as to the business
character are protected unless such knowledge
transacted prior to such time.
can be presumed as where the transaction is
plainly unlawful.
COMMUNITY OF INTEREST BETWEEN
THE PARTNERS FOR BUSINESS PURPOSES
RIGHT TO RETURN OF CONTRIBUTION WHERE
 SALIENT FEATURES OF AN ORDINARY
PARTNERSHIP IS UNLAWFUL
PARTNERSHIP
 Art 1770 does not state whether upon the
dissolution of the unlawful partnership, the  Community of interest in profits and losses
amounts contributed are to be returned to the  Basis of the partnership relation.
partners, because it only deals with the  However, although every partnership
disposition of profits appears to be founded on a community of
 The fact that said contributions are not included interest, every community of interest
in the disposal prescribed for said profits, shows does not necessarily constitute a
that in consequence of said exclusion, the partnership.
general rules of law must be followed, and the  Community of interest in capital employed
partners must be reimbursed for the amount of  Property used in business may belong to
their respective contributions. one or more partners so that there is no
 The partner who limits himself to demanding only joint property other than joint earnings.
the amount contributed by him need not resort to  Community of power in administration.
the partnership contract on which to base his  Partners may agree upon concentration
claim or action. The manager or administrator of of management, leaving some of their
the partnership holding said contribution retains members entirely inactive or dormant.
what belongs to others, without consideration, for
which reason he is bound to return it, and he who
has paid in his share is entitled to recover it.

Art. 1771. A partnership may be constituted in any  CONFLICT BETWEEN INTENTION

form, except where immovable property or real AND TERMS OF CONTRACT
rights are contributed thereto, in which case a  If the parties intend a general
public instrument shall be necessary. (1667a) partnership, they are general partners
although their purpose is to avoid the
creation of such a relation.
FORM OF PARTNERSHIP CONTRACT
 GENERAL RULE
 No special form is required for the validity Art. 1772. Every contract of partnership having a
or existence of the contract of capital of three thousand pesos or more, in
partnership. money or property, shall appear in a public
 The contract may be made orally or in instrument, which must be recorded in the
writing regardless of the value of the Office of the Securities and Exchange
contributions. Commission.
Failure to comply with the
 WHEN IMMOVABLE PROPERTY OR REAL RIGHTS requirements of the preceding paragraph shall
ARE CONTRIBUTED not affect the liability of the partnership and
 Read together, Articles 1771 and Art the members thereof to third persons. (n)
1773 require the execution of a public
instrument for the validity of a contract of
partnership whenever immovable REGISTRATION OF PARTNERSHIP
property is contributed thereto.  PARTNERSHIP WITH CAPITAL OF P3,000
 To affect third persons, the transfer of OR MORE
real property to the partnership must be  Requirements were the capital of the partnership
duly registered in the Registry of Property is P3,000 or more, in money or property
of the province or city where the property a. The contract must appear in a public
contributed is located. instrument
b. It must be recorded with the SEC
 WHEN PARTNERSHIP AGREEMENT COVERED BY  However, failure to comply with the above
THE STATUTE OF FRAUDS requirements does not prevent the
 An agreement to enter a partnership at a formation of the partnership (Art 1768) or
future time, which “by its terms is not to affect its liability and that of the partners to
be performed within a year from the third persons.
making thereof” is covered by the Statute  But any of the partners is granted the right
of Frauds. by the law (Arts. 1357 & 1358) to compel
 Such agreement is unenforceable unless each other to execute the contract in a
the same be in writing or at least public instrument
evidenced by some note or memorandum  This right cannot be availed of if the
thereof subscribed by the parties (Art partnership is void under Art 1773.
1403[2,a])
 PURPOSE OF REGISTRATION
PARTNERSHIP IMPLIED FROM CONDUCT  The requirement of public instrument is
 BINDING EFFECT imposed as a prerequisite to registration,
 A partnership’s existence may be implied and registration is necessary as a
from the acts or conduct of the parties, as “condition for the issuance of licenses to
well as from other declarations, and such engage in business or trade. In this way,
implied contract would be as binding as a the tax liabilities of big partnerships
written and express contract. cannot be evaded and the public can also
determine more accurately their
 ASCERTAINMENT OF INTENTION OF PARTIES membership and capital before dealing
 In determining whether or not a particular with them.
transaction constitutes a partnership, as
between the parties, the intention as  WHEN PARTNERSHIP CONSIDERED REGISTERED
disclosed by he entire transaction, and as  The only objective of the law is to make
gathered from the facts and from the the recorded instrument open to all and
language employed by the parties as well to give notice thereof to interested
as their conduct, should be ascertained. persons.
 A partnership may even be created  The date the partnership papers are
without any definite intention; the presented to and left for record in the
intention of the parties being inferred Commission is considered the effective
from their conduct and dealings with each date of registration of the articles of
other. partnership.

Art. 1773. A contract of partnership is void, whenever property may be acquired in the
immovable property is contributed thereto, if partnership name.
an inventory of said property is not made,  Title so acquired can therefore be
signed by the parties, and attached to the conveyed only in the partnership name.
public instrument. (1668a)  The right of a partnership to deal in real
as well as personal property is subject to
limitations and restrictions prescribed by
PARTNERSHIP WITH CONTRIBUTION the Constitution and special laws.
OF IMMOVABLE PROPERTY
 Where immovable property, regardless of its value,
is contributed, the failure to comply with the Art. 1775. Associations and societies, whose articles
following requirements will render the partnership are kept secret among the members, and
contract void in so far as the contracting parties wherein any one of the members may contract
are concerned: in his own name with third persons, shall have
1. The contract must be in a public no juridical personality, and shall be governed
instrument (Art 1771) by the provisions relating to co-ownership.
2. An inventory of the property (1669)
contributed must be made, signed
by the parties, and attached to the
public instrument. SECRET PARTNERSHIPS WITHOUT
 With regard to third persons, a de facto JURIDICAL PERSONALITY
partnership or partnership by estoppel  Associations whose articles or
may exist. agreements are kept secret among the
members and wherein anyone of them
WHEN INVENTORY IS NOT REQUIRED may contract in his own name with third
 An inventory is required only “whenever persons are deprived of juridical
immovable property is contributed.” personality for evidently, such
 Hence, Art 1773 does not apply in the case of associations are not partnerships.
immovable property which may be possessed or  As among themselves, they shall be
even owned by the partnership but not contributed governed by the provisions relating to co-
by any of the partners. ownership.
 If personal property, aside from real property, is  A member who transacts business for the
contributed, the inventory need not include the secret partnership in his own name
former. becomes personally bound to third
persons unaware of the existence of such
IMPORTANCE OF MAKING INVENTORY OF REAL association.
PROPERTY IN A PARTNERSHIP  But a person may be held liable as a
 Art 1773 complements Art 1771 partner or partnership liability may result
 To show how much is due each partner to in favor of third persons by reason of
complete his share in the common fund and how estoppel (Art 1825)
much is due to each of them in case of liquidation.
 The execution of a public instrument of IMPORTANCE OF GIVING PUBLICITY
partnership would be useless if there is no TO ARTICLES OF PARTNERSHIP
inventory of immovable property contributed  For the protection not only of the
because without its description and designation, members themselves but also third
the instrument cannot be subject to inscription in persons from fraud and deceit to which
the Registry of Property, and the contribution they would otherwise be easy victims.
rd
cannot prejudice 3 persons.
Art. 1776. As to its object, a partnership is either

Art. 1774. Any immovable property or an interest universal or particular. As regards the liability
therein may be acquired in the partnership of the partners, a partnership may be general
name. Title so acquired can be conveyed only or limited. (1671a)
in the partnership name. (n)
CLASSIFICATION OF PARTNERSHIP
ACQUISITION OR CONVEYANCE OF  AS TO THE EXTENT OF ITS SUBJECT MATTER
PROPERTY BY PARTNERSHIP  Universal Partnership or one which refers to all
 Since a partnership has a juridical the present property or to all profits.
personality separate from and  There are two kinds of universal
independent of that of the persons or partnership:
members composing it (Art 1768), it is ♦ Universal partnership of all
but logical and natural that immovable present property (Art 1778)

♦ Universal partnership of profits  AS TO PUBLICITY

(Art 1780)  Secret partnership
 Particular partnership (Art 1783)  One wherein the existence of certain
persons as partners is not avowed or
 AS TO LIABILITY OF THE PARTNERS made known to the public by any of the
 General partnership partners.
 One consisting of general partners who  Open or notorious partnership
are liable pro rata and subsidiarily (Arts  One whose existence is avowed or made
1822-24) with their separate property for known to the public by the members of
partnership debts. the firm
 Limited partnership
 One formed by two or more persons  AS TO PURPOSE
having as members one or more general  Commercial or trading partnership
partners and one or more limited  One formed for the transaction of
partners, the latter not being personally business
liable for the obligations of the  Professional or non-trading partnership
partnership (Art 1843)  One formed for the exercise of a
profession
 AS TO ITS DURATION
 Partnership at will CLASS OF PARTNERS
 One in which no time is specified and is  Partners are classified according to their interest
not formed for a particular undertaking or in the partnership business, or their obligations to
venture and which may be terminated at the partnership, or liabilities to third persons.
anytime by mutual agreement of the
partners, or by the will of any one partner  UNDER THE CIVIL CODE
alone; or one for a fixed term or particular  Capitalist partner
undertaking which is continued by the  One who contributed money or property
partners after the termination of such to the common fund
term or particular undertaking without  Industrial partner
express agreement (Art 1785)  One who contributed only his industry or
 Partnership with a fixed term personal service
 One in which the term for which the  General or real partner
partnership is to exist is fixed or agreed  One whose liability to third persons
upon or one formed for a particular extends to his separate property
undertaking, and upon or one formed for
 May be either a capitalist or industrial
a particular undertaking, and upon the partner
expiration of the term or completion of the
particular enterprise, the partnership is
 Limited or special partner
 One whose liability to third persons is
dissolved, unless continued by the
limited to his capital contribution
partners (Art 1785)
 Managing partner
 AS TO LEGALITY OF ITS EXISTENCE  One who manages the affairs or business
of the partnership
 De jure partnership
 May be appointed wither in the articles of
 One which has complied with all the legal
partnership or after the constitution of the
requirements for its establishment
partnership
 De facto partnership  Also known as a general or real partner
 One which has failed to comply with all
the legal requirements for its
 Liquidating partner
 One who takes charge of the winding up
establishment.
of partnership affairs upon dissolution
 AS TO REPRESENTATION TO OTHERS  Partner by estoppel
 One who is not really a partner, not being
 Ordinary or real partnership
a party to a partnership agreement, but is
 One which actually exists among the
liable as a partner for the protection of
partners and also as to third persons.
innocent third persons.
 Ostensible partnership or partnership by estoppel  He is one who is represented as being in
 One which in reality is not a partnership, fact a partner, but is not so as between
but is considered a partnership only in the partners themselves
relation to those who, by their conduct or  Also known as partner by implication or
admission, are precluded to deny or
nominal partner or quasi-partner
disprove its existence.
 Continuing partner
 One who continues the business of a
partnership after it has been dissolved by

reason of the admission of a new partner, Art. 1777. A universal partnership may refer to all the
or the retirement, death, or expulsion of present property or to all the profits. (1672)
one or more partners.
 Surviving partner
 One who remains after a partnership has UNIVERSAL PARTNERSHIP
been dissolved by the death of any  Either present property or all the profits
partner.
 Sub-partner
 One who, not being a member of the Art. 1778. A partnership of all present property is that
partnership, contracts with a partner with in which the partners contribute all the
reference to the latter’s share in the property which actually belongs to them to a
partnership common fund, with the intention of dividing
the same among themselves, as well as all the
 OTHER CLASSIFICATIONS profits which they may acquire therewith.
 Ostensible partner (1673)
 One who takes active part and is known
to the public as a partner in the business,
whether or not he has an actual interest PARTNERSHIP OF ALL PRESENT PROPERTY
in the firm.  Partners contribute all the property which actually
 He may be an actual partner or a nominal belongs to them to a common fund
partner  There is an intention to divide the property among
 If he is not actually a partner, he is themselves
subject to liability by the doctrine of  There is an intention to divide the profits they may
estoppel acquire
 Secret partner
 One who takes active part in the
business but is not known to be a partner Art. 1779. In a universal partnership of all present
by outside parties nor held out as a property, the property which belongs to each
partner by the other partners, although he of the partners at the time of the constitution
participates in the profits and losses of of the partnership, becomes the common
the partnership. property of all the partners, as well as all the
 He is an actual partner profits which they may acquire therewith.
 He is also an active partner in the sense A stipulation for the common
that he participates in the management of enjoyment of any other profits may also be
the partnership affairs. made; but the property which the partners may
 Silent partner acquire subsequently by inheritance, legacy,
 One who does not take any active part in or donation cannot be included in such
the business although he may be known stipulation, except the fruits thereof. (1674a)
to be a partner
 He need not be a secret partner
 If he withdraws from the partnership, he UNIVERSAL PARTNERSHIP OF
must give notice to those persons who do ALL PRESENT PROPERTY
business with the firm to escape liability  Comprises all that the partners may acquire by
in the future their industry or work during the existence of the
 Dormant or “sleeping” partner partnership
 One who does not take active part in the  The following become the common property of all
business and is not known or held out as partners:
a partner  Property which belonged to each of them
 Both a silent and a secret partner at the time of the constitution of the
 May retire from the partnership without partnership
giving notice and cannot be held liable for  Profits which they may acquire from the
obligations of the firm subsequent to his property contributed
withdrawal
 His only interest in joining the partnership  FUTURE PROPERTIES CANNOT BE CONTRIBUTED
would be the sharing of the profits earned  The very essence of partnership requires the
 Original partner contribution of things determinate
 One who is a member of the partnership  Property subsequently acquired by inheritance,
from the time of its organization legacy or donation cannot be included by
 Incoming partner stipulation except the fruits.
 A person lately, or about to be taken into
an existing partnership as a member.

Art. 1780. A universal partnership of profits comprises  An agreement to undertake a particular piece of
all that the partners may acquire by their work or a single transaction and immediately
industry or work during the existence of the divide the profits within the meaning of partnership
partnership. as used in the law.
Movable or immovable property which  Joint venture: though not a formal partnership, it is
each of the partners may possess at the time governed by almost the same rules of partnership
of the celebration of the contract shall  There is a community of interest similar
continue to pertain exclusively to each, only to a partnership
the usufruct passing to the partnership. (1675)  Has a legal personality separate and
distinct from the parties
UNIVERSAL PARTNERSHIP OF PROFITS

 Ownership of present and future property
 What passes to the partnership are the profits or
income
 Profits acquired through chance not included CHAPTER 2
 Fruits of property subsequently acquired not included OBLIGATIONS OF THE PARTNERS
(unless stipulated)
Art. 1781. Articles of universal partnership, entered into

without specification of its nature, only SECTION 1. –
constitute a universal partnership of profits. Obligations of the Partners Among Themselves
(1676)
RELATIONS CREATED BY A
PRESUMPTION IN FAVOR OF UNIVERSAL CONTRACT OF PARTNERSHIP
PARTNERSHIP OF PROFITS  Four distinct juridical relations:
 Relations among the partners with the partnership
 A universal partnership of property imposes less
obligations on the partners, since they preserve the
 Relations of the partners with the partnership
ownership of their separate property.  Relations of the partnership with third persons
 Applies only when a universal partnership has been with whom it contract
organized.  Relations of the partners with such third persons
 Partnership relationship one of mutual trust and
confidence
Art. 1782. Persons who are prohibited from giving each  Fiduciary relationship remains until partnership is
other any donation or advantage cannot enter terminated
into universal partnership. (1677)  Rights and obligations of the partners as to each other
are provided on the theory that a partner is both a
principal and an agent in relation to his co-partners.
LIMITATIONS UPON THE RIGHT TO  But the relationship between a limited partner and
FORM A PARTNERSHIP other partners in a limited partnership does not
 Persons prohibited by law to give donations cannot involve the element of trust and confidence.
enter into a universal partnership
 Each of the partners virtually makes a donation.
Art. 1784. A partnership begins from the moment of the
execution of the contract, unless it is
Art. 1783. A particular partnership has for its object otherwise stipulated. (1679)
determinate things, their use or fruits, or
specific undertaking, or the exercise of a
profession or vocation. (1678) COMMENCEMENT AND TERM OF PARTNERSHIP
 Partnership is a consensual contract; hence it exists
from the moment of the celebration of the contract by
OBJECT OF PARTICULAR PARTNERSHIP the partners (even when the partners have not yet
 Difference between a universal partnership and a begun the carrying on of its business or given their
particular partnership contributions)
 Scope of subject matter  Predicated on the mutual desire and consent of
 Universal: vague and indefinite, with a the parties
degree of continuity; particular: well-
defined, confined to an undertaking of a  In effect, its registration in the Securities and Exchange
single, temporary or ad hoc nature. Commission is not essential to give it juridical
 Business need not be continuing in nature personality.

