Law on Business Organizations Reviewer
PARTNERSHIP failure to comply with the requirements of
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.
Definition
Partnership is a contract whereby two or
more persons bind themselves to
contribute money, property or industry to a
common fund with the intention of dividing
profits among themselves.
Elements
1. Intention to form a contract of
partnership
2. Participation in both profits and losses
3. Community of interests
Basic Features
1. Voluntary agreement
2. Association for profit
3. Mutual contribution to a common fund
4. Lawful purpose or object
5. Mutual agency of partners
6. Articles must not be kept secret
7. Separate juridical personality
Characteristics
1. Consensual – perfected by mere
consent.
2. Bilateral – formed by two or more
persons creating reciprocal rights and
obligations.
3. Preparatory - entered into as a means
to an end.
4. Nominate – has a special name or
designation.
5. Onerous – contributions in the form of
either money, property and/or industry
must be made.
6. Commutative – the undertaking of each
partner is considered as the equivalent
of that of the others.
7. Principal – its existence or validity does
not depend on some other contract.
Principle of Delectus Personae (choice of
persons) – a person has the right to select
persons with whom he wants to be
associated with in partnership.
Art. 1768. The partnership has a juridical
personality separate and distinct from that
of each of the partners even in case of
Article 1772, first paragraph.
Partnership, a juridical person
As an independent juridical person, a
partnership may enter into contracts,
acquire and possess property of all kinds in
its name, as well as incur obligations and
bring civil or criminal actions. Thus, a
partnership may be declared insolvent even
if the partners are not. It may enter into
contracts and may sue and be sued in its
firm name or by its duly authorized
representative. It is sufficient that service
of summons be served on any partner.
Partners cannot be held liable for the
obligations of the partnership unless it is
shown that the legal fiction of a different
juridical personality is being used for a
fraudulent, unfair or illegal purpose.
Effect of failure to comply with statutory
requirements
Under Art 1772
Partnership still acquires personality despite
failure to comply with the requirements of
execution of public instrument and
registration of name in SEC.
Under Arts 1773 and 1775
Partnership with immovable property
contributed, if without requisite inventory,
signed and attached to public instrument,
shall not acquire any juridical personality
because the contract itself is void. This is
also true for secret associations or societies.
To organize a partnership not an absolute
right
It is but a privilege which may be enjoyed
only under such terms as the State may
deem necessary to impose.
Art. 1769. In determining whether a
partnership exists, these rules shall apply:
1. Except as provided by Article 1825,
persons who are not partners as to
each other are not partners as to third
persons.
2. Co-ownership or co-possession does
not of itself establish a partnership,
whether such co-ownership or co-
possessors do or do not share any
profits made by the use of the property.
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3. The sharing of gross returns does not
of itself establish a partnership,
whether or not the persons sharing
them have a joint or common right or
interest in any property from which the
returns are derived.
4. The receipt by a person of a share of
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 such profits were received in
payment:
a. As a debt by installments or
otherwise.
b. As wages of an employee or rent to
a landlord.
c. As an annuity to a widow or
representative of a deceased
partner.
d. As interest on a loan, though the
amount of payment vary with the
profits of the business.
e. As the consideration for the sale of
a goodwill of a business or other
property by installments or
otherwise.
In general, to establish the existence of a
partnership, all of its essential features or
characteristics must be shown as being
present. In case of doubt, art.1769 shall
apply. This article seeks to exclude from the
category of partnership certain
features enumerated herein which, by
themselves, are not indicative of the
existence of a partnership.
Persons not partners as to each other
Persons who are partners as between
themselves are partners as to third persons.
Generally, the converse is true: if they are
not partners between themselves, they
cannot be partners as to third persons.
Partnership is a matter of intention, each
partner giving his consent to become
a partner. However, whether a partnership
exists between the parties is a factual
matter. Where parties declare they are not
partners, this, as a rule, settles the question
between them. But where a person
misleads third persons into believing that
they are partners in a non-existent
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partnership, they become subject to
liabilities of partners (doctrine of
estoppel).Whether or not the parties call
their relationship or believe it to be a
partnership is immaterial. Thus, with the
exception of partnership by estoppel, a
partnership cannot exist as to third persons
if no contract of partnership has been
entered into between the parties
themselves.
Co-ownership or co-possession
There is co-ownership whenever the
ownership of an undivided thing or right
belongs to different persons.
Clear intent to derive profits from
operation of business
Co-ownership does not of itself establish
the existence of a partnership, although it is
one of its essential elements. This is true
even if profits are derived from the joint
ownership. The profits must be derived
from the operation of business by
the members of the association and
not merely from property ownership. The
law does not imply a partnership between
co-owners because of the fact that they
develop or operate a common property,
since they may rightfully do this by virtue of
their respective titles. There must be a clear
intent to form a partnership.
Existence of fiduciary relationship
Partners have a well-defined fiduciary
relationship between them. Co-owners do
not. Should there be dispute; the remedy of
partners is an action for dissolution,
termination and accounting. For co-owners
it would be one, for instance, for non-
performance of contract. People can
become co-owners without a contract but
they cannot become partners without one.
Persons living together without benefit
of marriage
Property acquired governed by rules on co-
ownership.
Sharing of gross returns not even
presumptive evidence of partnership
The mere sharing of gross returns alone
does not even constitute prima facie
evidence of partnership, since in a
partnership, the partners share profits after
satisfying all of the partnership’s liabilities.
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Reason for the rule
Partner interested in both failures and
successes; it is the chance of loss or gain
that characterizes a business. Where
the contract requires a given portion of
gross returns to be paid over, the portion is
paid over as commission, wages, rent, etc.
Where there is evidence of mutual
management
Where there is further evidence of mutual
management and control, partnership may
result.
Receipt of share in the profits strong
presumptive evidence of partnership
An agreement to share both profits
and losses tends strongly to establish the
existence of a partnership. It is not
conclusive, however, just prima facie and
may be rebutted by other circumstances.
When no such inference will be drawn
Under par. 4 of art. 1769, sharing of profits
is not prima facie evidence of partnership in
the cases enumerated under subsections (a)
– (e). In these cases, the profits are not
shared as partner but in some other
respects or purpose. The basic test
of partnership is whether the business is
carried on in behalf of the person sought to
be held liable.
Sharing of profits as owner
It is not merely the sharing of profits, but
the sharing of them as co-owner of the
business or undertaking that makes one
partner. Test: Does the recipient have an
equal voice as proprietor in the conduct and
control of the business? Does he own a
share of the profits as proprietor of the
business producing them? One must have
an interest with another in the profits of a
business as profits.
Burden of proof and presumption
The burden of proving the existence of a
partnership rests on the party having the
affirmative of that issue. The existence of
a partnership must be proved and will not
be presumed. The law presumes that those
acting as partners have entered into a
contract of partnership. Where the law
presumes the existence of partnership, the
burden of proof is on the party denying its
existence. When a partnership is shown to
exist, the presumption is that it continues
and the burden of proof is on the person
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asserting its termination. One who alleges
partnership cannot prove it merely by
evidence of an agreement using the term
“partner”. Non-use of the term, however,
is entitled to weight. The question of
whether a partnership exists is not always
dependent upon the personal arrangement
or understanding of the parties. Parties
intending to do a thing which in law
constitutes partnership are partners.
Legal intention is the crux of partnership.
Parties may call themselves partners but
their contract may be adjudged something
quite different. Conversely, parties may
expressly state that theirs in not a
partnership yet the law may determine
otherwise on the basis of legal intent.
However, courts will be influenced to some
extent by what the parties call their
contract.
Tests and incidents of partnership
In determining whether a partnership
exists, it is important to distinguish
between tests or indicia and incidents of
partnership. Only those terms of a contract
upon which the parties have reached an
actual understanding, either expressly or
impliedly, may afford a test by which to
ascertain the legal nature of the contract.
Some of the typical incidents of a
partnership are:
1. The partners share in profits and losses.
2. They have equal rights in the mgt and
conduct of the partnership business.
3. Every partner is an agent of the
partnership, and entitled to bind the
others by his acts. He may also be liable
for the entire partnership obligations.
4. All partners are personally liable for
the debts of the partnership with their
separate property except that limited
partners are not bound beyond the
amount of their investment.
5. A fiduciary relation exists between
the partners.
6. On dissolution, the partnership is not
terminated, but continues until the
winding up of partnership is completed.
Such incidents may be modified by
stipulation of the partners.
Similarities between a partnership and a
corporation
1. Both have juridical personality separate
and distinct from that of the individuals
composing it;
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2. Both can only act through its agents;
3. Both are organizations composed of an
aggregate of individuals;
4. Both distribute profits to those who
contribute capital to the business;
5. Both can only be organized where there
is a law authorizing is organization;
6. Partnerships are taxable
as corporations.
Art. 1770. A partnership must have a lawful
object or purpose, and must be established
for the common benefit or interest of the
partners. When an unlawful partnership is
dissolved by a judicial decree, the profits
shall be confiscated in favor of the
State, without prejudice to the provisions
of the Penal Code governing the
confiscation of the instruments and effects
of a crime. Object or purpose of partnership
The provision of the 1st paragraph
reiterates 2 essential elements of a
contract of partnership:
1. Legality of the object; and
2. Community of benefit or interest of the
partners. The parties possess absolute
freedom to choose the transaction or
transactions they must engage in. The
only limitation is that the object must
be lawful and for the common benefit
of the members. The illegality of the
object will not be presumed; it must
appear to be of the essence of the
relationship.
Effects of an unlawful partnership
1. The contract is void and the partnership
never existed in the eyes of the law;
2. The profits shall be confiscated in favor
of the government;
3. The instruments or tools and proceeds
of the crime shall also be forfeited in
favor of the government;
4. The contributions of the partners shall
not be confiscated unless they fall
under #3.
A partnership is dissolved by operation of
law upon the happening of an event which
makes it unlawful. A judicial decree is
not necessary to dissolve an unlawful
partnership. However, advisable that
judicial decree be secured. 3rd persons who
deal w/ partnership w/o knowledge of
illegal purpose are protected.
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Right to return of contribution where
partnership is unlawful
Partners must be reimbursed the amount of
their respective contributions. The partner
who limits himself to demanding only the
amount contributed by him need not resort
to the partnership contract on which to
base his claim or action. Since the purpose
for which the contribution was made has
not come into existence, the manager or
administrator must return it, and he who
has paid his share is entitled to recover it.
Right to receive profits where partnership
is unlawful
Law does not permit action for obtaining
earnings from an unlawful partnership
because for that purpose, the partner will
have to base his action upon the
partnership contract, which is null and
without legal existence by reason of its
unlawful object; and it is self-evident that
what does not exist cannot be a cause
of action. Profits earned do not constitute
or represent the partner’s contribution. He
must base his claim on the contract which is
void. It would be immoral and unjust for the
law to permit a profit from an industry
prohibited by it. T he courts will refuse to
recognize its existence, and will not lend
their aid to assist either of the parties
thereto in an action against each other.
Therefore, there cannot be no accounting
demanded of a partner for the profits which
may be in his hands, nor can recovery be
had.
Effect of partial illegality of partnership
business
Where a part of the business is legal and
part illegal, a n account of that which is
legal may be had. Where, w/o the
knowledge or participation of the partners,
the firm’s profits in a lawful business has
been increased by wrongful acts, the
innocent partners are not precluded as
against the guilty partners from recovering
their share of the profits.
Effect of subsequent illegality of
partnership business
Contract will not be nullified. Where the
business for which the partnership is
formed is legal when the partnership is
entered into, but afterward becomes illegal,
an accounting may be had as to the
business transacted prior to such time.
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Community of interest between the
partners for business purposes
The salient features of an ordinary
partnership are a community of interest in
profits and losses, a community of interest
in the capital employed, and a community
of power in administration. This community
of interest is the basis of the partnership
relation. However, although every
partnership is founded on a community of
interest, e very community of interest does
not necessarily constitute a partnership.
Property used in the business may belong
to one or more partners, so that there is no
joint property, other than joint earnings.
To state that partners are co-owners of a
business is to state that they have the
power if ultimate control. But partners may
agree upon concentration of management,
leaving some of their members entirely
inactive or dormant. Only one of these
features, profit-sharing, seems to be
absolutely essential. But a mere sharing of
profits of itself does not of necessity
constitute a partnership. The court must
consider all the essential elements in light
of the facts of the particular case before
deciding whether a partnership exists.
Art. 1771. A partnership may be constituted
in any form, except where immovable
property or real rights are contributed
thereto, in which case a public instrument
shall be necessary .Form of partnership
contract
General rule
No special form required for validity or
existence of the contract of partnership.
Contract maybe made orally or in writing
regardless of the value of the contributions.
Where immovable property or real rights
are contributed
Execution of public instrument necessary
for validity of contract of partnership. To
affect 3rd persons, the transfer of real
property to the partnership must be duly
registered in the Registry of Property.
When partnership agreement covered by
the Statute of Frauds
An agreement to enter in a partnership at a
future time, which by its terms is not to be
performed w/in a year from the making
thereof is covered by the Statute of Frauds.
Such agreement is unenforceable unless it
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is in writing or at least evidenced by some
note or memorandum.
Partnership implied from conduct
Binding effect
Existence of partnership may be implied
from the acts or conduct of the parties, as
well as from other declarations, and such
implied contract would be as binding as a
written and express contract.
Ascertainment of intention of parties
In determining whether a particular
transaction constitutes a partnership, as
between the parties, the intention as
disclosed by the entire transaction, and
as gathered from the facts and from the
language employed by the parties as well
as their conduct, should be ascertained.
Conflict between intention and terms
of contract
If the parties intend a general partnership,
they are general partners although their
purpose is to avoid the creation of such a
relation.
Art. 1772. Every contract of partnership
having a capital of three thousand pesos or
more, in money or property, shall appear in
a public instrument, which must be
recorded in the Office of the Securities and
Exchange Commission. Failure to comply
with the requirements of the preceding
paragraph shall not affect the liability of the
partnership and the members thereof to
third persons. Registration of partnership
Partnership with capital of P3, 000 or more
Requirements:
1. The contract must appear in a public
instrument;
2. It must be recorded or registered w/
the SEC. However, failure to comply w/
the above requirements does not
prevent the formation of the
partnership or affect its liability and
that of the partners to 3rd persons. But
any partner is granted the right bylaw
to compel each other to execute the
contract in a public instrument.
Purpose of registration
Registration is necessary as a condition for
the issuance of licenses to engage in
business and trade. In this way, the tax
liabilities of big partnerships cannot be
evaded and the public can determine more
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accurately their membership and capital
before dealing with them.
When partnership considered registered
The objective of the law is to make the
recorded instrument open to all and to give
notice thereof to interested parties. This
objective is achieved from the date the
partnership papers are presented to and
left for record in the Commission. This is the
effective date of registration. If the
certificate of recording is issued on a
subsequent date, its effectively retroacts to
date of presentation.
Art. 1773. A contract of partnership is void,
whenever immovable property is
contributed thereto, if an inventory of said
property is not made, signed by the parties,
and attached to the public instrument.
Partnership with contribution of immovable
property
Where immovable property contributed,
failure to comply w/ the following
requisites will render the partnership
contract void:
1. The contract must be in a public
instrument;
2. An inventory of the property
contributed must be made, signed by
the parties, and attached to the public
instrument. Art. 1773 is intended
primarily to protect 3rd persons. W/
regard to 3rdpersons, a de facto
partnership or partnership by estoppel
may exist. There is nothing to prevent
the court from considering the
partnership agreement an ordinary
contract from which the parties’ rights
and obligations to each other may be
inferred and enforced.
When inventory is not required
An inventory is required only whenever
immovable property is contributed. If not
contributed or if personal property, no
inventory required.
Importance of making inventory of real
property in a p a r t n e r s h i p
An inventory is very important in
a partnership to how much is due from each
partner to complete his share in the
common fund and how much is due to each
of them in case of liquidation. The
execution of a public instrument of
partnership would be useless if there is no
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inventory of immovable property
contributed because w/o its description and
designation, the instrument cannot be
subject to inscription in the Registry
of Property, and the contribution cannot
prejudice 3rd persons.
Art. 1774. Any immovable property or an
interest therein may be acquired in the
partnership name. Title so acquired can be
conveyed only in the partnership name.
Acquisition or conveyance of property by
partnership
Since partnership has juridical personality of
its own, it may acquire immovable property
in its own name. Title so acquired can
be conveyed only in the partnership name.
Art. 1775. Associations and societies, whose
articles are kept secret among the
members, and wherein any one of the
members may contract in his own name
with third persons, shall have no juridical
personality, and shall be governed by the
provisions relating to co-ownership. Secret
partnerships without juridical personality
Partnership relation is created only by the
voluntary agreement of the partners. It is
essential that the partners are fully
informed not only of the agreement but of
all matters affecting the partnership. Secret
partnerships are not by nature
partnerships. Secret partnerships shall be
governed by the provisions relating to co-
ownership.
Importance of giving publicity to articles
of partnership
It is essential that the arts of partnership be
given publicity for the protection not only of
the members themselves but also 3rd
persons from fraud and deceit. A member
who transacts business for the secret
partnership in his own name becomes
personally bound to 3rd persons unaware of
the existence of such association.
Partnership liability may still
result, however, in cases of estoppel.
Art. 1776. As to its object, a partnership is
either universal or particular. As regards the
liability of the partners, a partnership may
be general or limited. Classifications of
partnership
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As to extent of its subject matter
1. Universal partnership. (Art. 1777)
a. Universal partnership of all present
property. (Art. 1778)
b. Universal partnership of profits.
(Art. 1780)
2. Particular partnership. (Art. 1783)
As to liability of the partners
General partnership: one consisting of
general partners who are liable pro rata and
subsidiary and sometimes solidarily w/ their
separate property for partnership debts.
Limited partnership: one formed by two or
more persons having as members one or
more general partners and one or more
limited partners, the latter not being
personally liable for the obligations of the
partnership.
As to duration
Partnership at will: one in w/c no time is
specified and is not formed for a particular
undertaking or venture and w/c may be
terminated at any time by mutual
agreement of the partners, or by the will of
any one partner alone; or one for a fixed
term or particular undertaking w/c is
continued after the end of the term or
undertaking w/o express agreement.
Partnership with a fixed term: one w/c the
term for w/c the partnership is to exist is
fixed or agreed upon or one formed for
a particular undertaking.
As to the legality of its existence
De jure partnership: one w/c has complied
w/ all the legal requirements for
its establishment.
De facto partnership: one w/c has failed to
comply w/ all the legal requirements for its
establishment.
As to representation to others
Ordinary or real partnership: one w/c
actually exists among the partners and also
as to 3rd persons.
Ostensible partnership or partnership or
partnership by estoppel: one w/c in reality
is not a partnership, but is considered a
partnership only in relation to those who,
by their conduct or admission, are
precluded to deny or disprove its existence.
As to publicity
Secret partnership: one wherein the
existence of certain persons as partners is
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not avowed or made known to the public by
any of the partners.
Open or notorious partnership: one whose
existence is avowed or made known to the
public by the members of the firm.
As to purpose
Commercial or trading partnership: one
formed or the transaction of business.
Professional or non-trading partnership:
one formed for the exercise of a profession.
Kinds of partners
Under the Civil Code
1. Capitalist partner: one who contributes
money or property to the common
fund.
2. Industrial partner: one who contributes
only his industry or personal service.
3. General partner: one whose liability to
3rd persons extends to his separate
property.
4. Limited partner: one whose liability to
3rd persons is limited to his capital
contribution.
5. Managing partner: one who manages
the entity.
6. Liquidating partner: one who takes
charge of the winding up of partnership
affairs upon dissolution.
7. Partner by estoppel: one who is not
really a partner but is liable as a partner
for the protection of innocent 3rd
persons. He is one represented as being
a partner but who is not so between
the partners themselves.
8. Continuing partner: one who continues
the business of a partnership after it
has been dissolved by reason of the
admission of a new partner, or the
retirement, death or expulsion of one
or more partners.
9. Surviving partner: one who remains
after a partnership has been dissolved
by the death of any partner.
10. Subpartner: one who, not being
a member of the partnership, contracts
w/ a partner w/reference to the latter’s
share in the partnership.
Other classifications
1. Ostensible partner: one who takes
active part and known to the public as a
partner.
2. Secret partner: one who takes active
part in the business but is not known to
be a partner by outside parties nor held
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out as a partner by the other partners.
He is an actual partner.
3. Silent partner: one who does not take
any active part in the business although
he may be known to be a partner.
4. Dormant partner: one who does not
take active part in the business and is
not known or held out as a partner. He
would be both a silent and a secret
partner.
5. Original partner: one who is a member
of the partnership from the time of its
organization.
6. Incoming partner: a person lately, or
about to be, taken into an existing
partnership as a member.
7. Retiring partner: one withdrawn from
the partnership; a withdrawing partner.
Art. 1777. A universal partnership may
refer to all the present property or to
all the profits.
Art. 1778. A partnership of all present
property is that in which the partners
contribute all the property which actually
belongs to them to a common fund, with
the intention of dividing the same among
themselves, as well as all the profits they
may acquire therewith.
Art. 1779. In a universal partnership of all
present property, the property which
belongs to each of the partners at the time
of the constitution of the partnership
becomes the common property of all the
partners, as well as all the profits which
they may acquire there with. A stipulation
for the common enjoyment of any other
profits may also be made; but the property
which the partners may acquire
subsequently by inheritance, legacy or
donation cannot be included in such
stipulation, except the fruits thereof.
Universal partnership of all present
property explained
A universal partnership of profits is one w/c
comprises all that the partners may
acquire by their industry or work during the
existence of the partnership and the
usufruct of movable or immovable property
w/c each of the partners may possess at the
time of the celebration of the contract. In
this kind of partnership, the following
become the common property of all the
partners:
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Property w/c belonged to each of them at
the time of the constitution of the
partnership;
Profits w/c they may acquire from the
property contributed.
Contribution of future property
General rule: future properties cannot be
contributed. The very essence of the
contract of partnership that the properties
contributed be included in the partnership
requires the contribution of things
determinate. The position of a partner is
like that of a donor, and donations
cannot comprehend future property. Thus,
property subsequently acquired by
1.inheritance; 2. Legacy; or 3. Donation
cannot be included by stipulation except
the fruits thereof. Hence, any stipulation
including property so acquired is void.
Profits from other sources (not from
properties contributed) will become
common property only is there’s a
stipulation.
Art. 1780. A universal partnership of profits
comprises all that the partners may acquire
by their industry or work during
the existence of the partnership. Movable
or immovable property which each of the
partners may possess at the time of the
celebration of the contract shall continue to
pertain exclusively to each, only the
usufruct passing to the partnership.
Universal partnership of profits explained
A universal partnership of profits is one w/c
comprises all that the partners may acquire
by their industry or work during the
existence of the partnership and the
usufruct of movable or immovable property
w/c each of the partners may possess at the
time of the celebration of the contract.
Ownership of present and future property
The partners retain their ownership over
their present and future property. What
passes to the partnership are the profits or
income and the use or usufruct of the same.
Consequently, upon dissolution, such
property is returned to the partners who
own it.
Profits acquired through chance
Since the law only speaks of profits w/c
the partners may acquire by their industry
or work, profits acquired purely by chance
are not included.
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Fruits of property subsequently acquired
Fruits of property subsequently acquired by
the partners do not belong to
the partnership. Such profits, however, may
be included by express stipulation.
Art. 1781. Articles of universal partnership,
entered into without specification of its
nature, only constitute a universal
partnership of profits.
Presumption in favor of universal
partnership of profits
Reason for presumption: universal
partnership of profits imposes less
obligations on the partners, since they
preserve the ownership of their separate
property.
Art. 1782. Persons who are prohibited from
giving each other any donation or
advantage cannot enter into a universal
partnership. Limitations upon the right to
form a partnership
Persons who are prohibited by law to give
donations cannot enter into a universal
partnership for the reason that each of the
partners virtually makes a donation. To
allow it would be permitting them to do
indirectly what the law expressly prohibits.
A partnership formed in violation of this
article is null and void. Consequently, no
legal personality is acquired. A husband and
wife, however, may enter into a particular
partnership or be members thereof.
Relevant provisions:
Art. 87: Donations between spouses during
marriage void, except moderate gifts on
occasion of family rejoicing. Also applies
to those living together as husband and
wife w/o valid marriage.
Art. 739: The following donations are void:
Those made between persons who are
guilty of adultery or concubinage at the
time of the donation (no need for
conviction; preponderance of evidence only
required);
Those made between persons found guilty
of the same criminal offense,
inconsideration thereof;
c.)Those made to a public officer or his wife,
descendants and ascendants, by reason of
his office.
Law on Business Organizations Reviewer
Art. 1783. A particular partnership has for
its object determinate things, their use or
fruits, or a specific undertaking, or the
exercise of a profession or vocation.
Particular partnership explained
A particular partnership is one w/c is
neither a universal partnership of present
property nor a universal partnership of
profits. The fundamental difference
between a universal partnership and a
particular partnership lies in the scope of
their subject matter or object. In the
former, the object is vague and
indefinite, contemplating a general business
w/ some degree of continuity, while in the
latter, it is limited and well-defined, being
confined to an undertaking of a
single, temporary, or ad hoc nature.
Business of partnership need not be
continuing in nature
The carrying on of a business of a
continuing nature is not essential to
constitute a partnership. An agreement to
undertake a particular piece of work or a
single transaction or a limited number of
transactions and immediately divide the
resulting profits would seemt o fall w/in the
meaning of the term “partnership” as used
in the law.
Rule under American law
The above is not true under the Uniform
Partnership Act w/c does not include joint
ventures w/c exists for a single transaction
or a limited number of transactions.
Joint venture
While a joint venture is not a formal
partnership in the legal or technical sense,
both are governed, subject to certain
qualifications, practically by the same rules
or principles of partnership. This is logical
since in a joint venture, like in
a partnership, there is a community of
interest in the business and a mutual right
of control and an agreement to share jointly
in profits and losses.
Corporation as a partner
While under the Philippine Civil Code, a
joint venture is a form of partnership w/ a
legal personality separate and distinct from
the parties composing it, and should thus
be governed by the law of partnership,
the Supreme Court has recognized the
distinction between these two business
9

