CHAPTER 1

GENERAL PROVISIONS OF
PARTNERSHIP

PARTNERSHIP
“By the contract of partnership two or more persons bind themselves to contribute money,
property or industry to a common fund, with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a profession.” (Article 1767)

VALID CONTRIBUTIONS TO A PARTNERSHIP

1. MONEY – must be legal tender
2. PROPERTY – may be real or personal property. Anything that has value in use or in exchange.
3. INDUSTRY – may be physical or intellectual industry.

NATURE OF PARTNERSHIP:
Partnership is fiduciary in nature, meaning that the partners must have trust and confidence in
each other.

Personae Delectae, meaning – because Partnership is based on the fiduciary relationship among
the partners, a person has the right to select other persons in whom he has trust and confidence to
become his partners.

ESSENTIAL FEATURES OR ELEMENTS OF PARTNERSHIP:

1. There must be a valid and voluntary agreement to become partners.
The partners must be of legal age and capacitated to enter into contracts. There must
be voluntary consent to become partners.
2. It must be an association for profit with the intention to divide the profits among themselves.
The general concept of any business organization is to make profits, so that if the
association is for charitable, civic or religious purposes then it is not a partnership, if the
members of the association intend to divide and contribute whatever profits they make to other
people or for other purpose, and not to divide such profits among themselves, again it is not a
partnership. This is one of the tests to determine if the organization is a Partnership.
 3. There must be a contribution of money, property, or industry to a common fund.
4. The partnership must have a lawful object or purpose and must be established for the
common benefit or interest of the partners. (Article 1170)
If the partnership is divided by judicial decree because it is unlawful, the profits shall be
confiscated in favor of the State.
5. The partners must be mutual agents of each other.
In the absence of a managing partner or any other form of management of the
Partnership, the partners are considered mutual agents of each other, and partner can enter
into contracts alone and bind the Partnership even without the knowledge and consent of the
other partners.
6. The article of Partnership must not be kept secret.
The contract of a general partnership is called “Articles of Partnership” and such
contract must not be kept secret from each of the partners. Being fiduciary in nature, everything
about the Partnership must be known and shared by all the partners. (Article 1775)
7. The partnership has a JURIDICAL PERSONALITY entirely separate and distinct from the
individual personality of each partner.
Article 1768 of Partnership states that the Partnership acquires a judicial personality
separate and distinct from that of each of the partners, valid among the partners themselves.
However, under Article 1772, if the Partnership has a capitalization of P3,000.00 or more, in
money or in property, it must be registered with SEC in order that it may be able to maintain
actions against third parties in its firm name. (Prautch, Scholes & Co. vs. Hernandez, I Phil. 705).
Upon approval of its Articlescof Partnership by the SEC, the Partnership is issued a Certificate of
Registration.

CHARACTERISTICS OF A PARTNERSHIP:
1. CONSENSUAL – the contract of partnership is perfected by the mere consent of the partners to
form a Partnership.
2. BILATERAL – it is created by 2 or more persons having reciprocal rights and obligations.
3. NOMINATE – it has special name or designation in the NCC;
4. PREPARATORY – the contract of the Partnership must first be established before it can validly
enter into contracts with third parties in the pursuit of its business; and
5. ONEROUS – the partners must contribute money, property or industry to the common fund of
the partnership.

KINDS OF PARTNERSHIP
1. AS TO OBJECT
2. AS TO LIABILITY
3. AS TO LIFE OR DURATION
4. ESTOPPEL
AS TO OBJECT
A. UNIVERSAL PARTNERSHIP
B. PARTICULAR PARTNERSHIP
This partnership has for its object determinate things, their use or fruits or a specific
undertaking, or the exercise of a profession or vocation.