 No time limit prescribed by law for the life of partnership  Failure to contribute property will make
 The partners MAY stipulate some other date for the the partner a debtor of the partnership.
commencement of the partnership.  Remedy of other partners is specific
 A partnership in fact cannot be predicated on an performance with damages and interests
agreement to enter into a co-partnership at a future day  To answer for eviction in case the partnership is
unless it is shown that such an agreement was actually deprived of the determinate property contributed
consummated.  The partner is bound in the same manner
as the vendor is bound with respect to
the vendee
Art. 1785. When a partnership for a fixed term or  To answer to the partnership for the fruits of the
particular undertaking is continued after the property, from the date they should have been
termination of such term or particular contributed up to the time of actual delivery
undertaking without any express agreement,  No demand needed to put the partner in
the rights and duties of the partners remain default
the same as they were at such termination, so  Failure to deliver the property prejudices
far as is consistent with a partnership at will. the common purpose of obtaining the
A continuation of the business by the greatest possible profits
partners or such of them as habitually acted  To preserve said property with the diligence of a
therein during the term, without any settlement good father
or liquidation of the partnership affairs, is
prima facie evidence of a continuation of the
 To indemnify the partnership for any damage
caused to it by the retention of the same or by the
partnership. (n)
delay in its contribution
 LIABILITY OF PARTNER FOR FAILURE TO

CONTINUATION OF PARTNERSHIP
PERFORM SERVICE STIPULATED
BEYOND FIXED TERM
 Partnership with fixed term: one in which the term of its  Partners are generally not entitled to charge each
existence has been agreed upon expressly or impliedly. other for their services in the firm business
 It may be extended or renewed by the partners by  To require a partner to account for the value of his
express agreement or impliedly. services would be allowing compensation to the
other members of the partnership for the services
 In such case, the rights and duties of the partners
rendered
remain the same.
 With such continuation, the partnership for a fixed  If a partner neglects to render the services by
reason of which the partnership suffered loss, no
term or particular undertaking is dissolved and a
good reason can be suggested why the erring
new one is created.
partner should not be just as responsible for the
 Partnership for an indefinite term: an understanding that
breach of his agreement
the relationship shall continue until the accomplishment
of a particular undertaking  If the partner is compelled to make good the loss,
 Partnership with mere expectation: such a hope does each member will receive his proportion of the
not establish even by implication a fixed term or amount in the distribution of the partnership
particular undertaking assets
 Measure of damages: value of the services
wrongfully withheld
Art. 1786. Every partner is a debtor of the partnership
for whatever he may have promised to  Money or property contributed cannot be withdrawn
contribute thereto. without the consent of the partnership or of the other
He shall also be bound for warranty in partners.
case of eviction with regard to specific and
determinate things which he may have
contributed to the partnership, in the same Art. 1787. When the capital or a part thereof which a
cases and in the same manner as the vendor is partner is bound to contribute consists of
bound with respect to the vendee. He shall goods, their appraisal must be made in the
also be liable for the fruits thereof from the manner prescribed in the contract of
time they should have been delivered, without partnership, and in the absence of stipulation,
the need of any demand. (1681a) it shall be made by experts chosen by the
partners, and according to current prices, the
subsequent changes thereof being for account
OBLIGATIONS WITH RESPECT TO of the partnership. (n)
CONTRIBUTION OF PROPERTY
 OBLIGATIONS OF THE PARTNERS AMONG
THEMSELVES: APPRAISAL OF GOODS OR PROP’Y CONTRIBUTED
 To contribute at the beginning of the partnership  Necessary to determine how much has been
the property, money or industry contributed by the partners

 Two ways of appraisal: in the manner prescribed by the  Action for specific performance is not the proper
contract of partnership and in the absence of action
stipulation, by experts chosen by the partners and  Prohibition against engaging in business
according to current prices  Absolute and applies whether the industrial
 For immovable property: appraisal is made in the partner is to engage in the same business or in
inventory of said property any kind of business
 Remedies where industrial partner engages in business
 Capitalist partners have the right to exclude him
Art. 1788. A partner who has undertaken to contribute a from the firm (with damages)
sum of money and fails to do so becomes a
debtor for the interest and damages from the
 Or avail of the benefits (with damages)
 It is believed that industrial partners are also entitled to
time he should have complied with his
the remedy
obligation.
The same rule applies to any amount
he may have taken from the partnership
Art. 1790. Unless there is a stipulation to the contrary,
coffers, and his liability shall begin from the
the partners shall contribute equal shares to
time he converted the amount to his own use.
the capital of the partnership. (n)
(1682)
EXTENT OF CONTRIBUTION
OBLIGATIONS WITH RESPECT TO CONTRIBUTION OF
TO PARTNERSHIP CAPITAL
MONEY & MONEY CONVERTED TO PERSONAL USE
 The presumption is that their contribution shall be in
 Two instances involved: money promised but not given
equal shares
on time and partnership money converted to personal
 The rule does not apply to an industrial partner unless
use of the partner
he has contributed capital
 Obligations of the partner under this article
 Contribute on the date due the amounts he has
undertaken to the partnership to contribute Art. 1791. If there is no agreement to the contrary, in
 Liability of guilty partner for interest and case of an imminent loss of the business of
damages: from the time he should have the partnership, any partner who refuses to
complied (not from judicial or extra- contribute an additional share to the capital,
judicial demand) except an industrial partner, to save the
 Reimburse any amount he may have taken venture, shall he obliged to sell his interest to
 The party is guilty of estafa if he the other partners. (n)
misappropriates partnership money or
property
 Mere failure on the part of the industrial OBLIGATION OF CAPITALIST PARTNER
partner to return to the capitalist partner TO CONTRIBUTE ADDITIONAL CAPITAL
the capital brought by him does not  General rule: capitalist partner is not bound to
constitute estafa contribute to the partnership more than what he agreed
 Pay the agreed or legal interest if he fails to pay to contribute, but in case of imminent loss, he is under
his contribution on time obligation to contribute an additional share to save the
 Indemnify the partnership for the damages caused venture
to it by the delay
 Refusal to contribute means he is obliged to sell his
interest to the other partners
Art. 1789. An industrial partner cannot engage in
business for himself, unless the partnership  Requisites before a capitalist partner may be obliged to
expressly permits him to do so; and if he sell his interest
should do so, the capitalist partners may  Imminent loss of the business
either exclude him from the firm or avail  Majority of the capitalist partners believe that an
themselves of the benefits which he may have additional contribution to the common fund would
obtained in violation of this provision, with a save the business
right to damages in either case. (n)  Capitalist partner refuses deliberately
 No agreement that the partners are not obliged to
contribute in case of an imminent loss
OBLIGATIONS OF INDUSTRIAL PARTNER
 Industrial partner: contributes his industry, labor or
 Reason: refusal of the partner shows his lack of interest
services to the partnership
in the continuance of the partnership
 Considered as the owner of his services
 Becomes a debtor of the partnership for his
Partnership acquires exclusive right to avail itself
of his industry

Art. 1792. If a partner authorized to manage collects a  Applies whether the partner who receives his share is
demandable sum which was owed to him in authorized to manage or not
his own name, from a person who owed the  Requisites:
partnership another sum also demandable, the  A partner has received his share of the
sum thus collected shall be applied to the two partnership credit
credits in proportion to their amounts, even  Other partners have not collected their shares
though he may have given a receipt for his  Partnership debtor becomes insolvent
own credit only; but should he have given it  The article is based on the community of interests
for the account of the partnership credit, the among the partners
amount shall be fully applied to the latter.  Credit collected after dissolution of the partnership:
The provisions of this article are conflicting views on the more diligent partner who
understood to be without prejudice to the right collects the portion pertaining to him
granted to the other debtor by Article 1252, but
only if the personal credit of the partner
 Other partners may demand what the partner has
already collected (on the principle of community
should be more onerous to him. (1684)
and equality)
 It would be unjust to demand from the diligent
OBLIGATIONS OF MANAGING PARTNER partner (the partnership ceased)
WHO COLLECTS DEBT
 If a person is separately indebted to the partnership and
to the managing partner, the amount received shall be Art. 1794. Every partner is responsible to the
applied to the two credits in proportion to their amounts partnership for damages suffered by it through
his fault, and he cannot compensate them with
 But where the managing partner receives it for the
the profits and benefits which he may have
account of the partnership, the whole sum is
earned for the partnership by his industry.
applied to the partnership credit only
However, the courts may equitably lessen this
responsibility if through the partner's
 REQUISITES:
extraordinary efforts in other activities of the
 There are at least two debts, where the collecting partnership, unusual profits have been
partner is creditor, and the other, where realized. (1686a)
the partnership is the creditor
 Both debts are demandable
 The partner who collects is authorized to manage OBLIGATION OF PARTNER FOR DAMAGES
and actually manages the partnership TO PARTNERSHIP
 Any person guilty of negligence or fraud shall be liable
 Reason: the law safeguards the interest of the for damages
partnership by preventing the possibility of their being  The partner’s fault is determined in accordance
subordinated by the managing partner to his own with the nature of the obligation and the
interest to the prejudice of other partners. circumstance of person, time, and place
 The article does not apply where the partner who  Damages caused by a aprtner cannot be offset by the
collects for his own credit is not authorized to manage if profits he may have earned for the partnership by his
the manner of management has not been agreed upon industry
and all the partners participate in the management, then  The partner has the obligation to secure benefits
every partner shall be considered a managing partner for the partnership
 Debtor is given the right to prefer payment of the credit
 The partner also has the obligation to exercise
diligence in the performance of his obligation as a
of the partner if it should be more onerous to him
partner
 Exception: unusual profits through extraordinary
Art. 1793. A partner who has received, in whole or in efforts
part, his share of a partnership credit, when  Based on equity
the other partners have not collected theirs,  Case to case basis
shall be obliged, if the debtor should thereafter
become insolvent, to bring to the partnership
capital what he received even though he may Art. 1795. The risk of specific and determinate things,
have given receipt for his share only. (1685a) which are not fungible, contributed to the
partnership so that only their use and fruits
may be for the common benefit, shall be borne
OBLIGATION OF PARTNER WHO RECEIVES by the partner who owns them.
SHARE OF PARTNERSHIP CREDIT If the things contribute are fungible, or
 There is only one credit under this article (that in favor cannot be kept without deteriorating, or if they
of the partnership) 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 Art. 1797. The losses and profits shall be distributed in
appraised in the inventory, shall also be borne conformity with the agreement. If only the
by the partnership, and in such case the claim share of each partner in the profits has been
shall be limited to the value at which they were agreed upon, the share of each in the losses
appraised. (1687) shall be in the same proportion.
In the absence of stipulation, the
share of each partner in the profits and losses
RISK OF LOSS OF THINGS CONTRIBUTED shall be in proportion to what he may have
 Five cases for the determination of the risk of the things contributed, but the industrial partner shall not
contributed to the partnership: be liable for the losses. As for the profits, the
 Specific and determinate things which are not industrial partner shall receive such share as
fungible where only the use is contributed – risk of may be just and equitable under the
loss borne by the partner because he remains the circumstances. If besides his services he has
owner contributed capital, he shall also receive a
 Specific and determinate things the ownership of share in the profits in proportion to his capital.
which is transferred to the partnership – risk of (1689a)
loss is for the account of the partnership, as
owner
 Fungible things which cannot be kept without RULES FOR DISTRIBUTION OF PROFITSAND LOSSES
deteriorating even if they are contributed only for  DISTRIBUTION OF PROFITS
the use of the partnership – risk of loss is borne 1. The partners share the profits according to their
by the partnership agreement subject to Art1816
2. If there is no such agreement:
 Things contributed to be sold – partnership bears • Share of each capitalist partner - shall be
risk of loss for there cannot be any doubt that the
in proportion to his capital contribution.
partnership was intended to be the owner
This rule is based on the presumed will of
 Things brought and appraised in the inventory – the partners.
partnership bears risk of loss because the • Share of industrial partner - must be
intention of the parties was to contribute to the satisfied first before the capitalist
partnership the price of the things contributed with partners divide the profits. Amount will be
an appraisal (implied sale making the partnership based on what is just and equitable
owner of the said things, the price being under the circumstances. The share of
represented by their appraised value an industrial partner in the profits is not
fixed, as in the case of capitalist partners,
because it is very difficult to ascertain the
Art. 1796. The partnership shall be responsible to every value of services.
partner for the amounts he may have  A partner is entitled to receive only his share of
disbursed on behalf of the partnership and for the profits actually realized by the venture.
the corresponding interest, from the time the  Even when assurances of huge profits were
expense are made; it shall also answer to each made by a partner, in the absence of fraud, the
partner for the obligations he may have other partner cannot claim right to recover profits
contracted in good faith in the interest of the promised. This is especially true when the
partnership business, and for risks in business was highly speculative and turned out
consequence of its management. (1688a) to be a failure.
 Hidden risks in any business venture have to be
considered.
RESPONSIBILITY OF THE PARTNERSHIP
TO THE PARTNERS  DISTRIBUTION OF LOSSES
 Every partner is an agent of the partnership for the
 According to the Agreement of the Partners, subject
purpose of its business
to Article 1799.
 Partner is not personally liable as long as he is not  If no agreement, but the contract provides for the
at fault
share of the partners in the profits, the share of
 But the partner is not given the right of retention if each in the losses shall be according to the profit-
he is not reimbursed sharing ratio.
 Obligations of the partnership:  However, the industrial partner shall NOT
 Refund amount disbursed by the partner in behalf be liable for losses.
of the partnership with interest from the time  To determine profits or losses, all
expenses are made transactions must be considered, not only
 Answer for the obligation the partner may have one particular transaction.
contracted in good faith  If also no profit-sharing stipulated in the contract,
 Answer for risks in consequence of its losses shall be borne by the partners in proportion
management to their capital contributions.

 But the purely industrial partner shall NOT  Hence, contract excluding one or more partners
be liable for the losses. from share contravenes the very purpose of a
partnership.
 However, although the stipulation is void, the
Art. 1798. If the partners have agreed to intrust to a partnership is otherwise valid and the profits or
third person the designation of the share of losses shall be apportioned as if there was no
each one in the profits and losses, such stipulation on the same.
designation may be impugned only when it is  If also no profit-sharing stipulated in the
manifestly inequitable. In no case may a contract, losses shall be borne by the
partner who has begun to execute the decision partners in proportion to their capital
of the third person, or who has not impugned contributions. [Art1797]
the same within a period of three months from
the time he had knowledge thereof, complain  STIPULATION, A FACTOR TO SHOW NO
of such decision. PARTNERSHIP EXISTS
The designation of losses and profits  Where parties expressly stipulate that there shall
cannot be intrusted to one of the partners. be no liability for losses, or where from the nature
(1690) of the contract, it is clear that a party did not
intend to share in the losses, such fact may be a
RD indicator/factor in determining that no partnership
DESIGNATION BY A 3 PERSON exists.
OF SHARE IN PROFITS AND LOSSES
RD
 DELEGATION TO A 3 PERSON  WHERE PERSON EXCLUDED NOT INTENDED BY
 Designation of shares in the profits and losses may PARTIES TO BECOME A PARTNER
rd
be delegated to 3 person by common consent  Stipulation is Valid
rd
 Designation must be to 3 person, and
not one of the partners. In accordance
 When one of several persons engaged in an
enterprise agreed to assist by advancing money
with rule in contracts that fulfillment of
and to share in the losses but not to receive any
contract cannot be left to the will of one of
part of the profits, which will be divided among the
the contracting parties.
nd others exclusively, is not deemed to be a partner.
 Prohibition in 2 paragraph necessary to
guarantee impartiality.  But if he represents to others or allows himself to
rd
be held as a partner to a 3 person who enters
 BINDING FORCE OF DESIGNATION into a contract with them believing him to be such
partner, he is liable.
 Designation by 3rd person generally binding unless
manifestly inequitable.
 WHERE PERSON EXCLUDED FROM LOSSES IS
 Partner who has begun to execute
rd INDUSTRIAL PARTNER
decision of 3 person or who fails to
impugn the same w/in 3 months from  Naturally valid because Art1797 specifically
time he had knowledge of it can no excludes an industrial partner from losses.
longer complain.  But this is without prejudice to the rights of 3rd
 In this case, partner guilty of estoppel or persons.
deemed to have given consent or  Industrial partner is excluded because he cannot
ratification to designation. withdraw his labor or efforts, unlike a capitalist
 3 month period only so operations of partner. Also, when no profits are realized, then
partnership will not be paralyzed. he would have worked in vain and has already
contributed his share in the loss.
Art. 1799. A stipulation which excludes one or more  WHERE STIPULATION PROVIDES FOR UNEQUAL
partners from any share in the profits or SHARES
losses is void. (1691)  Partners are allowed to stipulate for unequal shares
in the profits or losses even if their contributions are
equal
STIPULATION EXCLUDING A PARTNER  Unless inequality is so gross that it is, in effect, a
FROM ANY SHARE IN PROFITS OR LOSSES simulated form or attempt to exclude a partner from
 STIPULATION GENERALLY VOID, BUT any share in the profits or losses.
PARTNERSHIP SUBSISTS
 In general, law does not allow a stipulation
excluding one or more partners from any share in Art. 1800. The partner who has been appointed
profits and losses. manager in the articles of partnership may
 Partnership must exist for common benefit execute all acts of administration despite the
and interest of partners. 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 enter into a collateral verbal agreement to that
shall be necessary for such revocation of effect.
power.
A power granted after the partnership  EXCEPTIONS
has been constituted may be revoked at any  In proper cases, the law may imply a contract for
time. (1692a) compensation:
 Employment of a co-partner in a capacity other
than that of a partner – ex. To perform clerical
RIGHTS AND OBLIGATIONS WITH services
RESPECT TO MANAGEMENT  Extraordinary neglect on the part of 1 partner to
 2 DISTINCT CASES OF APPOINTMENTS perform his duties, imposing the entire burden on
 Appointment as Manager IN the Articles of the remaining partner
Partnership  To do work for a co-partner outside and
 Partner appointed by common agreement in independent of the co-partnership, and shall
articles of partnership may execute all acts of become personally liable therefore.
administration, but not those of strict ownership,  Partners exempted by terms of partnership from
notwithstanding the opposition of the other rendering services
partners, unless he should act in bad faith.  Where one partner is entrusted with management
 His power is revocable only upon just and lawful and devotes his whole time thereto while the
cause and upon vote of the partners representing other partners attend to their individual business,
the controlling interest. giving no time or attention to the business of the
 Reason: revocation represents a change in the firm.
terms of the contract.  When one partner is exempt from rendering
 In case of mismanagement, other partners may personal services and he does render such
avail of usual remedies, including application for service or where services rendered are
dissolution of partnership by judicial decree. extraordinary.
 Appointment as Manager AFTER the Constitution of
the Partnership
 Management granted after partnership has been Art. 1801. If two or more partners have been intrusted
constituted independently of the articles, may be with the management of the partnership
revoked at any time for any cause whatsoever. without specification of their respective duties,
 Revocation not founded on change of will of or without a stipulation that one of them shall
partners, the appointment not being a condition not act without the consent of all the others,
of the contract. each one may separately execute all acts of
 It is merely a contract of agency, which may be administration, but if any of them should
revoked any time. oppose the acts of the others, the decision of
the majority shall prevail. In case of a tie, the
 Art1800 refers to a partner appointed as manager, and matter shall be decided by the partners owning
not to a stranger. the controlling interest. (1693a)
 As a rule, partner is not entitled to compensation for his
services other than his share of the profits.
WHERE RESPECTIVE DUTIES OF 2 OR MORE
SCOPE OF POWER OF A MANAGING PARTNER MANAGING PARTNERS NOT SPECIFIED
 As a general rule, a partner appointed as manager  EACH ONE MAY SEPARATELY PERFORM ACTS OF
has all powers of a general agent as well as ADMINISTRATION
incidental powers necessary to carry out object of  If one or more managing partners oppose acts of
partnership in the transaction of its business others, decision of majority of the managing
 Exception is when the powers of the manager are partners shall prevail.
specifically restricted  Right to oppose can be exercised only by
those entrusted with management of
COMPENSATION FOR SERVICES RENDERED partnership and not by any partner.
 PARTNER GENERALLY NOT ENTITLED TO  In case of tie, matter shall be decided by vote of
COMPENSATION partners owning controlling interest [more than
 Each partner in taking care of the joint property, 50% capital investment]
managing the partnership affairs, and directing the
partnership business is practically taking care of his  If articles don’t specify duties of partners and
own interest or managing his own business. limitations of management, one partner has no
 He is not, in the absence of a contract, express or more powers than the others in the conduct and
implied, entitled to compensation beyond his share management of the business.
of the profits for services rendered.
 In the absence of any prohibition in the articles of  REQUISITES FOR APPLICATION OF RULE
partnership for the payment of salaries to general • 2 or more partners have been appointed
partners, there is nothing to prevent the partners to as managers