forms, and has held that although a
corporation cannot enter into a partnership
contract, it may, however, engage in a joint
venture if the nature of the venture is
authorized by its charter.
Art. 1784. A partnership begins from the
moment of the execution of the contract,
unless it is otherwise stipulated. (1679)
Art. 1785. When a contract for a fixed term
or particular undertaking is continued after
the termination of such term or particular
undertaking without any express
agreement, the rights and duties of the
partners remains the same as they were at
such termination, so far as is consistent
with a partnership at will.
A continuation of the business by the
partners or such of them as habitually acted
therein during the term, without any
settlement or liquidation of the partnership
affairs, is prima facie evidence of a
continuation of the partnership.
Partnership at will is one in which no term
of existence has been fixed and which may
be terminated at the will of any partners.
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.
Obligations of partners to contribute:
1. Shall deliver at the beginning of the
partnership or, if a different date has
been agreed upon, at the stipulated
time the properties he agreed to
contribute;
2. Shall answer for eviction, in case the
partnership is deprived of the
ownership of any specific property he
contributed;
3. Shall answer to the partnership for the
fruits of the properties whose delivery
he delayed from the date he should
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have contributed it up to actual delivery
without necessity of any demand;
4. Shall preserve said properties with the
diligence of a good father of a family
pending their delivery to the
partnership;
5. And shall indemnify the partnership for
any damage caused it by the retention
of said properties or by the delay in
their contribution.
Art. 1787. When the capital or 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, and according to
current prices, the subsequent changes
thereof being for the account of the
partnership.
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 is own
use.
Liability of partner for estafa
Failure to return the money taken, there is
the element of fraudulent appropriation of
the money delivered to a partner with
specific instructions for the use of the
partnership, then estafa is committed under
the Revised Penal Code.
Art. 1789. An industrial partner cannot
engage in any 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.
Industrial partner is one who contributes
his industry or labor in the partnership.
Industrial partner barred from engaging in
business
10