Kinds of Universal Partnership

1. Universal Partnership of all Present Property – (Article 1778)
The partners agree to contribute to the common fund all the property which actually
belong to them at the time of their agreement to form a Partnership. Upon contribution,
ownership of all the property contributed is transferred to the Partnership and the partners
agree to divide among themselves the total assets and profits of the Partnership upon
dissolution.
Future property subsequently acquired by the partners through inheritance, legacy or
donation cannot be included into the common fund of the Partnership EXCEPT THE FRUITS
THEREOF. (Article 1779)
2. Universal Partnership of Profits – (Article 1780)
Under this kind of Partnership, ownership of the movable or immovable property
brought to the common fund is still retained by the individual partners. What is actually
contributed to the Partnership is the USE only of such property and the partners’ industry. And
whatever profits which may be derived from the use of the property and the industry of the
partners are to be divided among themselves.

Kinds of Universal Partnership

Universal Partnership of ALL PRESENT PROPERTY  Universal Partnership of PROFITS
 All the present property actually belonging to the
partners are contributed to the partnership which
become common property of all the partners and the
partnership.
 General Rule: Only the profits of said contributed
property become common property but not profits
arising from other property of the partners.
Exemption: If stipulated, the profits from other
property of the partners may become common.
 
 Only the usufruct (use and fruits) of the
properties of the partners becomes common
property of all the partners and the
partnership.
All profits acquired through the “industry” or
“work” of the partners become common
property. 
AS TO LIABILITY
A. GENERAL PARTNERSHIP – Where all the general partners including industrial
partners, are liable equally for the net contractual liabilities of the Partnership to the
extent of their personal assets or funds. (Article 1816)
B. LIMITED PARTNERSHIP – Where all the limited partners are liable for contractual
liabilities of the Limited Partnership only to the extent of their capital contribution.

AS LIFE AND DURATION

A. PARTNERSHIP AT WILL
This kind of partnership may continue to exist for as long as the partners will it.
B. PARTNERSHIP WITH A FIXED TERM
The partners agree to operate the Partnership for a definite period of time, upon the
expiration of which the Partnership automatically is dissolved unless renewed for another
period.
If the term of the Partnership expires, and the partners simply decide to continue
operation without renewal of the period, the Partnership becomes a Partnership at Will. In
this case, the partners may terminate it any time they decide to do so.

PARTNERSHIP BY ESTOPPEL
ESTOPPEL – the legal doctrine that one cannot agree or deny a fact when one’s
previous actions or words have been to the exact opposite.
 It is a prohibition which does not allow one to speak against one’s own act or deed in a
business transaction. The elements or essential of Estoppel include a change of position
of the parties, so that the party against whom estoppel is invoked has received a profit or
benefit, or the party invoking estoppel has changed his position to his detriment in
reliance on words or acts of the other party.
 IS CREATED UN TWO (2) WAYS, BOTH WAYS REVOLVING ON A THIRD
PERSON.
1. When a third person represents himself to another person as a partner in an existing
partnership, and the true partners did not object to his representation, then a
Partnership by Estoppel is created among themselves.
 2. The other way is when the true partners of an existing partnership represent a third
person as their partner to another person, and the 3rd person did not object to their
representation then a Partnership by Estoppel is created among themselves.

AS TO LIABILITY
1. GENERAL PARTNER – he is liable for net contractual liabilities of the Partnership up
to the extent of his PERSONAL ASSETS.
2. LIMITED PARTNER – he is liable for Partnership liabilities up to the extent of his
contributions only.
3. GENERAL/LIMITED PARTNER – a partner can be both a general and limited
partner. As a general partner, he enjoys all the rights and has all the liabilities of a general
partner. He participates in the management of Partnership business and becomes liable
for net contractual liabilities up to the extent of his personal assets. He is treated as
Limited Partner with respect to the return of his contribution. He gets his return of
contribution ahead of other general partners, in four (4) ways, i.e…
a. As may be stipulated in the Certificate of Partnership
b. As may be approved by the other partners;
c. After giving a 6-month advance written notice as to when his contribution be
returned;
d. During dissolution of the partnership.