• There is no specification of their RULE WHEN MANNER OF MANAGEMENT

respective duties HAS NOT BEEN AGREED UPON
• There is no stipulation that one of them  ALL PARTNERS CONSIDERED MANAGERS AND
shall not act without the consent of all the AGENTS
others.  All partners shall then have equal rights in the
management and conduct of partnership affairs.
All of them shall be considered managers and
Art. 1802. In case it should have been stipulated that agents. [Art1818]
none of the managing partners shall act  Effect: Whatever any one of them may do alone
without the consent of the others, the shall bind partnership
concurrence of all shall be necessary for the  Subject to 1801 that in case of timely
validity of the acts, and the absence or opposition by any partner, majority vote
disability of any one of them cannot be shall be needed
alleged, unless there is imminent danger of  In case of tie, matter shall be decided by
grave or irreparable injury to the partnership. vote of partners representing the
(1694) controlling interest.
 Read Art1803[1] together with Art1818.
WHERE UNANIMITY OF ACTION STIPULATED  UNANIMOUS CONSENT REQUIRED FOR

 CONCURRENCE NECESSARY FOR VALIDITY OF ALTERATION OF IMMOVABLE PROPERTY
ACTS  Consent here need not be express and may be
 Partners may stipulate that none of managing presumed from the fact of knowledge of the
partners shall act w/o consent of others. alteration w/o interposing any objection.
 Consent can be so indispensable that neither  Prohibition only applies to immovable
absence nor disability of any partner cannot be property and the alteration thereof must
used to dispense requirement. be important.
 The only exception is when there is  Any important alteration in the
imminent danger of grave and irreparable immovable property of the
injury to the partnership under Art1794. partnership is an act of strict
dominion.
 RULE WHERE THERE IS OPPOSITION BY A  Even managing partner cannot
MANAGING PARTNER make such alteration,
 Rule that in cases of imminent danger of grave or notwithstanding that it is useful
irreparable injury, a managing partner may to the partnership, w/o the
proceed alone w/o consent of others, does not consent of all partners.
apply when a managing partner objects to the  If refusal to give consent is manifestly
proposed act. prejudicial to interest of partnership, court
intervention may be sought.
 CONSENT OF MANAGING PARTNERS NOT  Consent may be presumed from
NECESSARY IN ROUTINE TRANSACTIONS silence of other partners who
 The Authority to purchase carries with it the did not oppose to alteration.
implied authority to purchase on credit  If the alteration is necessary for the
 The requirement of written authority refers to preservation of the property, it would
formal and unusual written contracts. seem that the consent of the other
partners is not required.
Art. 1803. When the manner of management has not

been agreed upon, the following rules shall be Art. 1804. Every partner may associate another person
observed: with him in his share, but the associate shall
(1) All the partners shall be considered agents not be admitted into the partnership without
and whatever any one of them may do the consent of all the other partners, even if
alone shall bind the partnership, without the partner having an associate should be a
prejudice to the provisions of Article 1801. manager. (1696)
(2) None of the partners may, without the
consent of the others, make any important
alteration in the immovable property of the CONTRACT OF SUBPARTNERSHIP
partnership, even if it may be useful to the  Sub-partnership - A partner may associate
partnership. But if the refusal of consent another person with him in his share without the
by the other partners is manifestly consent of the other partners.
prejudicial to the interest of the
partnership, the court's intervention may  NATURE
be sought. (1695a)  Partnership formed between a member of a
rd
partnership and a 3 person for a division of the

profits coming to him from the partnership DUTY TO RENDER INFORMATION

enterprise.  There must be no concealment between the partners in
 A partnership within a partnership and is distinct all matters affecting the partnership.
and separate from the main or principal  The information that shall be rendered on demand
partnership. should be used only for a partnership purpose.
 Partner has either of 2 obligations:
 RIGHT OF PERSON ASSOCIATED WITH PARTNER’S  Give Information On Demand
SHARE  Duty of Voluntary Disclosure of Material Facts w/in
 Sub-partnership agreements do not affect his knowledge relating to partnership affairs
composition, existence or operations of the firm.  But duty to render information does not apply to matters
 Sub-partners are partners inter se, but in absence appearing in partnership books since partners have
of mutual assent of all partners, sub-partner does right to inspect books.
not become member of partnership.  Good faith requires partner not make any false
 Effect: sub-partner does not acquire rights of a statement and abstain from any false concealment.
partner nor is he liable for its debts.
 REASON FOR THE RULE Art. 1807. Every partner must account to the
 Partnership is based on mutual trust and partnership for any benefit, and hold as trustee
for it any profits derived by him without the
confidence among partners
consent of the other partners from any
 In effect a modification of the original contract of transaction connected with the formation,
partnership requiring unanimous consent.
conduct, or liquidation of the partnership or
 Prohibition applies even if person associated is from any use by him of its property. (n)
already a partner.
ACCOUNTABILITY OF PARTNER
Art. 1805. The partnership books shall be kept, subject  Partner accountable as fiduciary because their
to any agreement between the partners, at the relationship involves trust and confidence. Each
principal place of business of the partnership, partner in considered in law as the confidential agent of
and every partner shall at any reasonable hour the others. The duties of a partner are analogous to
have access to and may inspect and copy any those of a trustee.
of them. (n)
DUTIES
1) Duty to act for common benefit
KEEPING OF PARTNERSHIP BOOKS  He cannot, at the expense or detriment of the
 PARTNER WITH DUTY TO KEEP PARTNERSHIP other partners, use or apply exclusively to his
BOOKS own individual benefit partnership assets or
 Managing or Active partner has duty to keep knowledge or information gained as a partner.
books and make them available at all times for 2) Duty begins during formation of partnership
inspection by members of firm. a. The principle of utmost good faith starts
even in negotiations leading to formation
 RIGHTS WITH RESPECT TO PARTNERSHIP BOOKS of the partnership (allen vs steinberg)
 Books should be kept at principal place of b. Has the obligation to account for
business commissions and discounts received in
 To ensure other partners’ right to free access to acquiring property for the future
them and to inspect or copy any of them at any partnership
reasonable time, even after dissolution.
 Partnership inspection rights are not absolute. He 3) Duty continues even after dissolution of
can be restrained from using information gathered partnership
for other than partnership purpose.  Duty to act with outmost good faith continues
throughout life of partnership until relationship
 ACCESS TO PARTNERSHIP BOOKS is terminated. (includes winding up)
 Reasonable hour – reasonable hours on business
days throughout the year and not merely during 4) Duty to account for secret and similar profit
some arbitrary period of a few days by the  Duty to account as a fiduciary operates to
managing partners. prevent from making a secret profit out of the
operation of the partnership and using the
partnership or knowledge obtained from the
Art. 1806. Partners shall render on demand true and full partnership in a similar business without the
information of all things affecting the consent of the other partners
partnership to any partner or the legal
representative of any deceased partner or of 5) Duty to account for earnings accruing even after
any partner under legal disability. (n) termination of partnership

 “if a member of a partnership avails himself of Art. 1809. Any partner shall have the right to a formal
information obtained by him in the course of account as to partnership affairs:
the transaction of partnership business which (1) If he is wrongfully excluded from the
is within the scope of the firm’s business, and partnership business or possession of its
applies it to his own account without the property by his co-partners;
consent or knowledge of his co-partners, he (2) If the right exists under the terms of any
is liable to account to the partnership for any agreement;
benefit he may obtain from the use of such (3) As provided by article 1807;
information: (amjur 221) (4) Whenever other circumstances render it
just and reasonable. (n)
6) Duty to make full disclosure of information
belonging to partnership
 Partner must give undivided loyalty and  General Rule: During the existence of the partnership, a
complete disclosure of information of all partner is not entitled to a formal account of partnership
things affecting the partnership affairs
 Information means information that can be  Reason: rights of a partner protected in Art 1805 &
used for the purposes of the partnership. 1806 and will cause much inconvenience and
unnecessary waste of time.
7) Duty not to acquire interest or right adverse to  Exception: Special and unusual situations under Art
partnership 1809
 Partner may not purchase, lease, or secure a  Example of par4: partner is assigned abroad for a long
valuable contract, for his own benefit, that period for the partnership and the other partners hold
which the partnership is interested books during that time.
 If he does, he holds in it in trust for the benefit  Prescriptive period: right to demand accounting exists
of the partnership and must account to the as long as partnership lasts. Prescription starts upon
firm the profits of the transaction unless there dissolution of partnership when final accounting is done
is consent from the co-partners
 Consent must be an “informed consent” with
knowledge of the facts necessary to give an SECTION 2. –
intelligent consent Property Rights of a Partner
Art. 1810. The property rights of a partner are:

Art. 1808. The capitalist partners cannot engage for (1) His rights in specific partnership
their own account in any operation which is of property;
the kind of business in which the partnership (2) His interest in the partnership; and
is engaged, unless there is a stipulation to the (3) His right to participate in the
contrary. management. (n)
Any capitalist partner violating this
prohibition shall bring to the common funds
any profits accruing to him from his  PRINCIPAL RIGHTS
transactions, and shall personally bear all the a) his rights in specific partnership property (art.
losses. (n) 1811)
b) his interest in the partnership (art 1812)
c) his right to participate in management (art 1803)
 Industrial partner – absolute prohibition
 Capitalist partner – relative prohibition  RELATED RIGHTS
a) right to reimbursement for amounts advanced to
a) Only prohibited from engaging for his own account the partnership and to indemnification for risks in
in any operation which is the same or similar to consequence of management (art 1796)
the business of the partnership or competes with b) right to access and inspection of partnership
such books (art 1805)
b) If capitalist partner seeks to do other businesses it c) right to true and full information of all things
must be one that is not connected or competing affecting the partnership (art 1806)
with partnership d) right to a formal account of partnership affairs
c) Cannot engage in business of others in the same under certain circumstances (art 1809)
line of business as partnership. e) right to have the partnership dissolved also under
certain circumstances (art 1830-1831)
 Reason: Partnership is fiduciary
 Exception: consent from partners  PARTNERSHIP PROPERTY VS PARTNERSHIP
CAPITAL
a) Property is variable and may change from day to
day depending on market value of partnership
assets while capital is constant counted from the
amount fixed by the agreement of the partners

although it may be increased or decreased by THE INCIDENTS OF THIS CO-OWNERSHIP

unanimous consent of the partners. ARE SUCH THAT:
b) Property includes all property of partnership 1) A partner, subject to the provisions of this Title and
(original capital contributions, subsequent to any agreement between the partners, has an
acquisitions, partnership name, goodwill) while equal right with his partners to possess specific
capital only includes capital contributions from the partnership property for partnership purposes; but
partners he has no right to possess such property for any
other purpose without the consent of his partners;
OWNERSHIP OF CERTAIN PROPERTY 2) A partner’s right in specific partnership property is
 KEY: DEPENDS ON INTENTION OF THE PARTIES – not assignable except in connection with the
CONTROLLING FACTOR assignment of rights of all the partners in the same
a) No express agreement that property used by a property;
partnership constitutes partnership property does 3) A partner’s right in specific partnership property is
not make it partnership property. Depends on not subject to attachment or execution, except on
intention of the parties (shown by express a claim against the partnership. When partnership
agreements or acts of particular conduct) property is attached for a partnership debt the
b) A partner may contribute the use or enjoyment of partners, or any of them, or the representatives of
property to the partnership while retaining a deceased partner, cannot claim any right under
ownership of the property the homestead or exemption laws;
c) A partner may hold title to partnership property 4) A partner’s right in specific partnership property is
without it actually belonging to him not subject to legal support under Article 291.
 GENERAL RULE:  Contemplates tangible property (cars, trucks land), but

 Property acquired with partnership funds = not intangible thing (rights to land of public domain)
partnership property  A partner is a co-owner with his partners but the rules of
 EXCEPTION: Unless there is a contrary intention co-ownership do not necessarily apply
 Property acquired after dissolution but before winding
up = separate property 1) Equal right of possession – partners have equal
 BUT, he would be liable to the partnership if right to possess specific partnership property for
partnership funds are used. partnership purposes.
a. If used not for personal profit or benefit –
he must account to the others for the
Art. 1811. A partner is co-owner with his partners of profits derived therefrom
specific partnership property. b. If partner wrongfully excluded from
The incidents of this co-ownership are possession - right to formal account and
even apply for judicial decree of
such that:
(1) A partner, subject to the provisions of dissolution
this Title and to any agreement c. On the death of a partner, his right in
between the partners, has an equal specific partnership property vests in the
right with his partners to possess surviving partners, not the legal
specific partnership property for representative of the deceased partner.
partnership purposes; but he has no Executor of deceased partner cannot
right to possess such property for any insist on participating in the winding up
other purpose without the consent of process.
his partners; d. By agreement, right to possess specific
(2) A partner's right in specific partnership property may be
partnership property is not assignable surrendered. If no agreement, equal
except in connection with the dominion over partnership property
assignment of rights of all the partners e. A partners possession of partnership
in the same property; property is equal to possession of all
(3) A partner's right in specific partners. Therefore, cannot acquire by
partnership property is not subject to adverse possession. Unless he makes
attachment or execution, except on a an adverse claim of title under such
claim against the partnership. When circumstances as will charge his co-
partnership property is attached for a partner with notice of the adverse claim.
partnership debt the partners, or any of
them, or the representatives of a 2) Right not assignable – a partner cannot separately
deceased partner, cannot claim any assign his right to specific property but all of them
right under the homestead or can assign their rights in the same property.
exemption laws; a. Not assignable because cannot
determine the extent of beneficial interest
(4) A partner's right in specific
partnership property is not subject to in the property until after liquidation
legal support under Article 291. (n)

b. Partner cannot dispose or mortgage Art. 1813. A conveyance by a partner of his whole
without consent or approval of the other interest in the partnership does not of itself
partners even if he contributed property. dissolve the partnership, or, as against the
c. Consent of all the partners, either other partners in the absence of agreement,
express or implied, is the source and limit entitle the assignee, during the continuance of
of a partner’s right to deal with the partnership, to interfere in the
partnership property for any but a management or administration of the
partnership purpose. partnership business or affairs, or to require
d. Not assignable so that it prevents any information or account of partnership
interference by outsiders in partnership transactions, or to inspect the partnership
affairs. Protects right of other partners books; but it merely entitles the assignee to
and partnership creditors receive in accordance with his contract the
e. Assignment of specific partnership profits to which the assigning partner would
property is void but assignment of otherwise be entitled. However, in case of
partnership interest is valid. A retiring fraud in the management of the partnership,
partner may assign his rights in the assignee may avail himself of the usual
partnership property to the partner or remedies.
partners continuing the business (art In case of a dissolution of the
1840) partnership, the assignee is entitled to receive
his assignor's interest and may require an
3) Right limited to share of what remains after account from the date only of the last account
partnership debts have been paid agreed to by all the partners. (n)
a. The whole partnership property belongs
to the partnership as a juridical person
(art 1768) and a partner has no interest  A partner’s right in specific partnership property is not
in it but his share of what remains after assignable (art 1811 (2)), but he may assign his interest
all partnership debts are paid (art 1812) in the partnership (art 1812) to any of his co-partners or
b. Specific partnership property is not to a third person irrespective of the consent of the other
subject to attachment, execution, partners, in the absence of agreement to the contrary.
garnishment, or injunction without the  Partner may convey his whole interest in the
consent of all partners EXCEPT if it is a partnership without causing dissolution. However, his
claim against the partnership itself. assignment does not grant assignee right to
c. Right of the partners to specific 1) To interfere with the management
partnership property is not subject to 2) To require any information or account
legal support because property belongs 3) To inspect any of the partnership books
to partnership not to partners.
Partnership interest may be subject to  Partnership is a relation in which delectus personae is
legal support an important element. No one may be introduced into
the firm as a partner without the unanimous consent of
the other partners.
Art. 1812. A partner's interest in the partnership is his
share of the profits and surplus. (n) REMEDY OF THE OTHER PARTNERS IF:
1. Dissolution of the partnership not intended
 Partnership may continue. Assigning
 The partner’s interest in the partnership consists of his partner still has to participate in his
share in the undistributed profits during the life of the partnership duties. Dissolution may
partnership as a going concern and his share in the occur if assigning partner neglects his
undistributed surplus after its dissolution partnership duties
 Profit – excess of returns over expenditure in a 2. Dissolution of the partnership intended
transaction or series of transactions or the net income  Operates as a dissolution of the
of the partnership over a given period partnership only when it is clear that the
 Surplus – assets of partnership after debts and liabilities parties contemplated and intended the
are paid and the rights of the partnership are adjusted. entire withdrawal from the partnership of
Excess assets over liabilities such partners and the termination of the
 Extent of partner’s interest is the proportion residue or partnership as between the parties
balance after an account has been taken of debts and
credits, including the amount paid by the several THE RIGHTS OF THE TRANSFEREE OR ASSIGNEE
partners in liquidating firm debts or in making advances ARE AS FOLLOWS:
to the partnership. Until that occurs, it is impossible to 1. To receive in accordance with his contract the
determine the extent of a partner’s interest profits accruing to the assigning partner
 A partner is not a creditor of the partnership for the 2. To avail himself of the usual remedies provided by
amount of his share. The interest of a partner is not law in the event of fraud in the management
subject to attachment or execution on a judgment 3. To receive the assignor’s interest in case of
recovered against the individual partner. dissolution