To prevent any conflict of interest between
the industrial and the partnership, and to
insure faithful compliance by said partner
with his prestation.
Art. 1790. Unless there is a stipulation to
the contrary, the partners shall contribute
equal shares to the capital of the
partnership.
Art. 1791. If there is no agreement to the
contrary, in case of an imminent loss of the
business of the partnership, any partner
who refuses to contribute an additional
share to the capital, except an industrial
partner, to save the venture, shall be
obliged to sell his interest to the other
partners.
Art. 1792. If a partner authorized to
manage collects a demandable sum, which
was owed to him in his own name, from a
person who owned 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.
The provisions of this article are understood
to be without prejudice to the right granted
to the debtor by Art. 1252, but only if the
personal credit of the partner should be
more onerous to him.
Requisites:
1. Two existing debts
2. Both debts must be demandable
3. The one who collected the debt is a
partner who is authorized to manage
and is actually managing the
partnership
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.
Art. 1794. Every partner is responsible to
the partnership for damages suffered by it
through his fault, and he cannot
Law on Business Organizations Reviewer
compensate them with the profits and
benefits which he may have earned for the
partnership by his industry. However, the
courts may equitably lessen this
responsibility if through the partner’s
extraordinary efforts in other activities of
the partnership, unusual profits have been
realized.
Partner liable for damages caused the
partnership
Art. 1794 follows the general rule of
contracts that where a person is at fault in
the fulfillment of his obligations he shall be
liable for the payment of damages. The
partner’s fault, however, must be
determined in accordance with the
circumstances of person, time and place.
Liquidation necessary to ascertain
damages
It is first necessary that a liquidation of the
business thereof be made to the end that
the profits and losses may be known and
the causes of the latter and the
responsibility of the defendant as well as
the damages which each partner may have
suffered, may be determined.
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 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 appraised.
Risk of Specific and determinate things
The risk of specific and determinate things
which are not fungible, like a boat, only the
use of which is contributed, shall be borne
by the partner as the ownership thereof is
not transferred to the partnership. This
follows the general rule that the thing
perished with the owner.
Things fungible or perishable
If the things contributed are fungible or
cannot be kept without deteriorating
11

(perishable) like wine, oil, etc., even if they
are contributed only for the use of the
partnership, the risk of loss shall be for the
account of the partnership for the latter
cannot make use of them without their
getting consumed or presumed.
Things contributed to be sold
If the things contributed are to be sold, the
partnership bears the risk of loss, for
obviously the partnership is the intended
owner; otherwise, the firm cannot make the
sale.
Things brought and appraised in inventory
The partnership bears the risk of loss of
things brought and appraised in the
inventory as this has the effect of an implied
sale thus making the partnership the owner
of said things.
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 the risk
inconsequence of its management.
Responsibility of the partnership to a
partner
If a partner has advanced funds for the
partnership, he is entitled to recover the
amounts advanced by him with interest.
This must be so for the reason that a
partner is a mere agent of the partnership
and under the rules of agency, an agent
who advances funds for his principal may
recover the same interest.
Art. 1797. The profits and losses shall be
distributed in conformity with the
agreement. If only the share of each partner
in the profits has been agreed upon, the
share of each in the losses shall be in the
same proportion.
In the absence of stipulation, the share of
each partner in the profits and losses shall
be in proportion to what he may have
contributed, but the industrial partner shall
not be liable for the losses. As for the
profits, the industrial partner shall receive
such share as may be just and equitable
under the circumstances. If besides his
services he has contributed capital, he shall
Law on Business Organizations Reviewer
also receive a share in the profits in
proportion to his capital.
Rules in profit sharing:
1. The partners share the profits in
accordance with the ratio established
by their contract.
2. If there is no such stipulation in the
partnership contract, then:
1. If all are capitalist partners they
have the profits in proportion to
their capital contributions;
2. If there are capitalist as well as
industrial partners, the industrial
partner get a share each that is
just and equitable while the
capitalist partners divide the
remainder in proportion to their
capital contributions; and
3. If there is a capitalist-industrial
partner, he gets a share in the
profits as an industrial partner and
an additional share in proportion to
his capital contribution to be
determined as in (b), above.
Rules in loss sharing:
1. The stipulation in the partnership
agreement regarding loss sharing must
be followed.
2. If there is no such agreement, but the
contract provides for a profit sharing
ration, the profit sharing ratio shall also
be the loss sharing ration.
3. In the absence of loss sharing and profit
sharing stipulations in the contract,
then the loss shall be borne by the
partners in proportion to their capital
contributions; but a purely industrial
partner is exempted from participation
in the loss.
Share of industrial partner in profits and
losses
Unless agreed upon, the industrial partner
shall receive such share in the profits as
may be just and equitable under the
circumstances. As for the losses, the
industrial partner is not liable. However,
under Art. 1816, if the partnership has a
contractual debt and it cannot pay, the
industrial partner equally with the capitalist
partners, can be compelled by the creditor
to pay his pro rata share out of his own
property or assets.
Art. 1798. If the partners have agreed to
entrust to a third person the designation of
12