AS TO CONTRIBUTION
1. CAPITALIST PARTNER – one that contributes money or property to the common
fund.
2. INDUSTRIAL PARTNER – one that contributes his industry, physical or intellectual,
to the Partnership.
3. CAPITALIST/INDUSTRIAL PARTNER – one that contributes money or property to
the common fund as Capitalist Partner, and also contributes his industry as Industrial
Partner.

AS TO MANAGEMENT
1. MANAGING PARTNER – one designated to manage the partnership business and
affairs.
 2. LIQUIDATING PARTNERS – the partner expressly designated in the Articles of
Partnership to liquidate Partnership business during dissolution.
3. SILENT PARTNER – one that has no voice or participation in the management of
Partnership business.

AS TO THIRD PERSON
1. OSTENSIBLE PARTNER – one openly known to the public as a partner. He may
include his surname in the firm name.
2. SECRET PARTNER – one that is not known to the public as partner.
3. DOMINANT PARTNER – one whose connection with the Partnership in not known to
the public and he does not participate in the affairs and management of the Partnership. A
combination of both the silent and secret partner.
4. NOMINAL PARTNER – a third person that is not actually a partner but due to his acts
and omissions, becomes liable to third persons as a partner.
5. PARTNER BY ESTOPPEL – one that represents himself as a partner or concepts to be
represented as a partner of an existing or apparent partnership. Also known as a de factor
partner.

FORAMTION OF PARTNERSHIP
A partnership may be constituted or formed in any form whatsoever, orally or written
(Article 1771).
The following must be in a public instrument:
 When the total capitalization of the Partnership is P3,000.00 or more, in money or
property (Article 1772).
 When real property is contributed, there must be an inventory of such property,
attached to the Articles of Partnership which must be in a public instrument and
submitted to the SEC for approval and issuance of a Certificate of Registration
(Article 1773).

NOTES:
Partnership can acquire, own and convey real property in its own name (Article 1774).
Persons prohibited from giving any donation or advantage to each other cannot enter into
a Universal Partnership (Article 1782).
 As example, husband and wife, during their marriage cannot:
a. Donate property to each other (Article 133, NCC)
b. Enter into Universal Partnership (Article 1782, NCC)
c. Sell property to each other (Article 1490, NCC)
When goods are contributed to the Partnership, an appraisal must be made in accordance
with partners agreement, or by experts chosen by the partners based on current prices of
the goods contributed (Article 1787).
 What is the legal effect of the receipt by a person of a share of the profits of a business?
 Does co-ownership or co-possessions wherein the co-owner or co-possessor shares any
profit made by the use of the property of itself establish a partnership? No
 Does sharing of gross returns by persons who have a joint or common interest in the
property from which the returns are derived of itself establish a partnership? No
 State the formalities required for the creation of a partnership.
 What are the effects of unlawful partnership?

CHAPTER 2
OBLIGATION OF THE PARTNERS
AMONG THEMSELVES
PARTNERSHIP
FIDUCIARY RELATIONSHIP
MUTUAL AGENCY
DELECTUS PERSONAE

What are the relationship created by a contract of Partnership?

1. Relationship among the partners themselves;
2. Relationship of the partners with the partnership;
 3. Relations of the partnership with third persons with whom it contracts; and
4. Relations of the partners with such third person.

What are the obligations of the partners among themselves and to

the partnership with respect to contribution of money or property?
a. To contribute at the beginning of the partnership or at the stipulated time the money or
property which he promised to contribute;
b. To answer for eviction (as a vendor) in case the partnership is deprived of the determinate
property contributed;
c. To answer to the partnership for the FRUITS of the property the contribution of which he
delayed, from the date they should have been contributed up to the time of actual delivery
without the need of any demand (Article 1786);
d. To preserve said property with the diligence of a good father of a family pending delivery
to the partnership (Article 1163); and
e. To indemnify the partnership for any DAMAGE (and also the legal interest of the
promised contribution in money) caused to it by the retention of the same or by the delay
in its contribution (Article 1788, 1170).

