o If by words or conduct, a person directly represents himself to anyone as
PARTNERSHIPS a partner in an existing or non-existing partnership; or indirectly
GENERAL PRINCIPLES
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.
Partnership is primarily a contractual relationship.
 Partnership begins from the moment of the execution of the contract.
 It may be constituted in any form, except where immovables property or real rights
are contributed thereto, in which case a public instrument shall be necessary.
o In cases where real rights and immovables are contributed, an inventory
shall be made and it must be attached in a public instrument, otherwise,
the partnership is void.
 In cases where the capital contributed is at least P3000, whether in money or
property, the same shall be made in a public instrument.
o Non-compliance with this requirement does not affect the liability of the
partnership as to third persons.
Separate Juridical Personality
 The juridical personality of a partnership shall not be affected as to third parties in
case of non-compliance with the public instrument requirement for capital
contributions of at least three thousand pesos.
 Likewise, the failure to prepare an inventory and execute a public instrument in
instances where an immovable is contributed shall not render the partnership void
when:
o There are no third parties involved, and
o The partners have made a claim on the partnership agreement which is
deemed binding between them as any other contract.
 Value of registration in a public instrument –
o Registration is the best evidence to prove the existence of partnership
among the partners.
ELEMENTS OF A PARTNERSHIP
1. Meeting of the minds (Agreement)
2. To contribute money, property, or industry to a common fund;
3. Intent to divide the profits [and losses] among the contracting parties
CONSENT: MEETING OF THE MINDS
Partnerships, as arising from a contractual relationship, necessarily implies that there should be
meeting of the minds among the parties to constitute a partnership.
 Those who are not partners as to each other are not partners as to third persons.
 EXCEPT: Partnership by estoppel.
represents himself by consenting another person to represent him as a
partner;
o A third party relied on such representation
o Those persons who represented themselves shall be bound to the same
extent as though they were partners in fact.
 Liability in Partnership by Estoppel:
o When a partnership liability results, he is liable as though he were an
actual member of the partnership.
o When no liability results, he is liable pro-rata with the other persons so
consenting to the contract as to incur liability, otherwise separately.
OBJECT/SUBJECT MATTER: Partners undertake to jointly pursue a business enterprise, to
which end they agree to (1) contribute to a common fund, (2) with the intent to divide the
profits and losses, except in professional partnerships.
 Provided that, a partnership must be established for a lawful purpose, and for the
common benefit of all partners.
o If the purpose is unlawful, the partnership is dissolved by a judicial
decree, and all the profits shall be confiscated in favor of the State.
CONSIDERATION: Undertakings to contribute money, property or industry to a common
fund.
RULES ON DETERMINING PERFECTED PARTNERSHIPS
1. Except in partnership by estoppel, those who are not partners as to each other are
not partners as to third persons;
2. Co-ownership or co-possession does not, by itself, establish a partnership, whether
such co-owners do or do not share any profits made by the use of such property;
3. The sharing of gross returns does not of itself establish a partnership, whether or not
the persons sharing the have a joint or common right or interest in any property from
which the profits are derived.
4. The receipt by a person of a share in the profits of a business is prima facie evidence
that he is a partner in the business, but no such inference shall be drawn if profits are
received in payment:
a. As debt by installments or otherwise;
b. As wages of an employee or rent to a landlord;
c. As an annuity to a widow;
d. As interest on a loan, though the amount of payment may vary with the
profits of the business;
e. As consideration for the sale of goodwill of a business or other property
by installment or otherwise.
“Co-ownership or co-possession does not by itself establish a partnership even when profits
are shared”
  Absent the character of habituality of the transactions for purposes of gain, the
transaction cannot be deemed as that made by a partnership. (Isolated transactions)
“Sharing in the gross returns does not create partnership”
 It is a simple loan if the amounts were never considered as contributions to business.
