ACAUD 3149
CHAPTER 1: GENERAL PROVISIONS ON
PARTNERSHIP
Art. 1767. By the contract of partnership,
two or more persons bind themselves to
contribute money, property, or industry to a
common fund, with the intention of dividing
the profits among themselves.
Two or more persons may also form a
partnership for the exercise of profession.
Common Fund
1. Money—medium of exchange authorized
or adopted by a government as part of its
currency
2. Property—any external thing over which
the rights of possession, use, and
enjoyment are exercised
3. Industry—diligence in the performance of
a task. A particular for or branch of
productive labor
Essential requisites of a contract of partnership
1. A valid contract
2. A contribution of money, property, or
industry to a common fund
3. Must be organized for gain or profit
4. Should have a lawful object or purpose
and must be established for the common
benefit or interest of the partners
Test of existence of a partnership
1. Test for existence of agreement to
contribute MPI to a common fund
2. Test for existence of an intent to divide
profits among contracting parties
Partnership—A Juridical Person Requisites
1. Two or more persons bind themselves to
contribute MPI to a common fund
2. Intention to divide profits among
themselves
Constitution
 Partnership may be constituted in any
form
 PUBLIC INSTRUMENT
o Necessary when an immovable
property or real rights are
contributed
 Since partnership is consensual, an oral
contract of partnership is as good as the
written one.
Characteristics of a Contract of Partnership
1. Consensual
o Perfected by mere consent
o Exception to mere consent
i. Contribution of real property
—there should be a public
instrument and inventory
ii. Contract falls under Statute
of Fraud—must be in
writing; otherwise,
UNENFORCEABLE
iii. Capital contribution is
greater than PHP3,000—
should be in writing and
registered with SEC
2. Commutative—equal contributions among
partners
3. Principal—independent from other
contracts
4. Bilateral—multiplicity of partners is
involved
5. Onerous—something is expected from all
parties
6. Nominate—has a name; “CONTRACT OF
PARTNERSHIP”
7. Preparatory—preparatory to operations
and profit-generations of partnership
Partnership vs. Joint Venture
 Both has the same elements
 Both is formed out of interests in the
business and sharing of profits and losses
 Joint venture is a form of partnership
 Joint venture is governed by the law on
partnership
Delectus Personae (Choice of the Person)
 The right to choose with whom a person
wishes to associate himself
 The very foundation and essence of
partnership
 Any one of the partners may, at his sole
pleasure, dictate a dissolution of the
partnership at will
 But an unjustified dissolution can subject
him to action for damages
 (4) The receipt by a person of a share of
Partnership at Will the profits of a business is a prima
 A partnership that does not fix its term facie evidence that he is a partner in
 Birth and life of a partnership at will is the business, but no such inference
predicated on the mutual desire and shall be drawn if such profits were
consent of the partners received in payment;
a. As a debt by installments or
otherwise;
b. As wages of an employee or
rent to a landlord; (contract of
employment)
c. As an annuity to a widow or
representative of a deceased
partner;
Art. 1768. The partnership has a judicial d. As interest on a loan, though
personality separate and distinct from that the amount of payment vary
of each of the partners, even in case of with the profits of the
failure to comply with the requirements of business;
Article 1772, first paragraph. e. As the consideration for the
sale of a goodwill of a business
Artificial/Juridical Person or other property by
 An entity, such as a corporation, created installments or otherwise.
by law and given certain legal rights and
duties of a human being Rule 1
 There are four persons in the partnership  Partnership by estoppel is an exception
of A, B, and C (the natural persons and the  Partnership by estoppel—a partnership not
juridical person) duly organized has been recognized in its
 Rights of a JP dealings with certain persons where the
o Acquire and possess real and persons dealing with it are estopped
personal property (precluded) from denying its partnership
o Incur obligations existence
o Bring civil or criminal actions
Rule 2: Co-ownership or co-possession
Art. 1769. In determining whether a
partnership exists, these rules shall apply: Partnership Co-ownership
(1) Except as provided by Article 1825, Creation
persons who are not partners as to By contract By contract and law
Juridical Personality
each other are not partners as to
Has legal or juridical No legal or juridical
third persons; personality personality
(2) Co-ownership or co-possession does
not of itself establish a partnership, Can be sued Cannot be sued
whether such co-owners or co- Purpose
possessors do or do not share any For profit For common
profits made by the use of the enjoyment of a thing
or right
property;
(3) The sharing of gross returns does not Not necessarily for
of itself establish a partnership, profit
whether or not the persons sharing Profit
them have a joint or common right or May be stipulated Must always depend
interest in any property from which upon on proportionate
the returns are derived; shares

Any stipulation to the

 contrary is void 2. A partnership formed to furnish houses for
Dissolution prostitution purposes
Dissolved by death or Not dissolved by death 3. A partnership formed to create illegal
incapacity of a partner or incapacity of co- monopolies or combinations in restraint of
owner
trade
Form
May appear in any
form No public instrument Effects of unlawful partnership
is needed even if a 1. Contract is void from the beginning
Public instrument is real property is the 2. Profits shall be confiscated in favor of the
required when real object of co-ownership government
property is contributed
3. Instruments/tools and proceeds of the
crime shall be forfeited in favor of the
government
Rule 3: Sharing of gross returns (does not)
4. Contributions of partners shall not be
 Sharing of net profit—a contract of
confiscated unless they are #3
partnership is presumed
 Sharing of gross returns—no presumption
Art. 1771. A partnership may be constituted
of a contract of partnership
in any form, except where immovable
property or real rights are contributed
Rule 4: Sharing of the profits of the business
thereto, in which case a public instrument
(prima facie)
shall be necessary.
 Prima facie—sufficient to establish a fact
 NOT A PARTNERSHIP
Form
o Agreement of sharing gross returns
of
o Joint purchase of property (they are Exception:
merely tenants)
o Agreement of sharing the profits or If real properties or real rights in
losses on sale of such property real properties are contributed,
o Common ownership of property
THERE SHOULD BE A PUBLIC
INSTRUMENT
&
Art. 1770. A partnership must have a lawful AN INVENTORY ATTACHED TO THE
object or purpose, and must be established PUBLIC INSTRUMENT
for the common benefit or interest of the
partners. Otherwise, the contract of
When an unlawful partnership is partnership is VOID.
dissolved by a judicial decree, the profits
shall be confiscated in favor of the State, Contract of Partnership
without prejudice to the provisions of the  General rule: No form is required
Penal Code governing the confiscation of
the instruments and effects of a crime. Terms
 Real rights—right connected with a thing
Lawful Object of Purpose rather than a person (personal right)
 Must be within the commerce of man  Public instrument—document prepared by
 Not impossible a notary public in the presence of the
 Must not be contrary to law, morals, good parties who sign it before witnesses
customs, public order, or public policy
Art. 1772. Every contract of partnership
Examples of unlawful partnership having a capital of three thousand pesos or
1. A partnership formed for gambling more, in money or property, shall appear in
purposes a public instrument, which must be
 If the capital is three thousand pesos
or more,

re THERE SHOULD BE A PUBLIC and Universal partnership Particular partnership

Ex INSTRUMENT (1) Of all present
& property - Has for its
the
re SUCH MUST BE REGISTERED WITH raph object
sh SEC. the All the property determinate
contributed to things, their
pa of to
Otherwise, the contract is STILL the common fund use or fruits, or
th with the intention of specific
VALID.
dividing the undertaking, or
same among the exercise of
themselves as well profession or
as the profits which vocation.
may be acquired
therewith.

(2) Of all profits

All that the

partners acquire
by industry or work
during the
existence of
the partnership.
Liability
General partnership Limited partnership
- All the partners - At least one
are general general partner
partners and one limited
- Partners are partner
liable up to the - A limited
extent of their partner is liable
separate only to the
properties after extent of his
the assets of contribution
the partnership
have been
exhausted
Duration
Partnership at Partnership Partnership
will with a fixed for a
(either:) term particular
- no fixed - life or undertaking
term period of - exists until
- not formed existence the
for a has been purpose is
particular agreed fulfilled
undertakin upon by
g partners
- one for a
fixed term
of
particular
undertakin
g that is
continued
after
terminatio
n of such
term
- particular
 undertakin becomes the common property of all the
g without partners, as well as the profits of which
any they may acquire therewith.
express
agreement
Representation to Others A stipulation for the common enjoyment of
Ordinary Partnership Partnership by any other profits may also be made; but the
- where two or more estoppel property which the partners may acquire
persons bind - persons (by words subsequently by inheritance, legacy, or
themselves to spoken or written donation cannot be included in such
contribute MPI to a by conduct) stipulation, except the fruits thereof.
common fund represent
- with the intention themselves or
of dividing the consent to another Future Property (inheritance, legacy, or donation)
profits among representing them Such cannot be included because:
themselves to anyone as 1. As a rule, contracts regarding successional
partners in an rights cannot be made
existing 2. A partnership demands that the
partnership with contributed things be determinate, known
one or more
persons not and certain
actually partners 3. A universal partnership of all present
Legality of Its Existence properties really implies a donation, and it
De Jure Partnership De Facto Partnership is well-known that generally, future
- complied with all - has not complied property cannot be donated
legal requirements with all the legal
for its creation requirements for
Art. 1780. A universal partnership of profits
its creation
comprises all that the partners may acquire
by their industry or work during the
existence of the partnership.
Art. 1777. A universal partnership may refer Movable or immovable property
to all the present property or to all the which each of the partners may possess at
profits. the time of the celebration of the contract
shall continue to pertain exclusively to
Kinds of Universal Partnerships each, only the usufruct passing to the
1. Partnership of all present property partnership.
2. Partnership of all profits
Universal partnership of profits
Art. 1778. A partnership of all present  Partners retain ownership over their
property is that in which the partners present and future property
contribute all the property which actually  Only the use of the asset and the profits
belongs to them to a common fund, with the are passed to the partnership
intention of dividing the same among
themselves, as well as all the profits which
they may acquire therewith.

Contributions of partners
1. All properties actually belonging to the
partners All Present Property Profits
2. Profits acquired with said properties All present property Only the usufruct (use
belonging to partners and fruits) of the
that were contributed properties of the
Art. 1779. In a universal partnership of all become common partners becomes
present property, the property which property of all common property of
belongs to each of the partners at the time partners and the all the partners and
of the constitution of the partnership, partnership the partnership
General Rule:
Only the profits of said
contributed property
become common
property, but not
profits arising from the
other property of
owners.
Exception:
If stipulated, the
profits from other
property of the
partners may become
common.
All profits acquired
through the “industry”
or “work” of the
partners become
common property.
advantage cannot enter into universal
partnership.
Rationale
 Universal partnership is virtually a
donation of each partner’s properties (or
at least, their usufruct)
 Therefore, if persons are prohibited to
donate to each other, they should not be
allowed to do indirectly what the law
forbids directly.