What are the obligations of an industrial partner?

They are:
a. To contribute at the beginning of the partnership or at the stipulated time the industry
which he promised to contribute (Article 1786);
b. Not to engage in ANY OTHER BUSINESS FOR HIMSELF (prohibition is absolute)
unless the partnership expressly permits him to do so; otherwise –
 The capital partners may exclude him from the firm; or
 They may avail themselves of the benefits which the industrial partner may have
obtained from other businesses, with a right to damages in either case (Article
1789).
Reason for the prohibition: The industrial partner is a debtor of the partnership for his work
or services. He must, therefore, devote his full time to the interest of the partnership.
MAY A CAPITALIST PARTNER ENGAGE IN BUSINESS FOR
HIMSELF?
As a rule, he cannot engage, for his own account, in nay operation which is of the SAME
KIND OF BUSINESS in which the partnership is engaged; otherwise –
 He shall be liable to the partnership for any profits he obtained from his transactions; and
 He shall personally bear all his losses (Article 1808).
Reason for the prohibition: The capitalist partners is likely to prejudice the partnership by the
competition he will offer. The exceptions are:
a. When the business is not the same or similar to that engaged in by the partnership; or
b. Although it is of the same kind, if there is a stipulation to the contrary.

State the rules in case a managing partner collects a demandable

debt from a person who also owes the partnership a demandable
debt.
They are:
a. The sum collected shall be applied to the two credits in proportion to their amounts;
b. It shall be fully applied to the partnership credit, if the receipt given is for the account of
the same; and
c. The debtor, however, has the right to have the payment applied to his debt to the partner
if it should be more onerous to him (Article 1252, 1792).
Reason for the law: To prevent the furtherance of a managing partner’s interest to the
prejudice of the firm. Note that the law speaks only of a managing partner.

GIVE THE OTHER OBLIGATIONS OF A PARTNER

They are:
a. Money converted to personal use – to pay to the partnership interest and damages for
any sum of money which he may have taken from the partnership coffers; said liability to
begin from the time of conversion (not demand) of the amount to his own use (Article
1788);
b. Additional share to capital – to contribute an additional share to the capital in case of
imminent loss of the business of the partnership to save the venture; otherwise, he (except
 an industrial partner because having contributed his entire industry there is nothing more
he can do) shall be obliged to sell his interest to the other partners (Article 1791).
c. Share of partnership credit – to bring to the partnership capital his share of a
partnership credit which he received from a debtor who subsequently became insolvent
when the other partners have not collected theirs (Article 1793).
Reason: All the partners must share
d. Indemnity for damages to partnership – to indemnify the partnership for damages
suffered by it through his fault and he cannot compensate them with the profits or
benefits he may have earned for the partnership (Article 1794).
e. Information affecting partnerships – to render on demand true and full information of
all things affecting the partnership to any partner or his legal representative (Article
1806).
f. Profits from partnership business – to account to the partnership and hold as trustee any
benefit or profit derived by him without the consent of the other partners from any
transaction relating to partnership business or affairs (Article 1807).
g. Share in loss – to share in the loss of the partnership except in the case of the industrial
partner (Article 1797).
Reason: A partnership is founded on a community of interest.

State the rules governing the management of a partnership.

They are:
1. Where manager is appointed in the articles of partnership:
 Extent of power – He may execute all acts of administration (not ownership)
despite the opposition of his partners unless he acts in bad faith;
 Revocation of power – The power is irrevocable without just and lawful cause.
(Article 1800). He must give his consent to his removal.
Reason: Revocation will amount to a change in the terms of the contract of partnership. For
just or lawful cause. The vote of the controlling partners (controlling financial interest) is
necessary of oust him.
2. Where manager is appointed orally or in an instrument other than the articles of
partnership:
 Extent of power – The partner appointed as manager after the constitution of the
partnership may also perform all acts of administration;
  Revocation of power – The power may be revoked at any time with or without
just cause
Reason: His appointment is a mere delegation of power.