the share of each one in the profits and
losses, such designation may be impugned
only when it is manifestly inequitable. In no
case may a partner who has begun to
execute the decision of the third person, or
who has not impugned the same within a
period of three months from the time he
had knowledge thereof, complain of such
decision.
The designation of profits and losses cannot
be entrusted to one of the partners.
Reason for the provision
Admittedly, the designation of profits and
losses cannot be entrusted to one of the
partners as the fulfillment of a contract
cannot be left to one of the contracting
parties. It may, however, be entrusted to a
third person by common interest.
Art. 1799. A stipulation which excludes one
or more partners from any share in the
profits or losses is void.
Stipulation to exclude a partner from
profits and losses is void
The law does not allow a provision in the
contract of partnership excluding one or
more partners from sharing in the profits
and losses. The reason is that a partnership
is organized for the common benefit or
interest of the partners.
Reason for exclusion of industrial partner
An industrial partner is not liable for losses
because if the partnership fails to realize
any profits, the industrial partner would
have contributed his labor in vain.
Furthermore, the industrial partner cannot
withdraw the work already done by him for
the partnership.
Art. 1800. The partner who has been
appointed manager in the articles of the
partnership may execute all acts of the
administration despite the opposition of his
partners, unless he should act in Bad faith.,
and his powers is irrevocable without the
just or lawful cause. The vote of the
partners representing the controlling
interest shall be necessary for such
revocation of power. A power granted after
the partnership has constituted may
revoked at any time. Each partner has a
right to an equal voice in the conduct of the
partnership business. This right is not
dependent on the amount or size of the
Law on Business Organizations Reviewer
partner’s capital contribution.
Appointed as manager after the
constitution of the partnership
Partner appointed in arts of partnership
may execute all acts of administration
notwithstanding the opposition of the other
partners, unless he should act in bad faith.
His power is revocable only upon just and
lawful cause and upon the vote of the
partners representing the controlling
interest.
Reason: revocation represents change in
terms of contract.
In case of mismanagement: Usual remedies
allowed by law including dissolution.
Appointment as manager after the
constitution of the partnership
Appointment may be revoked at any time
for any cause what so ever.
Reason: revocation not founded on a
change of will on the part of the partners.
Appointment not condition of contract. It is
merely a simple contract of agency, which
may be revoking at any time. It is believe
that the vote for revocation must also
represent the controlling interest.
Scope of the power of the managing
partner
General rule: partner appointed as manager
has all the powers of a general agent as well
as all the incidental powers necessary to
carry out the object of the partnership in
the transaction of its business.
Exception: When powers of manager is
specifically restricted. A managing partner
may not bind the partnership by contract
foreign to its business.
Compensation for service rendered
Partner Generally not entitle to
compensation, In the absence of an
agreement to the contrary, each member of
the partnership assumes the duty to give his
time, attention, and skill to the
management of its affairs, as may be
reasonably necessary to the success of the
common enterprise; and for this service a
share of the profits is his only
compensation. In managing partnership
affairs, a partner is practically taking care of
his own interest or managing his own
business. In the absence of any prohibition
in the arts. Of partnership for the payment
of salaries to general partners, there is
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 Law on Business Organizations Reviewer

nothing to prevent the partners to enter respective duties;

into a collateral verbal agreement to that
effect.
EXCEPTIONS: In proper cases, the law may
imply a contract for compensation;
1. A partner engaged by his co-partners to
perform services not required of him in
fulfilment of the duties and in capacity
other than that of a partner.
2. When there is extraordinary neglect on
the part of one partner to perform his
duties, imposing entire burden on
remaining partner.
3. One partner may employ the other
to do work for him outside of and
independent of the co-partnership.
4. Partners exempted by terms of
partnership from rendering services
may demand pay for services rendered.
5. Where one partner is entrusted with
management and devotes his whole
time and devotion at the instance of the
other partners who are attending to
their individual business and giving no
time or attention to the partnership
business.
Art. 1801. If two or more partners have
been intrusted with the management of the
partnership without the specification of
their respective duties or without the
stipulation that one of them shall not act
without the consent of all others, each one
separately execute all acts of
administration, but if anyone of them
should oppose the act of each other, the
decision of the majority shall prevail. In the
case of tie the partners owning the
controlling interest shall decide the matter.
Where respective duties of two or more
managing partners not specifies.
3. There is no stipulation that one of them
shall not act without the consent of all
the others.
ART. 1802 In case it should have been
stipulated that none of the managing
partner shall act without the consent of the
others, the concurrence of all shall be
necessary for validity of the acts, and the
absence or disability of any one of them
cannot alleged, unless there is imminent
danger of grave or irreparable injury to the
partnership.
When unanimity of action stipulated
concurrence necessary for validity of acts
The partners may stipulate that none of the
managing partners shall act without the
consent of the others. In such a case, the
unanimous consent of all the managing
partners shall be necessary for the validity
of their acts. This consent is
so indispensable that neither absence nor
disability of any one of them may allege as
excuse to dispense with requirement.
Exception: When there is imminent danger
of grave or irreparable injury to the
partnership then a partner may act alone
without consent of partner who is absent or
under disability.
Consent of managing partners not
necessary in routine transactions
The requirement of written authority refers
evidently to formal and unusual written
contracts.
Art. 1803. When the manner of
management has not agreed upon, the
following rules shall observed:

1. All partners shall be considered agents

Each one may separately perform acts of
and whatever any one of them may do
administration
alone shall bind the partnership without
1. If one or more of the managing partners
prejudice to the provision of article
shall oppose the acts of the others, then
1801
the decision of the majority of the
managing partners shall prevail. Right to
2. None of the partners may, without the
oppose can be exercise only by those
consent of others, make any important
entrusted with mgt.
alteration in the immovable property of
2. In case of tie, matter shall be decided by
the partnership, even if it may be useful
the vote of the partners owning the
to the partnership, but if there ids
controlling interest.
refusal of the consent by the other
partners is manifestly prejudicial to the
REQUISITES FOR APPLICATION OF RULE
interest of the partnership, the court’s
1. Two or more partners have been
intervention may be sought.
appointed as managers;
2. There is no specification of their

14

Rules when manner of the management
that has not agreed upon all partners
considered as managers and agents
All partners shall have equal rights in the
mgmt. and conduct of partnership affairs.
All of them shall considered mgrs. and
agents and whatever any one of them may
do alone shall bind the partnership. If there
is timely opposition, however, the matter
shall decided by majority vote. In case
of tie, vote of partners representing
controlling interest.
Unanimous consent required for alteration
of immovable property
The consent need not be express. It may
presume from the fact of knowledge of the
alteration without interposing any
objection. Prohibition only applies
to immovable property because of the
greater importance of this kind of property,
and the alteration thereof must be
important. This would be an act of strict
dominion. If refusal to give consent is
manifestly prejudicial to the interest of
the partnership, court intervention maybe
sought. Consent may presume from silence
(lack of opposition despite knowledge).If
alteration is necessary for preservation of
the property, consent of the other partners
not required.
Art. 1804. Every partner may associate
another person with him in his share, but
the associates shall not admitted into the
partnership without the consent of all other
partners, even of the partner having an
associate should be a manager of
subpartnership nature
The partnership formed between a
member of a partnership and a third
Person for a division of the profits coming to
him from the partnership enterprise is
termed subpartnership.
It is a partnership within a partnership and
is distinct and separate from the main or
principal partnership.
Right of the person associated with the
partnership’s share
Subpartnership agreements do not
affect the composition, existence, or
operations of the firm. The subpartners are
partners interest,
However, in the absence of the mutual
assent of all the parties, a subpartner does
Law on Business Organizations Reviewer
not become a member of the partnership,
even if the other partners know about the
agreement. Not being a member of
the partnership, he does not acquire the
rights of a partner nor is he liable for its
debts.
Reason for the rule
Partnership is based on mutual trust and
confidence among the partners. Inclusion of
new partner would be a modification of the
original contract of partnership requiring
unanimous consent of all the partners.
Prohibition applies even if person
associated is already a partner.
Art. 1805. The partnership books shall be
kept, subject to any agreement between the
partners, at the principal place of the
business of the partnership, and every
partner shall at any reasonable hour have
access to and may inspect and copy any of
them.
Keeping of partnership books
Partner with duty to keep partnership
books
The duty to keep true and correct books
showing the firm’s accounts, such books
being at all times open to inspection of all
members of the firm, primarily rests on the
managing or active partner. It is presume
that the partners have knowledge of the
contents of the partnership books and that
said books state accurately the state
of accounts, but errors can corrected.
Rights with the respect to partnership
books
Books should kept at the principal place of
business as each partner has the right to
free access to them and to inspect or copy
any of them at any reasonable time, even
after dissolution. Inspection rights not
absolute can restrained from using info
for other than partnership purpose.
Access to partnership books
Rights can exercise at any reasonable hour.
This means reasonable hours on business
days throughout the year and not merely
during some arbitrary period of a few days
chosen by the managing partners.
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
15