 Receipt by a person of share in the profits of a business is not a proof of partnership,
if there is no concurrent agreement to share in the losses.
o In Anton v Oliva, the court held that the fact that the payment of the loan
was based on a contingency that the business of the Antons were able to
gain profit, there is nothing illegal about this scheme.
ATTRIBUTES OF A PARTNERSHIP
1. A contractual relationship.
2. Bounded by the attributes of mutual agency.
o Unless the manner of management is agreed upon, each partners are
considered an agent of the partnership, and whatever any of them may do
shall bind the partnership.
o Partners as agents – their authority is limited to the extent that it fulfills
the purpose of their business:
 Apparently carrying on in the usual way of business of the
partnership.
 Any act outside the usual way of business does not bind the
partnership if (1) the third person has knowledge of lack of
authority, and (2) there is in fact lack of authority.
o Acts which require the consent of ALL partners:
 Assignment of partnership properties in trust for creditors;
 Disposal of the goodwill of the partnership
 Acts which would render it impossible to conduct the business
of the partnership on its ordinary course
 Confess a judgment
 Enter into compromise
 Submit a partnership to claim or liability or arbitration; or
 Renounce a claim of the partnership
3. Bounded by delectus personae
o Assignment of share is allowed, but the assignee shall not be admitted
into the partnership without the consent of the other partners.
o The extent of the rights of the assignee is limited to the profits to which
the assigning partner would otherwise be entitled.
4. All partners are unlimitedly liable to the partnership debts.
o All partners are liable solidarily with the partnership for everything
chargeable to the partnership.
o Any stipulations against the liability shall be void except as among the
partners.
PARTNERSHIP TERM
 Partnership at will – one which no fixed term is specified and not formed for a
particular undertaking may be terminated anytime by mutual agreement.
 Partnership with a fixed term – may be terminated after the term fixed.
MANAGEMENT
 If manager is appointed in the Articles of Partnership, the appointment is irrevocable
without just/lawful cause. Revocation of the appointment, when the managing
partner acted in bad faith must be done with the vote of the partners representing
majority of interest.
 If appointment is done after the constitution of the Articles, the appointment is
revocable any time by the vote of the partners.
 When two or more persons are entrusted with management, without specification of
duties, each partners as designated may execute all acts of administration.
o In case of disagreement, the decision of the majority of the partners shall
apply. In case of a tie, the decision of the partners owning controlling
interest will prevail.
 If stipulated, concurrence of all partners is necessary (note of the instance where
consent of ALL is required)
o Absence the disability or the dormancy of a partner, his vote shall be
indispensable unless there is grave or irreparable danger to the
partnership.
 In case of no agreement, all partners are agents of the partnership.
o Court intervention may be sought in case of refusal of one partner that is
manifestly prejudicial to the partnership.
OBLIGATIONS OF THE PARTNERS
TO THE PARTNERSHIP
OBLIGATION TO CONTRIBUTE TO A COMMON FUND
Every partner is a debtor of the partnership for whatever he may have promised to contribute
thereto. Art 1786
Unless there is a stipulation to the contrary, the partners shall contribute in equal shares to the
capital of the partnership. Art 1790
 A A partner who promises to contribute to a partnership becomes a promissory
debtor of the partnership, including liability for interests and damages caused for
failure to pay, and which amounts may be deducted upon dissolution of the
partnership from his share in the profits and net assets.
 o 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.
o The same rule shall apply to money of the partnership he misappropriated
from the time he converted the same for his own use.
 Rules in case of loss of the thing to be contributed:
o When contrition is in goods, it must be appraised to establish value.
 Change in the value after appraisal is for the account of the
partnership.
o If fungible, the loss is borne by the partnership.
o Specific or determinate things which are not fungible, the risk is borne by
the partner, unless ownership is transferred to the partnership. If only use
is contributed, the partner bears the loss.
o Things contributed to be sold, and placed in inventory, risk is borne by
partnership.