4. To require an account of partnership affairs, but  If another partner redeems the partner’s interest, he
only in case the partnership is dissolved, and such does not acquire absolute ownership but holds it in trust
account shall cover the period from the date only for the debtor-partner due to the fiduciary relationship.
of the last account agreed to by all the partners.
SECTION 3. –
Art. 1814. Without prejudice to the preferred rights of Obligations of the Partners
partnership creditors under Article 1827, on With Regard to Third Persons
due application to a competent court by any
judgment creditor of a partner, the court which
entered the judgment, or any other court, may Art. 1815. Every partnership shall operate under a firm
charge the interest of the debtor partner with name, which may or may not include the name
payment of the unsatisfied amount of such of one or more of the partners.
judgment debt with interest thereon; and may Those who, not being members of the
then or later appoint a receiver of his share of partnership, include their names in the firm
the profits, and of any other money due or to name, shall be subject to the liability of a
fall due to him in respect of the partnership, partner. (n)
and make all other orders, directions,
accounts and inquiries which the debtor
partner might have made, or which the  Firm name – name, title, or style under which a
circumstances of the case may require. company transacts business.
The interest charged may be  Importance – necessary to distinguish the partnership
redeemed at any time before foreclosure, or in which has a distinct and separate juridical personality
case of a sale being directed by the court, may from the individuals composing the partnership and
be purchased without thereby causing a from other partnerships and entities.
dissolution:  Gen Rule: Partners may adopt any firm name desired.
(1) With separate property, by any one or May be last names of the partners or even fictitious or
more of the partners; or fanciful names. Signature in the firm name is in law the
(2) With partnership property, by any one signature of all the partners.
or more of the partners with the  Use of misleading name – partners cannot use a name
consent of all the partners whose that is “identical or deceptively confusingly similar to
interests are not so charged or sold. that of any existing partnership or corporation or to any
name already protected by law or is patently deceptive,
Nothing in this Title shall be held to confusing or contrary to existing laws.
deprive a partner of his right, if any, under the
exemption laws, as regards his interest in the USE OF NAME OF DECEASED PARTNERS
partnership. (n)  Gen Rule: Supreme Court says partnership cannot use
name of deceased partner
 Exception: Permissible provided that the firm indicates
 A separate creditor of a partner cannot attach or levy in all its communications that said partner is deceased.
upon partnership property for the satisfaction of his  Persons who, not being a partner, include their name in
credit (art 1811(3)). the firm name do not acquire the rights of a partner, but
 Because partnership assets are reserved for they shall be liable as a partner insofar as third parties
partnership creditors (art 1827). However, he can without notice are concerned. BY ESTOPPEL
secure a judgment on his credit and then apply to the
proper court for a “Charging Order” subjecting the
interest of the debtor partner in the partnership (art Art. 1816. All partners, including industrial ones, shall
1812) with the payment of the unsatisfied amount of be liable pro rata with all their property and
such judgment with interest thereon with the least after all the partnership assets have been
interference with the partnership business and the exhausted, for the contracts which may be
rights of the other partners. Through the “Charging entered into in the name and for the account of
Order”, any amount or portion which would be paid to the partnership, under its signature and by a
the debtor partner should instead be given to the person authorized to act for the partnership.
judgment creditor. However, any partner may enter into a
 Interest of the debtor partner may be redeemed or separate obligation to perform a partnership
purchased with the separate property of any one or contract. (n)
more of the partners, or with the partnership property
but with the consent of all the partners whose interests
are not so charged or sold.  Partnership liability– partners are principals to the other
 Redemption Price = actual or market value. Value of partners and agents for them and the partnership. They
partner’s interest has no bearing on the redemption are liable to third persons who have dealt with one of
price which would likely be lower since it will be them in the same way that a principal is liable to third
dependent on the amount of partnership debts. persons who have dealt with an agent.

 GEN RULE: A partner has the right to make all partners the latter can still recover P 3,000.00 each
liable for contracts he makes for the partnership in the from the partners as their stipulation cannot
name and for the account of the partnership. adversely affect him. However, since the
agreement is binding among the partners, A
 Individual liability – A partner may assume a separate is entitled to credit from B and C for the
undertaking in his name with a third party to perform a amount of P 3,000.00 paid by him to D.
partnership contract or make himself solitarily liable on
a partnership contract. In this case, he is personally
liable even if the partnership derived benefits from it. Art. 1818. Every partner is an agent of the partnership
for the purpose of its business, and the act of
 Partners are liable to creditors (including industrial every partner, including the execution in the
partners) for obligations contracted in the name and for partnership name of any instrument, for
the account of the partnership. Liabilities are pro-rata apparently carrying on in the usual way the
and subsidiary. business of the partnership of which he is a
 Pro Rata after the partnership assets have been member, binds the partnership, unless the
exhausted partner so acting has in fact no authority to act
 Understood to mean equally or jointly and for the partnership in the particular matter, and
not proportionately which is its literal the person with whom he is dealing has
meaning. Based on the number of knowledge of the fact that he has no such
partners and not on the amount of their authority.
contributions to the common fund, Any act of a parent which is not
subject to adjustment among the partners apparently for carrying on of the business of
 If a partner has left the country, cannot the partnership in the usual way does not bind
increase the liability of the other partners the partnership unless authorized by the other
 Subsidiary – partners are liable as partners.
guarantors of the partnership. when the Except when authorized by the other
assets of the partnership are exhausted, partners or unless they have abandoned the
the private properties of the partners are business, one or more but less than all the
liable. partners have no authority to:
 Industrial partners would also have to pay 1.) Assign the partnership property
but may recover from the capitalist in trust for creditors or on the
partner unless there is an agreement to assignee’s promise to pay the
the contrary. debts of the partnership;
 Exception: 2.) Dispose of the goodwill of the
 The industrial partner to pay losses business;
relates exclusively to the settlement of 3.) Do any other act which would
the partnership affairs among the make it impossible to carry on
partners themselves and has nothing to the ordinary business of a
do with the liabilities of the partners to partnership;
third persons. An industrial partner is not 4.) Confess a judgment;
exempted from liability to third persons 5.) Enter into a compromise
for the debts of the partnership. concerning a partnership claim
or liability;
6.) Submit a partnership claim or
Art. 1817. Any stipulation against the liability laid down liability to arbitration;
in the preceding article shall be void, except as 7.) Renounce a claim of the
among partners. partnership.
No act of a partner in contravention of
a restriction on authority shall bind the
STIPULATION AGAINST LIABILITY partnership to persons having knowledge of
 A stipulation among the partners contrary to the pro the restriction.
rata and subsidiary liability expressly imposed by
article 1816 is void and of no effect as it affects the
rights of third persons. It is valid and enforceable POWER OF PARTNER AS AGENT OF PARTNERSHIP
only as among the partners.  As among themselves.
 Example:  When a partner performs an act within
 A, B, and C are partners in a business. Each the scope of his actual, implied, or
of them contributed P10,000.00 each. They apparent authority, he is not only a
stipulated that the liability of A shall not principal as to himself, but is also an
exceed his capital contribution. agent as to his co-partners or to the
 Thus, if the partnership assets have been partnership.
exhausted and there still remains an unpaid
balance of P 9,000.00 in favor of creditor D,

 As to third persons. is himself personally liable on such contract. He

 Limitations upon the authority of any one cannot be admitted to say that he was not
of the partners are not binding upon authorized to make a contract, as he is estopped to
innocent third persons dealing with the deny its effect or validity.
partnership. Third persons have the right
to assume that every general partner has
the power to bind the partnership Art. 1819. Where title to real property is in the
especially those partners acting with partnership name, any partner may convey
ostensible authority, by whatever is title to such property by a conveyance
proper for the transaction in the ordinary executed in the partnership name; but the
and usual manner of the business of the partnership may recover such property unless
partnership. the partner’s act binds the partnership under
 Reasons: the provisions of the first paragraph of Article
 Third persons have no duty to make 1818, or unless such property has been
inquiries as to the acting partner’s conveyed by the grantee or a person claiming
authority. through such grantee to a holder for value
 There is a presumption that the acting without the knowledge that the partner, in
partner has authority to bind the making the conveyance, has exceeded his
partnership. authority.
 The apparent scope of the partner’s authority is the Where title to real property is in the
whole scope of the partnership’s customary name of the partnership, a conveyance
business. executed by a partner, in his own name,
 Third parties should not assume that a passes the equitable interest of the
partner has unlimited authority. partnership, provided the act is one within the
 EVEN SIMPLER – for acts not within the authority of the partner under the provisions of
customary business of the partnership, the first paragraph of Article 1818.
third persons are duty bound to make Where title to real property is in the
name of one or more but not all the partners,
inquiries and the presumption does not
apply. and the record does not disclose the right of
the partnership, the partners in whose name
LIABILITY OF PARTNERSHIP FOR the title stands may convey title to such
ACTS OF PARTNERS property, but the partnership may recover
such property if the partners’ act does not
 Acts for apparently carrying on, in the usual way, bind the partnership under the provisions of
the business of the partnership (par. 1.) – The
the first paragraph of Article 1818, unless the
partnership will be liable when:
purchase or his assignee, is a holder for value,
 The partner so acting has in fact no
without knowledge.
authority; and
Where the title to real property is in
 The third person has no knowledge of
the name of one or more or all the partners, or
the absence of authority.
in a third person in trust for the partnership, a
 Acts of strict dominion or ownership (pars. 2 and 3.) conveyance executed by a partner in the
– The partnership is not bound unless: partnership name, or in his name, passes the
 Authorized by all the other partners; or equitable interest of the partnership, provided
 The partners have abandoned the the act is one within the authority of the
business. partner under the provisions of the first
 Acts in contravention of a restriction on authority paragraph of Article 1818.
(par. 4.) – Where the title to real property is in
 Whether or not the acts are for the names of all the partners a conveyance
apparently carrying on, in the usual way, executed by all the partners passes all their
the business of the partnership, the rights in such property.
partnership is not liable to third persons
having actual or presumptive knowledge
of the restrictions. LEGAL EFFECTS OF THE CONVEYANCE OF REAL
 Even if the partner acted within the PROPERTY BELONGING TO THE PARTNERSHIP
customary business of the partnership,  DEPENDING
the partnership will not be liable to third (1) IN WHOSE NAME IT IS REGISTERED AND
persons having actual or presumptive (2) IN WHOSE NAME IT IS CONVEYED.
knowledge of the restrictions on the
power of the acting partner.  Under the article, the real property may be
registered or owned in the name of:
LIABILITY OF PARTNER ACTING  The partnership (pars. 1, 2.);
WITHOUT AUTHORITY  One or more but not all the partners (par.
 As a general rule, the partner who undertakes to 3.);
bind his co-partners by a contract without authority

 One or more or all the partners, or in a  TITLE IN NAME OF ALL PARTNERS, CONVEYANCE
third person in trust for the partnership IN NAME OF ALL PARTNERS (PAR. 5.)
(par. 4.); or  If the parcel of land is registered in the name of A,
 All the partners. (par. 5.) B, and C, conveyance made by all of the partners
 Under paragraphs 1, 3 and 5, what is conveyed is to D will pass title to the property for the law says
title or ownership, while under paragraphs 2 and 4, “a conveyance by all the partners passes all their
what is conveyed is merely equitable interest. rights in such property.” The effect obviously
would be the same though the sale is not in the
 TITLE IN PARTNERSHIP NAME, CONVEYANCE IN usual course of business of X & Co.
PARTNERSHIP NAME (PAR. 1.) –
 A, B, and C are partners in a partnership known
as X & Co. A sold a parcel of land registered in Art. 1820. An admission or representation made by any
the name of X & Co. to D without express partner concerning partnership affairs within
authority. the scope of his authority in accordance with
 The conveyance passes title to D; but X & Co. can this Title is evidence against the partnership.
recover the property if (a) the conveyance was not
in the usual way of business, or (b) D had
knowledge of the fact that A has no authority even EFFECT OF ADMISSION BY A PARTNER
thought the conveyance was made in the usual  The admission of a partner made during the
way of business. existence of the partnership are binding against
 In no case may the partnership recover if D had, the partnership (and co-partners) when such
in turn, conveyed the property to E who had no admissions refer to a matter concerning
knowledge of A’s lack of actual authority in making partnership affairs made within the scope of his
the conveyance to D. authority.
 Examples:
 TITLE IN PARTNERSHIP NAME, CONVEYANCE IN  A borrowed P1,000 from B in whose
PARTNER’S NAME (PAR. 2.) – favor he executed a promissory note. A
 In the same example, if the sale was executed by made the statement that he was acting
A in his own name to D, the latter does not for C and that the money was intended
become the owner of the land. He gets only the for C. C never authorized A to borrow
equitable interest of X &Co., assuming that the money from B. The declaration of A that
selling of the land is in the usual course of he was acting for C and that the money
business of the partnership. was intended for C is not admissible
 D would not be entitled even to the equitable against C as to make him liable to B.
interest if:  Suppose C said on one occasion in the
 X & Co. is not engaged in the buying and presence of D that he received the
selling of lands; or money or that the contract was entered
 D had knowledge of A’s lack of authority into by A with his (C’s) consent, this
although the sale was made in the usual statement can be testified to by D in a
course of business. litigation by B against C.
 If A was really an agent of C in the
 TITLE IN NAME OF ONE OR MORE PARTNERS, transaction, then, whatever is said or
CONVEYANCE IN NAME OF PARTNER OR done by A while acting within the scope
of his authority is admissible against C,
PARTNERS IN WHOSE NAME TITLE STANDS (PAR.
3.) his principal, the same as if C personally
entered into the contract with B.
 Although the parcel of land in question really  Assuming that A is a partner and C is the
belongs to the partnership X & Co., it is, however,
partnership, it is clear, on the same legal
registered in the name of A and the record does
principle, that the statement of A while
not disclose that right of X & Co. In this case, if A
transaction the business of the
sold the land in his own name to D, title is
partnership within the scope of his
conveyed to D. The effect is the same as in
authority is evidence against the
paragraph 1.
partnership.
 Title in name of one or more or all partners or a  Where, however, A acted in his own
third person in trust for partnership, conveyance name and B extended the loan on the
executed in partnership name or in name of personal credit of A, any admission made
partner (par. 4.). – Suppose the parcel of land is in by A is not binding on C, the partnership.
the name of A in trust for the partnership X & Co.
If A sells the land to D in the name of X & Co. or in
 Whether an admission of liability made by a
his (A’s) name, the conveyance will pass only the
partner binds the partnership depends on whether
equitable interest of X & Co., A, being a mere
the partner was acting within the scope of
trustee of the partnership. The rule is the same as
express, implied, or apparent authority at the time
in paragraph 2.
of making the statements or declarations.

 A partner cannot by his declaration alone bring a 2. Knowledge of the partner acting in the
transaction within the scope of the business when particular matter then present to his
the facts show that it has no connection with mind; and
partnership business. 3. Knowledge of any other partner who
 Statements of a partner bind the partnership only reasonably could and should have
if they are made in the course of, related to, and communicated it to the acting partner.
are material to, the transaction of the partnership’s
business. A partnership is a joint affair, and to  “WHILE A PARTNER” vs. “PRESENT TO HIS MIND”
charge it with liability there must be joint words or  Pertains to the moment when knowledge was
actions. An individual partner cannot do this. acquired. In the first, it was while he was a partner
and in the second, before he became a partner
EXISTENCE OF PARTNERSHIP with the presumption that such knowledge was
MUST BE PROVED then “present in his mind” when he became a
 Sec. 29, Rule 130, of the Rules of Court state that partner.
before the partnership can be charged with the  In both cases, it operates as notice to or
admission of a partner under Article 1820, the knowledge of the partnership.
partnership relation must be shown and proof of  The 2nd case of Knowledge only pertains to an
that fact must be made by evidence other than the acting partner.
admission itself.  If B (not an acting partner) acquired
 However, admissions and declarations made in knowledge or notice before he became a
the presence of the person to be charged are partner, then, there is neither notice to
admissible to prove the existence of the nor knowledge of the partnership.
partnership.  FRAUD
 Where A states in the presence of C that  If the partner or acting partner deliberately did not
A is a partner in partnership X composed inform the partnership for a fraudulent purpose,
of A and C, and C remains silent, the then such knowledge does not operate as a notice
statement may be offered in evidence to to or knowledge of the partnership.
show that A and C are partners.
Art. 1822. Where, by any wrongful act or omission of

Art. 1821. Notice to any partner of any matter relating any partner acting in the ordinary course of
to partnership affairs, and the knowledge of the business of the partnership or with the
the partner acting in the particular matter, authority of his co-partners, loss or injury is
acquired wile a partner or then present to his caused to any person, not being a partner in
mind, and the knowledge of any other partner the partnership, or any penalty is incurred, the
who reasonably could and should have partnership is liable therefore to the same
communicated it to the acting partner, operate extent as the partner so acting or omitting the
as notice to or knowledge of the partnership act.
except in case of a fraud on the partnership,
committed by or with the consent of that Art. 1823. The partnership is bound to make good the
partner. loss:
1.) Where one partner acting within the scope
of his apparent authority receives money
NOTICE TO, OR KNOWLEDGE OF A PARTNER or property of a third person and
OF MATTER AFFECTING PARTNERSHIP AFFAIRS misapplied it; and
 Notice to, or knowledge of, any partner of any 2.) Where the partnership in the course of its
matter relating to partnership affairs operate as a business receives money or property of a
notice to or knowledge of the partnership except in third person and the money or property so
case of fraud. received is misapplied by any partner
 A third person desiring to give notice to a while it is in the custody of the
partnership of some matter pertaining to partnership.
the partnership business need not
communicate with all the partners. If Art. 1824. All partners are liable solidarily with the
notice is delivered to a partner, that is an partnership for everything chargeable to the
effective communication to the partnership under Articles 1822 and 1823.
partnership notwithstanding the failure of
the partner to communicate such notice
or knowledge to his co-partners. SOLIDARY LIABILITY
 Article 1821 speaks of three cases of knowledge,  The above three articles provide for the solidary liability
namely: of the partners and the partnership to third persons:
1. Knowledge of the partner acting in the  For the wrongful act or omission (Art. 1822.) of a
particular matter acquired while a partner acting within the scope of the firm’s
partner; business or with the authority of his co-partners; or

 Breach of trust (Art. 1823.) of a partner acting representation or consenting to its being
within the scope of the firm’s business or with the made:
authority of his co-partners. 1) When a partnership liability results, he is
liable as though he were an actual
 REASON FOR IMPOSITION OF WIDER LIABILITY. member of the partnership;
 the reason for the law’s imposition of wider liability 2) When no partnership liability results, he
on the partnership with respect to torts and breach is liable pro rata with the other persons,
of trust is based on public policy. if any, so consenting to the contract or
 The rule of Respondeat Superior (also called the representation as to incur liability,
rule of vicarious liability) applies to the law of otherwise separately.
partnership in the same manner as other rules
governing the agency relationship. When a person has been thus
represented to be a partner in an existing
 The obligation is solidary because the law protects partnership, or with one or more persons not
him who, in good faith, relied upon the authority of
actual partners, he is an agent of the persons
a partner, whether such authority is real or
consenting to such representation to bind
apparent. This is the reason why under Article
them to the same extent and in the same
1824 all partners, whether innocent or guilty, as
manner as though he were a partner in fact,
well as the legal entity which is the partnership,
with respect to persons who rely upon the
are all solidarily liable.
representation. When all the members of the
 The injured party may proceed against the existing partnership consent to the
partnership or any partner. representation, a partnership act or obligation
 Since partners are solidarily liable, the results; but in all other cases it is the joint act
party aggrieved has his election to sue or obligation of the person acting and the
the firm or to sue one or more of its person consenting to the representation.
members. He may even single out for
suit a partner who, personally, was in no
wise involved in the commission of the  MEANING AND EFFECT OF ESTOPPEL
tort or breach of trust.
 Estoppel is a bar which precludes a person from
denying or asserting anything contrary to that
 REQUISITES FOR LIABILITY. – the following are the
which has been established as the truth by his
requisites for liability under Article 1822:
own deed or representation, either express or
1. The partner must be guilty of a wrongful act or
implied.
omission; and
2. He must be acting in the ordinary course of  Through estoppel, an admission or representation
business, or with the authority of his co- is rendered conclusive upon the person making it
and cannot be denied or disapproved as against
partners even if the act is unconnected with the
business. the person relying thereon.
 CRIMINAL LIABILITY OF THE PARTNERSHIP  WHEN A PERSON A PARTNER BY ESTOPPEL.