Note:
The properties In violation
subsequently acquired  The partnership becomes null and void,
by inheritance, legacy,
raised anytime
or donation cannot be
included in the Persons who cannot enter into a universal
stipulation, but the partnership
fruits thereof can be 1. Legally married spouses
included in the a. However, particular partnership for
stipulation. exercise of a profession or vocation
is allowed
Art. 1781. Articles of universal partnership, 2. Persons living together as husband and
entered into without specification of its wife without valid marriage
nature, only constitute a universal 3. Persons guilty of adultery or concubinage
partnership of profits. at the time of the donation
4. Persons guilty of the same criminal offense
Presumption in favor of UPP 5. Person/s and a public officer or his wife,
 Less obligation is imposed because the descendants and ascendants, by reason of
real and personal properties are retained his office
by them in naked ownership.
Art. 1783. A particular partnership has for
Art. 1782. Persons who are prohibited from its object determinate things, their use or
giving each other any donation or fruits, or specific undertaking, or the
exercise of a profession or vocation.
CHAPTER 2: OBLIGATIONS OF THE PARTNERS manage the in the the winding
business or business or up or
affairs of the affairs of the liquidation of
Kinds of Partners (As to:) partnership partnership the
Contribution partnership
Capitalist Industrial Capital-industrial affairs after
partners partners partners dissolution
- Money or - Only industry - Money/prope Third Persons
property or labor rty and Ostensible Secret partners Dormant
industry or partners - Active part partners
all three - Active part - Not known - Do not take
Liability - Known active part
General partners Limited partners - Not known
- Those held liable to - Cannot be held liable Membership
third persons to the to third persons Real partners Partners by estoppel
extent of their - Partners in an existing - Not really partners but
separate property legal partnership represent themselves,
Management or consent to another
Managing Silent partners Liquidating or other representing
partners - Do not take partners them to anyone as
- Actively active part - Take charge of partners in an existing
 partnership or in one any business which 5. Property rights of
that is fictitious or is of the kind in partners
apparent
Continuation of the business affairs after dissolution
which the a) Rights in
Continuing partners Discontinuing partners
partnership is specific
- Continue the - Do not continue the engaged partnership
partnership after partnership business 5. Obligation of b) Interest in the
dissolution after the dissolution managing partners partnership
Nature of the membership to credit to the c) Right to
Original partners Incoming Retiring partners
- Members of partners - Withdraw
partnership the participate in
the - Became from the payment made by a the
partnership members partnership debtor who owes management
from the after the them and the
time of its establishme partnership Note:
constitution nt 6. Obligation to share Limited
State of survivorship
with the other partners have no right
Surviving partners Deceased partners
- Continue the - Died while being a partners the share to participate in the
partnership after its member of the of the partnership management.
dissolution caused by partnership credit which they
death of a partner have received from
Effect of expulsion an insolvent
Expelled partners Expelling partners
partnership debtor
- Expelled from the - Cause the expulsion of
partnership by the a partner for a valid 7. Pay for damages
other partners for a cause suffered by the
valid cause partnership through
Value of the contribution their fault
Majority partners Nominal partners
- Contribution - Contribution to the
represents majority or partnership represents Art. 1784. A partnership begins from the
controlling interest the minority interest moment of the execution of the contract,
unless it is otherwise stipulated.

Section 1. Obligations of the Partners General rule

among Themselves  Partnership begins the moment the
contract is executed.
Legal relations created by a contract of
partnership Exception
1. Relations between partners  Partners can stipulate other dates for the
2. Relations between partners and the start of the partnership.
partnership Art. 1785. When a partnership for a fixed
3. Relations between partners and the third term or particular undertaking is continued
persons after the termination of such term or
4. Relations between the partnership and particular undertaking without any express
third persons agreement, the rights and duties of the
partners remain the same as they were at
Obligations and rights of partners such termination, so far as is consistent
Obligations Rights with a partnership at will.
1. To give their 1. Right to associate A continuation of the business by the
promised with another person partners or such of them as habitually acted
contribution in their share
2. Not to convert 2. Right to have therein during the term, without any
partnership money access to inspect settlement or liquidation of the partnership
to their own use and copy affairs, is prima facie evidence of a
3. Account and hold as partnership books continuation of the partnership.
trustee for any 3. Right to demand a
profits derived formal account Rationale
without the consent 4. Right to ask for the
 A partnership can be continued by
of the other dissolution of the
partners partnership at the partners without express agreement after
4. Not to engage in proper time termination of term.

Art. 1786. Every partner is a debtor of the
partnership for whatever he may have
promised to contribute thereto.
He shall also be bound for warranty in
case of eviction with regard to specific and
determinate things which he may have
contributed to the partnership, in the same
cases and in the same manner as the
vendor is bound with respect to the vendee.
He shall also be liable for the fruits thereof
from the time they should have been
delivered, without the need of any demand.
Obligation of every partner
1. The obligation to contribute what had
been promised
 Failure to contribute is to make the
partner a debtor of the partnership
even without demand (this is an
exception to the general rule that
there is no delay without demand)
 If there is failure to deliver the
promised contribution, REMEDY—
specific performance with interest
and damages occasioned thereby
and not rescission
2. The obligation to deliver the fruits thereof
 If property is promised, fruits
should also be given (arising from
the time they should’ve been
delivered, without need of demand)
 If partner is in bad faith, partner
will be liable for the fruits and
those that could have been
produced
 If money is promised and failed to
be delivered, partner will become a
debtor for the interest and
damages from the time he should
have complied with his obligation
3. The obligation to warrant
 Warranty against eviction
 Warranty against hidden defect
Art. 1787. When the capital or a part
thereof which a partner is bound to
contribute consists of goods, their appraisal
must be made in the manner prescribed in
the contract of partnership, and in the
absence of stipulation, it shall be made by
experts chosen by the partners according to
current prices, the subsequent changes
thereof being for account of the
partnership.
Manner of appraisal
1. By stipulation
2. In the absence of stipulation, by experts
chosen by the partners according to
current prices
Art. 1788. A partner who has undertaken to
contribute a sum of money and fails to do
so becomes a debtor for the interest and
damages from the time he should have
complied with his obligation.
The same rule applies to any amount
he may have taken from the partnership
coffers, and his liability shall begin from the
time he converted the amount to his own
use.
Settled rule
- Contribution failed to be made makes
partner a debtor
- Debt = amount promised + interest and
damages (from the time contribution
should’ve been made)
Where liability for damages and interest is
recognized
1. Money promised by a partner is not given
on time
2. Money of the partnership is converted to
partner’s own use
Demand is not necessary
1. In the case of CONTRIBUTION—since time
is of the essence
2. In the case of CONVERSION—demand is
necessary even without injury. Liability
exists because the Article is absolute
Art. 1789. An industrial partner cannot
engage in business for himself, unless the
partnership expressly permits him to do so;
and if he should do so, the capitalist
partners may either exclude him from the
firm or avail themselves of the benefits
which he may have obtained in violation of
this provision, with a right to damages in
either case.
Partners’ contribution
1. Capitalist—money or property, or both
 2. Industrial—only industry who refuses to contribute an additional
3. Capitalist-industrialist—money or property share to the capital, except an industrial
and industry; or all three partner, to save the venture, shall be
Capitalist vs. Industrialist obliged to sell his interest to the other
Contribution partners.
Money or property Industry Obligation of the capitalist partners
Prohibition to engage in other business to contribute additional capital.
General rule: General rule:
Cannot engage in the Cannot engage in
same kind of business business for himself General rule
in which the - Capitalist partners are not bound to
partnership is contribute additional capital.
engaged Exception:
If he is permitted by Exception
Exception: the partnership 1. Stipulation
Stipulation authorizing
2. If business is in imminent loss
him
Profits
According to According to If they refuse to contribute additional
agreement agreement capital to save the venture, they shall be
obliged to sell their interest to the other
If there is none, in If there is none, his capitalist partners who are willing to
proportion to his share shall be such contribute additional capital.
contribution that it is just and
equitable under the
Art. 1792. If a partner authorized to manage
circumstances
Losses collects a demandable sum which was owed
General rule: General rule: to him in his own name, from a person who
The agreement, if any. The agreement, if any. owes the partnership another sum also
If there is none, then demandable, the sum thus collected shall
the agreement as to be applied to the two credits in proportion
profits to their amounts, even though he may have
Exception:
given a receipt for his own credit only; but
Exception: In the absence of
In the absence of agreement, the should he have given it for the account of
agreement as to industrial partner is the partnership credit, the amount shall be
profits and losses, in NOT LIABLE FOR fully applied to the latter.
proportion to his LOSSES The provisions of this article are
contribution understood to be without prejudice to the
right granted to the debtor by Article 1242,
Remedies of capitalist partners against an
but only if the personal credit of the partner
industrial partner who engaged in business for should be more onerous to him.
himself
1. CPs may exclude IP from the partnership;
Rationale
plus damages - To prevent furtherance of the partner’s
2. CPs may avail themselves of the benefits personal interest to the detriment of the
which the IP may have obtained; plus
partnership
damages - Applicable to managing partners only
because there is no basis for suspicion on
Art, 1790. Unless there is a stipulation to the non-managing partners to be
the contrary, the partners shall contribute managing in bad faith
equal shares to the capital of the
partnership. Requisites for the said managing partner
obligation
Art. 1791. If there is no agreement to the
1. There should be at least two debts (one
contrary, in case of an imminent loss of the with the MP as the creditor, one where the
business of the partnership, any partner partnership is the creditor)
 2. Both sums are demandable
Art. 1793. A partner who has received, in
whole or in part, his share of a partnership
credit, when the other partners have not
collected theirs, shall be obliged, if the
debtor should thereafter become insolvent,
to bring to the partnership capital what he
received even though he may have given
receipt for his share only.
Article 1792 Article 1793
As to the number of credits
Two (one for MP, one Only one (for the
for partnership) partnership)
As to applicability
Applies only if partner Applies to any partner
is MP
As to debtor’s insolvency
Debtor is not insolvent Debtor has become
insolvent
Art. 1794. Every partner is responsible to
the partnership for damages suffered by it
through his fault, and he cannot
compensate them with the profits and
benefits which he may have earned for the
partnership by his industry. However, the
courts may equitably lessen
responsibility if through the partner’s
extraordinary efforts in other activities of
the partnership, unusual profits have been
realized.
Rule
- Damages caused by a partner’s
negligence cannot be off-set by the
benefits he earned for the partnership
through his industry
Rationale
- He merely maintains his obligation to earn
benefits (an obligation)
- It is his obligation not to cause damages
(an obligation)
- Only a right and an obligation can be
compensated
Mitigation
- In case a partner’s extraordinary efforts in
other activities caused the partnership to
realize unusual profits
- Principle rests on equity
Art. 1795. The risk of specific and
determinate things, which are not fungible,
contributed to the partnership so that only
their use and fruits may be for the common
benefit, shall be borne by the partner who
owns them.
If the things contributed are fungible,
or cannot be kept without deteriorating, or
if they were contributed to be sold, the risk
shall be borne by the partnership. In the
absence of stipulation, the risk of the things
brought and appraised in the inventory,
shall also be borne by the partnership, and
in such case the claim shall be limited to
the value at which they were separated.
Risk of loss
1. Specific and determinate things which are
not fungible
 Only the use of the object is
contributed
 Ownership is not transferred by the
partner to the partnership
 Thus, it is the partner who bears
the risk of loss
2. (To 4) Fungible things, things contributed
the to be sold, things brought and appraised in
the inventory
 The partnership bears the risk of
loss since there was transfer of
ownership
Art. 1796. The partnership shall be
responsible to every partner for the
amounts he may have disbursed on behalf
of the partnership and for the
corresponding interest, from the time the
expenses are made; it shall also answer to
each partner for the obligations he may
have contracted in good faith in the interest
of the partnership business, and for risks in
consequence of its management.
Obligation of the partnership to every partner
1. Refund the amounts disbursed by partner
on behalf of the partnership + interest
form the time the expenses were made
2. To answer to each partner for obligations
contracted into in good faith in the interest
of the partnership, and for the risks in
consequence of its management
Art. 1797. The losses and profits shall be
distributed in conformity with the
agreement. If only the share of each partner who has not impugned the same within a
in the profits has been agreed upon, the period of three months from the time he
share of each in the losses shall be in the had knowledge thereof, complain of such
same proportion. decision.
In the absence of stipulation, the The designation of losses and profits
share of each partner in the profits and cannot be intrusted to one of the partners.
losses shall be in proportion to what he may Third person designating the share of
have contributed, but the industrial partner partners in the profits and losses.
shall not be liable for the losses. As for the
profits, the industrial partner shall receive General rule
such share as may be just and equitable - It is valid for a partner to intrust his share
under the circumstances. If besides his of the profits/losses to third persons
services he has contributed capital, he shall
also receive a share in the profits in Exception
proportion to his capital. - It is not valid and it may be questioned if it
is manifestly inequitable; unless:
Distribution of profits and losses of a o A partner began to execute the
partnership decision of the third person
Distribution of profits o A partner has not questioned the
According to If there is no
said decision of the third person
agreement agreement
within a period of 3 months from
In proportion
Capital to what he the time he had knowledge thereof
ist may have
partne contributed to Art. 1799. A stipulation which excludes one
Shall be distributed in rs the common or more partners from any share in the
conformity with the fund profits or losses is void.
agreement That which is
Industr
just and
ial equitable General rule
partne - Only the stipulation is void, not the
under the
rs contract of partnership
circumstances
Distribution of losses - Hence, the profits and losses shall be
According to If there is no distributed as if there was no agreement
agreement agreement as discussed in this article
Losses will be In proportion - The stipulation is also void since it
distributed in Capital to what he
opposes the main reason for the
conformity with the ist may have
agreement. partne contributed to partnership to exist which is the intent to
rs the common share profits
Agreement pertaining fund
to share of each Exception
partner in the profits Industr - An industrial partner is not liable for losses
will also apply to the ial Not liable for unless he waived the right
share of each in the partne losses
losses in the same rs
proportion. Why is an industrial partner not liable for losses?
- While capitalist partners can withdraw
their capital, the industrial partner cannot
Art. 1798. If the partners have agreed to withdraw any labor or industry he had
intrust to a third person the designation of already exerted
the share of each one in the profits and - He has already shared in the losses even
losses, such designation may be impugned before distribution of profit/loss. If the
only when it is manifestly inequitable. In no partnership shows no profit, this means he
case may a partner who has begun to has labored in vain
execute the decision of the third person, or Art. 1800. The partner who has been
appointed manager in the articles of
partnership may execute all acts of of his partners
administration despite the opposition of his 2) If he acts in bad faith,
he cannot do any act
partners, unless he should act in bad faith; of administration. It
and his power is irrevocable without just or must be noted that
lawful cause. The vote of the partners the presumption in
law is in favor of good
representing the controlling interest shall
faith
be necessary for such revocation of power. Art. 1801. If two or more partners have
A power granted after the been intrusted with the management of the
partnership has been constituted may be partnership without specification of the
revoked at any time. respective duties, or without a stipulation
that one of them shall not act without the
Who shall manage the partnership? consent of all the others, each one may
- Either some or all of the partnerships separately execute all acts of
designated as managing partner/s administration, but if any of them should
o in the articles of partnership oppose the acts of the others, the decision
o after the contract of partnership of the majority shall prevail. In case of a tie,
had already been constituted the matter shall be decided by the partners
- If there is no agreement, management is owning the controlling interest.
vested on all of the partners
Requisites of two or more managing partners in
Two modes of appointment this article
1. Appointment as manager in the articles of 1. Two or more partners are managers
partnership 2. There is no specification of respective
2. Appointment as manager made in an duties
instrument other than the articles of 3. There is no stipulation requiring unanimity,
partnership that is, one of them shall not act without
the consent of all the others
Appointment in the Appointment in other
articles of partnership than the articles of
partnership General rule
General Rule - Each one may separately execute all acts
Power is irrevocable Power may be revoked of administration
without just or lawful any time, with or without
cause just cause by the
partners owning the
Exception
control interest If any of the managers oppose
1. The decision of the majority (per head) of
(Since such appointment the managing partners shall prevail
is a mere delegation of
power) 2. In case of a tie, the decision of the
Exception managing partners with controlling
1) To remove for just interest (more than 50%) shall prevail
cause, vote of
partners having
controlling interest is Note
necessary - The right to oppose is not given to non-
2) To remove without just managers because in appointing their
cause, UNANIMITY is
required.
other partners as managers, they have
(Represents a change stripped themselves of all participation in
in the will of the the administration
parties; a change in
the terms of the
contract; a novation) Art. 1802. In case it should have been
Extent of Power stipulated that none of the managing
1) If he acts in good The manager can do all partners shall act without the consent of
faith, he may do all acts of administration.
acts of administration
the others, the concurrence of all shall be
despite the opposition necessary for the validity of the acts, and
the absence or disability of any one of them
cannot be alleged, unless there is imminent
danger of grave or irreparable injury to the
partnership.
General rule
- Unanimous consent of all the managing
partners (even if one of them is absent or
incapacitated) is necessary for the validity
of the acts and absence or disability of any
managing partner cannot be alleged
Exception
- Only when the partnership is in imminent
danger or grave irreparable injury
Art. 1803. When the manner of
management has not been agreed upon, the
following rules shall be observed:
(1) All the partners shall be considered
agents and whatever any one of them
may do alone shall bind the
partnership, without prejudice to the
provisions of Article 1801.
(2) None of the partners may, without
the consent of the others, make any
important alteration in the
immovable property of the
partnership, even if it may be useful
to the partnership. But if the refusal
of consent by the other partners is
manifestly prejudicial to the interest
of the partnership, the court’s
intervention may be sought
Rules when manner of management has not been
agreed upon
1. All the partners shall be considered as
managers
2. For important alterations in immovable
property, unanimity is required
Art. 1804. Every partner may associate
another person with him in his share, but
the associate shall not be admitted into the
partnership without the consent of all the
other partners, even if the partner having
an associate should be a manager.
Contract of Sub-partnership
- Relates to the article above
- Where all partners can have an associate
in his share or sub-partner
- An associate or sub-partner shall not be
admitted into the partnership without the
consent of all the other partners based on
the following reasons
o Mutual trust is the basis of
partnership
o A change in membership is a
modification or novation of the
contract
Art. 1805. The partnership books shall be
kept, subject to any agreement between the
partners, at the principal place of business
of the partnership, and every partner at any
reasonable hour have access to and may
inspect and copy any of them.
Rationale
- A partner is given by law the right to have
access to, inspect, and copy the
partnership books
- Partnership books is an example of
partnership property that every partner
co-owns
Reasonable hour
- Business days throughout the year, not
merely during some arbitrary period of a
few days chosen by MPs
Art. 1806. Partners shall render on demand
true and full information of all things
affecting the partnership to any partner or
the legal representative of any deceased
partner or of any partner under legal
disability.
General rule
- Violation of the above article refers to
concealment
- Who can demand true and full information
o Any partner
o Legal representative of any
deceased partner
o Legal representative of any partner
under legal disability
Art. 1807. Every partner must account to
the partnership for any benefit, and hold as
trustee for it any profits derived by him
without the consent of the other partners
from any transaction connected with the
formation, conduct, or liquidation of the
partnership or from any use by him of its
property. Exceptions
- Items listed in the Article
Rationale
- The partners are governed by fiduciary INDUSTRIAL PARTNER CAPITALIST PARTNER
relationship, that is, mutual trust and Prohibition
confidence Absolute prohibition: Relative prohibition:
- This refers only to profits derived by a The industrial partner The capitalist partner
partner without the consent of the other cannot engage in cannot engage in the
business for himself same kind of business
partners
unless the partnership as that of the
expressly permits him partnership for his
Art. 1808. The capitalist partners cannot to do so. own account, unless
engage for their own account any operation there is a stipulation
which is of the kind of business in which the to the contrary.
partnership is engaged, unless there is a Remedy
stipulation to the contrary. Capitalist partners Capital partners in
may: violation shall:
Any capitalist partner violating this
1. Bring to the
prohibition shall bring to the common funds 1. Exclude him common fund any
any profits accruing to him from his from the firm plus profits accruing to
transactions, and shall personally bear all damages; and him from said
the losses. 2. Avail transactions; and
themselves of the personally bears
Rationale benefits which he all losses
may have obtained
- The capitalist partner already knows of the
business secrets of the partnership