ADDITIONAL CONTRIBUTION IN CASE OF IMMINENT LOSS
 Unless otherwise agreed upon, partner who refuses to contribute additional capital,
except an industrial partner, to save the venture shall be obliged to sell his interest to
other partners.
AMONGST THEMSELVES
DUTY OF DILIGENCE
Each partner is responsible to the partnership for damages suffered by it through his fault.
 A partner at fault cannot compensate such damages with the profits and benefits
which he may have earned for the partnership from his industry.
o However, the courts may equitably lessen the liability if the partner’s
extraordinary efforts realized unusual profits.
DUTY TO ACCOUNT
Every partner must account for any benefit, and hold as trustee any profits derived by him
without the consent of other partners from any transaction connected with the formation,
conduct or liquidation of the partnership or from any use by him of property.
 When right to formal account exists:
o In case a partner is wrongfully excluded from the business
o If the right exists by agreement
o Any profits derived without consent of the partners from the partnership
transactions
o Whenever just and reasonable.
DUTY OF LOYALTY
If a partner authorized to manage collects a demandable sum which was owed to him in his
own name, from a person who owed the partnership another sum also demandable, the sum
thus collected shall be applied to the two credits in proportion to their amounts, even though he
may have given a receipt for his own credit only; but should he have given it for the account of
the partnership credit, the amount shall be fully applied to the latter.
Prohibition to engage in business
 A capitalist partner is prohibited to engage in business similar to the partnership
business.
 An industrial partner cannot engage in any form of business.
o An industrial partner is not deemed to have violated his fiduciary duties
to the other partners by having delivered on the particular service
required of her and devoting her time serving in the judiciary which is not
considered to be engaged in an activity for profit.
 When a partner engages in a separate business enterprise that is competitive with
that of the partnership, the other partner’s withdrawal becomes thereby justified and
for which the latter cannot be held liable for damages
TO THIRD PERSONS
All partners shall be liable pro rata with all their properties, 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. However, any partner may enter into a separate obligation to
perform a partnership contract.
 Any stipulation against the liability laid down in this articles shall be void, except as
among the partners.
 NOTE: Partners’ obligation to partnership liabilities is subsidiary in nature— they
shall only be liable with their property after all partnership assets have been
exhausted.
 GENERAL RULE: The partners’ obligation to third persons with respect to
partnership liability is pro rata or joint, i.e., liable only for the payment of only
a proportionate part of the debt.
o The joint liability of partners is a defense that can be raised by a partner
impleaded in a complaint against partnership.
 EXCEPTION: When all partners are solidarily liable –
o When the liability is caused by wrongful act or omission of any partner
acting in the ordinary course of business or with authority from other
partners.
o When a parent acts or misapplies properties of third parties, provided:
 The partner who receives is acting with apparent authority; and
 Partnership received the property in the ordinary course of
business.
 LIMITED LIABILITY
o Newly admitted partners is liable only out of the partnership property
share and contributions for all the obligations arising prior to his
admission.
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.
DISSOLUTION AND WINDING UP
TYPES AND CAUSES OF DISSOLUTION
Without violation of  Expiration of the term or undertaking
the agreement  Partnership at will – Express will of a partners acting
in good faith
 Mutual assent of the partners to dissolve or accept a
new partner
 Expulsion of a partner pursuant to an agreement
granting such right.
In contravention of the  Where circumstance do not permit dissolution, by
agreement express will of any partner at any time.
 NOTE: A partner who affects dissolution by his
withdrawal in contravention of an agreement renders
himself liable for damages which may be deducted
from his partnership account and he losses the right to
wind up.
Operation of law  Supervening illegality
 Loss of specific thing contributed
 Death, insolvency, civil interdiction of a partner.
future partnership liabilities; and
All breaching partners are limited to:
 If partnership business is not continued: To receive
net share after payment of liabilities
 If business is continued: To have the net value of their
interest ascertained, excluding goodwill, and paid to
them cash and to be released from partnership
liability.