 Partnership liability under Article 1822 does not  Persons who are not partners as to each other are
extend to criminal liability, such as embezzlement, not partners as to third persons. (Art. 1709[1].)
where the wrongdoing is regarded as individual in  No one can be held liable nor claim rights as a
character. But where a crime is statutory, partner unless he has given his consent to
especially where it involves a fine rather than become such. An exception to this rule is provided
imprisonment, even criminal liability may be by Article 1825. Due to the doctrine of estoppel,
imposed. one may become liable as a partner even thought
he is not a partner in fact.
 A person not a partner may become a partner by
Art. 1825. When a person, by words spoken or written estoppel and thus be held liable to third persons
or by conduct, represents himself, or consents as if he were a partner, when by words or by
to another representing him to anyone, as a conduct he:
partner in an existing partnership or with one  Directly represents himself to anyone as
or more persons not actual partners, he is a partner in an existing partnership or in
liable to any such persons to whom such a non-existing partnership (with one or
representation has been made, who has, on more persons not actually partners); or
the faith of such representation given credit to  Indirectly represents himself by
the actual or apparent partnership, and if he consenting to another representing him
has made such representation or consented to as a partner in an existing partnership or
its being made in a public manner he is liable in a non-existing partnership.
to such person, whether the representation  In other words, the holding out as a partner may
has or has not been made or communicated to be done by the person himself, or by his consent
such person so giving credit by or with the or with his knowledge. To hold the party liable, the
knowledge of the apparent partner making the third person must prove such misrepresentation

and that a bona fide reliance by him upon it cause persons had a right to rely on their joint
him injury. credit.
 WHEN PARTNERSHIP LIABILITY RESULTS.  APPLICATION OF ESTOPPEL AS BETWEEN

 if all the actual partners consented to the PARTNERS.
representation, then the liability of the person who  The doctrine of estoppel has no application as
represented himself to be a partner or who between actual partners. Partners become such
consented to such representation and the actual by agreement and not estoppel.
partners is considered a partnership liability. This
RD
is a case of partnership by estoppel. (par.1[1].)  APPLICATION OF ESTOPPEL AS TO 3 PARTIES.
The person becomes an agent of the partnership  A person or persons is or are held to be liable as
and his act or obligation that of the partnership. partners because of their representing themselves
(par 1[2].) to be such, or by allowing others with their
consent and knowledge, to so hold them out to be
 WHEN LIABILITY PRO RATA. partners. The law will not permit a denial of such
 When there is no existing partnership and all representation where third parties have in the
those represented as partners consented to the exercise of reasonable diligence relied thereon to
representation, or not all of the partners of an their detriment.
existing partnership consented to the  However, no one can be charged as a partner
representation, then, the liability of the person who where the acts relied on for that purpose are
represented himself to be a partner or who neither his own acts, nor acts of others authorized
consented to his being represented as partner, by or known to him.
and all those who made and consented to such
representation, is joint or pro rata. (par. 1[2].) ELEMENTS TO ESTABLISH LIABILITY
AS A PARTNER ON GROUND OF ESTOPPEL
 WHEN LIABILITY SEPARATE. 1. Proof by plaintiff that he was individually aware of
 When there is no existing partnership and not all the defendant’s representations as to his being a
but only some of those represented as partners partner or that such representations were made
consented to the representation, or none of the by others and not denied or refuted by the
partners in an existing partnership consented to defendant;
such representation, then the liability will be 2. Reliance on such representations by the plaintiff;
separate and
 that of the person who represented 3. Lack of any denial or refutation of the statements
himself as a partner or who consented to by the defendant; such denial need not preceed
his being represented as partner, and plaintiff’s acting thereon if the denial was
those who made and consented to the forthcoming promptly upon hearing of the
representation, or that only of the person representations, and if, by prudence and diligence
who represented himself as partner. the plaintiff might have learned of the truth or
 ESTOPPEL DOES NOT CREATE PARTNERSHIP. untruth of the representations.
 It must be emphasized that Article 1825 does not  Under the Corporation Code, the law makes liable as
create a partnership as between alleged partners. general partners “all persons who assume to act as a
A contract, express or implied, is essential to the corporation.” A de facto partnership among them is
formation of a partnership. The law considers created.
them as partners and the association as a
partnership only insofar as it is favorable to third
persons by reason of the equitable principle of Art. 1826. A person admitted as a partner into an
estoppel. existing partnership is liable for all the
obligations of the partnership arising before
 LIABILITY AS PARTNERS MAY ARISE CONTRARY his admission as though he had been a partner
TO THEIR INTENTIONS. when such obligations were incurred, except
 The liability as a partner of a person who holds that this liability shall be satisfied only out of
himself out as a partner, or permits another to do partnership property, unless there is a
so, is predicated on the doctrine of estoppel and stipulation to the contrary.
on the policy of the law seeking to prevent frauds
upon those who lend their money on the apparent
credit of those who are held out as partners. LIABILITY OF INCOMING PARTNER FOR
 One who has received profits from an PARTNERSHIP OBLIGATIONS
apparent partnership transaction is  LIMITED TO HIS SHARE IN PARTNERSHIP
estopped from denying the relationship PROPERTY FOR EXISTING OBLIGATIONS.
on the ground that the partnership  When a person is admitted as a partner into an
agreement was void. The question of existing partnership, he is liable for all obligations
liability is not what the parties intended existing at the time of his admission as though he
by their contract but whether third was already a partner when such obligations were

incurred. For such obligations, his liability is limited REMEDY OF PRIVATE CREDITORS
to his share in the partnership property, unless OFA PARTNER
there is a stipulation to the contrary.  The creditors of each partner may ask for the
attachment and public sale of the share of the latter
 EXTENDS TO HIS SEPARATE PROPERTY FOR in the partnership assets.
SUBSEQUENT OBLIGATIONS.  The purchaser at the public sale does not become
 Those who were already partners at the time a partner.
when the obligations were incurred are liable with
their separate property. (Art. 1816) For all the
obligations accruing subsequent to the admission
of the new partner, all the partners are liable with
their separate properties.
 Existing and subsequent creditors have CHAPTER 3
equal rights as against partnership DISSOLUTION AND WINDING
property and separate property of UP
previously existing members of the
partnership. As to newly admitted
partners, only subsequent creditors have
rights against their separate property.
Art. 1828. The dissolution of a partnership is the
 1826 should be read in conjunction with 1840 change in the relation of the partners caused
which provides for liability of persons continuing by any partner ceasing to be associated in the
the business in certain cases. Both sections are carrying on as distinguished from the winding
based on the principle that where there has been up of the business. (n)
one continuous business the fact that a new
partner has been admitted or a partner has
ceased to be connected with it, should not cause EFFECTS OF CHANGE IN MEMBERSHIP
confusion as to the claims of the creditors on the  DISSOLUTION OF EXISTING PARTNERSHIP AND
property employed in the business. FORMATION OF A NEW ONE
 Also, when an incoming partner has assumed the  Any change in the membership of a partnership
obligation of the retiring partner as one of the produces, technically, an immediate dissolution of
terms of the contract, he is liable directly to the old the existing partnership relation and the formation
partnership creditors such that the latter have a of a new one, although common business usage
right of action against the incoming partner. speaks of the admission of a partner to a firm and
regards the firm as subsisting so long as the course
REASON FOR THE RULE of its business is not materially interrupted.
 The rule making an incoming partner liable even
for partnership obligations contracted before his  TRANSFORMATION OF ALL PARTNERS INTO
admission cannot be considered harsh because INCOMING PARTNERS
the new partner “partakes of the benefits of the  All persons forming the new partnership upon the
partnership property and an established business. admission of the new person into the business are
“incoming partners,” even though the same
business had been conducted by the others
Art. 1827. The creditors of the partnership shall be through the medium of partnership.
preferred to those of each partner as regards
the partnership property. Without prejudice to  CONTINUANCE BY REMAINING PARTNERS OF
this right, the private creditors of each partner PARTNESHIP AS BEFORE
may ask the attachment and public sale of the
 The change in the relation of the partners will
share of the latter in the partnership assets. (n)
dissolve the partnership but will not disturb the
continuance by the remaining partners or by the
existing and new partners of the business as
PREFERENCE OF PARTNESHIP CREDITORS
before.
IN PARTNESHIP PROPERTY
 With respect to partnership assets, the partnership DISSOLUTION, WINDING UP AND TERMINATION
creditors are entitled to priority of payment.
 When a partnership ends, it involves three
 The partnership should apply its property to the separate stages:
payment of its debts in preference to the claim of 1. Dissolution – that point in time when the
any partner or his creditors. partners cease to carry on the
 The rule applies only in the event of the disposition business together. It represents
of partnership property among its creditors to pay the demise of a partnership.
partnership debts. 2. Winding up – process of settling the
 Both the partnership and the separate partners business or partnership affairs
thereof may be joined in the same action. after dissolution.

3. Termination – all partnership affairs are conferred by the agreement

completely wound up and between the partners;
finally settled. It signifies the (2) In contravention of the agreement between
end of the partnership life. the partners, where the circumstances do
not permit a dissolution under any other
provision of this article, by the express
Art. 1829. On dissolution the partnership is not will of any partner at any time;
terminated, but continues until the winding up (3) By any event which makes it unlawful for
of partnership affairs is completed. (n) the business of the partnership to be
carried on or for the members to carry it
on in partnership;
EFFECTS OF DISSOLUTION: (4) When a specific thing which a partner had
 PARTNERSHIP NOT TERMINATED promised to contribute to the partnership,
 Dissolution does not automatically result in the perishes before the delivery; in any case
termination of the legal personality of the by the loss of the thing, when the partner
partnership, nor the relations of the partners who contributed it having reserved the
among themselves who remain as co-partners ownership thereof, has only transferred to
until the partnership is terminated. the partnership the use or enjoyment of
the same; but the partnership shall not be
 PARTNERSHIP CONTINUES FOR A LIMITED dissolved by the loss of the thing when it
PURPOSE occurs after the partnership has acquired
 A partnership is considered as maintaining a the ownership thereof;
limited existence for the purpose of making (5) By the death of any partner;
good all outstanding engagements, of taking (6) By the insolvency of any partner or of the
and settling all accounts, and collecting all the partnership;
property, means and assets of the partnership (7) By the civil interdiction of any partner;
existing at the time of dissolution for the benefit (8) By decree of court under the following
of all interested. article. (1700a and 1701a)
 TRANSACTION OF NEW BUSINESS PROHIBITED

 No new partnership business should be CAUSES OF DISSOLUTION
undertaken, but affairs should be liquidated and  STATUTORY ENUMERATION EXCLUSIVE
distribution made to those entitled to the  Arts. 1830, 1831 and 1840 provide for causes of
partners’ interest. dissolution.
 Dissolution refers to the change in partnership  Under Art. 1830, extrajudicial dissolution may be
relation and not the actual cessation of the caused without violation of the agreement
partnership business. between the partners (No.1) or in contravention of
 Dissolution must be distinguished from a mere said agreement (No.2). It may be voluntary when
suspension in the conduct of its business or caused by the will of one or more or all of the
operations. parties (Nos. 1 and 2) or involuntary when brought
about independently of the will of the partners or
by operation of law. (Nos. 3-8).
Art. 1830. Dissolution is caused:
(1) Without violation of the agreement  VOLUNTARY DISSOLUTION MAY BE:
between the partners:  EXTRA-JUDICIAL (nos. 1-7) or
(a) By the termination of the definite term  JUDICIAL (No. 8 in relation to Art. 1831).
or particular undertaking specified  The causes provided in Art. 1830 result in the
in the agreement; automatic dissolution of the partnership.
(b) By the express will of any partner, who  In Art. 1840, automatic dissolution takes
must act in good faith, when no place when a new partner is admitted or
definite term or particular is when a partner retires, withdraws, or is
specified;
expelled from the partnership.
(c) By the express will of all the partners  There is no automatic dissolution under
who have not assigned their Art. 1831. Art. 1831 enumerates the
interests or suffered them to be grounds for the judicial dissolution of the
charged for their separate debts, partnership.
either before or after the  The statutory enumeration of the causes
termination of any specified term or of dissolution precludes dissolution for
particular undertaking; any other causes.
(d) By the expulsion of any partner from
the business bona fide in  Effect of sale or assignment by one partner of his entire
accordance with such a power interest in the partnership to a third person.

 The dissolution created in such case is only  The partner expelled in bad faith can
technical, and not actual, only in the sense that his claim damages.
connection with the partnership is terminated.
DISSOLUTION EFFECTED IN CONTRAVENTION
OF PARTNERSHIP AGREEMENT
DISSOLUTION EFFECTED WITHOUT
VIOLATION OF PARTNERSHIP AGREEMENT  DISSOLUTION MAY BE FOR ANY CAUSE OR
 4 WAYS BY WHICH A PARTNERSHIP MAY BE REASON.
DISSOLVED WITHOUT VIOLATION OF THE  Any partner may cause the dissolution at any time
PARTNERSHIP AGREEMENT: without the consent of his co-partners for any
reason which he deems sufficient by expressly
1. Termination of the definite term or particular withdrawing therefrom even though the
undertaking partnership was entered into for a definite term or
 After the expiration of the term or particular undertaking. Such dissolution is a
particular undertaking, the partnership is contravention of the agreement.
automatically dissolved without the  A partner guilty of wrongful dissolution is
partners extending the said term or not given the right to wind up partnership
continuing the undertaking. If after said affairs.
expiration the partners continue the
partnership without making a new  POWER OF DISSOLUTION ALWAYS EXISTS
agreement, the firm becomes a  The right of a partner to dissolve is inseparably
partnership at will. incident to every partnership and there can be no
indissoluble partnership.
2. By the express will of any partner  Delectus personae – allows the partners
 A partnership at will, may be dissolved at to have the power, although not
any time by any partner without the necessarily the right, to dissolve the
consent of his co-partners without breach partnership.
of contract, provided, the said partner  An unjustified dissolution by a partner
acts in good faith. If there is bad faith, the can subject him to a possible action for
dissolution is wrongful. damages.
 Good faith will absolve the partner
exercising the right to dissolve the BUSINESS BECOMES UNLAWFUL
partnership from liability for damages  Dissolution may be caused involuntarily when a
which result to his co-partners by reason supervening event makes the business itself of
of his action. the partnership unlawful or makes it unlawful for
 For as long as the reason for withdrawal the partners to carry it on together.
of a partner is not contrary to the dictates
of justice and fairness, nor for the LOSS OF SPECIFIC THING
purpose of unduly causing harm and  LOSS BEFORE DELIVERY
damage upon the partnership, bad faith  The partnership is dissolved because there is no
cannot be said to characterize the act. contribution inasmuch as the thing to be
 While bad faith cannot prevent the contributed cannot be substituted with another.
dissolution of a partnership, it can result
in liability for damages.
 LOSS AFTER DELIVERY
3. By the express will of all the partners
 The partnership assumes the lost of the thing,
having acquired ownership thereof. The partners
 May be accomplished either by an
may contribute additional capital to save the
express agreement or by words and acts
venture.
implying an intention to dissolve.
 Must be unanimous.
 LOSS WHERE ONLY USE OR ENJOYMENT
 The consent of the partners who have
CONTRIBUTED
assigned their interests or suffered them
to be charged for their separate debts is  If only the use or enjoyment of the thing is
not required to effect dissolution without contributed, its loss, before or after delivery,
breach of the partnership agreement. dissolves the partnership because in either case,
They are not given the right to have a the partner cannot fulfill his undertaking.
voice or vote in the dissolution of the  The partner bears the loss.
partnership.
DEATH OF ANY PARTNER
4. By expulsion of any partner  Because of the partner’s death, there is
 Must be made in good faith, and strictly dissolution of the partnership by operation of law.
in accordance with the power conferred
by the agreement between the partners.