partner or of any partner under legal
disability. Duty to render information, there
must be no concealment between partners
in all matters affecting the partnership.
Information must use only for partnership
purpose. Not just on demand but partner
also has duty of voluntary disclosure.
However, duty to render info does notarise
with respect to matters appearing
in partnership books since each partner has
the right to inspect those. Good faith not
only requires that a partner should not
make a false statement but also that he
should abstain from any false concealment.
Art. 1807. Every partner must account the
partnership for any benefit, and hold as
trustee for it any profits derived from him
without the consent of the partners from
any transaction connected with the
formation, conduct, or liquidation of the
partnership or from any use by him of his
property.
The relation between the partners
is essentially fiduciary involving trust and
confidence, each partner considered in law,
as he is, in fact, the confidential agent of the
others. The duties of a partner are
analogous to those of a trustee.
Duty to act for common benefit
Cannot use and apply exclusively to own
individual benefit partnership assets or
results of knowledge and info gained in
character of partner. Managing partners
particularly owe a fiduciary duty to inactive
partners.
Duty begins during the formation of
partnership
Principle of good faith applies not only
during partnership but during the
negotiations leading to the formation of the
partnership. Also, a person who agreed w/
another to form a partnership has the
obligation to account for commissions and
discounts received in acquiring property for
the future partnership.
Duty continues even after the dissolution
of the partnership
Duty of partner to act w/ utmost good faith
towards his co-partners continues
throughout the entire life of the partnership
even after dissolution for whatever reason
or whatever means, until the relationship is
terminated,
Law on Business Organizations Reviewer
i.e. the winding up of partnership affairs
is completed.
Duty to account for secret and similar
profits
The duty of a partner to account as a
fiduciary operates to prevent from making a
secret profit out of the operation of the
partnership and from carrying on the
business for his private advantage or
a business in competition w/ the firm
w/o consent of other partners. Violation
may be ground for dissolution.
Duty to account for earnings accruing even
after termination of partnership
If a partner uses info obtained by him from
the partnership for his own account w/o the
consent of the other partners, he is liable to
account for any benefit he might obtain.
Duty to make full disclosure of information
belonging to partnership
A partner is also subject to the fiduciary
duty of undivided loyalty and complete
disclosure of info of all things affecting the
partnership. By Information is meant
information, which can be used for the
purposes of the partnership. Info cannot
use for a partner’s private gain – even if
after termination.
Duty not to acquire interest or right
adverse to partnership
If partner does, he holds it in trust for the
benefit of the partnership and must account
to the firm for the profits of the transaction,
unless it appears that the others consented
Art. 1808. The Capitalist partners cannot
engage for their own account in any
operation, which is of the kind of business
in which the partnership is engaged, unless
there is a stipulation to the contrary. Any
capitalist partner violating this prohibition
shall bring to the common funds any profit
accruing to him from his transactions, and
shall personally bear all the losses.
Prohibition against partner engaging the
business
Prohibition relative – Prohibition against
capitalist partner to engage in business is
relative, unlike the industrial partner who is
absolutely prohibited from engaging in any
business for himself. Capitalist partner is
only prohibited from engaging for his own
account in any operation which is the same
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 Law on Business Organizations Reviewer

as or similar to the business in which the

partnership is engaged and which is
competitive w/ said business
VIOLATION – Obligation to bring to
common fund any profits derived and in
case of losses, he shall bear them alone.
Partners, however, by stipulation may
permit it. The law permits him to carry on a
business not connected or competing with
that of the partnership. Law is silent on
whether he can engage in same line of
business for the account of another.
Prohibition still applies because of fiduciary
position imposing duties of utmost good
faith. He may not carry on any other
business in rivalry w/ the partnership.
Art. 1810. The property rights of a partner
are:
1. His rights in specific partnership
property;
2. His interest in the partnership;
3. His right to participate in the
management, extent of property rights
of a partner.
Principal Rights
1. Rights in specific partner property;
2. Interest in partnership;
3. Right to participate in management.

Reason for prohibition RELATED RIGHTS

Fiduciary nature of relationship imposes
obligation of utmost good faith. Rule
prevents use of info obtained in course
of transaction of partnership business or
because of connection w/ firm regarding
business secrets and clientele of firm to its
prejudice.
Art. 1809. Any partner shall have the right
to a formal account as partnership affairs:
1. If he is wrongfully excluded from the
partnership business or possession of
its property by his co-partner;
1. Right to reimbursement for amounts
advanced to partnership and to
indemnification for risks inconsequence
of management (art. 1796).
2. Right of access and inspection of
partnership books (art. 1805).
3. Right to true and full information of all
things affecting partnership (art. 1806).
4. Right to formal account of partnership
affairs under certain circumstances (art.
1809).
5. Right to have partnership dissolved also
under certain conditions (arts. 1830-
1831).

2. If the right exists under the terms of any Partnership property and partnership
agreement; capital distinguished
Partnership Partnership
3. Provided by article 1807; property capital
Changes Variable: its Constant: it
4. Whenever other circumstances render value value may remains
it just and reasonable, Right of the vary from day unchanged
partner to a formal account. today w/ as the
changes in amount is fix
General rule: During existence of market value by
partnership, a partner is not entitled to a agreement
formal account of partnership affairs. of the
Reason: rights of partner amply protected in partners,
arts1805 and 1806. In addition, it would and is not
cause much inconvenience and unnecessary affected by
waste of time. fluctuations
in the value
Exception: In the special and unusual of the
situations enumerated under art. 1809. partnership
Right of partner to demand an accounting property,
w/o bringing about dissolution is although it
a necessary corollary to right to share in may be
profits. A formal account is a necessary increased
incident to the dissolution of the and
partnership. decreased by

17
 Law on Business Organizations Reviewer

unanimous partners;
consent of
the partners. 2. A partner’s right in specific partnership
Assets Includes not The property is not assignable except in
Included only the aggregate connection with the assignment of rights of
original of the all the partners in the same property;
capital individual
contributions, contributions 3. A partner’s right in specific partnership
but also all made by the property is not subject to attachment or
property partners in execution, except on a claim against the
subsequently establishing partnership;
acquired or continuing
because of the 4. A partner’s right in specific partnership
the partnership. property is not subject to legal support
partnership under art. 291 nature of a partner’s right in
or w/ specific partnership property
partnership
funds, Art. 1811 contemplates tangible property
including but not intangible things. A partner is a co-
partnership owner w/ his partners of specific
name and partnership property, but the rules on co-
goodwill. ownership do not necessarily apply. The
legal incidents of this tenancy in partnership
Ownership of certain property are distinctively characteristic of the
Property use by the partnership – Where partnership relation. They are as follows:
there is no express agreement that property
used by a partnership constitutes Equal rights of possession - Ordinarily, a
partnership property, such use does not partner has an equal right to possess
make it partnership property, and whether specific partnership property for
it is so depends on the intention of the partnership purposes. None of the partner
parties, w/c may be shown by proving an scan possesses and uses the
express agreement or acts of particular specific partnership property other than for
conduct. The intent of the parties is the partnership purposes w/o the consent
controlling factor. of the other partners. Should any of them
Property acquired by a partner with use the property for his own benefit, he
partnership funds – Unless a contrary must account, like a stranger, to the others
intention appears, property acquired by a for the profits derived there from or the
partner in his own name w/ partnership value of his wrongful possession or
funds is partnership property. However, occupation. A partner wrongfully excluded
if the property was acquired after from possession of partnership property
dissolution but before the winding up of the by a co-partner has a right to formal
partnership affairs, it would be his separate account and may even apply for a
property but he would be liable to account judicial decree of dissolution. On the death
to the partnership for the funds used in its of a partner, his right in specific partnership
acquisition. property vests in the surviving partners. By
agreement, the right to possess specific
Art. 1811. A partner is co-owner with his partnership property may surrender. In the
partners of specific partnership property. absence of special agreement, however,
The incidents of this co-ownership are such neither partner separately owns, or has the
that; exclusive right of possession of any
partnership property or any proportional
1. A partner, subject to the provision of this part thereof. Each has dominion over
title and any agreement between the the entire partnership property. The
partner, has an equal right with his partners possession of partnership property by one
to possess specific partnership property for partner is the possession of all until his
partnership purposes; but he has no right to possession becomes adverse. A partner
possess such property for any other cannot initiate title by adverse possession
purpose without the consent of his until and unless he makes an adverse claim.

18

Right not assignable - A partner cannot
separately assign his right to specific
partnership property but all of them can
assign their rights in the same property.
Reasons for non-assignability:
1. It prevents interference by outsiders in
partnership affairs;
2. It protects the right of other partners
and partnership creditors to have
partnership assets applied to firm
debts;
3. It is often impossible to determine the
extent of a partner’s beneficial interest
in a particular partnership asset. Reason
for impossibility: Each partner, having a
beneficial interest in the partnership
property considered as a whole, has a
beneficial interest in each part. Where,
however, none of the above reasons
apply, an authorized assignment by a
partner of his right in specific
partnership property is void, but it may
be regarded as a valid assignment of
the partner’s interest in the partnership.
The law allows a retiring partner to
assign his rights in partnership property
to the partner(s) continuing the
business.
Right limited to share of what remains
after partnership debts has been paid
Strictly speaking, no particular partnership
property or any specific or an aliquot part
thereof can be considered the separate or
individual property of any partner. The
whole of partnership property belongs to
the partnership considered as a juridical
person, and a partner has no interest in it
but his share of what remains after all
partnership debts are paid. Consequently,
specific partnership property is not subject
to attachment, execution, garnishment, or
injunction, w/o the consent of all the
partners except on a claim against the
partnership. For the same reason that the
property belongs to the partnership, the
partners cannot claim any right under the
homestead or exemption laws when it is
attached for partnership debts. However, a
judgment creditor may levy upon a
partner’s interest in the partnership itself
because it is actually his property, by means
of a “charging order.” The right of
the partners to specific partnership
property is not subject to legal support
since the property belongs to the
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partnership and not to the partners.
However, their interest in the partnership
is. The method of reaching a judgment
debtor’s interest in partnership property is
specifically set forth in art.1814.
Art. 1812. A partner’s interest in the
partnership is his share of the profits and
surplus.
Share of profits and surplus – The partner’s
interest in the partnership consists of his
share in the undistributed profits during the
life of the partnership as a going concern
and his share in the undistributed surplus
after its dissolution.
Profits: the excess of returns over
expenditure in a transaction or series of
transactions; or the net income of the
partnership for a given period.
Surplus: the assets of the partnership after
partnership debts and liabilities are paid
and settled and the rights of the partners
among themselves are adjusted. It is the
excess of assets over liabilities. If the
liabilities are more than the assets, the
difference represents the extent of the loss.
Art.1813. A conveyance by a partner by his
whole interest in the partnership does not
of itself dissolve the partnership, or, 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 the
partnership transactions, or to inspect the
partnership books; however it merely
entitles the assignee to receive the
accordance with his contract, the profits to
which the assigning partner would
otherwise be entitled.
In case of fraud in the management of the
partnership, the assignee may avail himself
of the usual remedies. In case of dissolution
of the partnership, the assignee is entitle to
receive his assignor’s interest and may
require an account from the date only of
the last account agreed to by all partners.
Effect of assignment of partner’s whole
interest in partnership.
A partner’s right in specific partnership
property is not assignable but he may assign
19