3. Where there are two or more managing partners whose respective duties are not
specified:
 Extent of power – Each one may be separately perform acts of administration;
 In case of opposition by any of the managers – The decision of the majority of
the managers (per head) shall prevail. In case of tie, the matter shall be decided by
the managing partners owning the controlling interest (more than 50% of the
investments) (Article 10801).
 Revocation of power – Same as in No. 1 or 2, as the case may be.
4. Where there are two or more managing partners with the stipulation that none of them
shall act without the consent of the others:
 Extent the power – The concurrence of all is necessary for the validity of their
acts; and the absence or incapability of any manager cannot be alleged as an
excuse to dispense with this requirement;
 Exception – When there is imminent danger of grave or irreparable injury to the
partnership (Article 1802);
 Revocation of power – Same as in No. 1 or 2, as the case may be.
5. Where the manner of management has not been agreed upon:
Extent the power –
 All the parties shall be considered as agents of the partnership whose acts shall
bind the partnership;
 None of the partners may make any important alteration in the immovable
property of the partnership even if it may be useful to the firm. In case of dispute,
the partners may seek the intervention of the court. (Article 1803)
 In case of opposition by a partner – The decision of the majority of the partners
shall prevail. In case of tie, the matter shall be decided by the partners
representing the controlling interest. (Article 1801)
WHAT ARE THE RIGHTS ENJOINED BY A PARTNER?
They are:
1. To receive his share of the profits of the partnership (Article 1797, 1799);
2. To participate in the management of the firm, in the absence of an agreement to the
contrary (Article 1803, 1810);
3. To associate another person (sub-partner) with him in his share (Article 1804);
4. To have access to, inspect and copy, at any reasonable hour, any of the partnership books
(Article 1805);
5. To demand from his co-partners true and full information of all things affecting the
partnership (Article 1806);
6. To demand a formal account (even before dissolution) of partnership affairs:
 If he is wrongfully excluded from the partnership business or possession of its
property;
 If he has such under the terms of any agreement;
 If a partner receives any benefit or profit which should pertain to the partnership
(see Article 1807, supra.);
 Whenever other circumstances render it just and reasonable (Article 1809)
7. To ask for the dissolution and winding up of the partnership by decree of the court
(Article 1831, infra.); and
8. To ask for the return of his contribution, provided that the partnership are in excess of all
its liabilities. (Article 1839, infra.)
Note: As a rule, a partner is not entitled to a formal account. Reason: His rights to know
partnership affairs are amply protected (Article 1805, 1806, supra.) and furthermore, a formal
account requires considerable time and effort.

GIVE THE RULES FOR THE DISTRIBUTION OF PROFITS

AND LOSSES AMONG THE PARTNERS.
They are:
DISTRIBUTION OF PROFITS:
1. The partners share the profits according to their agreement subject to Article 1799
(see question No. 11, infra.);
 2. If there is no such agreement:
 The share of each capitalist partners shall be in proportion to his capital
contribution. This rules is based on the presumed will of the partners;
 The industrial partner shall receive such share, which must be satisfied first before
the capitalist partners shall divide the profits, as may be just and equitable under
the circumstances;
 The capitalist-industrial partner shall get a share in the profits, which must also be
satisfied first, as an industrial partner, and an additional share, in proportion to his
contribution from the balance. (Article 1797)
DISTRIBUTION OF LOSSES:
1. The losses shall be distributed according to their agreement subject to Article
1799 (see question No. 11, infra.);
2. If there is no such agreement, but the contract provides for the share of the
partners in the profits, the share of each in the losses shall be in accordance with
the profit-sharing ratio; but the industrial partner shall not be liable for losses.
The term “losses” implies that there are no profits.