Effects of violation
- The capitalist partner shall bring to the
common fund any profits accruing to him;
and
- The capitalist partner shall personally bear
all the losses

Art. 1809. Any partner shall have the right

to a formal account as to partnership
affairs:
(1) If he is wrongfully excluded from the
Section 2. Property Rights of a Partner
partnership business or possession of
its property by his co-owners; Art. 1810. The property rights of a partner
(2) If the rights exist under the terms of
are:
any agreement; (1) His rights in specific partnership
(3) As provided by article 1807; and property;
(4) Whenever other circumstances (2) His interest in the partnership; and
render it just and reasonable. (3) His right to participate in the
management.
General rule
- No formal accounting is demandable until Explanation
after the dissolution of the partnership
 1. Specific partnership property
 Partners have co-ownership over
the properties for the operation of
the partnership
2. Interest in the partnership
 Share in the contribution, profits
3. Right to participate in the management
 Without a stipulation, all partners
are managers and each partner can
perform all acts of administration
Art. 1811. A partner is co-owner with his
partners of specific partnership property.
The incidents of this co-ownership
are such that:
(1) A partner, subject to the provisions of
this Title and to any agreement
between the partners, has an equal
right with his partners to possess
specific partnership property for
partnership purposes; but he has no
right to possess such property for
any other purpose without the
consent of his partners;
(2) A partner’s right in specific
partnership property is not
assignable except in connection with
the assignment of rights of all the
partners in the same property.
(3) A partner’s right in specific
partnership property is not subject to
attachment or execution, except on a
claim against the partnership. When
partnership property is attached for a
partnership debt, the partners, or any
of them, or the representatives of a
deceased partner, cannot claim any
right under the homestead or
exemption laws;
(4) A partner’s right in specific
partnership property is not subject to
legal support under Article 291.
Rule
- A partner’s interest in specific partnership
poverty cannot be assigned, attached, nor
be subjected to legal support
Explanation
1. A partner has an equal right with his
partners to possess specific partnership
property for partnership purposes
2. A partner’s right in specific partnership
property is assignable
 ASSIGNMENT—the transfer of rights
or property. The rights or property
so transferred
3. A partner’s right in specific partnership
property is not subject to attachment or
execution
 Partners’ separate creditors cannot
ask the court for attachment or
execution of these properties as
these are now owned by the
partnership which has a separate
juridical personality
 ATTACHMENT—the legal process of
seizing property to ensure
satisfaction of a judgment
 EXECUTION—the carrying out of
the course of conduct to its
completion (if a partner has been
executed a writ to seize his
properties by a creditor he
defaulted)
4. A partner’s right in specific partnership
property is not subject to legal support
Art. 1812. A partner’s interest in the
partnership is his share of the profits and
surplus.
Unlike the preceding article,
 A partner’s interest in the
partnership (partners’ share in the
profits and surplus) can be
assigned, attached, and subject to
legal support.
Explanation
- PROFIT—the excess of revenues over
expenditures in a business transaction
- SURPLUS—the excess of receipts over
disbursements. Funds that remain after
dissolution and settlement of debts

Art. 1813. A conveyance by a partner of his
whole interest in the partnership does not
of itself dissolve the partnership, or, as
against the other partners in the absence of
agreement, entitle the assignee, during the
continuance of the partnership, to interfere
in the management or administration of the
partnership business or affairs, or to
require any information or account of
partnership transactions, or to inspect the
partnership books; but it merely entitles
the assignee to receive in accordance with
his contract the profits to which the
assigning partner would otherwise be
entitled. However, in the case of fraud in
the management of the partnership, the
assignee may avail himself of the usual
remedies.
In case of a dissolution of the
partnership, the assignee is entitled to
receive his assignor’s interest and may
require an account from the date only of the
last account agreed to by all the partners.
Conveyance
- The voluntary transfer of a right or of
property
Effects of conveyance by partner of his whole
interest in the partnership
1. If a partnership conveys (assigns, sells,
donates) his whole interest in the
partnership, it may still subsist (general
rule) or it may be dissolved (this is an
exception, for example, if the remaining
partners do not want to continue the
operation of the business of the
partnership
2. The assignee:
a. Cannot interfere in the
management
b. Cannot require information or
accounting of partners and
transactions
c. Cannot inspect partnership books
Rights of the assignee
1. To receive the profits to which the
assigning partner would otherwise be
entitled;
2. In case of fraud in the management of the
partnership, the assignee may avail
himself of the usual remedies provided by
law;
3. In case of dissolution, to receive the
assignor’s interest; and
4. In case of dissolution, the assignee may
require an account from the date only of
the last account agreed to by all the
partners
Art. 1814. Without prejudice to the
preferred rights of partnership creditors
under Article 1827, on due application to a
competent court by any judgment creditor
of a partner, the court which entered the
judgment, or any other court, may charge
the interest of the debtor partner with
payment of the unsatisfied amount of such
judgment debt with interest thereon; and
may then or later appoint a receiver of his
share of the profits, and of any other money
due or to fall due to him in respect of the
partnership, and make all other orders,
directions, accounts and inquiries which the
debtor partner might have made, or which
the circumstances of the case may require.
The interest charged may be
redeemed at any time before foreclosure, or
in case of a sale being directed by the
court, may be purchased without thereby
causing a dissolution:
(1) With separate property, by any one or
more of the partners; or
(2) With partnership property, by any
one or more of the partners with the
consent of all the partners whose
interests are not so changed or sold.
Nothing in this Title shall held to
deprive a partner of his right, if any, under
the exemption laws, as regards his interest
in the partnership.
“Charging order” upon a partner’s interest in the
partnership
- Refers to the remedy available to a
judgment creditor of a debtor-partner
- To charge the interest of the debtor-
partner by means of a court order for the
 purpose of satisfying the amount of the
judgment
- JUDGMENT CREDITOR: a person or
company that a court of law has decided
has the legal right to receive money from
another person or company
- A receiver of the debtor-partners’ share of
the profits may even be appointed
- This charging order, however, is always
subject to the preferred rights of
partnership creditors
Right of a partner under exemption laws
- A partner shall not be deprived of his right
under the exemption laws, as regards his
interest in the partnership
- However, a partner cannot avail himself of
the exemption laws insofar as his right in
specific partnership property is concerned