Operation of law When a partner dies and business is continued:
 Have the value of interest of the deceased partner
ascertained for the benefit of his representatives
 Heirs shall receive the value of interest as an ordinary
creditor or an option to receive interest on such value
for the profits attributable to the use of his right in the
property of the dissolved partnership.
Fraud, misrepresentation of one of the parties, part rescinding,
after payment of partnership liabilities to third person to:
 Lien or right of retention of surplus of remaining
partnership property
 Stand in place of creditors of partnership for any
payments made by him in respect to partnershop
liabilities
 Be indemnified by the person guilty of fraud.

OPTIONS ARISING BY REASON OF DISSOLUTION

Failure of partner to have published her withdrawal, and her
Without violation of Each partner may demand winding-up of a partnership.
agreeing to have remaining partners proceed with running the
the agreement  Partnership properties applied to discharge debts, and
partnership business instead of insisting on the liquidation of the
surplus applied to pay in cash the net of amount
partnership, will not relieve withdrawing partner from her
owing to the respective partners.
liability to the partnership creditors.

Bona fide expulsion of
a partner who is
discharged from
liabilities
In contravention of Non-breaching partners
partnership agreement
 Expelled partner only received the net amount due When new partners continue the partnership business which has
him less damages. been dissolved by the withdrawal of its original partners, the
 Partnership business continue with the remaining new partnership is liable for the existing liabilities of the
partners. business enterprise even when they were incurred under the old
partnership arrangement.
 Liquidate the partnership
 Recover damages from breaching partner.
The remedy of a partner who furnished the capital for the
 If they desire, may continue the business provided
recovery of his money is not a action for estafa, but a civil one.
that:
 BUT: When an individual has been deceived by fraud
1. They secure the payment by bond or pay the
to invest in a venture for which there was never
breaching partner the value of his interest net of
intention on the part of the receiving party to invest it
damages and indemnity against all present of
 for the particular purpose for which it was invested
the receiving partner is liable for estafa.
NATURE AND EFFECTS OF DISSOLUTION
BETWEEN AND AMONG PARTNERS
 Dissolution is the change in the relationship of the partners caused by any partner
ceasing to be associated in carrying on the partnership (deletus personae)
 It terminates all authority of any partner to act for the partnership except as may be
necessary to wind up partnership affairs.
o In the absence of stipulation to the contrary, the right to an accounting of
his interest shall accrue to any partner as against the winding-up partners,
surviving partners, or partners continuing the business.
 A partner can still bind the partnership:
o By an act or contract appropriate for winding up of affairs; or
o By non-winding up contracts when third party had extended credit to the
partnership in good faith without notice of dissolution.
 Unknown partners are not liable to such creditors with their
separate properties.
 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 (tldr;
the third person has knowledge or the acting partner had no knowledge/ in good
faith)
o The dissolution being by act of any partner, the partner acting for the
partnership had knowledge of the dissolution; or
o 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.
ON THE PARTNERSHIP ITSELF
 Partnership only continues for purposes of winding-up
o Except when non-breaching partners choose to continue the business
under a new partnership.
ON THE EXISTING LIABILITIES
 Dissolution by itself does not extinguish existing liability of any partner, except:
o When a partner is discharged by reason of an express agreement between
the continuing partners and creditors.
 Upon dissolution, the partners shall contribute amounts necessary to satisfy
partnership debts not covered by the partnership assets.
o
HOWEVER, separate creditors of deceased partners enjoy priority over
his separate properties.
SETTLEMENT OF LIABILITIES
 Those owing to creditors other than partners
 Those owing to partners other than capital and profits
 Those owing to partners as capital
 Those owing to partners as profits
LIMITED PARTNERSHIPS
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.
REQUIREMENTS
A limited that does not comply with the registration requirements shall be treated as a general
partnership in which all the members are liable for partnership debts.