his interest in the partnership to any of his
co-partners or to a third Person irrespective
of the consent of the other partners, in the
absence of agreement to the contrary.
Rights withheld from assignee
1. To interfere in the management.
2. To require any information or account.
3. To inspect any of the partnership books.
No one can be compelled to be partners w/
someone else. The assignment does not
divest the assignor of his status and rights
as a partner nor operate as dissolution.
The law, however, provides the non-
assigning collaborates w/ a ground
for dissolving the partnership if they
so desire.
Remedy of other partners
Dissolution of partnership not intended –
Many partnership agreements are made
merely as security for loans, the assigning
partner never intending to destroy the
partnership relation. If the assigning partner
neglects his duties after assignment,
the other partners may dissolve the
partnership under art. 1830.
Dissolution of partnership intended – A
partner’s conveyance of his interest in the
partnership operates as dissolution of the
partnership only when it is clear that the
parties contemplated and intended the
entire withdrawal from the partnership of
such partner and the termination of the
partnership as between the partners.
Rights of assignee of partner’s interest
1. To receive in accordance w/ his contract
the profits accruing to the assigning
partner;
2. To avail himself of the usual remedies
provided by law in the event of fraud in
the management;
3. To receive the assignor’s interest in case
of dissolution;
4. To require an account of partnership
affairs, but only in case the partnership
is dissolved, and such account shall
cover the period from the date only of
the last account agreed to by all
partners. The purchaser of a partner’s
interest may apply to the court for
dissolution after the termination of the
specified term or undertaking or at any
time if the partnership is one at will.
Art. 1814. Without prejudice to the
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preferred rights of the partnership creditors
on due application to a competent court by
any judgement creditor of the partner, the
court which entered the interest of the
debtor partner with payment of the
unsatisfied amount of such judgement debt
with the 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 and
accounts and inquiries which the debtor
partner might have made, or which
circumstances of the case may require. The
interest charged may redeem at any time
before foreclosure, or in any case of a sale
being directed by the court, may be
purchase without thereby causing
dissolution:
1. With separate property, by any one or
more of the partners;
2. With partnership property, by any one
or more of the partners with the
consent of all the partners a whose
interest are not so charged or sold,
nothing in this title shall be held to
deprive a partner of his right, if any,
under the exemption laws, as regards
his interest in the partnership.
Application for a charging order after
securing judgement on his credit
While a separate creditor of a partner
cannot attach or levy upon specific
partnership property for the satisfaction of
his credit because partnership assets are
reserved for partnership creditors, he can
secure a judgment on his credit and then
apply to the proper court for a “charging
order”, subjecting the interest of the debtor
partner in the partnership w/ the payment
of the unsatisfied amount of such judgment
w/ interest thereon w/ the least
interference w/ the partnership business
and the rights of the other partners.
By virtue of the charging order, any amount
or portion thereof w/c the partnership
would otherwise pay to the debtor-partner
should instead be given to the judgment
creditor. This remedy, however, is w/o
prejudice to the preferred rights of
partnership creditors whose claims should
be satisfied first.
Availability of other remedies
Art. 1814 have made this an exclusive
20

remedy so that a writ of execution will not
be proper. However, if the judgment debt
remains unsatisfied, the court may resort to
other courses of action notwithstanding the
issuance of the charging order.
Redemption or purchase of interest
charged
Redemptioner – The interest of the debtor-
partner so charged may be redeemed or
purchased w/ the separate property of any
one or more of the partners, or w/
partnership property but w/ the consent of
all the partners whose interests are not so
charged or sold.
Redemption Price – The value of
the partner’s interest in the partnership has
no bearing on the redemption price w/c is
likely to be lower since it will be dependent
on the amount of the unsatisfied judgment
debt.
Right of redeeming non-debtor partner –
There deeming non-debtor partner does
not acquire absolute ownership over the
debtor-partner’s interest but holds it in
trust for him consistent w/ principles of
fiduciary relationship.
Rights of partner under exemption laws
A partner cannot claim any right under the
homestead laws or exemption laws when
specific partnership property is attached for
partnership debt. W/ respect, however, to
the partner’s interest in the partnership as
distinguished from his interest in specific
partnership property, the partner may avail
himself of the exemption laws after
partnership debts have been paid. A
partner’s interest or share in the
partnership property is really his property.
Art. 1815. Every partnership shall operate
under a firm name, which may or may not
include the name of one or more of the
partners, those who, not being members of
the partnership, include their names in the
firm name, shall be subject to liability of a
partner
Requirement of the firm name
Meaning of word “firm” – The name, title,
or style under which a company transacts
business; a partnership of two or more
persons; a commercial house. In its
common acceptation, the term implies a
partnership. The term is also used as
Law on Business Organizations Reviewer
synonymous with “company,” “house,” and
“concern.”
Importance of having a firm name
A partnership must have a firm name under
which it will operate. A firm name is
necessary to distinguish the partnership,
which has a distinct and separate juridical
personality from the individuals composing
the partnership and from other
partnerships and entities.
Right of the partners to choose firm name
The partners enjoy the utmost freedom in
the selection of the partnership name.
As a general rule, they may adopt any firm
name desired.
Use of misleading name – The partners
cannot use a name that is identical or
deceptively confusingly similar to that
of any existing partnership or corporation or
to any other name already protected by law
or is patently deceptive, confusing or
contrary to existing laws, as to mislead the
public by passing itself off as another
partnership or corporation, or its goods or
services as those of such other company.
Liability inclusion of name in the firm name
– Persons who, not being partners, include
their names in the firm name do not acquire
the rights of a partner but shall be subject
to the liability of a partner insofar as 3rd
Persons without notice are concerned. Such
persons become partners by estoppel. Art.
1815 does not cover the case of a limited
partner who allows his name to be included
in the firm name, orof a person continuing
the business of a partnership after
dissolution, who uses the name of the
dissolved partnership or the name of
a deceased partner as part thereof.
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.
Article 1816 distinguished from article
1787
21

Article 1816 applies in cases where third
party creditors are concerned as it falls
under the heading of section 3. “Obligations
of the Partners with Regard to Third
Persons.” Article 1797 applies only where
the issue is among the partners as it falls
under the heading of Section 1, Chapter 2,
which states: “Obligations of the Partners
Among Themselves.” The pro rata liability
of partners to third persons under Article
1816 being a clear mandate of the law, any
stipulation changing or modifying such
liability is void except as among the
partners.
Refers to partnership obligations
Article 1816 which refers to the payment of
partnership obligations arising from
contracts clearly imposes subsidiary and
joint (pro rata) liability for contractual debts
owing to third persons upon all the
partners, including industrial partners who
ordinarily are not liable for losses. The
liability is subsidiary because the partners
cannot be made answerable with their
separate property unless the partnership
property has first been exhausted.
Pro rata liability – Literally, pro rata liability
means proportionate distribution of
liability. In the law of obligations, the
concurrence of two or more debtors in one
and the same obligation makes it prima
facie a joint (pro rata) obligation, and the
debts is presumed divided into as many
equal shares as there are debtors and each
one of them is bound to pay only his share.
Art. 1817. Any stipulation against the
liability laid down in the preceding article
shall be void, except as among the partners.
Industrial partner cannot exempt himself
from liability to third persons
Each one of the industrial partners is liable
to third persons for the debts of the firm
and if he has paid such debts out of his
private property during the life of the
partnership, when its affairs are settled he
is entitled to credit for the amount so paid,
and if its results that there is not enough
property in the partnership to pay him, then
the capitalist partners must pay him. Our
conclusion is that neither on principle nor
on authority can the industrial partner be
relieved from liability to third persons for
the debts of the partnership.
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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 liability.
An act of a partner which is not apparently
for the carrying on of 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 goodwill 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.
7. Renounce a claim of the partnership.
No act of a partner in contravention of a
restriction on authority shall bind the
partnership 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
22

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 of 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 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.
Art. 1820. An admission or representation
made by any partner concerning
partnership affairs within the scope of his
authority in accordance with this Title is
evidence against the partnership.
Art. 1821. Notice to any partner of any
matter relating to partnership affairs, and
the knowledge of the partner acting in the
particular matter, acquired while a partner
or then present to his mind, and the
knowledge of any other partner who
reasonably could and should have
communicated it to the acting partner,
operate as notice to or knowledge of the
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partnership, except in the case of fraud on
the partnership, committed by or with the
consent of that partner.
Notice to partner is notice to partnership
Clearly a third person desiring to give notice
to a partnership of some matter pertaining
to the partnership business need not
communicate with all of the partners. If
notice is delivered to a partner, that is an
effective communication to the partnership.
Knowledge before becoming partner
Where the knowledge or notice had been
received by the partner before he became a
partner, and his partners are ignorant of
this, and he is not the partner acting in the
particular matter, there is no doubt that
there has been neither knowledge of nor
notice to the partnership.
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.
Partner liable for wrongful act of a partner
The partners are liable for the negligent
operation of a vehicle by a partner, acting in
the course of business, which results in a
traffic accident.
If he is driving a partnership-owned vehicle
for purposes of his own, the acting partner
alone is liable it is not a partnership tort.
Partnership may proceed against negligent
partner
Where a partnership is liable to a third
person, there is a right of indemnity against
the partner whose negligence caused the
injuries.
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.
23

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.
Partnership bound by partner’s breach of
trust
The partnership is liable for the conversion
(misappropriation) of money or property
entrusted to the partnership by a third
person. The effect under Article 1824 is the
same whether by the partnership and
subsequently misappropriated by a partner.
Art. 1824. All partners are liable solidarily
with the partnership for everything
chargeable to the partnership under
Articles 1822 and 1823.
Law imposes solidary liability
The law imposes solidary liability upon the
partners and the partnership in cases of
torts and acts of conversion by a partner as
provided in Art. 1824. It may be stated that
the liability of a partner for a debt of the
partnership depends upon whether the
debts is contractual or it arises from tort or
conversion. If it arises from contract, the
liability is subsidiary and pro rata; if it arises
from tort or conversion, the liability is
solidary.
Business partners solidarily liable
Arts. 1711 and 1712 of the New Civil Code
and Sec. 2 of the Workmen’s Compensation
Act reasonably indicate that in
compensation cases, the liability of business
partners should be merely joint and not
solidary, and one of them happens to be
insolvent, the amount awarded to the
dependents of the deceased employee
would only be partially satisfied, which is
evidently contrary to the intent and
purpose of the law to give full protection to
the employee.
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,
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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 bind
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.
Estoppel – A preclusion, in law, which
prevents a man from alleging or denying a
fact, in consequence of his own previous
act, allegation, or denial of a contrary tenor.
Person bound by his representation
A person who hold himself out as a partner
in a business, or consents to his being so
held out, is liable on contracts made with
third persons who deal with the persons
carrying on the business on the faith of the
representation. He is stopped to deny the
apparent agency.
Art. 1826. A person admitted as a partner
into an existing partnership is liable for all
the obligations of the partnership arising
before his admission as though he had been
a partner when such obligations were
incurred, except that this liability shall be
satisfied only out of partnership property,
unless there is a stipulation to the contrary.
24