Appointment of a receiver
- The court:
o Is the one who appoints the
receiver
o Make:
 All other orders
 Directions
 Accounts
 Inquiries which the debtor-
partner might have made,
or which the circumstances
of the case may require
- Receiver will receive:
o Debtor’s share of the profits
o Any other money due or to fall due
to the partner in respect of the Section 3. Obligations of the Partners
partnership with Regard to Third Persons

Redemption of interest charged Art. 1815. Every partnership shall operate

(by the partners other than the debtor-partner) under a firm name, which may or may not
include the name of one or more of the
Foreclosure—the action of taking partners.
possession of partner’s interest by the Those who, not being members of the
creditor partnership, include their names in the firm
name, shall be subject to the liability of the
Redemption—the extinguishment of the partner.
charge or attachment on the partner’s
interest in the profits General rule
- The partners may use any firm name
1. Before foreclosure desired and this will be the name of that
 Interest charged may be redeemed juridical person.
at any time before foreclosure
2. After foreclosure Exception
It may still be purchased without thereby - The partnership cannot use:
causing a dissolution: o An identical or deceptively
 With separate property of a confusingly similar name to that of
partner; or any existing partnership or
 With partnership property with the corporation or to any other name
consent already protected by law or is
patently deceptive or contrary to
existing laws
 - Non-partners who include their names in
the firm name shall be subject to the
liability of a partner. This is based on the
principle of estoppel.
o The purpose of the law is to protect
innocent third persons from being
misled
o Such person has no right as a
partner because he is in fact not a
partner
Art. 1816. All partners, including industrial
ones, shall be liable pro rata with all their
property and after all the partnership
assets have been exhausted, for the
contracts which may be entered into in the
name and for the account of the
partnership, under its signature and by a
person authorized to act for the
partnership. However, any partner may
enter into a separate obligation to perform
a partnership contract.
Liability for contractual obligations
- The article refers to liability and not to
loss, which is why even an industrial
partner is also liable
- Industrial partner is only not liable with
respect to loss
- All partners (including IPs) is liable pro rata
and subsidiary, unless otherwise
stipulated
- After payment, IP may demand equal
reimbursement from capitalist partners
Note:
- Pro rata—equally or jointly
- Subsidiary—the partners’ separate
property may be held liable only after the
partnership creditors have exhausted the
assets of the partnership
- Liability—as to third persons
- Losses—as between the partners
Separate obligation of a partner
- If a partner, in his own name, enters into a
contract with a third person, then it is only
that partner who is liable and not the
partnership
Art. 1817. Any stipulation against the
liability laid down in the preceding article
shall be void, except as among the
partners.
Stipulation against liability
- Stipulation against liability of all partners
for the contracts entered into in the name
of the partnership is void as to third
persons
- But it is valid among the partners
- EXAMPLE:
o One partner cannot stipulate that
one of them will not be liable to the
3rd person beyond his contribution;
such will be void.
o But, such stipulation will be valid
among partners. This, the partner
planned not to be liable still has to
pay to his share on the liability to
the 3rd person. But, he can ask
reimbursement from the CPs (IP
excluded)
Art. 1818. Every partner is an agent of the
partnership for the purpose of its business,
and the act of every partner, including the
execution in the partnership name of any
instrument, for apparently carrying on in
the usual way the business of the
partnership of which he is a member binds
the partnership, unless the partner so
acting has in fact no authority to act for the
partnership in the particular matter, and the
person with whom he is dealing has
knowledge of the fact that he has no such
authority.
An act of a partner which is not
apparently for the carrying on of the
business of the partnership in the usual way
does not bind the partnership unless
authorized by the other partners.
Except when authorized by the other
partners or unless they have abandoned the
business, one or more but less than all the
partners have no authority to:
(1) Assign the partnership property in
trust for creditors or on the
assignee’s promise to pay the debts
of the partnership;
(2) Dispose of the good-will of the
business;
 (3) Do any other act which would make it
impossible to carry on the ordinary
business of a partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning
a partnership claim or liability;
(6) Submit a partnership claim or
liability to arbitration; and
(7) Renounce a claim of the partnership.
Partner as agent of the partnership
- A contract of partnership is naturally
fiduciary
- Thus, trust and confidence governs the
partners
- Hence, every partner is an agent of the
other partners and the partnership
I. Acts apparently for carrying on in the
usual way the business of the partnership
This binds the partnership unless:
a. The partner so acting has in fact no
authority to act for the partnership
b. The person with whom he is
dealing has knowledge of the fact
that he has no such authority (bad
faith)
Act is still binding if acted by a person who
has no authority but such non-authority is
unknown to the person dealt with.
II. Acts not apparently for the carrying on in
the usual way of business of the
partnership
It does not bind the partnership, unless
authorized by the other partners.
III. Acts of ownership
Authority must come from partners
unanimously.
IV. Acts in contravention of a restriction on
authority
The act is not binding to the partnership
as to persons having knowledge of the
restriction.
Art. 1819. Where title to real property is in
the partnership name, any partner may
convey title to such property by a
conveyance executed in the partnership
name; but the partnership may recover such
property unless the partner’s act binds the
partnership under the provisions of the first
paragraph of Article 1818, or unless such
property has been conveyed by the grantee
or a person claiming through such grantee
to a holder for value without knowledge
that the partner, in making the conveyance,
has exceeded his authority.
Where title to real property is in the
name of the partnership, a conveyance
executed by a partner, in his own name,
passes the equitable interest of the
partnership, provided the act is one within
the authority of the partner under the
provisions of the first paragraph or Article
1818.
Where title to real property is in the
name of one or more but not all the
partners, and the record does not disclose
the right of the partnership, the partners in
whose name the title stands may convey
title to such property, but the partnership
may recover such property if the partners’
act does not bind the partnership under the
provisions of the first paragraph of Article
1818, unless the purchaser or his assignee,
is a holder for value, without knowledge.
Where the title to real property is in
the name of one or more or all of the
partners, or in a third person in trust for the
partnership, a conveyance executed by a
partner in the partnership name, or in his
own name, passes the equitable interest of
the partnership, provided the act is one
within the authority of the partner under
the provisions of the first paragraph of
Article 1818.
Where the title to real property is in
the name of all the partners a conveyance
executed by all the partners passes all their
rights in such property.
Title
 - A legal evidence of a person’s ownership Business:
rights in property; an instrument (such as Engaged in real estate
business
deed) that constitutes such evidence One or more (or all) of the partners
Conveyance: Additional:
Equitable interest Executed by a partner in Only the equitable
- An interest held by virtue of an equitable his/the partnership’s interest will be
name transferred to X
title or claimed on equitable grounds, such
as the interest held by a trust beneficiary Sale: X can ask for the
Valid and binding to the reformation of the
partnership contract of sale to
change the seller from
Business: partner to the
Engaged in real estate partnership
business
Equitable interest will not
be transferred if sale is
not in line with business
Real Property Registration operations
(Title to real property is in the name of:)
The Partnership Equitable interest will not
Conveyance: Additional: be transferred if C has no
Executed in the Sold land can be authority and X has
partnership name recovered if selling knowledge of it
partner has no authority All the Partners
Sale: to convey the land Conveyance: Sale:
Valid and binding to the Executed by all the Valid and binding to the
partnership Cannot be recovered if partners partnership
sale is in line with
Business: business operations Business:
Not mentioned as real Engaged in real estate
estate Cannot be recovered is business
buyer is in good faith (or Art. 1820. An admission or representation
no knowledge of C’s lack made by any partner concerning
of authority
partnership affairs within the scope of his
The Partnership
Conveyance: Additional: authority in accordance with this Title is
Executed in the partners’ Only the equitable evidence against the partnership.
name interest will be
transferred to X (3rd
Sale: person)
Admission
Valid and binding to the - A statement in which someone admits that
partnership X can ask for the something is true or that he or she has
reformation of the done something wrong
Business: contract of sale to
Engaged in real estate change the seller from - It is an evidence against the partnership if:
business partner to the o The admission concern partnership
partnership affairs
Equitable interest will not
o The admission is within the scope
be transferred if sale is of his authority
not in line with business - If done by a former partner after
operations retirement, it is not evidence against the
Equitable interest will not firm
be transferred if C has no
authority and X has Art. 1821. Notice to any partner of any
knowledge of it
One or more (but not all the partners)
matter relating to partnership affairs, and
Conveyance: Additional: the knowledge of the partner acting in the
Executed by partners Sold land cannot be particular matter, acquired while a partner
recovered if X is in good or then present to his mind, and the
Sale: faith
Valid and binding to the knowledge of any other partner who
partnership reasonably could and should have
communicated it to the acting partner,
operate as notice to or knowledge of the
partnership, except in the case of fraud on
the partnership, committed by or with the
consent of that partner.
General rule
- Notice to a partner is notice to the
partnership
Instances where knowledge of a partner is
considered knowledge of the partnership
1. Knowledge of the partner acting in the
particular matter acquired while a partner;
2. Knowledge of the partner acting in the
particular matter then present to his mind;
and
3. Knowledge of any other partner who
reasonably could and should have
communicated it to the acting partner
Exception
- In the case of fraud on the partnership,
committed by or with the consent of that
partner
Art. 1822. Where, by any wrongful act or
omission of any partner acting in the
ordinary course of the business of the
partnership or with the authority of co-
partners, loss or injury is caused to any
person, not being a partner in the
partnership, or any penalty is incurred, the
partnership is liable therefor to the same
extent as the partner so acting or omitting
to act.
Wrongful act or omission
- The other partners and the partnership are
solidarily liable with the negligent partner.
- But the partners or the partnership can
recover from C
Art. 1823. The partnership is bound to make
good the loss:
(1) Where one partner acting within the
scope of his apparent authority
receives money or property of a third
person and misapplies it; and
(2) Where the partnership in the course
of its business receives money or
property of a third person and the
money or property so received is
misapplied by any partner while it is
in the custody of the partnership.
Art. 1824. All partners solidarily with the
partnership for everything chargeable to
the partnership under Articles 1822 and
1823.
Art. 1825. When a person, by words spoken
or written or by conduct, represents
himself, or consents to another
representing him to anyone as a partner in
an existing partnership or with one or more
persons not actual partners, he is liable to
any such persons to whom such
representation has been made, who has, on
the faith of such representation, given
credit to the actual or apparent partnership,
and if he has made such representation or
consented to its being made in a public
manner he is liable to such person, whether
the representation has or has not been
made or communicated to such person so
giving credit by or with the knowledge of
the apparent partner making the
representation or consenting to its being
made:
(1) When a partnership liability results,
he is liable as though he were an
actual member of the partnership;
(2) When no partnership liability results,
he is liable pro rata with the other
persons, if any, so consenting to the
contract or representation as to incur
liability, otherwise separately.
When a person has been thus
represented to be a partner in an existing
partnership, or with one or more persons
not actual partners, he is an agent of the
persons consenting to such representation
to blind them to the same extent and in the
same manner as though he were a partner
in fact, with respect to persons who rely
upon the representation. When all the
members of the existing partnership
consent to the representation, a
partnership act or obligation results; but in
all other cases it is the joint act or
obligation of the person acting and the
persons consenting to the representation.
 - A creditor cannot go after the separate
Partnership by estoppel partner of the newly admitted partner is
- All partners consent to misrepresentation the latter is admitted after loan is incurred
of a third person who is not a real partner - Only the partners present upon incurrence
- This creates a partnership obligation of loan can the creditor go after
- All partners consenting are in bad faith,
they are all partners by estoppel Art. 1827. The creditors of the partnership
- Does not apply when the third person is shall be preferred to those of each partner
not deceived as regards the partnership property.
Without prejudice to this right, the private
Art. 1826. A person admitted into an creditors of each partner may ask the
existing partnership is liable for all the attachment and public sale of the share of
obligations of the partnership arising before the latter in the partnership assets.
his admission as though he had been a
partner when such obligations were Explanation
incurred, except that this liability shall be - This is due to the fact that the creditors of
satisfied only out of partnership property, the partnership contracted with the
unless there is a stipulation to the contrary. partnership which is a juridical person
having a separate juridical personality
Rule from the partner
CHAPTER 3: DISSOLUTION AND WINDING UP Up
The change in The process of The point in
General rule relation… settling time after all
- The partnership can only pay out what it business the
That point of affairs after partnership
has in its coffers, which consists of all its
time the dissolution. affairs have
assets partners been wound
- Before the partners can be paid their cease to carry Paying up
shares, the creditors of the partnership on the previous
must first be compensated. business obligations,
- Partners will only be paid whatever is left together collection of
of the partnership assets after all creditors assets
previously
have been paid
demandable,
contracting
Art. 1828. The dissolution of a partnership for new
is the change in the relation of the partners business
caused by any partner ceasing to be needed to
associated in the carrying on as wind up
distinguished from the winding up of the (contracting
with a
business.
demolition
company)
Dissolution
- The change in the relation of the parties Art. 1829. On dissolution the partnership is
caused by any partner ceasing to be not terminated, but continues until the
associated in the carrying on, as might be winding up of partnership affairs is
distinguished from the winding up of, the completed.
business.
- Upon dissolution, partnership continues After dissolution, all the transactions of the
and its legal personality is retained until partnerships should only pertain to liquidation or
the complete winding up of its business winding up which will happen over a period of
culminating in its termination time.