 STATUS OF PARTNERSHIP AND GROSS FAULTS

 The subsequent legal status is that of a  There may be extreme and gross faults which
partnership in liquidation, and the only rights would work a forfeiture, especially where there
inherited by the heirs are those resulting from the was an extreme emergency for a partner to
said liquidation. perform his duty, and to be prompt and faithful.
 LIQUIDATION OF ITS AFFAIRS  INDUSTRIAL PARTNERS, ENGAGING IN BUSINESS

 Entrusted to the surviving partners, or to FOR HIMSELF.
liquidators appointed by them.  Art. 1789 applies
 CONTINUATION OF BUSINESS WITHOUT  POWER EXPRESSLY GIVEN BY AGREEMENT
LIQUIDATION  Power is not validly exercised if it is shown to
 A clause in the article of co-partnership providing have been exercised unfairly and without regard
for the continuation of the firm notwithstanding the to the general interest of the partnership.
death of one of the partners is legal.
• Under the rules of SEC, the heirs of a deceased Art. 1831. On application by or for a partner the court
partner may be admitted as partners when so shall decree a dissolution whenever:
authorized by the articles of partnership. (1) A partner has been declared insane in any
• To reflect the substitution, the articles must be judicial proceeding or is shown to be of
amended. unsound mind;
(2) A partner becomes in any other way
incapable of performing his part of the
INSOLVENCY OF ANY PARTNER OR OF PARTNERSHIP partnership contract;
(3) A partner has been guilty of such conduct
 Must be adjudged by a court. as tends to affect prejudicially the carrying
 Insolvency of partner on of the business;
 The insolvency of a partner subjects his interest in (4) A partner willfully or persistently commits
the partnership to the right of his creditors. Art. a breach of the partnership agreement, or
1816 is also violated. Thus, by his insolvency, the otherwise so conducts himself in matters
partnership’s credit is impaired. relating to the partnership business that it
is not reasonably practicable to carry on
 Insolvency of partnership the business in partnership with him;
 Such renders the partnership’s property in the (5) The business of the partnership can only
hands of the partners liable for the satisfaction of be carried on at a loss;
partnership obligations resulting in their inability to (6) Other circumstances render a dissolution
continue the business, which practically amounts equitable.
to dissolution.
 Reconveyance by the assignee of the On the application of the purchaser of
properties of the partnership after the a partner's interest under Article 1813 or 1814:
termination of insolvency proceedings (1) After the termination of the specified term
has the effect of restoring the partnership or particular undertaking;
to its status quo. (2) At any time if the partnership was a
partnership at will when the interest was
CIVIL INTERDICTION OF ANY PARTNER assigned or when the charging order was
 Civil interdiction deprives the offender during the issued. (n)
time of his sentence of the right to manage his
property and dispose of such property.
GROUNDS FOR DISSOLUTION BY DECREE OF COURT
 One who is without capacity to manage his own  Dissolution of a partnership may be decreed judicially
property should not be allowed to manage
on application, either
partnership property.
(1) By a partner in the cases mentioned in par. 1,
Nos. 1-6; or
RIGHT TO EXPEL A PARTNER
(2) By the purchaser or assignee of a partner’s
 In the absence of an express agreement to that interest under par. 2, Nos. 1 and 2.
effect, there exists no right or power of any
member, or even a majority of the members, to  ON APPLICATION BY A PARTNER
expel all other members of the firm at will. Nor can
 Insanity
they at will forfeit the share or interest of a
 An insane person is incapacitated to
member or members and compel him/them to
enter into a contract. The insanity must
quit.
materially affect the capacity of the
partner to perform his contractual duties
 PARTNER GUILTY OF EXTREME
as a partner.

(a) When the dissolution is not by the

 Incapacity act, insolvency or death of a partner;
 Courts have the power to decree or
dissolution of a partnership because of (b) When the dissolution is by such act,
incapacity of a partner which materially insolvency or death of a partner, in
affects his ability to discharge the duties cases where article 1833 so
imposed by his partnership contract. requires;
 The incapacity must be lasting, from (2) With respect to persons not partners, as
which the prospect of recovery is remote declared in article 1834. (n)
since every partnership must be
presumed to be entered into, subject to
the common incidents of life such as EFFECT OF DISSOLUTION ON PARTNER’S AUTHORITY
temporary illness, infirmity, or insanity.  SCOPE OF PARTNER’S AUTHORITY
 General Rule
 Misconduct and persistent breach of partnership  Every partner is considered as the agent of the
agreement partnership with authority to bind the partnership
 Such acts defeat and materially affect and the partners
and obstruct the purpose of the  However, the dissolution terminates the actual
partnership. authority of the partners to undertake new
 Where the quarrels and disagreements businesses except only as regards to those acts
are of such a nature and to such extent incident to the liquidation or completion of
that all confidence and cooperation unfinished transactions
between the parties have been  Exceptions
destroyed, or where one of the parties,  As regards co-partners: The authority of a
by his misbehavior, materially hinders a partner to bind the co-partners immediately
proper conduct of the partnership ceases when the dissolution is NOT caused by
business. the act, insolvency or death of partner (AID).
Otherwise, when the cause of dissolution is by
 Business can be carried on only at a loss AID termination of authority depends on whether
 The partnership may be dissolved by the acting partner has knowledge of the
decree of court when it becomes dissolution
rd
apparent that it is unprofitable with no  As regards 3 persons: The partner’s authority
reasonable prospects of success. continues with respect to the contracts entered
 Where a partnership had lost all its by the acting partner
capital, or had become insolvent, or that
the enterprise for which it had been
organized had been concluded or utterly Art. 1833. Where the dissolution is caused by the act,
abandoned, a provision in the articles of death or insolvency of a partner, each partner
partnership prohibiting the dissolution of is liable to his co-partners for his share of any
the partnership except by the consent liability created by any partner acting for the
and agreement of 2/3 of its partners, can partnership as if the partnership had not been
in no wise limit or restrict the right of a dissolved unless:
less number of the partners to effect (1) The dissolution being by act of any
dissolution through judicial intervention or partner, the partner acting for the
otherwise. partnership had knowledge of the
dissolution; or
 Other circumstances (2) The dissolution being by the death or
 Examples are abandonment of the insolvency of a partner, the partner
business, fraud in the management of acting for the partnership had
the business, refusal without justifiable knowledge or notice of the death or
cause to render accounting of insolvency.
partnership affairs, etc.
 ON APPLICATION BY A PURCHASER LIABILITY AND AUTHORITY OF A PARTNER

OF A PARTNER’S INTEREST AS TO CO-PARTNERS
 LIABILITY OF PARTNERS
 Right to Contribution
Art. 1832. Except so far as may be necessary to wind  The article refers to dissolution caused by AID.
up partnership affairs or to complete  The new contract entered by the acting partner
transactions begun but not then finished, after dissolution generally will bind the partners.
dissolution terminates all authority of any Hence, each partner is liable for his share of any
partner to act for the partnership: liability created by the acting partner as if the
(1) With respect to the partners: partnership has not been dissolved

 PARTNER’S AUTHORITY TO ACT FOR THE (2) Where the partner has become insolvent;
PARTNERSHIP or
 General Rule (3) Where the partner has no authority to
 The authority of a partner as it affects the wind up partnership affairs; except by a
partnership is not deemed terminated by transaction with one who:
dissolution (a) Had extended credit to the
 Exceptions partnership prior to dissolution
 When the acting partner has knowledge of the and had no knowledge or notice
dissolution of the partnership brought by the act of his want of authority; or
of the partner, partner’s authority ceases. This to (b) Had not extended credit to the
protect the remaining partners who have no partnership prior to dissolution,
knowledge of the dissolution. and, having no knowledge or
 Also, the partner’s authority ceases when he has notice of his want of authority,
knowledge of the death or insolvency of a the fact of his want of authority
partner. This rule discards the fiction that has not been advertised in the
everybody is presumed to have knowledge of the manner provided for advertising
death or insolvency of a partner. the fact of dissolution in the first
paragraph, No. 2 (b).
Art. 1834. After dissolution, a partner can bind the Nothing in this article shall affect the
partnership, except as provided in the third liability under Article 1825 of any person who,
paragraph of this article: after dissolution, represents himself or
(1) By any act appropriate for winding up consents to another representing him as a
partnership affairs or completing partner in a partnership engaged in carrying
transactions unfinished at dissolution; business. (n)
(2) By any transaction which would bind the
partnership if dissolution had not taken
place, provided the other party to the AUTHORITYTO BIND THE PARTNERHIP
RD
transaction: WITH 3 PERSONS AND NOTICE REQUIREMENTS
(a) Had extended credit to the  SCOPE OF ARTICLE 1834
partnership prior to dissolution and  Article 1834 covers the following cases:
had no knowledge or notice of the  Instances when a partner continues to bind the
dissolution; or partnership even after dissolution (Par. 1,
(b) Though he had not so extended Numbers 1 and 2)
credit, had nevertheless known of  Instances when he cannot bind the partnership
the partnership prior to dissolution, after dissolution (Par. 3, Numbers 1, 2 & 3)
and, having no knowledge or notice RD
of dissolution, the fact of dissolution  EFFECT OF NOTICE TO 3 PERSONS
had not been advertised in a  3rd Persons Have No Notice
newspaper of general circulation in  The authority of a patner to bind the partnership
rd
the place (or in each place if more with 3 persons apparently continues for the
rd
than one) at which the partnership protection of innocent third 3 persons
business was regularly carried on.
 3rd Persons Have Notice
The liability of a partner under the first  Notice may either be actual or constructive
rd
paragraph, No. 2, shall be satisfied out of  The partnership liability to 3 persons is limited
partnership assets alone when such partner only to transactions which are necessary to
had been prior to dissolution: liquidate the partnership
(1) Unknown as a partner to the person with
whom the contract is made; and  Specific Effects of Notice to 3rd Persons
(2) So far unknown and inactive in  As regards persons who extended credit to the
partnership affairs that the business partnership prior to dissolution, the creditor must
reputation of the partnership could not have notice of the dissolution to relieve the
be said to have been in any degree due partnership from liability
to his connection with it.  As to persons who did not extend credit but has
notice of dissolution, constructive notice is
The partnership is in no case bound enough to relieve the partnership from liability.
by any act of a partner after dissolution:  Notice of dissolution is unnecessary except
(1) Where the partnership is dissolved where the partner has no authority to liquidate
because it is unlawful to carry on the rd
the partnership affairs. 3 persons dealing with
business, unless the act is appropriate such partner is protected under this article.
for winding up partnership affairs; or  Distinction must be made between a partner who
has no notice of the other partner’s insolvency to

bind the partnership and right of 3rd persons to LIQUIDATION OR WINDING UP

claim the validity of contracts. The first is  MANNER OF LIQUIDATION
rd
granted by law but the innocent 3 party is not  Judicial
given similar protection. The rationale is that the  The court has control and direction of liquidation
rd
3 person must know the status of the insolvent  Extrajudicial
partner.  The liquidation is done by the partners without
 In case of death, no distinction is made. Death is the intervention of the court
not considered to be notice whether to surviving
spouse or as to third persons.  NATURE OF ACTION
 An action for the liquidation is a personal action
 Character of Notice
 As to prior dealers: Notice must be actual.  PERSONS AUTHORIZED TO LIQUIDATE
 A prior dealer is one who has extended credit on  The partner designated by agreement
the faith of the partnership, through confidence in
the solvency and probity of the firm.
 In the absence of agreement, all partners who have
not wrongfully dissolved the partnership
 As to all others: Notice may be constructive (e.g.,
publication in local newspaper).  The legal representative of the last surviving
spouse when all the partners are already dead
 The duty of liquidating its affairs devolves upon
 Dormant Partners
the surviving member or his legal representative
 The liability of a dormant partner as regards
contracts entered during the dissolution shall be
 POWERS OF LIQUIDATING PARTNER
limited only to his share in the partnership assets.
 Notice of dormant partner’s withdrawal need not  Enter into new contracts as regards liquidation
rd
be given to 3 persons since he was never affairs
known or held out as a partner. Hence, the  Raise money to pay off debts
principle of estoppel cannot apply to hold the  Incur obligations to complete existing contracts or
dormant partner liable. preserve the partnership assets
 Incur expenses necessary in the conduct of
litigation
Art. 1835. The dissolution of the partnership does not
of itself discharge the existing liability of any
partner. Art. 1837. When dissolution is caused in any way,
A partner is discharged from any except in contravention of the partnership
existing liability upon dissolution of the agreement, each partner, as against his co-
partnership by an agreement to that effect partners and all persons claiming through
between himself, the partnership creditor and them in respect of their interests in the
the person or partnership continuing the partnership, unless otherwise agreed, may
business; and such agreement may be inferred have the partnership property applied to
from the course of dealing between the discharge its liabilities, and the surplus
creditor having knowledge of the dissolution applied to pay in cash the net amount owing to
and the person or partnership continuing the the respective partners. But if dissolution is
business. caused by expulsion of a partner, bona fide
The individual property of a deceased under the partnership agreement and if the
partner shall be liable for all obligations of the expelled partner is discharged from all
partnership incurred while he was a partner, partnership liabilities, either by payment or
but subject to the prior payment of his agreement under the second paragraph of
separate debts. (n) Article 1835, he shall receive in cash only the
net amount due him from the partnership.
When dissolution is caused in
 DISCHARGE OF PARTNER’S LIABILITY contravention of the partnership agreement
 The dissolution does not itself discharge the the rights of the partners shall be as follows:
existing liability of the partners unless there is (1) Each partner who has not caused
consent from the creditor. dissolution wrongfully shall have:
(a) All the rights specified in the first
paragraph of this article, and
Art. 1836. Unless otherwise agreed, the partners who (b) The right, as against each partner
have not wrongfully dissolved the partnership who has caused the dissolution
or the legal representative of the last surviving wrongfully, to damages breach
partner, not insolvent, has the right to wind up of the agreement.
the partnership affairs, provided, however, that (2) The partners who have not caused the
any partner, his legal representative or his dissolution wrongfully, if they all desire
assignee, upon cause shown, may obtain to continue the business in the same
winding up by the court. (n) name either by themselves or jointly

with others, may do so, during the b.) To have the surplus, if any, applied to pay in
agreed term for the partnership and for cash the net amount owing to the respective
that purpose may possess the partners.
partnership property, provided they
secure the payment by bond approved  When the dissolution is caused by expulsion of a
by the court, or pay any partner who has partner bona fide, such expelled partner may be
caused the dissolution wrongfully, the discharged from all partnership liabilities either by
value of his interest in the partnership at payment or by agreement between him, the
the dissolution, less any damages partnership creditors, and the other partners.
recoverable under the second
paragraph, No. 1 (b) of this article, and  He shall have the right only to receive in
in like manner indemnify him against all cash the next amount due him from the
present or future partnership liabilities. partnership
(3) A partner who has caused the  If the dissolution is proper, no partner is liable for
dissolution wrongfully shall have: any loss sustained as a result of the dissolution
(a) If the business is not continued
under the provisions of the RIGHTS WHERE DISSOLUTION
second paragraph, No. 2, all the IN CONTRAVENTION WITH AGREEMENT
rights of a partner under the first  When the partnership is dissolved in violation of the
paragraph, subject to liability for partnership agreement, the rights of the partner vary
damages in the second depending upon whether he is the innocent or the guilty
paragraph, No. 1 (b), of this partner
article.
(b) If the business is continued under 1. Right of the partner who has not caused the
the second paragraph, No. 2, of dissolution wrongfully:
this article, the right as against a. To have the partnership property applied
his co-partners and all claiming for the payment of its liabilities and to
through them in respect of their receive in cash his share of the surplus
interests in the partnership, to b. To be indemnified for damages caused
have the value of his interest in by the partner guilty of the wrongful
the partnership, less any dissolution
damage caused to his co- c. To continue the business in the same
partners by the dissolution, name during the agreed term of the
ascertained and paid to him in partnership, by themselves or jointly with
cash, or the payment secured by others
a bond approved by the court, d. To possess partnership property should
and to be released from all they decide to continue the business
existing liabilities of the
partnership; but in ascertaining 2. Right of the partner who wrongfully caused the
the value of the partner's dissolution
interest the value of the good- a. If the business is not continued by the
will of the business shall not be other partners, to have the partnership
considered. (n) property applied to discharge its liabilities
and to receive in cash his share of the
surplus less damages caused by his
RIGHT OF PARTNER TO APPLICATION wrongful dissolution
OF PROPERTY ON DISSOLUTION b. If the business is continued:
 The right of the partners to have the partnership i. To have the value of his interest
property applied to discharge partnership liabilities and in the partnership at the time of
the surplus if any, depends on whether the dissolution the dissolution ascertained and
is caused: paid in cash or secured by bond
a.) Without violation of the partnership approved by court
agreement ii. To be released from all existing
b.) In violation of the partnership agreement or future liabilities of the
partnership.
RIGHTS WHERE DISSOLUTION NOT
IN CONTRAVENTION OF AGREEMENT Note:
 Unless otherwise agreed, the rights of each partner in  Innocent partners have more right than guilty
case of dissolution without violation of partnership partners
agreement are as follows:  Guilty partners are made liable for damages
a.) To Whom It May Concern: have the caused by their wrongful dissolution
partnership property applied to discharge  In ascertaining the value of the interest, the value
the liabilities of the partnership of the goodwill of the business is not considered