MAY A PARTNER BE EXCLUTED FROM ANY SHARE IN THE

PROFITS OR LOSSES?
 No. Any such stipulation is void. (Article 1700). Reason: The partnership must exist for
the common benefit and interest of the partners. (Article 1770).
 But a stipulation exempting the industrial partner from the losses is naturally valid
since the law itself excludes him from losses (article 1797).
REASONS:
1. Unlike a capitalist partner who can withdraw his capital, an industrial partner cannot
withdraw the work already done by him; and
2. Furthermore, in the event of loss, an industrial partner has labored in vain and in a real
sense, he has already contributed his share in the loss.

WHAT ARE THE OBLIGATIONS OF THE PARTNERSHIP TO

THE PARTNERS?
They are:
 1. To refund amounts disbursed by a partner in behalf of the partnership plus the
corresponding interest from the time the expenses are made;
2. To answer for the obligations he may have contracted in good faith in the interest of
the partnership business;
3. To answer for risks in consequence of its management. (Article 1796)
Note: A partner is a mere agent of the partnership for the purpose of the business in the
absence of any stipulation to the contrary. (Article 1818). Hence, he us not personally liable.

PROPERTY RIGHTS OF A
PARTNER
Section 2

WHAT ARE THE PROPERTY RIGHTS OF EVERY PARTNER?

They are:
1. His right in specific partnership property;
2. His interest in the partnership; and
3. His right to participate in the management. (Article 1810)

WHAT ARE THE NATURE OF A PARTNER’S RIGHT IN

SPECIFIC PARTNERSHIP PROPERTY?
A partner is a CO-OWNER with his partners of specific partnership property. The
incidents of this rule are:
 A partner, subject to the legal provisions on partnership and to any agreement between
the partners, has an equal right to possess specific partnership property, but for
partnership purposes only;
 His right in specific partnership property is NOT ASSIGNABLE.
WHAT ARE THE NATURE OF A PARTNER'S RIGHT IN
SPECIFIC PARTNERSHIP PROPERTY?
1. His right in said property is not subject to attachment or execution except on a claim
against the partnership.
Reason: It belongs to the partnership and not to the partner; and
2. The property is not subject to legal support due from a partner. (Article 1811)

Distinguish partnership property from partnership capital.

 Partnership property is VARIABLE - its value may vary from day to day with changes in
the market value of the partnership assets, while partnership capital is CONSTANT - it
remains unchanged as the amount fixed by agreement of the partners, and is not affected
by fluctuations in the value of partnership property; and
 Partnership property includes not only the original capital contributions of the partners,
but all property subsequently acquired on account of the partnership or with partnership
funds, while partnership capital represents the aggregate of the individual contributions
made by the partners.

What does the partner's interest in the partnership consist of?

 It consists of his share in the PROFITS while the partnership is a going concern and in
the SURPLUS after its dissolution. (Article 1812)

IS THE PARTNER'S INTEREST IN THE PARTNERSHIF

ASSIGNABLE?
 This interest may be assigned. Such assignment, however, does not make the assignee or
transferee a partner.
 Reason: No one can become a partner without the consent of the other partners. The right
of the assignee (among others) is to receive the profits accruing to the assigning partner.
(Ibid)
With respect to the partner's interest the partnership, who enjoy in
the preference, his creditors partnership creditors?
 The interest in the surplus is available for the satisfaction of the separate debts of the
partners. (Article 1814) subject to the preferred rights of the PARTNERSHIP
CREDITORS as regards partnership property. (Article 1824). This means that they have
to be paid first from partnership property before the separate or private creditors of each
partner.

OBLIGATIONS OF THE
PARTNERS WITH REGARD TO
THIRD PERSONS
Section 3

Give the effects of the inclusion in the firm name of the name of
person who is not a partner.
They are:
1. Such person does not acquire the rights of a partner (Article 1767); and
2. He shall be subject to the liability of a partner (Article 1815) in so far as third persons
without notice are concerned.