THREE FINAL STAGES OF A PARTNERSHIP

(1) Dissolution (2) Winding (3)Termination
Art. 1830. Dissolution is caused: (8) By decree of court under the
(1) Without violation of the agreement following article. (1700a and 1701a)
between the partners:
(a) By the termination of the
definite term or particular
undertaking specified in the
agreement;
(b) By the express will of any
partner, who must act in good
faith, when no definite term or Kinds of dissolution
particular is specified; 1. Extrajudicial dissolution (nos. 1 to 7)
(c) By the express will of all the 2. Judicial dissolution (no. 8)
partners who have not a. Without violation of the agreement
assigned their interests or between the partners
suffered them to be charged - By the termination of the
for their separate debts, either definite term or particular
before or after the termination undertaking specified in the
of any specified term or agreement
particular undertaking; - Partnership with a
(d) By the expulsion of any partner fixed term which
from the business bona fide in naturally dissolves
accordance with such a power after fixed term
conferred by the agreement - By the express will of any
between the partners; partner, who must act in
(2) In contravention of the agreement good faith when no definite
between the partners, where the term or particular
circumstances do not permit a undertaking is specified
dissolution under any other provision - Partnership at will
of this article, by the express will of which dissolves if
any partner at any time; one of the partners
(3) By any event which makes it unlawful want to discontinue
for the business of the partnership to operations
be carried on or for the members to - By the express will of all the
carry it on in partnership; partners who have not
(4) When a specific thing which a partner assigned their interests or
had promised to contribute to the suffered them to be charged
partnership, perishes before the for their separate debts,
delivery; in any case by the loss of either before or after the
the thing, when the partner who termination of any specified
contributed it having reserved the term or particular
ownership thereof, has only undertaking
transferred to the partnership the - Dissolves if both the
use or enjoyment of the same; but partners want to
the partnership shall not be dissolved discontinue
by the loss of the thing when it operations
occurs after the partnership has - By the expulsion of any
acquired the ownership thereof; partner from the business
(5) By the death of any partner; bona fide in accordance
(6) By the insolvency of any partner or of with such a power conferred
the partnership; by the agreement between
(7) By the civil interdiction of any the partners
partner; b. In contravention of the agreement
between the partners, where the
 circumstances do not permit a
dissolution under any other
provision of this article, by the
express will of any partner at any
time
- Ex. a partner wants the
partnership dissolves on the
3rd year of a 5-year
agreement
c. By any event which makes it
unlawful for the business of the
partnership to be carried on or for
the members to carry it on in
partnership
d. When a specific thing which a
partner had promised to contribute
to the partnership, perishes before
the delivery; in any case by the
loss of the thing, when the partner
who contributed it having reserved
the ownership thereof, has only
transferred to the partnership the
use or enjoyment of the same; by
the partnership shall not be
dissolved by the loss of the thing
when it occurs after the partnership
has acquired the ownership thereof
e. By the death of any partner
f. By the insolvency of any partner or
of the partnership
- INSOLVENCY: the liabilities
are greater than the assets
g. By the civil interdiction of any
partner
- CIVIL INTERDICTION:
deprives the offender during
the time of his sentence of
the right to manage his
property, and the right to
dispose of such property by
any act or any conveyance
inter vivos
Art. 1831. On application by or for a partner
the court shall decree a dissolution
whenever:
(1) A partner has been declared insane in
any judicial proceeding or is shown to
be of unsound mind;
(2) A partner becomes in any other way
incapable of performing his part of
the partnership contract;
(3) A partner has been guilty of such
conduct as tends to affect
prejudicially the carrying on of the
business;
(4) A partner willfully or persistently
commits a breach of the partnership
agreement, or otherwise so conducts
himself in matters relating to the
partnership business that it is not
reasonable practicable to carry on
the business in partnership with him;
(5) The business of the partnership can
only be carried on at a loss;
(6) Other circumstances render a
dissolution equitable.
On the application of the purchaser of a
partner’s interest under Article 1813 or
1814:
(1) After the termination of the specified
term or particular undertaking;
(2) At any time if the partnership was a
partnership at will when the interest
was assigned or when the charging
order was issued.
Those who can sue for judicial dissolution
1. A partner or any of the 1 to 6 grounds for
judicial dissolution in the first paragraph
2. The purchaser of a partner’s interest in the
partnership under Art. 1813 or 1814 after
the termination of the specified term or
particular undertaking or if the partnership
is at will when the interest was assigned or
when the charging order was issued
On application by or for a partner
1. A partner has been declared insane
 The presumption is in favor of
sanity which must be duly proved
in court
2. A partner becomes incapable of
performing his part of the partnership
contract
3. Guilty of conduct prejudicially affecting the
carrying on of the business
4. A partner willfully or persistently commits
a breach of the partnership agreement
 A partner who is regularly drunk
and tardy
5. The business of the partnership can only
be carried on at a loss
  The essence of partnership is to
divide profits among themselves
6. Other circumstances
A catch-all provision for grounds
not mentioned above
On the application of the purchaser of a partner’s
interest
 The purchaser of a partner’s interest after
the termination of the specified term or
particular undertaking has the right to ask
the court to dissolve the partnership
Art. 1832. Except so far as may be
necessary to wind up partnership affairs or
to complete transactions begun but not
then finished, dissolution terminates all
authority of any partner to act for the
partnership:
(1) With respect to the partners:
(a) When the dissolution is not by
the act, insolvency or death of
a partner; or
(b) When the dissolution is by such
act, insolvency or death of a
partner, in cases where article
1833 so requires
(2) With respect to persons not partners,
as declared in Article 1834.
Rule
- When a partnership is dissolved, any of
the partners cannot bind the partnership.
Exceptions
- Those provided in Articles 1833 and 1834.
Art. 1833. Where the dissolution is caused
by the act, death or insolvency of a partner,
each partner is liable to his co-partners for
his share of any liability created by any
partner acting for the partnership as if the
partnership had not been dissolved unless:
(1) The dissolution being by act of any
partner, the partner acting for the
partnership had knowledge of the
dissolution; or
(2) The dissolution being by the death or
insolvency of a partner, the partner
acting for the partnership had
knowledge or notice of the death or
insolvency.
Explanation
- Transactions entered into by B and C
without their knowledge of the withdrawal
of A is valid and binding.
- If B, who knows of A’s withdrawal (or
death), transacts with X, a third party who
has no knowledge about said withdrawal
and is acting in good faith, the transaction
is still valid and binding.
 A liability is created where B and C
are liable
 After C’s payment of his share to X,
he can ask reimbursement of his
share from B
Art. 1834. After dissolution, a partner can
bind the partnership, except as provided in
the third paragraph of this article:
(1) By any act appropriate for winding up
partnership affairs or completing
transactions unfinished at
dissolution;
(2) By any transaction which would bind
the partnership if dissolution had not
taken place, provided the other party
to the transaction:
(a) Had extended credit to the
partnership prior to dissolution
and had no knowledge or
notice of the dissolution; or
(b) Though he had not so extended
credit, had nevertheless known
of the partnership prior to
dissolution, and, having no
knowledge or notice of
dissolution, the fact of
dissolution had not been
advertised in a newspaper of
general circulation in the place
(or in each place if more than
one) at which the partnership
business was regularly carried
on.
The liability of a partner under the
first paragraph, No. 2, shall be satisfied our
of partnership assets alone when such
partner had been prior to dissolution:
(1) Unknown as a partner to the person
with whom the contract is made; and
(2) So far unknown and inactive in
partnership affairs that the business
 reputation of the partnership could
not be said to have been in any
degree due to his connection with it.
The partnership is in no case bound
by any act of a partner after dissolution:
(1) Where the partnership is dissolved
because it is unlawful to carry on the
business, unless the act is
appropriate for winding up
partnership affairs
(2) Where the partner has become
insolvent; or
(3) Where the partner has no authority
to wind up partnership affairs;
except by a transaction with one who:
(a) Had extended credit to the
partnership prior to dissolution
and had no knowledge or
notice of his want of authority;
or
(b) Had not extended credit to the
partnership prior to
dissolution, and, having no
knowledge or notice of his
want of authority, the fact of
his want of authority has not
been advertised in the manner
provided for advertising the
fact of dissolution in the first
paragraph, No. 2.
Nothing in this article shall affect the
liability under Article 1825 of any person
who, after dissolution, represents himself
or consents to another representing him as
a partner in a partnership engaged in
carrying business.
Partnership is liable
1. Act appropriate for winding up partnership
affairs
a. Ex. selling remaining goods and
inventories. Such transactions are
binding
2. Act for completing transactions unfinished
at dissolution
a. Ex. delivering undelivered goods to
a client
3. Transactions which would bind the
partnership if dissolution had not taken
place and the other party to the
transaction:
a. Extended credit to the partnership
prior to dissolution and hand no
notice of such
b. Though had not extended credit,
had known of the partnership prior
to dissolution, and, having no
notice of such, the fact of
dissolution had not been advertised
in a newspaper or general
circulation
i. Ex. entering into a contract
of sale with X (who had no
knowledge) to buy goods
not related to dissolution
Partnership is not liable
1. Where dissolution was caused by
unlawfulness to carry on the business
a. Ex. sales of unlawful products
makes the partnership not liable
2. Partner has become insolvent
a. Contracts entered into by an
insolvent partner makes the
partnership not liable
3. Partner had no authority to wind up
partnership affairs; except by a
transaction with a third person who is in
good faith
a. Partnership is not liable to
transactions made by a non-
liquidating partner with a third
person. Such transactions will only
make the partnership liable of the
dissolution is not known to the third
person
Art. 1835. The dissolution of the
partnership does not of itself discharge the
existing liability of any partner.
A partner is discharged from any
existing liability upon dissolution of the
partnership by an agreement to that effect
between himself, the partnership creditor,
and the person or partnership continuing
the business; and such agreement may be
inferred from the course of dealing between
the creditor having knowledge of the
dissolution and the person or partnership
continuing the business.
The individual property of a deceased
partner shall be liable for all obligations of
the partnership incurred while he was a
partner, but subject to the prior payment of
his separate debts.
 otherwise agreed, may have the partnership
General rule property applied to discharge its liabilities,
- Dissolution does not of itself discharge the and the surplus applied to pay in cash the
existing liability of any partner net amount owing to the respective
partners. But if dissolution is caused by
Discharge of partner’s liability expulsion of a partner, bona fide under the
In order for the liability of a partner to be partnership agreement and if the expelled
discharged, the following must agree: partner is discharged from all partnership
1. The partner liabilities, either by payment or agreement
2. The other partners under the second paragraph of Article 1835,
3. The creditors he shall receive in cash only the net amount
due him from the partnership.
Property of a deceased partner When dissolution is caused in
 Ex. the separate property of the deceased contravention of the partnership agreement
partner is liable to a partnership creditor the rights of the partners shall be as
(creditor prior to dissolution) but the follows:
separate/private liability must first be (1) Each partner who has not caused
paid. The remaining will be to satisfy his dissolution wrongfully shall have:
share in the partnership liability which was (a) All the rights specified in the
incurred prior to dissolution first paragraph of this article,
and
(b) The right, as against each
Art. 1836. Unless otherwise agreed, the partner who has caused the
partners who have not wrongfully dissolved dissolution wrongfully, to
the partnership or the legal representative damages breach of the
of the last surviving partner, not insolvent, agreement.
has the right to wind up the partnership (2) The partners who have not caused
affairs, provided, however, that any partner, the dissolution wrongfully, if they all
his legal representative or his assignee, desire to continue the business in the
upon cause shown, may obtain winding up same name either by themselves or
by the court. jointly with others, may do so, during
the agreed term for the partnership
Kinds of winding-up or liquidation and for that purpose may possess the
Extrajudicial Judicial partnership property, provided they
Liquidation is done without Liquidation is done secure the payment by bond
court intervention. under the control
approved by the court, or pay any
and direction of the
court under proper partner who has cause the dissolution
cause that it is wrongfully, the value of his interest in
Wind-up by: shown in court. the partnership at the dissolution,
- Liquidating partner (as
agreed upon by all the Wind-up by: less any damages recoverable under
partners - The person the second paragraph, No. 1 (b) of
- Partners who have not appointed by court this article, and in like manner
wrongfully dissolved the
indemnify him against all present or
partnership
- Legal representative of the future partnership liabilities.
last surviving partner who (3) A part who has caused the dissolution
is insolvent wrongfully shall have:
(a) If the business is not continued
Art. 1837. When dissolution is caused in any
under the provisions of the
way, except in contravention of the
second paragraph, No. 2, all
partnership agreement, each partner, as the rights of a partner under
against his co-partners and all persons
the first paragraph, subject to
claiming through them in respect of their
liability for damages in the
interests in the partnership, unless
 second paragraph, No. 1 (b), of
this article.
(b) If the business is continued
under the second paragraph,
No. 2, or this article, the right
as against his co-partners and
all claiming through them in
respect of their interests in the
partnership, to have the value
of his interest in the
partnership, less any damage
caused to his co-partners by
the dissolution, ascertained
and paid to him in cash, or the
payment secured by a bond
approved by the court, and to
be released from all existing
liabilities of the partnership;
but in ascertaining the value of
the partner’s interest the value
of the good-will of the business
shall not be considered.
Right of partners in case of liquidation not caused
by violation/contravention of the agreement
1. To have the partnership property applied
to discharge the liabilities of the
partnership; and
a. Noncash assets will be converted
into cash to pay the creditors
2. To have the surplus, if any, applied to pay
in cash the net amount owing to the
respective partners
a. The remaining cash will be
distributed to the partner-creditor,
then to partners
Note
- If dissolution is caused by expulsion of a
partner
 Bona fide under the partnership
agreement
 The expelled partner is discharged
from all partnership liabilities
(either by payment or agreement
between him, the other partners,
and the partnership creditors)
- Shall receive in cash only the amount due
him from the partnership
Right of partners in case of liquidation caused by
violation/contravention of the agreement
1. Rights of partner who has not caused
dissolution wrongfully
a. To have the partnership property
applied to discharge the liabilities
of the partnership;
b. To have the surplus, if any, applied
to pay in cash the net amount
owing to the respective partners;
c. To be indemnified for damages
caused by the partner who caused
the dissolution wrongfully; and
d. To continue the business in the
same name either by themselves
or jointly with others during the
agreed term of the partnership and
for that purpose may possess the
partnership property
2. Rights of the partner who wrongfully
caused the dissolution
a. If the business is not continued by
the other partners
i. To have the partnership
property applied to
discharge the liabilities of
the partnership and to
receive in cash his share of
the surplus less damages
caused by his wrongful
dissolution
b. If the business is continued by the
other partners
i. To have the value of his
interest in the partnership,
less any damage caused to
his co-partners by the
dissolution, ascertained and
paid to him in cash, or the
payment secured by a bond
approved by the court
ii. To be released from all
existing liabilities of the
partnership
Note
- In ascertaining the value of the partner’s
interest who wrongfully caused the
dissolution of the partnership, the value of
the goodwill of the business shall not be
considered
- Such interest will be given as an addition
the interest of the partners who did not
wrongfully cause the dissolution