 Formed by at least one general partners and at least one limited partner
 Who shall sign and swear to the Articles of Limited Partnership
o The partnership name must add the word “Limited”
o The character and location of the business
o Information on the partners
 Which certificate must be registered with the SEC.
Substantial compliance: Substantial, rather than strict, compliance in good faith with the
legal requirements is all that is necessary for the formation of a limited partnership; otherwise,
when there is not even substantial compliance, the partnership becomes a general partnership
as far as third persons are concerned.
Effect of false statement
 Persons who relied upon a false statement may hold liable those who had knowledge
of the same –
o At the time he signed the certificate; or
o After signing, but within a sufficient time before the statement was relied
upon to enable him to cancel or amend the certificate or to file for
cancellation.
CANCELLATION OR AMENDMENT OF CERTIFICATE
 Cancellation is proper:
o Partnership is dissolved
o There ceased to be limited partners
 Amendment is proper
o Change in name/business
o Additional partners
 o General partners retires or dies  He shall be liable for the difference between his contribution actually made and that
o False or erroneous statement stated in the certificate; and
 For any unpaid contribution which he agreed in the certificate to make in the future
RIGHTS OF GENERAL PARTNERS time.
 General partners have the rights pertaining to partners in general partnerships.  For the property stated in the certificate as contributed by him but he had not
 BUT: The following requires the consent of limited partners: delivered.
o Do any act in contravention of the certificate  For specific property which had wrongfully been returned to him; and
o Do any act which makes it impossible to carry out business of the  Money or other property wrongfully paid or conveyed to him on account of his
partnership* contribution.
o Confess a judgment against the partnership*
RIGHTS
o Possess partnership property or assign rights* other than partnership
 Have the partnership books kept at the principal place of business, to inspect and/or
purpose
copy them at reasonable hours
o Admit a new general or limited partner (in the latter case, subject to the
 Have on demand true and full information of things affecting the partnership
authority given under the certificate).
 A formal account of partnership affairs
(*) Those are similar restrictions with general partnership. Thus, by inference, unlike in GP, a
 Have the dissolution and winding up by judicial decree.
general partner in LTD is entitled to:
 Right to receive share of profits/other compensation by way of income; and
 Disposal of the goodwill of the partnership
 Enter into compromise  Right to receive return of contributions, provided that partnership assets are in
 Submit a partnership to claim or liability or arbitration; or excess of its liabilities.
 Renounce a claim of the partnership o All liabilities of partnership have ben paid, or the assets of partnership is
sufficient to cover its debts
o Consent of all members are obtained.
 A general partner may also be a limited partner, provided that:
 Except: if it may rightfully be demanded, consent is not
o Such fact is stated in the certificate
necessary.
o Shall have all the rights/powers subject to restrictions of general partner
o Certificate is cancelled/amended as to set forth the withdrawal or
 Except: With respect to his contributions, he shall have the
reduction of contribution.
rights against other partners which he would have had if he
were also not a general partner.
PRIORITY IN DISTRIBUTION OF ASSETS IN CASE OF DISSOLUTION
 Those due to creditors, including limited partners
 Those due to limited partners in respect of their share in profit
RIGHTS OF LIMITED PARTNERS
 Those due to limited partners of return of capital contributed
 Those due to general partners in respect to capital other capital and profits
CONTRIBUTION
 Those due to general partners in respect to profits
 The contributions of a limited partner may be cash or property, but not services.
 Those due to general partners in respect for return of capital contributed.
LIABILITY TO THIRD PERSONS
 He shall not be liable as such to the obligations of the partnership, except:
o If he allows his surname to be part of partnership name
 Unless his surname is also the surname of a general partner; or
 Prior to the time when the limited partner became such, the
business has been carried under a name which his surname
appeared
o He takes part in the control of a partnership

LIABILITY TO PARTNERSHIP