 If the innocent partner decides to buy the guilty Art. 1839. In settling accounts between the partners
partner’s interest, they may continue the after dissolution, the following rules shall be
partnership business under the same firm name observed, subject to any agreement to the
 The guilty partner is entitled to the appraised contrary:
value of the business less the damages (1) The assets of the partnership are:
recoverable by the innocent partners (a) The partnership property,
(b) The contributions of the partners
necessary for the payment of all
Art. 1838. Where a partnership contract is rescinded on the liabilities specified in No. 2.
the ground of the fraud or misrepresentation (2) The liabilities of the partnership shall
of one of the parties thereto, the party entitled rank in order of payment, as follows:
to rescind is, without prejudice to any other (a) Those owing to creditors other
right, entitled: than partners,
(1) To a lien on, or right of retention of, the (b) Those owing to partners other
surplus of the partnership property than for capital and profits,
after satisfying the partnership (c) Those owing to partners in
liabilities to third persons for any sum respect of capital,
of money paid by him for the purchase (d) Those owing to partners in
of an interest in the partnership and for respect of profits.
any capital or advances contributed by (3) The assets shall be applied in the order
him; of their declaration in No. 1 of this
(2) To stand, after all liabilities to third article to the satisfaction of the
persons have been satisfied, in the liabilities.
place of the creditors of the (4) The partners shall contribute, as
partnership for any payments made by provided by article 1797, the amount
him in respect of the partnership necessary to satisfy the liabilities.
liabilities; and (5) An assignee for the benefit of creditors
(3) To be indemnified by the person guilty or any person appointed by the court
of the fraud or making the shall have the right to enforce the
representation against all debts and contributions specified in the
liabilities of the partnership. (n) preceding number.
(6) Any partner or his legal representative
shall have the right to enforce the
RIGHT OF PARTNER TO RESCIND CONTRACT OF contributions specified in No. 4, to the
PARTNERSHIP extent of the amount which he has paid
 If one is induced by fraud or misrepresentation to in excess of his share of the liability.
become a partner, the contract is voidable or (7) The individual property of a deceased
annullable partner shall be liable for the
 If the contract is annulled, the injured partner is contributions specified in No. 4.
entitled to restitution (8) When partnership property and the
individual properties of the partners
RIGHT OF THE INJURED PARTNER WHERE are in possession of a court for
PARTNERSHIP CONTRACT IS RESCINDED distribution, partnership creditors shall
 This article speaks of the rights of the injured have priority on partnership property
partner where the partnership contract is and separate creditors on individual
rescinded on the ground of fraud or property, saving the rights of lien or
misrepresentation secured creditors.
(9) Where a partner has become insolvent
 The rights are as follows: or his estate is insolvent, the claims
 Right on a lien on ,or retention of, the against his separate property shall
surplus of the partnership property after rank in the following order:
satisfying partnership liabilities for any (a) Those owing to separate creditors;
sum of money paid or contributed by him (b) Those owing to partnership
creditors;
 Right to subrogation in place of (c) Those owing to partners by way of
partnership creditors after payment of contribution. (n)
partnership liabilities
 Right to indemnification by the guilty LIQUIDATION AND DISTRIBUTION OF ASSETS OF

partner against all debts and liabilities of DISSOLVED PARTNERSHIP
the partnership  The process of winding up consists of reducing
the property to cash and distributing the proceeds
 The property must be liquidated and distributed to
those entitled thereto

 Partners severally have the implied authority to creditors from the individual properties of
sell partnership property and collect obligations the partners
due to the partnership
 These powers may be delegated to pone or more 6. Distribution of property of insolvent partner
of their number as liquidating partner or partners  If a partner is insolvent, his individual
property shall be distributed as follows:
RULES IN SETTLING ACCOUNTS BETWEEN a. first, to those owing to his separate
PARTNERS AFTER DISSOLUTION creditors
 The following rules are subject to variation by b. then to those owing to partnership
agreement of the partners either in their original creditors
partnership agreement or in a dissolution c. to those owing to partners by way of
agreement: contribution
1. Asset of the partnership

a. Partnership property Art. 1840. In the following cases creditors of the
b. Contribution of partners necessary for the dissolved partnership are also creditors of the
payment of all liabilities in accordance person or partnership continuing the
with article 1797 business:
(1) When any new partner is admitted into
2. Order of application of assets an existing partnership, or when any
 The partnership assets shall be applied partner retires and assigns (or the
to the satisfaction of the liabilities of the representative of the deceased partner
partnership in the following order assigns) his rights in partnership
a. first, those owing to the partnership property to two or more of the
creditors partners, or to one or more of the
b. second, those owing to partners partners and one or more third
other than for capital and profits persons, if the business is continued
such as loan given by the partners without liquidation of the partnership
or advances for business expenses affairs;
c. third, those owing for the return of (2) When all but one partner retire and
the capital contributed by the assign (or the representative of a
partners deceased partner assigns) their rights
d. fourth, the share of the profits due to in partnership property to the
each partner (if any) remaining partner, who continues the
business without liquidation of
3. Right of a partner where the assets are insufficient partnership affairs, either alone or with
 If the assets enumerated in no. 1 are others;
insufficient, the deficit is a capital loss (3) When any partner retires or dies and the
which requires contribution like any other business of the dissolved partnership
loss is continued as set forth in Nos. 1 and
 Any partner, legal representative shall 2 of this article, with the consent of the
have the right to enforce the retired partners or the representative of
contributions of the partners provided in the deceased partner, but without any
Article 1797. assignment of his right in partnership
 If any of the partner does not pay the property;
share of his loss, the remaining partners (4) When all the partners or their
have to pay but they can sue the non- representatives assign their rights in
paying partner for indemnification partnership property to one or more
third persons who promise to pay the
4. Liability of the deceased partner’s individual debts and who continue the business
property of the dissolved partnership;
 The individual property of a deceased (5) When any partner wrongfully causes a
partner shall be liable for his share of the dissolution and the remaining partners
contributions necessary to satisfy the continue the business under the
liabilities of the partnership incurred while provisions of article 1837, second
he was a partner paragraph, No. 2, either alone or with
others, and without liquidation of the
5. Priority to payment of partnership partnership affairs;
creditors/partner’s creditors (6) When a partner is expelled and the
 When the partnership property and the remaining partners continue the
individual partner’s properties are in the business either alone or with others
possession of the court for distribution without liquidation of the partnership
partnership creditors shall first be paid affairs.
from partnership property and separate

The liability of a third person Art. 1841. When any partner retires or dies, and the
becoming a partner in the partnership business is continued under any of the
continuing the business, under this article, to conditions set forth in the preceding article, or
the creditors of the dissolved partnership shall in Article 1837, second paragraph, No. 2,
be satisfied out of the partnership property without any settlement of accounts as between
only, unless there is a stipulation to the him or his estate and the person or
contrary. partnership continuing the business, unless
When the business of a partnership otherwise agreed, he or his legal
after dissolution is continued under any representative as against such person or
conditions set forth in this article the creditors partnership may have the value of his interest
of the dissolved partnership, as against the at the date of dissolution ascertained, and
separate creditors of the retiring or deceased shall receive as an ordinary creditor an
partner or the representative of the deceased amount equal to the value of his interest in the
partner, have a prior right to any claim of the dissolved partnership with interest, or, at his
retired partner or the representative of the option or at the option of his legal
deceased partner against the person or representative, in lieu of interest, the profits
partnership continuing the business, on attributable to the use of his right in the
account of the retired or deceased partner's property of the dissolved partnership;
interest in the dissolved partnership or on provided that the creditors of the dissolved
account of any consideration promised for partnership as against the separate creditors,
such interest or for his right in partnership or the representative of the retired or deceased
property. partner, shall have priority on any claim
Nothing in this article shall be held to arising under this article, as provided Article
modify any right of creditors to set aside any 1840, third paragraph. (n)
assignment on the ground of fraud.
The use by the person or partnership
continuing the business of the partnership RIGHTS OF THE RETIRING OR OF LEGAL
name, or the name of a deceased partner as REPRESENTATIVE OF DECEASED PARTNER WHEN
part thereof, shall not of itself make the BUSINESS IS CONTINUED
individual property of the deceased partner  When a partner retires or dies and the business is
liable for any debts contracted by such person continued without settlement of accounts, the
or partnership. (n) retiring partner or the legal representative of the
deceased partner shall have the following right:
1. to have the value of the interest of
DISSOLUTION OF PARTNERSHIP the retiring partner or deceased
BY CHANGE IN MEMBERSHIP partner in the partnership
 The change in the relation of the partners results ascertained as to the date of
in the dissolution of the partnership dissolution
 It may take place when a new partner is admitted, 2. to receive as an ordinary creditor the
or when a partner retires or dies, when a partner amount equal to the value of his
withdraws or is expelled from the partnership, or share in the dissolved partnership
when partners assign their rights to third persons with interest, or at his option, in lieu
 Any change in membership dissolves the of the interest, the profits attributable
partnership and creates a new partnership to the use of his right
RIGHT OF CREDITORS OF  If the surviving partners continue the business

DISSOLVED PARTNERSHIP without the consent of the deceased partner’s
 This article deals with the rights of the creditors estate, they do so without any risk to the estate
when the partnership is dissolved by a change of  if the estate consents to the continuation of the
membership and its business is continued by a business, it, in effect becomes a new partner, and
former partner either alone or with a new partner, would answerable to all the debts and losses
without liquidation of the partnership affairs. arising from the death of the deceased partner but
 In such case, the law makes the creditors of only to the extent of the decedent’s share in the
dissolved partnership , also the creditors of the partnership’s assets
person or partnership continuing the business
 The purpose of the law is to maintain the
preferential rights of the old creditors to the Art. 1842. The right to an account of his interest shall
partnership property as against separate creditors accrue to any partner, or his legal
of the partners representative as against the winding up
partners or the surviving partners or the
person or partnership continuing the
business, at the date of dissolution, in the
absence of any agreement to the contrary. (n)

ACCRUAL TO A PARTNER’S RIGHT TO 4. the limited partners may ask for the return of their
ACCOUNT OF HIS INTEREST capital contributions under the conditions
 The right to account for the value of the of a prescribed by law
partner’s interest accrues to any partner or his
legal representative after dissolution in the 5. the partnership debts are paid out of the common
absence of an agreement to the contrary fund and the individual properties of the general
 The right of a partner as owner of an interest to partners
an account, and, in due course of liquidation, to a
payment of the amount of his interest, may be  Limited partnership is composed of 2 classes of
exercised as against: partners: general and limited
 The winding partner  The liability of the limited partner is limited to the
 The surviving partner amount of money ha has put into the partnership
 The person or partnership  It is an exception to the general rule that all partners
continuing the business including the industrial partners are liable pro rata of all
their property for partnership debts
WHEN LIQUIDATION IS NOT REQUIRED  The limited partner has the same type of liability as a
 As a general rule, when the partnership is stockholder in a corporation
dissolved, a partner or legal representative is  There is no prohibition for a limited partner to engage in
entitled to payment of what may be due after a business for himself
liquidation.  In the absence of statutory restriction, a limited partner
 No liquidation is necessary if there is already a may carry on any business which could be carried on
settlement or an agreement of what he shall by a general partnership
receive
BUSINESS REASONS AND PURPOSES OF STATUTES
AUTHORIZING FORMATION OF LIMITED
PARTNERSHIPS
1. To secure capital from others for one’s business
CHAPTER 4 and still retains control
LIMITED PARTNERSHIP (n) 2. To share in the profits of a business without the
risk of personal liability
 DIFFERENCES BETWEEN A GENERAL AND A

Art. 1843. A limited partnership is one formed by two or
LIMITED PARTNERSHIP
more persons under the provisions of the
following article, having as members one or
General Partner Limited Partner
more general partners and one or more limited
1. Personally liable for 1. Liability extends only to his
partners. The limited partners as such shall
partnership obligations capital contribution
not be bound by the obligations of the 2. When the manner of 2. Has no share in the
partnership. management has not been management of a limited
agreed upon, all general partnership. His rights are
partners have equal right in limited to those enumerated
CONCEPT OF LIMITED PARTNERSHIP the management of the in article 1851
 This article defines a limited partnership business whether or not the 3. Must contribute cash or
 The correct usage of the term confines it to the general partner has made property to the partnership
any capital contribution but not services
form of business association composed of one or
3. May contribute money, 4. Not a proper party to
more general partners and one or more special property, industry to the proceedings by or against a
partners, the latter not being personally liable for partnership partnership unless he is
the partnership debts 4. A general partner’s interest also a general partner or
to the partnership may not where the objects of the
CHARACTERISTICS OF LIMITED PARTNERSHIP be assigned as to make the proceedings is to enforce a
1. a limited partnership is formed by compliance with assignee a new partner limited partner’s right
the statutory requirements without the consent of the against or liability to the
other partners although he partnership
may associate a third 5. A limited partner’s interest is
2. one or more general partners control the business person with him in his freely assignable
and are personally liable to the creditors share 6. The limited partner’s name
5. The name of the general as a general rule, must not
3. one or more limited partners contribute to the partner may appear in the appear in the firm name
capital and share in the profits but do not firm name 7. Can engage in business
participate in the management of the business 6. Prohibited in engaging in since he is considered
and are not personally liable for partnership business similar to that of merely as a contributor to
the partnership the partnership
obligations beyond their capital contributions
7. Retirement, death, 8. Retirement, death,
Insolvency of a general insolvency of a limited
partner dissolves the partner does not dissolve
partnership the partnership

Art. 1844. Two or more persons desiring to form a LIMITED PARTNERSHIP NOT CREATED
limited partnership shall: BY MERE VOLUNTARY AGREEMENT
(1) Sign and swear to a certificate, which shall  The creation of a limited partnership is a formal
state – proceeding and is not a mere voluntary agreement
(a) The name of the partnership, adding as in the case of a general partnership
thereto the word "Limited";  Requirements given by statute must be followed
(b) The character of the business; so that public notice may be given to all who
(c) The location of the principal place of desire to know the essential features of the
business; partnership
(d) The name and place of residence of  A limited partnership is formed if there is
each member, general and limited substantial compliance in good faith with the
partners being respectively requirements set forth in the last paragraph of
designated; Article 1844; otherwise, the partnership becomes
(e) The term for which the partnership is a general partnership in which case all the
to exist; members become liable as general partners
(f) The amount of cash and a description
of and the agreed value of the other REQUIREMENTS FOR FORMATION OF
property contributed by each limited A LIMITED PARTNERSHIP
partner;  A limited partnership cannot be constituted orally
(g) The additional contributions, if any,  2 essential requirements for the formation of a
to be made by each limited partner limited partnership
and the times at which or events on a.) Certificate or articles of the limited
the happening of which they shall be partnership which states the matters
made; enumerated in the articles must be
(h) The time, if agreed upon, when the signed and sworn to
contribution of each limited partner b.) Such certificate must be filed on
is to be returned; record in the office of the Securities
(i) The share of the profits or the other and Exchange Commission
compensation by way of income
which each limited partner shall  The purpose of the filing of the certificate is to give
receive by reason of his an actual and constructive notice to potential
contribution; creditors and persons dealing with the partnership
(j) The right, if given, of a limited partner of the limited liability of the limited partners
to substitute an assignee as
contributor in his place, and the PRESUMPTION OF GENERAL PARTNERSHIP
terms and conditions of the  A partnership transacting business is a prima facie
substitution; a general partnership
(k) The right, if given, of the partners to  Those who seek protection accorded to by the law
admit additional limited partners; to limited partnerships must show due compliance
(l) The right, if given, of one or more of to the statutory requirements of Article 1844
the limited partners to priority over
other limited partners, as to
contributions or as to compensation Art. 1845. The contributions of a limited partner may be
by way of income, and the nature of cash or property, but not services.
such priority;
(m) The right, if given, of the remaining
general partner or partners to LIMITED PARTNER’S CONTRIBUTION
continue the business on the death,  MEDIUM
retirement, civil interdiction, insanity  a limited partner is not allowed to contribute
or insolvency of a general partner; services
and  He can contribute only money or
(n) The right, if given, of a limited property; otherwise he shall be
partner to demand and receive considered an industrial AND general
property other than cash in return partner, in which case, he shall not be
for his contribution. exempted from personal liability
 A partner may be a general
(2) File for record the certificate in the Office of partner and a limited partner in
the Securities and Exchange Commission. the same partnership at the
same time provided that this fact
A limited partnership is formed if there shall be stated in the certificate
has been substantial compliance in good faith provided for in Article 1844. A
with the foregoing requirements. limited partner may not be an
industrial partner in view of
Article 1845 which requires that

a limited partner must be a Art. 1848. A limited partner shall not become liable as a
capital contributor general partner unless, in addition to the
 TIME exercise of his rights and powers as a limited
 the contribution of each limited partner must be partner, he takes part in the control of the
paid before the formation of the limited business.
partnership, although with respect to the additional
contributions they may be paid after the limited
partnership has been formed LIABILITY OF LIMITED PARTNER FOR PARTICIPATING
IN MANAGEMENT OF PARTNERSHIP
 Important: take part in the management
Art. 1846. The surname of a limited partner shall not  Bare grant of apparent control to a limited partner is
appear in the partnership name unless: not sufficient to make limited partner liable as general
(1) It is also the surname of a general partner, partner
or  “Control of business”: active participation in the
(2) Prior to the time when the limited partner management of the partnership business
became such, the business has been  Not mere giving of advice
carried on under a name in which his  Business carried on by a board of directors
surname appeared. chosen by the limited partners
A limited partner whose surname  Appointee of limited partner becomes directing
appears in a partnership name contrary to the manager of the firm
provisions of the first paragraph is liable as a
general partner to partnership creditors who
 Limited partner purchases entire property of the
partnership and carries on the business in his own
extend credit to the partnership without actual
name
knowledge that he is not a general partner.
 Party to a contract with creditors
EFFECT WHERE THE SURNAME OF THE LIMITED

PARTNER APPEARS IN PARTNERSHIP NAME Art. 1849. After the formation of a limited partnership,
 The limited partner violating this article IS liable, additional limited partners may be admitted
as a general rule, to partnership creditors, without, upon filing an amendment to the original
however, the rights of a general partner with certificate in accordance with the requirements
respect to third persons with actual knowledge of Article 1865.
that he is only a limited partner.
ADMISSION OF ADDITIONAL LIMITED PARTNERS
Art. 1847. If the certificate contains a false statement,  There should be proper amendment to the certificate
one who suffers loss by reliance on such  Signed and sworn to by all of the partners
statement may hold liable any party to the  The following become the common property of all
certificate who knew the statement to be false: partners:
(1) At the time he signed the certificate, or  Filed with SEC
(2) Subsequently, but within a sufficient time
before the statement was relied upon to
enable him to cancel or amend the Art. 1850. A general partner shall have the rights and
certificate, or to file a petition for its powers and be subject to all the restrictions
cancellation or amendment as provided in and liabilities of a partner in a partnership
Article 1865. without limited partners. However, without the
written consent or ratification of the specific
act by all the limited partners, a general
LIABILITY FOR FALSE STATEMENT IN CERTIFICATE partner or all of the general partners have no
 Liability imposed is merely a statutory penalty authority to:
 Does not make the limited partner a general partner for (1) Do any act in contravention of the
all purposes certificate;
(2) Do any act which would make it
 REQUISITES: impossible to carry on the ordinary
business against the partnership;
 He knew the statement to be false at the time he
(3) Confess a judgment against the
signed the certificate (but having time to cancel or
partnership;
amend it, he failed to do so).
(4) Possess partnership property, or assign
 Person seeking to enforce liability relied upon the their rights in specific partnership
false statement property, for other than a partnership
 The person suffered a loss purpose;
(5) Admit a person as a general partner;