Art. 1838. Where a partnership contract is
rescinded on the ground of the fraud or
misrepresentation of one of the parties
thereto, the party entitled to rescind is,
without prejudice to any other right,
entitled:
(1) To a lien on, or right of retention of,
the surplus of the partnership
property after satisfying the
partnership liabilities to third persons
for any sum of money paid by him for
the purchase of an interest in the
partnership and for any capital or
advances contributed by him;
(2) To stand, after all liabilities to third
persons have been satisfied, in the
place of the creditors of the
partnership for any payments made
by him in respect of the partnership
liabilities; and
(3) To be indemnified by the person
guilty of the fraud or making the
representation against all debts and
liabilities of the partnership.
Three rights of a partner who is entitled to rescind
1. Right of lien or right of retention;
2. Right of subrogation; and
3. Right of indemnification
Art. 1839. In settling accounts between the
partners after dissolution, the following
rules shall be observed, subject to any
agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the
partners necessary for the
payment of all the liabilities
specified in No. 2
(2) The liabilities of the partnership shall
rank in order of payment, as follows:
(a) Those owing to creditors other
than partners
(b) Those owing to partners other
than for capital and profits
(c) Those owing to partners in
respect of capital
(d) Those owing to partners in
respect of profits
(3) The assets shall be applied in the
order of their declaration in No. 1 of
this article to the satisfaction of the
liabilities.
(4) The partners shall contribute, as
provided by Article 1797, the amount
necessary to satisfy the liabilities.
(5) An assignee for the benefit of
creditors or any person appointed by
the court shall have the right to
enforce the contributions specified in
the preceding number.
(6) Any partner or his legal
representative shall have the right to
enforce the contributions specified in
No. 4, to the extent of the amount
which he has paid in excess of his
share of the liability.
(7) The individual property of a deceased
partner shall be liable for the
contributions specified in No. 4.
(8) When partnership property and the
individual properties of the partners
are in possession of a court for
distribution, partnership creditors
shall have priority on partnership
property and separate creditors on
individual property, saving the rights
of lien or secured creditors.
(9) Where a partner has become
insolvent or his estate is insolvent,
the claims against his separate
property shall rank in the following
order:
(a) Those owing to separate
creditors;
(b) Those owing to partnership
creditors;
(c) Those owing to partners by
way of contribution.
Assets of the partnership
a. Partnership property; and
b. Contributions of the partners necessary for
the payment of all liabilities
Liabilities of the partnership shall rank in order if
payment
a. Those owing to partnership creditors
(other than partners)
b. Those owing to partners (e.g. the partner
or partners who gave a loan to the
partnership)
c. Those owing to partners in respect of
capital; and
  An industrial partner is not entitled
to participate in the capital
because he did not contribute
money or property or both
d. Those owing to partners in respect of
profits
 An industrial partner is entitled to
participate
 The surplus of the assets after
payment of creditors, inside
creditors, and capital, is distributed
to each partner according the
profit-sharing agreement
Required new contribution
- If the partnership assets were exhausted,
the partners shall contribute the amount
to satisfy the liabilities
Enforced by
1. An assignee for the benefit of creditors or
any person appointed by the court shall
have the right to enforce the contributions
2. Any partner or his legal representative
shall have the right to implement the said
enforced contributions, to the extent of
the amount which he has paid in excess of
his share of the liability
Individual property of a deceased partner
- Shall be liable for his share of the
partnership liability incurred while he was
a partner
- His separate creditors have preference
over these individual properties
Preference of claims against the separate
property of an insolvent partner
- Where a partner has become insolvent or
his estate is insolvent, the claims against
his property shall rank in the following
order:
 Separate creditors
 Partnership creditors
 Partners by way of contribution
Art. 1840. In the following cases, creditors
of the dissolved partnership are also
creditors of the person or partnership
continuing the business:
(1) When any new partner is admitted
into an existing partnership, or when
any partner retires and assigns (or
the representative of the deceased
partners assigns) his rights in
partnership property to two or more
of the partners, or to one or more of
the partners and one or more of third
persons. If the business is continued
without liquidation of the partnership
affairs;
(2) When all but one partner retire and
assign (or the representative of a
deceased partners assigns) their
rights in partnership property to the
remaining partners, who continues
the business without liquidation of
partnership affairs, either alone or
with others;
(3) When any partner retires or dies and
the business of the dissolved
partnership is continued as set forth
in Nos. 1 and 2 of this article, with
the consent of the retired partners or
the representative of the deceased
partner, but without any assignment
of his right in the partnership
property;
(4) When all the partners of their
representatives assign their rights in
partnership property to one or more
third persons who promise to pay the
debts and who continue the business
of the dissolved partnership;
(5) When any partner wrongfully causes
a dissolution and the remaining
partners continue the business under
the provisions of article 1837, second
paragraph, No. 2, either alone or with
others, and without liquidation of the
partnership affairs;
(6) When a partner is expelled and the
remaining partners continue the
business either alone or with others
without liquidation of the partnership
affairs.
The liability of a third person
becoming a partner in the partnership
continuing the business, under this article,
to the creditors of the dissolved partnership
shall be satisfied out of the partnership
property only, unless there is a stipulation
to the contrary.
When the business of a partnership
after dissolution is continued under any
conditions set forth in this article the
creditors of the dissolved partnership, as
against the separate creditors of the
retiring or deceased partner or the
representative of the deceased partner,
have a prior right to any claim of the retired
partner or the representative of the
deceased partner against the person or
representative of the deceased partner
against the person or representative of the
deceased partner against the person or
partnership continuing the business, on
account of the retired or deceased partner’s
interest in the dissolved partnership or on
account of any consideration promised for
such interest or for his right in partnership
property.
Nothing in this article shall be held to
modify any right of creditors to set aside
any assignment of the ground of fraud.
The use by the person or partnership
continuing the business of the partnership
name, or the name of a deceased partner as
part thereof, shall not of itself make the
individual property of the deceased partner
liable for any debts contract by such person
or partnership.
Rationale:
- PRIMARILY, the article deals with the
exemption from liability in cases of a
dissolved partnership, of the individual
property of the deceased partner for debts
contracted by the person or partnership
which continues the business with the
name of the deceased
- SECONDLY, the article treats more of a
commercial partnership with a goodwill to
protect rather than of a professional
partnership, with no saleable goodwill but
whose reputation depends on the personal
qualifications of its individual members
 Thus, saleable goodwill can exist
only in a commercial partnership
and not in professional
partnerships consisting of lawyers
- As a general rule, upon the dissolution of a
commercial partnership, the succeeding
partners or parties have the right to carry
on the business under the old name, in the
absence of a stipulation forbidding it, since
the name of a commercial partnership is a
partnership asset inseparable from the
goodwill of the firm
- On the other hand, upon dissolution of a
professional partnership, no goodwill can
be distributed since the reputation of such
partnership depends on the individual skill
of the members
Art. 1841. When any partner retires or dies,
and the business is continued under any of
the conditions set forth in the preceding
article, or in Article 1837, second
paragraph, No. 2, without any settlement of
accounts as between him or his estate and
the person or partnership continuing the
business, unless otherwise agreed, he or his
legal representative as against such person
or partnership may have the value of his
interest at the date of dissolution
ascertained, and shall receive as an
ordinary creditor an amount equal to the
value of his interest in the dissolved
partnership with interest, or, at his option
or at the option of his legal representative,
in lieu if interest, the profits attributable to
the use of his right in the property of the
dissolved partnership; provided that the
creditors of the dissolved partnership as
against the separate creditors, or the
representative of the retired or deceased
partner, shall have priority on any claim
arising under this article, as provided by
Article 1840, third paragraph.
Rights of a partner who retires or dies and the
business is continued without any settlement of
accounts
1. To have the value of his interest at the
date of dissolution ascertained
2. To receive as an ordinary creditor an
amount equal to the value of his interest
in the dissolved partnership with interest,
or, at his option or at the option of his
legal representative, in lieu of interest, the
profits attributable to the use of his right
in the property of the dissolved
partnership.
Art. 1842. The right to an account of his
interest shall accrue to any partner, or his
legal 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.
 - The obligation to render an account (at the
Note
- The right to an account of his interest shall
accrue to any partner, or his legal
representative
CHAPTER 4: LIMITED PARTNERSHIP
Art. 1843. A limited partnership is one
formed by two or more persons under the
provisions of the following article, having as
members one or more general partners and
one or more limited partners. The limited
partners as such shall not be bound by the
obligations of the partnership.
Characteristics of a limited partnership
1. Formed by compliance in good faith with
the statutory requirements
2. General partners (one or more)
a. control the business and are
personally liable to creditors
b. their separate properties can be
used to pay out partnership debts
3. Limited partners (one or more)
a. contribute to the capital and share
in the profits but do not participate
in the management of the
business; also known as special
partners
b. not personally liable for partnership
obligations beyond their capital
contributions
c. may ask for the return of their
capital contributions
Art. 1844. Two or more persons desiring to
form a limited partnership shall:
(1) Sign and swear to a certificate, which
shall state—
(a) The name of the partnership,
adding thereto the word
“Limited”;
(b) The character of the business;
(c) The location of the principal
place of business;
(d) The name and place of
residence of each member,
general and limited partners
being respectively designated;
(e) The term for which the
partnership is to exist;
date of dissolution, except of any
stipulation to the contrary):
 The winding up partners
 Surviving partners; or
 The person or partnership
continuing the business
(f) The amount of cash and a
description of and the agreed
value of the other property
contributed by each limited
partner;
(g) The additional contributions, if
any, to be made by each
limited partner and the times
at which or events on the
happening of which they shall
be made;
(h) The time, if agreed upon, when
the contribution of each limited
partner is to be returned;
(i) The share of the profits or the
other compensation by way of
income which each limited
partner shall receive by reason
of his contribution;
(j) The right, if given, of a limited
partner to substitute an
assignee as contributor in his
place, and the terms and
conditions of the substitution;
(k) The right, if given, of the
partners to admit additional
limited partners;
(l) The right, if given, of one or
more of the limited partners to
priority over other limited
partners, as to contributions or
as to compensation by way of
income, and the nature of such
priority;
(m) The right, if given, of the
remaining general partner or
partners to continue the
business on the death,
retirement, civil interdiction,
insanity or insolvency of a
general partner; and
(n) The right, if given of a limited
partner to demand and receive
property other than cash in
return for his contribution.
 (2) File for record the certificate in the
Office of the Securities and Exchange
Commission.
A limited partnership is formed if
there has been substantial
compliance in good faith with the
foregoing requirements.
Essential requisites in the formation of a limited
partnership
1. Certificate of limited partnership
a. Must be signed and sworn to
b. Must contain all the enumerate
items above
2. CLP should be filed in SEC
Notes
 General partnership can be verbal
 A limited partnership must always be in
writing (the certificate)
 No limited partnership in case of non-
compliance to the above requirements;
but there can be general partnership
 Partnership transacting business with 3rd
persons is disputably presumed to be a
general partnership
Art. 1845. The contribution of a limited
partner may be cash or property but not
services.
Contributions in a limited partnership