What is the nature of the liability of partners to third persons for

PARTNERSHIP CONTRACTS?
The liability of all the partners, including industrial ones is:
 Pro rata - This must be understood to mean equally or jointly and not proportionately
because the pro-rating is based on the number of partners and not in the amount of
their contributions subject to adjustment among them (see question No. 15 [3], Chap. 3);
and
  Subsidiary - The partners become personally liable only after all the partnership assets
have been exhausted. (Article 1816)

What is the nature of the liability to third persons of the partners

for NON-CONTRACTUAL debts arising from their individual
acts?
All the partners are SOLIDARILY liable with the partnership for everything chargeable to the
partnership in the following cases:
1. Where {a} by any wrongful act or omission of any partner (b) acting in the ordinary
course of business or with the authority of his co-partners, loss of injury is caused to any
person, not being a partner in the partnership, or penalty is incurred (Article 1822; e.g.,
negligent operation of a vehicle by a partner which results in a traffic accident);
2. Where (a) one partner acting within the scope of his apparent authority receives money
or property of a third person and (b) misapplies it; and
3. Where (a) the partnership in the course of its business (b) receives money or property of a
third person and (c) the money or property is misapplied by any partner (d) while it is in
the custody of the partnership.

What is the extent of the liability of a person admitted as a partner

into an existing partnership?
1. As to partnership debts contracted BEFORE his admission He is liable only up to the
amount of his contribution or his share in the partnership property unless there is a
stipulation to the contrary; and
2. As to partnership debts contracted AFTER his admission - He is liable with his separate
property if partnership assets are not sufficient. (Article 1826)

What acts of a partner will be binding on a partnership with respect

to third persons?
They may be grouped into four, namely:
1. Acts for apparently carrying on in the USUAL WAY the business of the partnership -
Unless e partner has in fact no authority AND the third person has knowledge of the
fact;
 2. Acts not apparently for carrying on in the usual way the business of the partnership -
When AUTHORIZED BY THE OTHER PARTNERS:
3. Acts of strict dominion or ownership:
a. When authorized by the other partners;
b. When the other partners have abandoned the business; or
c. When effected by all of them; and
4. Acts in contravention of a restriction on authority - Unless the third person has
knowledge of such restriction, whether or not the acts are apparently carrying on in the
usual way the business of the partnership. (Article 1818)

GIVE INSTANCES OF ACTS OF STRICT DOMINION OR

OWNERSHIP.
They are:
1. Assignment of partnership property in trust for creditors or on the assignee's promise to
pay the debts of the partnership;
2. Disposal of the goodwill of the business;
3. Any act which would make it impossible to carry the ordinary business of the
partnership;
4. Confession of judgment;
5. Compromise concerning a partnership claim or liability;
6. Submission or partnership claim or liability to arbitration; and
7. Renunciation of a claim of the partnership.

Enumerate the cases where notice to or KNOWLEDGE of a

PARTNER constitutes NOTICE to or knowledge of the
PARTNERSHIP.
They are:
1. Notice to any partner of any matter relating to partnership affairs;
2. Knowledge of the partner acting in the particular matter acquired while a partner;
3. Knowledge of the partner acting in the particular matter then present to his mind; and
 4. Knowledge of any other partner who reasonably could and should have communicated it
to the acting partner. (Article 1821)
5. But there is no notice to or knowledge of the partnership in the case of fraud on the
partnership committed by or with the consent of the partner. (Ibid)

HOW MAY A PERSON BECOME A PARTNER BY ESTOPPEL?

 By representing himself as a partner in an existing partnership or in non-existing
partnership (i.s., with one or more persons, not actual partners); or
 By consenting to another making such representation. (Article 1825.)

Who will be liable to third persons who acted in good faith when a
person is falsely represented as a partner in an actual or apparent
partnership?
They are:
1. The partner by estoppel;
2. Those who consented to such representation; and
3. The partnership itself if all the actual partners consented to the representation. (Ibid) This
is a case of partnership by estoppel.