Incoming partner liable for existing
obligations
A newly admitted partner is liable for
obligations of the partnership at the time of
his admission. The obligation of the
incoming partner shall be satisfied only out
of partnership property. This is not a harsh
rule because the incoming partner
“partakes of the benefit of the partnership
property, and an established business. He
has every means of obtaining full
knowledge of protecting himself, because
he may insist on the liquidation or
settlement of existing partnership debts. On
the other hand, the creditors have no
means of protecting themselves.
Art. 1827. The creditors of the partnership
shall be preferred to those of each partner
as regards the partnership property.
Without prejudice to this right, the private
creditors of each partner may ask the
attachment and public sale of the share of
the latter in the partnership assets.
Art. 1828. The dissolution of a partnership
is the change in the relation of the partners
caused by any partner ceasing to be
associated in the carrying on as
distinguished from the winding up of the
business.
Art. 1829. On dissolution the partnership is
not terminated, but continues until the
winding up of partnership affairs is
completed.
“Dissolution,” “Winding up,” and
“Termination” explained
Dissolution, winding up, and termination
should not be confused because they are
distinct terms in law. Dissolution
“designates the point in time when the
partners cease to carry on the business
together: termination is the point in time
when all partnership affairs are wound up;
winding up is the process of settling
partnership affairs after dissolution.”
Art. 1830. Dissolution is caused:
1. Without violation of the agreement
between the partners:
a. By the termination of the definite
term or particular undertaking
specified in the agreement.
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b. By the express will of any partner,
who must act in good faith, when
no definite term or particular is
specified.
c. By the express will of all the
partners who have not assigned
their interests or suffered them to
be charged for their separate debts,
either before or after the
termination of any specified term or
particular undertaking.
d. By the expulsion of any partner
from the business bona fide in
accordance with such a power
conferred by the agreement
between the partners
2. In contravention of the agreement
between the partners, where the
circumstances do not permit a
dissolution under any other provision of
this article, by the express will of any
partner at any time.
3. 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.
4. When a specific thing which a partner
had promised to contribute to the
partnership, perishes before the
delivery; in any case by the loss of the
thing, when the partner who
contributed it having reserved the
ownership thereof, has only transferred
to the partnership the use or enjoyment
of the same; but the partnership shall
not be dissolved by the loss of the thing
when it occurs after the partnership has
acquired the ownership thereof.
5. By the death of any partner.
6. By the insolvency of any partner or of
the partnership.
7. By the civil interdiction of any partner.
8. By decree of court under the following
article.
Causes of dissolution in general
Generally, a partnership may be dissolved
by causes: (1) without violation of the
25

agreement between the partners; or (2) in
contravention of the agreement. Other
specific causes are; (3) an event which
makes the business of the partnership
unlawful; (4) loss of a specific thing which a
partner had promised to contribute to the
partnership; (5) the death of a partner; (6)
the insolvency of any partner or of the
partnership itself; (7) civil interdiction of
any partner; and lastly (8) by judicial
decree.
Partnership ceased upon expiration of
term; no more juridical personality
A partnership having ceased to exist since
1959, the partnership has no more juridical
personality nor capacity to sue and be sued.
(Reynolds Philippine Corporation vs. Court
of appeals, G.R. No. 36187, Jan. 17, 1989)
Effect of Withdrawal before expiration of
the term
Under Article 1830, even if there is a
specified term, one partners cause its
dissolution by expressly withdrawing eve n
before the expiration of the period, with or
without justifiable cause. Of course, if the
cause is not justified or no cause was given,
the withdrawing partner is liable for
damages but in no case can he be
compelled to remain in the firm. With his
withdrawal, the number of members is
decreased, hence, the dissolution. And in
whatever way we view the situation, the
conclusion is inevitable that the partners
were to be guided in the liquidation of the
partnership by the provisions of its duly
registered articles of partnership. (Roxas vs.
Maglana, G.R. L-30616, Dec. 10, 1990)
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
Law on Business Organizations Reviewer
agreement, or otherwise so conducts
himself in matters relating to the
partnership business that it is not
reasonably 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.
Who may petition for dissolution
Dissolution of a partnership may be decreed
by the court on application either (1) by a
partner or, in case he has assigned his
interest, (2) by his assignee.
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.
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.
General Rule
If the cause of dissolution is not by act,
death, or insolvency of a partner, the
authority ceases immediately.
Exception
For the purposes of winding-up partnership
affairs.
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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.
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.
General Rule
If the cause of dissolution is the death, act,
or insolvency of a partner, authority of a
partner to bind ceases upon the knowledge
of the dissolution.
If dissolution is caused by act of one of
parties, co-partners are also liable to
contribute towards a liability as if no
dissolution has happened, provided that
there is no notice or the partner does not
have knowledge of the dissolution.
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.
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
Law on Business Organizations Reviewer
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 out 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.
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.
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.
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 (b).
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
on business.
General Rule
Dissolution terminates the authority of the
partners to bind partnership.
27

Exceptions
Any act appropriate for winding-up
partnership affairs or completing
transactions unfinished at dissolution
If third persons that transacted had no
actual knowledge of the dissolution.
*Persons extending credit prior to
dissolution are entitled to notice of
dissolution. If they had no notice or
knowledge of dissolution, they may hold
the retired partner for obligations made by
continuing partners after dissolution.
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.
General Rule
Dissolution of a partnership does not itself
discharge the existing liability of any
partner.
Exception
A partner can be discharged from any
existing liability upon dissolution of the
partnership provided that there is an
agreement between the partnership
creditor and the person or partners
continuing the business.
*Individual properties of the deceased
partner shall be liable to all obligations of
the partnership made while he was a
partner.
Art. 1836. Unless otherwise agreed, the
partners who have not wrongfully dissolved
the partnership or the legal representative
of the last surviving partner, not insolvent,
has the right to wind up the partnership
affairs, provided, however, that any
partner, his legal representative or his
Law on Business Organizations Reviewer
assignee, upon cause shown, may obtain
winding up by the court.
Who may wind up Partnership Affairs?
Partner designated in the agreement.
In absence of agreement, the part that did
no wrongfully dissolved the partnership.
If all partners died, the legal representative
of the last surviving partner provided that
the partner is not insolvent.
Winding up of a dissolved partnership may
be done
Extrajudicially by the partners themselves.
Judicially under the control of a competent
court.
*Managing partner or winding-up partner
has the right to sell firm property even after
the life of the partnership has expired.
Art. 1837. When dissolution is caused in any
way, except in contravention of the
partnership agreement, each partner, as
against his co-partners and all persons
claiming through them in respect of their
interests in the partnership, unless
otherwise agreed, may have the
partnership property applied to discharge
its liabilities, and the surplus applied to pay
in cash the net amount owing to the
respective partners. But if dissolution is
caused by expulsion of a partner, bona fide
under the partnership agreement and if the
expelled partner is discharged from all
partnership liabilities, either by payment or
agreement under the second paragraph of
article 1835, he shall receive in cash only
the net amount due him from the
partnership.
When dissolution is caused in contravention
of the partnership agreement the rights of
the partners shall be as follows:
1. Each partner who has not caused
dissolution wrongfully shall have:
a. All the rights specified in the first
paragraph of this article.
b. The right, as against each partner
who has caused the dissolution
wrongfully, to damages breach of
the agreement.
2. The partners who have not caused the
dissolution wrongfully, if they all desire
28

to continue the business in the same
name either by themselves or jointly
with others, may do so, during the
agreed term for the partnership and for
that purpose may possess the
partnership property, provided they
secure the payment by bond approved
by the court, or pay any partner who
has caused the dissolution wrongfully,
the value of his interest in the
partnership at the dissolution, less any
damages recoverable under the second
paragraph, No. 1 (b) of this article, and
in like manner indemnify him against all
present or future partnership liabilities.
3. A partner who has caused the
dissolution wrongfully shall have:
a. If the business is not continued
under the provisions of the second
paragraph, No. 2, all the rights of a
partner under the first paragraph,
subject to liability for damages in
the second paragraph, No. 1 (b), of
this article.
b. If the business is continued under
the second paragraph, No. 2, of 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.
Rights of partners upon dissolution
1. Dissolution is caused without violation
of the agreement.
2. In contravention of the agreement.
If partnership is dissolved without
violation of the agreement
1. All partners may have the property sold
for payment of partnership liabilities.
2. If there is surplus, after paying the
liabilities of the firm, it shall be given in
cash to the partners.
Law on Business Organizations Reviewer
If the partnership was dissolved in
contravention of the agreement
1. The remaining partners have the right
to sell partnership property to pay the
partnership’s liabilities and the surplus
is distributed to the remaining partners
as well.
2. As against the guilty partner for the
dissolution of the partnership, the
remaining partners have the right to
recover damages for breach.
3. The remaining partners may also
continue the business up to end of the
stipulated term of the partnership.
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.
3. To be indemnified by the person guilty
of the fraud or making the
representation against all debts and
liabilities of the partnership.
Right of partner to rescind contract of
partnership
If one is induced by fraud or
misrepresentation to become a partner, the
contract is voidable. If the contract is
annulled, the injured party is entitled to
restitution. Here, the fraud or
misrepresentation vitiates consent.
However, until the partnership contract is
annulled by a proper action in court, the
partnership relations exist and
the defrauded partner is liable for all
obligations to third persons.
1. Right of injured partner where
partnership contract rescinded
29

2. Right of retention of partnership
property
3. Right to be subrogated in place of
creditors of partnership
4. Right to be indemnified by the guilty
partner against all liabilities of the
partnership.
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.
Law on Business Organizations Reviewer
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.
Rules for settling accounts between the
partners
1. The assets of the partnership
2. Liabilities of the partnership
3. Application of assets
4. Contribution by the partners
Assets of the partnership
1. Partnership property
2. The contributions of the partners
necessary for the payment of all
liabilities
Order of application of the assets
1. Those owing to partnership creditors
2. Those owing to partners other than for
capital and profits such as loans given
by the partners or advances for
business expenses
3. Those owing for the return of the
capital contributed by the partners
4. The share of the profits, if any, due to
each partner
Order of application of partner who
become insolvent or his estate his
insolvent, the claims against his separate
property
1. Those owing to separate creditors
2. Those owing to partnership creditors
3. Those owing to partners by way of
contribution
30

Liability of deceased partner’s
individual property
The individual property of a deceased
partner shall be liable for his share of the
contributions necessary to satisfy the
liabilities of the partnership incurred while
he was a partner.
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 partner
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 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 partner assigns) their rights
in partnership property to the
remaining partner, 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 partnership property.
4. When all the partners or 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.
Law on Business Organizations Reviewer
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 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 on 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 contracted by such
person or partnership.
Dissolution of a partnership by change of
members
Causes
1. New partner is admitted
2. Partner retires
3. Partner dies
4. Partner withdraws
5. Partner is expelled from partnership
6. Other partners assign their rights
to sole remaining partner
7. All the partners assign their rights in
partnership property to third persons.
*Any change in membership dissolves a
partnership and creates a new one
*When a business of a dissolved
partnership is continued by former or
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 Law on Business Organizations Reviewer

without new partners, the old creditors are person or partnership continuing the
creditors of the person or partnership that business, at the date of dissolution, in the
is continuing the business. absence of any agreement to the contrary.