 Limited partner—can contribute only
money, property, or both, but not services
 Industrial partner—can only be a general
partner
Art. 1946. The surname of a limited partner
shall not appear in the partnership name
unless:
(1) It is also the surname of a general
partner, or
(2) Prior to the time when the limited
partner became such, the business
has been carried on under a name in
which his surname appeared.
A limited partner whose surname
appears in a partnership name contrary
to the provisions of the first paragraph is
liable as a general partner to
partnership creditors who extend credit
to the partnership without actual
knowledge that he is not a general
partner.
The surname of a limited partner shall
not appear in the partnership name.
Note
 In violation, said limited partner is liable as
a general partner only to partnership
creditors who extend credit to the
partnership without actual knowledge that
he is not a general partner
 He will obtain same liability, but will not
acquire the rights of a general partner
Art. 1847. If the certificate contains a false
statement, one who suffers loss by reliance
on such statement may hold liable any party
to the certificate who knew the statement
to be false:
(1) At the time he signed the certificate,
or
(2) Subsequently, but within a sufficient
time before the statement was relied
upon to enable him to cancel or
amend the certificate, or to file a
petition for its cancellation or
amendment as provided in Article
1865
Liability for a false statement in the certificate
 One who suffers loss by reliance on such
false statement may hold liable any party
in the certificate of limited partnership
who is in bad faith
Art. 1848. A limited partner shall not
become liable as a general partner unless,
in addition to the exercise of his rights and
powers as a limited partner, he takes part in
the control of the business.
Liability of a limited partner who takes part in the
control of the business
 He will be liable as a general partner
 But he will not acquire the rights of a
general partner
Art. 1849. After the formation of a limited
partnership, additional limited partners may
be admitted upon filing an amendment to
the original certificate in accordance with
the requirements of Article 1865.
Additional limited partners may be admitted after
the formation
 Only requirement—the amendment of the
original certificate which must be
o Signed and sworn to by ALL
partners (original and newly
admitted)
o Filed with SEC
Art. 1850. A general partner shall have all
the rights and powers and be subject to all
the restrictions and liabilities of a partner in
a partnership without limited partners.
However, without the written consent or
ratification of the specific act by all the
limited partners, a general partner or all of
the general partners have no authority to:
(1) Do any act in contravention of the
certificate;
(2) Do any act which would make it
impossible to carry on the ordinary
business of the partnership;
(3) Confess a judgment against the
partnership;
(4) Possess partnership property, or
assign their rights in specific
partnership property, for other than a
partnership purpose
(5) Admit a person as a general partner;
(6) Admit a person as a limited partner.
Unless the right to do so is given in
the certificate;
(7) Continue the business with
partnership property on the death,
retirement, insanity, civil interdiction
or insolvency of a general partner,
unless the right to do so is given in
the certificate.
Note
 As a rule, general partners can only do
acts of administration
 The items above refer to acts of
ownership. Thus, the general partners
must secure the written consent or
ratification by ALL of the limited partners
Art. 1851. A limited partner shall have the
same rights as a general partner to:
(1) Have the partnership books kept at
the principal place of business of the
partnership, and at a reasonable hour
to inspect and copy and of them;
(2) Have on demand true and full
information of all things affecting the
partnership, and a formal account of
partnership affairs whenever
circumstances render it just and
reasonable; and
(3) Have dissolution and winding up by
decree of court
A limited partner shall have the right to
receive a share of the profits or other
compensation by way of income, and to
the return of his contribution as
provided in Articles 1856 and 1857.
Rights of a limited partner
1. To have the books kept at the principal
place of business and to inspect and copy
any of them at a reasonable hour
2. To demand true and full information of all
things affecting the partnership, and a
formal account of partnership affairs
whenever circumstances render it just and
reasonable
3. To have dissolution and winding up by
decree of court
4. To receive a share of the profits or other
compensation by way of income
5. To receive return of his contribution if the
partnership assets are in excess of the
partnership liabilities
Art. 1852. Without prejudice to the
provisions of Article 1848, a person who has
contributed to the capital of a business
conducted by a person or partnership
erroneously believing that he has become a
limited partner in a limited partnership, is
not, by reason of his exercise of the rights
of a limited partner, a general partner with
the person or in the partnership carrying on
the business, or bound by the obligations of
such person or partnership, provided that
on ascertaining the mistake he promptly
renounces his interest in the profits of the
business, or other compensation by way of
income.
Contributor who erroneously believes that he has
become a limited partner
He is not liable as a general partner
provided that:
1. On ascertaining the mistake, he promptly
renounces that his interest is the profits of
the business, or other compensation by
way of income; and
2. He does not take part in the control of the
business
Art. 1853. A person may be a general
partner and a limited partner in the same
partnership at the same time, provided that
this fact shall be stated in the certificate
provided for in Article 1844.
A person who is a general, and also at
the same time a limited partner, shall have
all the rights and powers and be subject to
all the restrictions of a general partner;
except that, in respect to the contribution,
he shall have the rights against the other
members which he would have had if he
were not also a general partner.
General-limited partner
 RIGHTS:
o those of a general partner
o as regards his contribution, his
rights are those of a limited partner
insofar as the other partners are
concerned
 LIABILITIES: those of a general partner
Art. 1854. A limited partner also may loan
money to and transact other business with
the partnership, and, unless he is also a
general partner, receive on account of
resulting claims against the partnership,
with general creditors, a pro rata share of
the assets. No limited partner shall in
respect to any such claim:
(1) Receive or hold as collateral security
and partnership property, or
(2) Receive from a general partner or the
partnership any payment,
conveyance, or release from liability
if at the time the assets of the
partnership are not sufficient to
discharge partnership liabilities to
persons not claiming as general or
limited partners.
The receiving of collateral security, or
payment, conveyance, or release in
violation of the foregoing provisions is a
fraud on the creditors of the
partnership.
Allowable business transactions of a limited
partner with the partnership
1. To lend money to the partnership
2. To transact business with the partnership
3. To receive on account of resulting claims
against the partnership, with general
creditors, a pro rata share of the assets
Prohibited business transactions of a limited
partner with the partnership
1. Receive or hold as collateral security and
partnership property
2. Receive from a general partner any
payment, conveyance, or release from
liability if at the time the assets of the
partnership are not sufficient to discharge
partnership liabilities to persons not
claiming as general or limited partners.
Rationale
 To prevent illegal competition between the
limited partner and partnership creditors
for the assets of the partnership
Note
 Violation of the prohibition, as
enumerated, will give rise to the
disputable presumption of fraud on the
creditors of the partnership
Art. 1855. Where there are several limited
partners the members may agree that one
or more of the limited partners shall have a
priority over other limited partners as to
the return of their contributions, as to their
compensation by wat of income, or as to
any other matter. If such an agreement is
made it shall be stated in the certificate,
and in the absence of such a statement all
the limited partners shall stand upon equal
footing.
Preference to some limited partners
Preference may be given to some limited
partners over other limited partners as to:
1. Return of their contributions;
2. Their compensation by way of income; or
 3. Any other matter.
Art. 1856. A limited partner may receive
from the partnership the share of the
profits or the compensation by way of
income stipulated for in the certificate;
provided that after such payment is made,
whether from property of the partnership or
that of a general partner, the partnership
assets are in excess of all liabilities of the
partnership except liabilities to limited
partners on account of their contributions
and to general partners.
Share of the profits or compensation by way of
income of a limited partner
 Partnership assets should be in excess of
all liabilities of the partnership to third
persons after payment of the profits or
compensation by way of income of a
limited partner
Art. 1857. A limited partner shall not
receive from a general partner or out of the
partnership property any part of his
contributions until:
(1) All liabilities of the partnership,
except liabilities to general partners
and to limited partners on account of
their contributions, have been paid or
there remains property of the
partnership sufficient to pay them;
(2) The consent of all members is had,
unless the return of the contribution
may be rightfully demanded under
the provisions of the second
paragraph; and
(3) The certificate is cancelled or so
amended as to set forth the
withdrawal or reduction.
Subject to the provisions of the
first paragraph, a limited partner may
rightfully demand the return of his
contribution:
(1) On the dissolution of a partnership;
or
(2) When the date specified in the
certificate for its return has arrived,
or
(3) After he has given six months; notice
in writing to all other members, if no
time is specified in the certificate,
either for the return of the
contribution or for the dissolution of
the partnership.
In the absence of any statement in
the certificate to the contrary or the
consent of all members, a limited
partner, irrespective of the nature of
his contribution, has only the right to
demand and receive cash in return
for his contribution.
A limited partner may have the
partnership dissolved and its affairs
wound up when:
(1) He rightfully but unsuccessfully
demands the return of his
contribution, or
(2) The other liabilities of the
partnership have not been paid, or
the partnership property is
insufficient for their payment as
required by the first paragraph, No.
1, and the limited partner would
otherwise be entitled to the return of
his contribution.
Requisites for the return of contributions of a
limited partner
1. All liabilities of the partnership, except
liabilities to general partners and to
limited partners on account of their
contributions, have been paid or there
remains property of the partnership
sufficient to pay them;
2. The consent of all members (general and
limited partners) is had, unless the return
of the contribution may be rightfully
demanded; and
3. The certificate is cancelled or so amended
as to set forth the withdrawal or reduction
of the contribution
When can the contributions of a limited partner
be returned?
1. On the dissolution of a partnership
2. When the date specified in the certificate
for its return has arrived; or
3. After he has given six months’ notice in
writing to all other members, if no time is
specified in the certificate, either for the
 return of the contribution or for the
dissolution of the partnership
Right of a limited partner to demand and receive
cash in return for his contribution
A limited partner, irrespective of the
nature of his contribution, has only the right to
demand and receive cash in return for his
contribution. The exceptions are:
1. Where there is stipulation to the contrary
in the certificate of limited partnership; or
2. Where all the partners consent to the
return of his contribution other than in the
form of cash.
When may a limited partner have the partnership
dissolved and liquidated?
A limited partner may have the
partnership dissolved and its affairs wound up
when:
1. He rightfully but unsuccessfully demands
the return of his contribution; or
2. The other liabilities of the partnership
have not been paid, or the partnership
property is insufficient for their payment
and the limited partner would otherwise
be entitled to the return of his
contribution.
Art. 1858. A limited partner is liable to the
partnership:
(1) For the difference between his
contribution as actually made and
that stated in the certificate as
having been made; and
(2) For any unpaid contribution which he
agreed in the certificate to make in
the future at the time and on the
conditions stated in the certificate.
A limited partner holds as trustee for the
partnership:
(1) Specific property stated in the
certificate as contributed by him, but
which was not contributed or which
has been wrongfully returned, and
(2) Money or other property wrongfully
paid or conveyed to him on account
of his contribution.
The liabilities of a limited partner
as set forth in this article can be
waived or compromised only by the
consent of all members; but a waiver
or compromise shall not affect the
right of a creditor of a partnership
who extended credit or whose claim
arose after the filing and before a
cancellation or amendment of the
certificate, to enforce such liabilities.
When a contributor has rightfully
received the return in whole or in part of
the capital of his contribution, he is