(6) Admit a person as a limited partner,  Receive a share of the profits

unless the right to do so is given in the  Receive the return of his contribution provided the
certificate; partnership assets are in excess of all its liabilities
(7) Continue the business with partnership
property on the death, retirement,
insanity, civil interdiction or insolvency of Art. 1852. Without prejudice to the provisions of Article
a general partner, unless the right so to 1848, a person who has contributed to the
do is given in the certificate. capital of a business conducted by a person or
partnership erroneously believing that he has
become a limited partner in a limited
RIGHTS, POWERS AND LIABILITIESOF A GENERAL partnership, is not, by reason of his exercise
PARTNER of the rights of a limited partner, a general
 Right of control/unlimited personal liability partner with the person or in the partnership
 Entire control of business subject to all liabilities carrying on the business, or bound by the
and restrictions obligations of such person or partnership;
 In the absence of an agreement to the contrary, provided that on ascertaining the mistake he
he is not entitled to compensation for his services promptly renounces his interest in the profits
beyond his share of the profits of the business or other compensation by way
 Acts of administration/acts of strict dominion of income.
 No power to do the specific acts under Article
1850
 Beyond the scope of the authority if a general STATUS OF PARTNER WHERE THERE IS FAILURE TO
partner CREATE LIMITED PARTNERSHIP
 Other limitations  This article grants exemption from liability in favor of
 General partners have no power to bind limited one who has contributed to the capital of a business,
partners beyond the latter’s investment with the mistaken belief that there is only a limited
partnership
 No power to act beyond the purpose of the  Sometimes the limited partnership exists in spite of the
partnership
failure of the firm to comply with the law
 Limited partner is merely made liable for the debts of
the firm as if he were a general partner
Art. 1851. A limited partner shall have the same rights
 Status of person erroneously believing himself to be a
as a general partner to:
limited partner
(1) Have the partnership books kept at the
principal place of business of the  If the person has contributed capital, he is not
partnership, and at a reasonable hour to personally liable as a general partner
inspect and copy any of them;  On ascertaining the mistake, he
(2) Have on demand true and full information renounces his interest in the profits
of all things affecting the partnership, and  His surname does not appear in the
a formal account of partnership affairs partnership name
whenever circumstances render it just and  He does not participate in the
reasonable; and management of the business
(3) Have dissolution and winding up by  Necessity of renouncing his interest
decree of court.  Renunciation before the partnership has
A limited partner shall have the right become liable to third persons
to receive a share of the profits or other  Obligation to pay back profits and compensation
compensation by way of income, and to the already received
return of his contribution as provided in  Renunciation should be on the profits or
Articles 1856 and 1857. compensation not yet paid for
 The other view says that the most that
the statute could have intended was to
RIGHTS OF A LIMITED PARTNER put partnership creditors
 Improper acts on the part of general partners may not  Status of heirs of a deceased partner
give a limited partner greater rights than the law what  Right to elect to become general partner may be
his contract grants him. exercised
 Specific rights:  The heir may disregard the limitation and
 To require the partnership books be kept at the elect to become a collective or general
principal place of business partner (choice is personal)
 Inspect and copy at a reasonable hour partnership  Right when given in articles of partnership may be
books waived
 Demand a formal account  Heirs cannot be compelled to become
 Ask for dissolution and winding up by decree of general partners against their wishes
court

Art. 1853. A person may be a general partner and a  PROHIBITED TRANSACTIONS

limited partner in the same partnership at the  Receiving or holding as collateral security any
same time, provided that this fact shall be partnership property
stated in the certificate provided for in Article  Receiving any payment, conveyance or release
1844. from liability if it will prejudice the right of third
A person who is a general, and also at persons
the same time a limited partner shall have all  Any violation will give rise to the
the rights and powers and be subject to all the presumption that it has been to defraud
restrictions of a general partner; except that, in partnership creditors
respect to his contribution, he shall have the
rights against the other members which he  PREFERENTIAL RIGHTS OF THIRD PERSONS
would have had if he were not also a general  Designed to prevent illegal competition between
partner. the limited partner and creditors of the partnership
for the assets of the partnership in case there is
insufficiency of partnership assets
ONE PERSON AS GENERAL AND LIMITED PARTNER
 Such fact must be stated in the certificate
 Rights and powers are those of a general partner Art. 1855. Where there are several limited partners, the
 With respect to his contribution as limited partner, members may agree that one or more of the
he is a limited partner insofar as other partners limited partners shall have a priority over other
are concerned limited partners as to the return of their
 While he is not relieved from personal liability to third contributions, as to their compensation by way
persons for partnership debts, he is entitled to recover of income, or as to any other matter. If such an
from the general partners in the amount he has paid to agreement is made, it shall be stated in the
such third persons certificate, and in the absence of such a
 In settling accounts after dissolution, he has priority statement all the limited partners shall stand
over general partners in the return of their respective upon equal footing.
contributions
PREFERRED LIMITED PARTNERS

Art. 1854. A limited partner also may loan money to and  Priority over other limited partners as to the following:
transact other business with the partnership,  Return of their contributions
and, unless he is also a general partner,  Compensation by way of income
receive on account of resulting claims against
the partnership, with general creditors, a pro
 Any other matter
 In the absence of any agreement, all the
rata share of the assets. No limited partner
limited partners shall stand on equal
shall in respect to any such claim:
footing
(1) Receive or hold as collateral security any
partnership property, or
Art. 1856. A limited partner may receive from the
(2) Receive from a general partner or the
partnership the share of the profits or the
partnership any payment, conveyance, or
compensation by way of income stipulated for
release from liability, if at the time the
in the certificate; provided, that after such
assets of the partnership are not sufficient
payment is made, whether from the property of
to discharge partnership liabilities to
the partnership or that of a general partner, the
persons not claiming as general or limited
partnership assets are in excess of all
partners.
liabilities of the partnership except liabilities to
limited partners on account of their
The receiving of collateral security, or a
contributions and to general partners.
payment, conveyance, or release in violation
of the foregoing provisions is a fraud on the
creditors of the partnership.
COMPENSATION OF LIMITED PARTNER
 Right to compensation is subject to the condition that
partnership assets will still be in excess of partnership
LOAN AND OTHER BUSINESS TRANSACTIONS WITH
liabilities after such payment
LIMITED PARTNERSHIP
 ALLOWABLE TRANSACTIONS  Third party creditors have priority over the limited
partner’s rights
 Granting loans to the partnership
 Liabilities to the limited partners for their contributions
 Transacting other business and to general partners are not included in determining
 Receiving a pro rata share of the partnership partnership liabilities
assets with general creditors

NOTE: THE FOLLOWING ARTICLES, ACCORDING TO future at the time and on the conditions
ATTY. OBIETA, ARE NOT IMPORTANT FOR THE FINALS stated in the certificate.
SO ONLY THE PROVISIONS ARE INCLUDED HERE.
A limited partner holds as trustee for the
partnership:
Art. 1857. A limited partner shall not receive from a (1) Specific property stated in the certificate
general partner or out of partnership property as contributed by him, but which was
any part of his contributions until: not contributed or which has been
(1) All liabilities of the partnership, except wrongfully returned, and
liabilities to general partners and to (2) Money or other property wrongfully paid
limited partners on account of their or conveyed to him on account of his
contributions, have been paid or there contribution.
remains property of the partnership
sufficient to pay them; The liabilities of a limited partner as
(2) The consent of all members is had, set forth in this article can be waived or
unless the return of the contribution compromised only by the consent of all
may be rightfully demanded under the members; but a waiver or compromise shall
provisions of the second paragraph; and not affect the right of a creditor of a
(3) The certificate is cancelled or so partnership who extended credit or whose
amended as to set forth the withdrawal claim arose after the filing and before a
or reduction. cancellation or amendment of the certificate,
to enforce such liabilities.
Subject to the provisions of the first When a contributor has rightfully
paragraph, a limited partner may rightfully received the return in whole or in part of the
demand the return of his contribution: capital of his contribution, he is nevertheless
liable to the partnership for any sum, not in
(1)On the dissolution of a partnership; or excess of such return with interest, necessary
(2)When the date specified in the to discharge its liabilities to all creditors who
certificate for its return has arrived, or extended credit or whose claims arose before
(3)After he has six months' notice in such return.
writing to all other members, if no time
is specified in the certificate, either for
the return of the contribution or for the Art. 1859. A limited partner's interest is assignable.
dissolution of the partnership. A substituted limited partner is a
person admitted to all the rights of a limited
In the absence of any statement in the partner who has died or has assigned his
certificate to the contrary or the consent of all interest in a partnership.
members, a limited partner, irrespective of the An assignee, who does not become a
nature of his contribution, has only the right to substituted limited partner, has no right to
demand and receive cash in return for his require any information or account of the
contribution. partnership transactions or to inspect the
partnership books; he is only entitled to
A limited partner may have the receive the share of the profits or other
partnership dissolved and its affairs wound up compensation by way of income, or the return
when: of his contribution, to which his assignor
(1) He rightfully but unsuccessfully would otherwise be entitled.
demands the return of his contribution, An assignee shall have the right to
or become a substituted limited partner if all the
(2) The other liabilities of the partnership members consent thereto or if the assignor,
have not been paid, or the partnership being thereunto empowered by the certificate,
property is insufficient for their payment gives the assignee that right.
as required by the first paragraph, No. 1, An assignee becomes a substituted
and the limited partner would otherwise limited partner when the certificate is
be entitled to the return of his appropriately amended in accordance with
contribution. Article 1865.
The substituted limited partner has all
Art. 1858. A limited partner is liable to the partnership: the rights and powers, and is subject to all the
(1) For the difference between his restrictions and liabilities of his assignor,
contribution as actually made and that except those liabilities of which he was
stated in the certificate as having been ignorant at the time he became a limited
made; and partner and which could not be ascertained
(2) For any unpaid contribution which he from the certificate.
agreed in the certificate to make in the The substitution of the assignee as a
limited partner does not release the assignor

from liability to the partnership under Articles respect to their claims for profits or for
1847 and 1848. compensation by way of income on their
contribution respectively, in proportion to the
Art. 1860. The retirement, death, insolvency, insanity or respective amounts of such claims.
civil interdiction of a general partner dissolves
the partnership, unless the business is Art. 1864. The certificate shall be cancelled when the
continued by the remaining general partners: partnership is dissolved or all limited partners
(1) Under a right so to do stated in the cease to be such.
certificate, or A certificate shall be amended when:
(2) With the consent of all members. (1) There is a change in the name of the
partnership or in the amount or
Art. 1861. On the death of a limited partner his executor character of the contribution of any
or administrator shall have all the rights of a limited partner;
limited partner for the purpose of setting his (2) A person is substituted as a limited
estate, and such power as the deceased had to partner;
constitute his assignee a substituted limited (3) An additional limited partner is admitted;
partner. (4) A person is admitted as a general
The estate of a deceased limited partner;
partner shall be liable for all his liabilities as a (5) A general partner retires, dies, becomes
limited partner. insolvent or insane, or is sentenced to
civil interdiction and the business is
Art. 1862. On due application to a court of competent continued under Article 1860;
jurisdiction by any creditor of a limited partner, (6) There is a change in the character of the
the court may charge the interest of the business of the partnership;
indebted limited partner with payment of the (7) There is a false or erroneous statement in
unsatisfied amount of such claim, and may the certificate;
appoint a receiver, and make all other orders, (8) There is a change in the time as stated in
directions and inquiries which the the certificate for the dissolution of the
circumstances of the case may require. partnership or for the return of a
The interest may be redeemed with contribution;
the separate property of any general partner, (9) A time is fixed for the dissolution of the
but may not be redeemed with partnership partnership, or the return of a
property. contribution, no time having been
The remedies conferred by the first specified in the certificate, or
paragraph shall not be deemed exclusive of (10) The members desire to make a change
others which may exist. in any other statement in the certificate
Nothing in this Chapter shall be held in order that it shall accurately represent
to deprive a limited partner of his statutory the agreement among them.
exemption.
Art. 1865. The writing to amend a certificate shall:
Art. 1863. In setting accounts after dissolution the (1) Conform to the requirements of Article
liabilities of the partnership shall be entitled to 1844 as far as necessary to set forth
payment in the following order: clearly the change in the certificate
(1) Those to creditors, in the order of priority which it is desired to make; and
as provided by law, except those to (2) Be signed and sworn to by all members,
limited partners on account of their and an amendment substituting a
contributions, and to general partners; limited partner or adding a limited or
(2) Those to limited partners in respect to general partner shall be signed also by
their share of the profits and other the member to be substituted or added,
compensation by way of income on their and when a limited partner is to be
contributions; substituted, the amendment shall also
(3) Those to limited partners in respect to the be signed by the assigning limited
capital of their contributions; partner.
(4) Those to general partners other than for
capital and profits; The writing to cancel a certificate shall
(5) Those to general partners in respect to be signed by all members.
profits; A person desiring the cancellation or
(6) Those to general partners in respect to amendment of a certificate, if any person
capital. designated in the first and second paragraphs
as a person who must execute the writing
Subject to any statement in the refuses to do so, may petition the court to
certificate or to subsequent agreement, limited order a cancellation or amendment thereof.
partners share in the partnership assets in If the court finds that the petitioner
respect to their claims for capital, and in has a right to have the writing executed by a

person who refuses to do so, it shall order the

Office of the Securities and Exchange
Commission where the certificate is recorded,
to record the cancellation or amendment of the
certificate; and when the certificate is to be
amended, the court shall also cause to be filed
for record in said office a certified copy of its
decree setting forth the amendment.
A certificate is amended or cancelled
when there is filed for record in the Office of
the Securities and Exchange Commission,
where the certificate is recorded:
(1) A writing in accordance with the
provisions of the first or second
paragraph, or
(2) A certified copy of the order of the court
in accordance with the provisions of the
fourth paragraph;
(3) After the certificate is duly amended in
accordance with this article, the
amended certified shall thereafter be for
all purposes the certificate provided for
in this Chapter.
Art. 1866. A contributor, unless he is a general partner,

is not a proper party to proceedings by or
against a partnership, except where the object
is to enforce a limited partner's right against or
liability to the partnership.
Art. 1867. A limited partnership formed under the law

prior to the effectivity of this Code, may
become a limited partnership under this
Chapter by complying with the provisions of
Article 1844, provided the certificate sets forth:
(1) The amount of the original contribution of
each limited partner, and the time when
the contribution was made; and
(2) That the property of the partnership
exceeds the amount sufficient to
discharge its liabilities to persons not
claiming as general or limited partners
by an amount greater than the sum of the
contributions of its limited partners.
A limited partnership formed under

the law prior to the effectivity of this Code,
until or unless it becomes a limited
partnership under this Chapter, shall continue
to be governed by the provisions of the old
law.
~ end of reviewer ~
GOOD LUCK!


General Provisions: Notes On de Leon Partnership Atty. J. Obieta

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General Provisions: Notes On de Leon Partnership Atty. J. Obieta

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NOTES ON DE LEON PARTNERSHIP ATTY. J.

 a relation to clients in the highest fiduciary

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 1

 CONTRIBUTION OF MONEY, PROPERTY, Art. 1769. In determining whether a partnership exists,

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 2

(c) As an annuity to a widow or of evidence to the contrary. The burden of

RULES IN DETERMINING EXISTENCE OF PERSONS NOT PARTNERS

 PRESUMPTION AND BURDEN OF PROOF

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 3

 PARTNERSHIP DISTINGUISHED  Example: A is the owner of the building where

SHARING OF GROSS PROFITS  DISTINGUISHED FROM A BUSINESS TRUST

 WHEN EXISTENCE OF PARTNERSHIP WILL NOT BE

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 4

 DISTINGUISHED FROM CONJUGAL PARTNERSHIP  DISTINGUISHED FROM A CORPORATION

 SIMILARITIES BETWEEN A PARTNERSHIP AND A

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 5

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 6

Art. 1771. A partnership may be constituted in any  CONFLICT BETWEEN INTENTION

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 7

Art. 1776. As to its object, a partnership is either

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 8

♦ Universal partnership of profits  AS TO PUBLICITY

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 9

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 10

UNIVERSAL PARTNERSHIP OF PROFITS

Art. 1781. Articles of universal partnership, entered into

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 11

 LIABILITY OF PARTNER FOR FAILURE TO

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 12

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 13

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 14

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 15

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 16

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 17

• There is no specification of their RULE WHEN MANNER OF MANAGEMENT

WHERE UNANIMITY OF ACTION STIPULATED  UNANIMOUS CONSENT REQUIRED FOR

Art. 1803. When the manner of management has not

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 18

profits coming to him from the partnership DUTY TO RENDER INFORMATION

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 19

Art. 1810. The property rights of a partner are:

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 20

although it may be increased or decreased by THE INCIDENTS OF THIS CO-OWNERSHIP

 GENERAL RULE:  Contemplates tangible property (cars, trucks land), but

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 21

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 22

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 23

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 24

 As to third persons. is himself personally liable on such contract. He

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 25

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 26

Art. 1822. Where, by any wrongful act or omission of

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 27

 CRIMINAL LIABILITY OF THE PARTNERSHIP  WHEN A PERSON A PARTNER BY ESTOPPEL.

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 28

 WHEN PARTNERSHIP LIABILITY RESULTS.  APPLICATION OF ESTOPPEL AS BETWEEN

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 29

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 30

3. Termination – all partnership affairs are conferred by the agreement

 TRANSACTION OF NEW BUSINESS PROHIBITED

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 31

2D ’05: ALEGRE, ESTRELLA, LABADAN, LADORES, LAYGO, LIONG, 32

 STATUS OF PARTNERSHIP AND GROSS FAULTS