DISSOLUTION & WINDING UP

OF PARTNERSHIP
CHAPTER III

3 FINAL STAGES OF PARTNERSHIP

1. Dissolution
2. Winding Up
3. Termination
Define of DISSOLUTION?
 Is the change in the relation of the partners caused by any partner ceasing to be associated
in the carrying on of the business. (Article 1828) it is the point in time when the partners
cease to carry on business together.

IS THE PARTNERSHIP TERMINATED UPON DISSOLUTION?

No, it continues until the winding up of partnership affairs is completed. The principal
significance of dissolution is that thereafter no new partnership business should be undertaken,
but affairs should be liquidated and distribution made to those entitled to the partner's interest.
(Crane, Law on Partnership, p. 223)

DEFINE TERMINATION?
 Termination is that point in time when all the partnership affairs are wound up or
completed, and the partnership ceases to exist for all purposes.

What are the causes for the dissolution of PARTNERSHIP?

1. Without violation of partnership agreement:
a. Termination of the agreed term or of the particular undertaking;
b. By the express will of any partner who must act in good faith (otherwise, the partner
will be liable for damages), when no definite term or particular undertakings is
specified;
c. By the express will of the partners except those:
 Who have assigned their interest; or
 Suffered them to be charged for their separate debts; and
d. By expulsion of any partner.
2. In violation of partnership agreement:
 By the express will of any partner at any time (with or without justifiable cause).
3. By any event making it unlawful for the partnership or members thereof to continue the
business;
4. By loss of specific thing which a partner had promised to contribute before delivery.
 5. By the death of any partner.
6. By the insolvency of any partner or the partnership.
7. By the civil interdiction of any partner.; and
8. By judicial decree in cases provided by law. (Article 1830)

What are the instances when the court may decree the dissolution of
the partnership:
1. On the application by or for a partnership:
2. On the application by a purchaser of a partner’s interest.

On the application by or for the partnership:

1. In case of a partner's insanity;
2. When a partner's become incapable of performing his part of the partnership contract,
3. When a partner is guilty of conduct tending to affect prejudicially the business;
4. In case a partner willfully or persistently commit a breach of the partnership agreement or
such misconduct which makes it no longer practicable to carry of the business with him;
5. When the business can only be carried on at a loss, and;
6. Other circumstances making dissolution equitable (like fraud in the management of the
business, undue refusal to render accounting or to allow inspection of partnership's
books, etc.).

What are the effect of dissolution on the authority of the partners to

act for the partnership?
 General rule - Dissolution terminates all authority of any partner to act for the
partnership.
 Exceptions:
a. When necessary partnership affairs; and to wind up
b. When necessary to complete transactions begun but not then finished. (Article 1832)
What are the effects in case new contracts are entered into by a
partner with third persons after dissolution:
1. As among the partners themselves.
2. With respect to third persons.

AS AMONG THE PARTNERS THEMSELVES:

 The other partners are NOT BOUND (although they may be liable to third persons –
a. When the dissolution is NOT by the act, insolvency, or death of a partner, (e.g
expiration of the term);
b. When the dissolution is by the ACT of any partner (e.g., resignation) and the partner
acting for the partnership had knowledge of the dissolution; and
c. When the dissolution is by the DEATH or INSOLVENCY of a partner and the
partner acting for the partnership had knowledge or notion of the death or
dissolution.
 The other partners are NOT BOUN (although they may be liable to third persons –
A, B, and C formed partnership. After two years, partner A withdraw from the
partnership. In this case, the partnership is dissolved. Hence, any transactions entered into
by B and C without their knowledge of the withdrawal by partner A is valid and binding
to the partnership.

 The other partners are NOT BOUN (although they may be liable to third persons –
What if B has knowledge about the withdrawal of A, however he transacted with
X who has no knowledge about the withdrawal of A. this transaction created liability.

 The other partners are NOT BOUND (although they may be liable to third persons –
What if the cause of dissolution is the death or insolvency of partner A?