nevertheless liable to the partnership for
any sum, not in excess of such return with
interest, necessary to discharge its
liabilities to all creditors who extended
credit or whose claims arose before such
return.
Liability of a limited partner for unpaid
contribution to a partnership
1. For the difference between actual
contribution and the contribution stated
and agreed upon in the certificate
2. For any unpaid contribution which he
agreed in the certificate to make in the
future at the time and on the conditions
stated in the certificate
Liability of a limited partner as a trustee to the
partnership
1. Specific property stated in the certificate
as contributed by him, but which was not
contributed or which has been wrongfully
returned, and
2. Money or other property wrongfully paid or
conveyed to him on account of his
contribution
Liabilities of a limited partner may be waived
The requisites are:
1. With the consent of all the other partners;
2. The waiver or compromise shall not affect
the right of partnership creditors who
extended credit or whose claim arose after
the filing and before a cancellation or
amendment of the certificate
Liability of a limited partner despite return of his
contribution
 A limited partner is nevertheless liable to
the partnership for any sum necessary to
discharge its liabilities to all creditors who
extended credit or whose claims arose
before such return. However, the liability
 of threat limited partner is up to the
extent of his contribution.
Art. 1859. A limited partner’s interest is
assignable.
A substituted limited partner is a
person admitted to all the rights of a
limited partner who has died or has
assigned his interest in a partnership.
An assigned, who does not become a
substituted limited partner. Has no right to
require any information or account of the
partnership transactions or to inspect the
partnership books; he is only entitled to
receive the share of the profits or other
compensation by way of income, or the
return of his contribution, to which his
assignor would otherwise be entitled.
An assignee shall have the right to
become a substituted limited partner if all
the members consent thereto or if the
assignor, being thereunto empowered by
the certificate, gives the assignee that
right.
An assignee becomes a substituted
limited partner when the certificate is
appropriately amended in accordance with
Article 1865.
The substituted limited partner has
all the rights and powers, and is subject to
all the restrictions and liabilities of his
assignor, except those liabilities of which he
was ignorant at the time he became a
limited partner and which could not be
ascertained from the certificate.
The substitution of the assignee as a
limited partner does not release the
assignor from liability to the partnership
under Articles 1847 and 1858.
Rights of an assignee of a limited partner
 To receive the share of the profits or other
compensation by receiving the following
which the assignor is otherwise entitled
o Way of income
o Return of his contribution
 Only when he becomes a substituted
limited partner can he acquire all the
rights of the limited partner.
Note
 An assignee who does not become an SLP
has no right:
o To require any information or
account of the partnership
transactions
o To inspect partnership books
Substituted limited partner
 A person admitted to all the rights of a
limited partner who has died or has
assigned his interest in a partnership
Requisites to becoming a substituted limited
partner
1. Consent of all partners or if the limited
partner-assignor, who is empowered in the
certificate of limited partnership, gives the
assignee that right;
2. The certificate of limited partnership must
be amended; and
3. The certificate of limited partnership must
be registered in the SEC.
Rights and liabilities of a substituted limited
partner
1. All the rights and powers, subject to all the
restrictions and liabilities of his assignor.
Except:
 Those liabilities which he was
ignorant at the time he became a
limited partner and which could not
be ascertained from the certificate
2. The substitution of the assignee as a
limited partner does not release the
assignor from liability to persons who
suffered damage by reliance on a false
statement in the certificate of limited
partnership and to creditors who extended
credit or whose claims arose before the
substitution
Art. 1860. The retirement, death,
insolvency, insanity or civil interdiction of a
general partner dissolves the partnership,
unless the business is continued by the
remaining general partners:
(1) Under a right to do so stated in the
certificate, or
(2) With the consent of all members.
Retirement, death, insolvency, insanity, or civil
interdiction of a general partner (no mention of
limited partner)
  In these cases, the partnership is
dissolved unless:
o the business is continued by the
remaining general partners as
stated in the certificate of limited
partnership; or
o with the consent of all the partners
Art. 1861. On the death of a limited partner
his executor or administrator shall have all
the rights of a limited partner for the
purpose of setting his estate, and such
power as the deceased had to constitute his
assignee a substituted limited partner.
The estate of a deceased limited
partner shall be liable for all his liabilities
as a limited partner.
Death of a limited partner
 His executor or administrator shall have all
the rights of a limited partner for the
purpose of:
o setting his estate
o constituting his assignee as a
substituted limited partner
Art. 1862. On due application to a court of
competent jurisdiction by any creditor of a
limited partner, the court may charge the
interest of the indebted limited partner with
payment of the unsatisfied amount of such
claim, and may appoint a receiver, and make
all other orders, directions and inquiries
which the circumstances of the case may
require.
The interest may be redeemed with
the separate property of any general
partner, but may not be redeemed with
partnership property.
The remedies conferred by the first
paragraph shall not be deemed exclusive of
other which may exist.
Nothing in this Chapter shall be held
to deprive a limited partner of his statutory
exemption.
Charging the interest of a limited partner
 The court may charge the interest of the
indebted limited partner with payment of
the unsatisfied amount of such claim, and
may appoint a receiver. And make all
other orders, directions and inquiries
which the circumstances of the case may
require.
Note
 Interest may be redeemed with the
separate property of the general partner,
but may not be redeemed with partnership
property
Art. 1863. In setting accounts after
dissolution the liabilities of the partnership
shall be entitled to payment in the following
order:
(1) Those to creditors, in the order of
priority as provided by law, except
those to limited partners on account
of their contributions, and to general
partners;
(2) Those to limited partners in respect
to their share of the profits and other
compensation by way of income on
their contributions;
(3) Those to limited partners in respect
to the capital of their contributions;
(4) Those to general partners other than
for capital and profits;
(5) Those to general partners in respect
to profits;
(6) Those to general partners in respect
to capital.
Subject to any statement in the
certificate or to subsequent
agreement, limited partners share in
the partnership assets in respect to
their claims for capital, and in respect
to their claims for profits or for
compensation by way of income on
their contribution respectively, in
proportion to the respective amounts
of such claims.
Note
 The above article provides for the order of
payment in case of liquidation of a limited
partnership
 Limited partners are given priority over
general partners.
 Profits are given priority over capital
Art. 1864. The certificate shall be cancelled
when the partnership is dissolved or all
limited partners cease to be such.
 A certificate shall be amended when:
(1) There is a change in the name of the
partnership or in the amount or
character of the contribution of any
limited partner;
(2) A person is substituted as a limited
partner;
(3) An additional limited partner is
admitted;
(4) A person is admitted as a general
partner;
(5) A general partner retires, dies,
becomes insolvent or insane, or is
sentenced to civil interdiction and the
business is continued under Article
1860;
(6) There is a change in the character of
the business of the partnership;
(7) There is a false or erroneous
statement in the certificate;
(8) There is a change in the time as
stated in the certificate for the
dissolution of the partnership or for
the return of a contribution;
(9) A time is fixed for the dissolution of
the partnership, or the return of a
contribution, no time having been
specified in the certificate, or
(10) The members desire to make a
change in other statement in the
certificate in order that it shall
accurately represent the agreement
among them.
Cancellation of the certificate of limited
partnership
1. When the partnership is dissolved; and
2. When all limited partners cease to be
limited partners. Take note that the
composition of a limited partnership is
that there should be at least one general
partner and at least one limited partner.
Note
 In all other cases, only amendment of the
certificate of limited partnership is
required.
Art. 1865. The writing to amend a certificate
shall:
(1) Conform to the requirements of
Article 1844 as far as necessary to
set forth clearly the change in the
certificate which it is desired to
make; and
(2) Be signed and sworn to by all
members. And an amendment
substituting a limited partner or
adding a limited or general partner
shall be signed also by the member to
be substituted or added, and when a
limited partner is to be substituted,
the amendment shall also be signed
by the assigning limited partner.
The writing to cancel a certificate
shall be signed by all members.
A person desiring the cancellation or
amendment or a certificate, if any person
designated in the first and second
paragraphs as a person who must execute
the writing refuses to do so, may petition
the court to order a cancellation or
amendment thereof.
If the court finds that the petitioner
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
for 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.
Requirements for amendment
1. Must be in writing as far as necessary to
set forth clearly the change in the
certificate which it is desired to make;
2. It must be signed and sworn to by all
members, and an amendment substituting
 a limited partner or adding a limited or the sum of the contributions of its
general partner shall be signed also by the limited partners.
member to be substituted or added, and
when a limited partner is to be General vs. Limited
substituted, the amendment shall also be GENERAL LIMITED
After compliance with
signed by the assigning limited partner; Creation
May be constituted in
the requirements of
any form
3. The certificate of limited partnership as law
amended, must be filed for record in the Limited partners—
Contribu Money, property, cash, property, or
Office of the Securities and Exchange tion industry both (but not
Commission. industry/service)
At least 1 general
Members partner
All general partners
Requirements for cancellation hip At least 1 limited
partner
1. Must be in writing;
Limited partners are
2. Must be signed and sworn to by all Extent of Partnership liable only to the
members; and liability obligations extent of their capital
contribution
3. Must be filed for record in the Office of the Manage All are managers Limited partners has
Securities and Exchange Commission ment unless there is a no participation in
right contrary stip. mgmt.
Capitalist partner—
Art. 1866. A contributor, unless he is a cannot engage for his
own account in any
general partner, is not a proper party to operation which is of
proceedings by or against a partnership, the kind of business
Prohibiti
except where the object is to enforce a the partnership is
on to
engaged in, unless No prohibition in
limited partner’s right against or liability to engage there is stipulation to engaging in business
in other
the partnership. business
the contrary
General rule Industrial partner—
 A limited partner is not a proper party for absolutely prohibited
to engage in other
proceedings by or against a partnership business
because Assignm
Interest is not
o He does not take assignable unless
ent of consented to by all of Assignable
control/participate in the interest
the other partners
management of the business of the Effect of
death,
partnership insolvenc
 Except when: y,
Dissolves a Does not dissolve the
retireme
o The object is to enforce a limited nt, and
partnership partnership
partner’s right against or liability to insanity
of a
the partnership partner
Firm name must be
May or may not followed by “Limited”
Art. 1867. A limited partnership formed Firm include the name of
one or more of the where surname of
under the law prior to the effectivity of this name
limited partner should
partners not appear
Code, may become a limited partnership
under this Chapter by complying with the Partnership vs. Corporation
Commercial Stock Corporation
provisions of Article 1844, provided the Partnership
certificate sets forth: Created by mere
(1) The amount of the original Creation agreement of the Created by law
parties
contribution of each limited partner, Juridical Has juridical Has juridical
and the time when the contribution personality personality personality
Depends on its
was made; and Purpose
To divide the profits
articles of
among partners
(2) That the property of the partnership incorporation
Term No limitation No limitation
exceeds the amount sufficient to
Number of Two or more Five to fifteen
discharge its liabilities to persons not organizers
claiming as general or limited Commence From the execution From the date of the
ment of of the contract issuance of the
partners by an amount greater than juridical unless otherwise certificate of
personality stipulated incorporation
 Partner may not
Transferabi dispose of his
lity of interest unless
interest agreed upon by all
of the partners
Manageme
nt
Effect of
death
Dissolution