Art. 1841. When any partner retires or dies, Right to demand an accounting of
and the business is continued under any of partnership affairs must be directed
the conditions set forth in the preceding against
article, or in article 1837, second paragraph, 1. Winding-up partners
No. 2, without any settlement of accounts 2. Surviving partners
as between him or his estate and the 3. The person the partnership continuing
person or partnership continuing the the business
business, unless otherwise agreed, he or his
legal representative as against such person Art. 1843. A limited partnership is one
or partnership may have the value of his formed by two or more persons under the
interest at the date of dissolution provisions of the following article, having as
ascertained, and shall receive as an ordinary members one or more general partners and
creditor an amount equal to the value of his one or more limited partners. The limited
interest in the dissolved partnership with partners as such shall not be bound by the
interest, or, at his option or at the option of obligations of the partnership.
his legal representative, in lieu of interest,
the profits attributable to the use of his General partner Limited partner
right in the property of the dissolved Personally liable for Liability extends
partnership; Provided, That the creditors of partnership only to his capital
the dissolved partnership as against the obligations contribution.
separate creditors, or the representative of Have equal right in No share in
the retired or deceased partner, shall have management of management of
priority on any claim arising under this partnership partnership.
article, as provided article 1840, third May contribute May contribute
paragraph. money, property or money and property
industry
Rights of retiring of properties of Proper party to Not proper party to
deceased, partner when business proceedings proceedings
continued Interest cannot be Interest is assignable
To have the value of the interest of assigned to make with assignee
the retiring partner or deceased partner in new partner acquiring all rights of
the partnership determined as of the date the limited partner
of dissolution. His name may Name not included
appear in the firm in firm name
To receive thereafter, as an ordinary name
creditor, an amount equal to the value of Prohibited from No prohibition
his share in the dissolved partnership with engaging in a
interest, or, at his option, in place of business like
interest, the profits attributable to the use partnership’s
of his right. His retirement, His retirement,
insolvency and insolvency and
General Rule death dissolves the death does not
When partner retires from the partnership, partnership dissolve the
he is entitled to the payment of what may partnership
be due to him after liquidation.
Exception Characteristics of limited partnership
No liquidation needed when there is 1. Must be formed in accordance with the
settlement as to what retiring partner shall requirements of the law.
receive. 2. There must be one or more general
partners who control the management
Art. 1842. The right to an account of his of the business.
interest shall accrue to any partner, or his 3. There must be one or more limited
legal representative as against the winding partners contributing to the capital and
up partners or the surviving partners or the

32

sharing in the profits but have nothing
to do with the management.
4. Obligations of the partnership must be
paid out of common fund and in the
separate properties of the general
partners.
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.
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.
Law on Business Organizations Reviewer
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.
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.
Qualifications of limited partnership
1. The partners must sign and swear to a
certificate of limited partnership
2. Must file for record the certificate in
the office of the Securities and
Exchange Commission
Art. 1845. The contributions of a limited
partner may be cash or property, but not
services.
Limited partners can only contribute money
and property and cannot contribute
services to the partnership to protect
persons dealing with the firms with frauds.
Art. 1846. The surname of a limited partner
shall not appear in the partnership name
unless:
1. It is also the surname of a general
partner.
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
33

a general partner to partnership creditors
who extend credit to the partnership
without actual knowledge that he is not a
general partner.
Limited partner’s surname is not included
in the firm name provided these
circumstances
1. If the surname of general partner is the
same with limited partner’s
2. If the limited partner’s surname was
included and was carried on the new
partnership
*If the limited partner’s surname was
included in the firm name, he is liable as 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.
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 false statement in certificate
Under this provision, any partner to
the certificate containing a false statement
is liable provided the following requisites
are present:
1. He knew the statement to be false at
the time he signed the certificate,
or subsequently, but having sufficient
time to cancel or amend it or file a
petition for its cancellation or
amendment, he failed to do so.
2. The person seeking to enforce liability
has relied upon the false statement in
transacting business with the
partnership.
3. The person suffered loss as a result of
reliance upon such false statement.
ART. 1848. A limited partner shall 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.
Limited partner has no control in business
Law on Business Organizations Reviewer
A limited partner is excluded from any
active voice in the control of the affairs of
the firm.
Limited partner cannot perform acts of
administration
Limited partners may not perform any act
of administration with respect to the
interests of the partnership, not even in the
capacity of agents of the managing
partners.
ART. 1849. After the formation of a limited
partnership, additional limited partners may
be admitted upon filling an amendment to
the original certificate in accordance with
the requirements of Article 1865.
The writing to amend a certificate
1. Shall 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.
2. Be signed and sworn to by all members,
and an amendment substituting a
limited partner.
ART. 1850. A general partner shall all have
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 judgement 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 so to do 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 so
to do is given in the certificate.
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Powers of general partner in limited
partnership
The general partner shall have all the right
and powers and be subject to all the
restrictions and liabilities of a partner in a
partnership without 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 any 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.
3. Have dissolution and winding up by
decree of court.
A limited partner shall have the right to
receive a share of the profit or other
compensation by way of income and to the
return of his contribution as provided in
Articles 1856 and 1857.
Rights of limited partner
It has lesser rights than a general partner. It
may exercise rights similar to a general
partner.
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.
Conditions for exemption from liability
1. Prompt renunciation of interest and/ or
income upon ascertaining the mistake.
2. Non-inclusion of limited partner’s name
in the firm name.
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3. Non-participation in the management
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
restrictions of a general partner; except
that, in respect to his contribution, shall
have the rights against the other members
which he would have had if he were not
also 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
any partnership property.
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 a
payment, conveyance, or release in
violation of the foregoing provisions is a
fraud on the creditors of the partnership.
Loans and business transactions with
limited partners
A limited partner is allowed to loan money
to the firm; transact other business with the
partnership, and receive a pro rata share in
the assets with general creditors.
Limited partner not allowed to hold
collateral security
A limited partner may not receive
partnership property as collateral security.
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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 way of income, or as to
any other matter. If such an agreement is
made it shall be states in the certificate, and
in the absence of such a statement all the
limited partners shall stand upon equal
footing.
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 the 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.
ART. 1857. A limited partner shall not
receive from a general partner or out of
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.
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.
2. When the date specified in the
certificate for its return has arrived.
3. After he has given six months’ notice in
writing to all other members, if no time
is specified in the certificate, either for
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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.
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.
Conditions of a limited partner entitled to
return of his contribution
1. All liabilities of the partnership have
been paid or there are assets sufficient
to pay partnership liabilities.
2. The consent of all the partners is
obtained.
3. The certificate is cancelled or so
amended as to set forth the withdrawal
or reduction of the contribution.
When limited partner may demand return
1. The partnership is dissolved
2. The date specified for its return has
arrived
3. If no term is specified, after six months’
notice in writing to all other partners.
Limited partner to receive cash
It will be noted that the limited partner has
a right to demand and receive cash only in
return for his contribution even when he
contributed property.
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.
2. For any unpaid contribution which he
agreed in the certificate to make in the
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future at the time and on the
conditions stated in the certificate.
A limited partner holds a 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.
2. Money or other property wrongfully
paid or conveyed to him on account of
his contribution.
The liabilities of a limited partners 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 filling 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.
Limited partner liable to partnership for
sum returned
A limited partner whose contribution has
been rightfully returned is still liable to the
partnership for an amount not in excess of
the sum returned plus interest as may be
necessary to pay the claims of persons who
extended credit or whose claims arose
before the return.
ART. 1859. A limited partner’s interest is
assignable.
A substitute 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 assignee, 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
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return of his contribution, to which his
assignor would otherwise be entitled.
An assignee shall have the right to become
a substituted 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
for the certificate.
The substitution of the assignee as a limited
partner does not release the assignor from
liability to the partnership, under article
1847 and 1858.
Limited partner’s interest assignable
A limited partner’s interest in the
partnership is assignable. The assignee,
however, of a limited partner’s interest
does not necessarily become a substituted
limited partner.
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 so to do stated in the
certificate.
2. With the consent of all members.
It must be observed that the death, etc., of
a general partner dissolves the partnership
while the death of a limited partner does
not cause the dissolution of the firm, unless
there is only one limited partner.
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 settling his estate, and such
power as the deceased had to constitute his
assignee a substituted limited partner.
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The estate of a deceased limited partner
shall be liable for all his liabilities as a
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
others which may exist.
ART. 1863. In settling 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 profit or for
compensation by way of income on their
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contribution respectively, in proportion to
the respective amounts of such claims.
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.
10. The members desire to make a change
in any other statement in the certificate
in order that it shall accurately
represent the agreement among them.
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.
2. Be signed and sworn to by all members,
and an amendment substituting a
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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 of 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
forth the amendment.
A certificate is amended or cancelled when
there is filed for record in the Office of the
Securities and Exchange Commission, where
the certificate is recorded:
1. A writing in accordance with the
provisions of the first or second
paragraph.
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.
A certificate is considered cancelled or
amended when there is filed for record
1. A writing to amend the certificate; or
2. A certified copy of the order of the
court in the event of an unjustified
refusal of a partner to sign the writing.
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Art. 1866. A contributor, unless he is a
general partner, is not a proper party to
proceedings by or against a partnership,
except where the object is to enforce a
limited partner's right against or liability to
the partnership.
Art. 1867. A limited partnership formed
under the law prior to the effectivity of this
Code, may become a limited partnership
under this Chapter by complying with the
provisions of article 1844, provided the
certificate sets forth:
1. The amount of the original contribution
of each limited partner, and the time
when the contribution was made.
2. That the property of the partnership
exceeds the amount sufficient to
discharge its liabilities to persons not
claiming as general or limited partners
by an amount greater than the sum of
the contributions of its limited partners.
A limited partnership formed under the law
prior to the effectivity of this Code, until or
unless it becomes a limited partnership
under this Chapter, shall continue to be
governed by the provisions of the old law.
CORPORATIONS
TITLE I - GENERAL PROVISIONS
DEFINITIONS AND CLASSIFICATIONS
Sec. 1. Title of the Code. – This Code shall
be known as “The Corporation Coder of the
Philippines”.
Sec. 2. Corporation defined. - A corporation
is an artificial being created by operation of
law having the right of succession and the
powers, attributes and properties expressly
authorized by law or incident to its
existence.
Definition
A corporation is an artificial being created
by operation of law having the right of
succession and the powers, attributes and
properties expressly authorized by law or
incident to its existence.
Attributes
1. It is an artificial being.
2. It is created by operation of law.
3. It has the right of succession.
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