PARTNERSHIP
(2024 EDITION)
GENERAL PROVISION
a. 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 diving the profits
among themselves(Art. 1767, NCC).
NOTE: Two or more person may also form a partnership for the exercise of a
profession(Art. 1767, NCC).
b. ELEMENTS
1. Two or more persons bound themselves to contribute money, property, or
industry to a common funds; and
2. They intend to divide the profits among themselves(Jarantilla vs. Jarantilla, GR
No. 154486, Dec. 1, 2010).
c. CHARACTERISTICS
1. Bilateral- It is entered into by two or more persons and the rights and obligations
arising therefrom are always reciprocal;
2. Onerous- Each of the parties aspires to procure for himself a benefit through the
giving of something;
3. Nominate- It has a special name or designation in our law;
4. Consensual- Perfected by mere consent, upon the express or implied agreement
of two or more persons;
5. Commutative- The undertaking of each of the partners is considered as the
equivalent of that of the others;
6. Principal- It does not depend for its existence or validity upon some other
contracts;
7. Preparatory- Because it is entered into as a means to an end, i.e., to engage in
business or specific venture for the realization of profits with the view of
dividing them among the contracting parties; and
8. Profit-oriented (Art. 1770, NCC).
d. RULES TO DETERMINE EXISTENCE
1. Except as provided by Art. 1825 of the NCC (partnership by estoppel), 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-owners or co-possessors do or do not share any profits made by the
use of the property;
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 return 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 interference shall
be drawn if such profits were received in payment;
a. As a debt by installments or otherwise;
b. As wages of an employer 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 varies with
the profits of the business;
e. As the consideration for the sale of a goodwill of a business or
other property by installment or otherwise (Art. 1769, NCC).
4BLUE 95NOTE: In sub-paragraph a-e, the profits in the business are not shared as profits
of a partner as a partner, but in some other respects or for some other purpose.
Who can form Partnerships?
1. Persons with legal capacity to enter into contracts
a. Natural persons should be at least 18 years old, not suffering
from any legal impediment such as insanity or civil interdiction
b. Juridical person de jure
2. Husband and wife can enter into particular partnerships but not universal
partnerships
a. Reason: Husband and wife cannot sell and donate to one
another
3. It used to be that corporations cannot enter into a partnership. But, under te
Revised corporation Code, corporations can now join partnerships.
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Burden of proving the existence of a partnership
It rests on the party having the affirmative of that issue. The existence of a partnership must
be proved and will not be presumed.
However, when a partnership is shown to exist, the presumption is that it continues in the
absence of evidence to the contrary, and the burden of proof is on the person asserting its
termination.
Doctrine of Delectus Personae
No one can become a member of the partnership association without the consent of all the
partners. This rule is inherent in every partnership.
Under the doctrine of delectus personae, a partner has a right to choose with whom he
wishes to associate himself.
RATIO: This is because of the mutual trust among the partners and that this is a case of
subjective novation. There is subjective novation when there is a change in the parties to a
contract. Their consent thereto is necessary in order to bind them.
4BLUE 95 NOTE: Even if a partner will associate another person in his share in the
partnership, the associate shall not be admitted into the partnership without the consent of
all the partners, even if the partner having an associate should be a manager (Art. 1804,
NCC). This element of delectus personae, however, is true only in the case of a general
partner, but not as regards a limited partner.
Doctrine of Mutual Agency
All the partners shall be considered agents and whatever any one of them may do alone
shall bind the partnership (Art. 1803(1); 1818, NCC). Authority is limited with respect to
acts of administration(acts of ownership- unanimous decision of all the partners are
required). Except if there is an appointed managing partner.
Rule that partners are guarantors of the obligation of the partnership
Under the rule that partners are guarantors of partnership obligations, the partners are liable
to the creditors of the partnership with their own property, even beyond their
contributions(Art. 1803(1), NCC).
e. PARTNERSHIP TERM
Partnership with a Fixed Term vs. Partnership at Will
Partnership with a Fixed Term
It is one in which the term of its existence has been agreed upon by the partners either:
1. Expressly- there is a definite period
2. Impliedly- a particular enterprise or transaction is undertaken
The mere expectation that the business would be successful and that the partners would be
able to recoup their investment is not sufficient to create a partnership for a term.
Fixing the term of the partnership contract
The partners may fix in their contract any term and they shall be bound to remain under
such a relation for the duration of the term.
Expiration of the partnership contract
The expiration of the term fixed or the accomplishment of the particular undertaking
specified will cause the automatic dissolution of the partnership.
Partnership at will
One in which NO fixed term is specified and is NOT formed for a particularundertaking or
venture which may be terminated anytime by mutual agreement of the partners, or by the
will of any one partner alone; or one for a fixed term or particular undertaking which is
continued by the partners after the termination of such term or particular undertaking
without express agreement.
Termination or dissolution of partnership at will
A partnership at will may be lawfully terminated or dissolved at any time by the express
will of all or any of the partners.
The partner who wants the partnership dissolved must do so in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership, but to avoid the
liability for damages to other partners.
f. PARTNERSHIP BY ESTOPPEL h. PROFESSIONAL PARTNERSHIP

It is one who, by words or conduct does any of the following:
1. Directly represent himself to anyone as a partner in an existing partnership or in
a non-existing partnership.
2. Indirectly represents himself by consenting to another representing him as a
partner in an existing partnership or in a non-existing partnership.
Elements before a partner can be held liable on the ground of estoppel
1. Defendant represented himself as partner or is represented by others as such, and
did not deny/refute such representation.
2. Plaintiff relied in such representation.
3. Statement of defendant is not refuted.
It is a partnership formed by persons for the sole purpose of exercising their common
profession, no part of the income of which is derived from engaging in any trade or
business.
In a professional partnership, it is the individual partners who are deemed engaged in the
practice of profession and not the partnership. Thus, they are responsible for their own acts.
Prohibition in the formation of a professional partnership
Partnership between lawyers and members of other profession or non-professional persons
should not be formed or permitted where any part of the partnership’s employment consists
of the practice of law(Canon 9 of the Code of Professional Responsibility).

Liabilities in case of estoppel Prohibition in the firm name of a partnership for the practice of law
1. When partnership is liable-If all actual partners consented to the representation, In the selection and use of firm name, no false, misleading, assumed, or trade names should
then the liability of the person who represented himself to be a partner or who be used (Canon 3 of the Code of Professional Responsibility Professional Ethics).
consented to such representation and the actual partner is considered a
partnership liability.
2. When liability is Pro Rata- When there is no existing partnership and all those i. MANAGEMENT
represented as partners consented to the representation, then the liability of
the person who represents himself to be a partner, and all who made and Modes of appointment of a manager
consented to such representation, is considered a joint or pro-rata liability. Appointment through the Articles of Appointment other than in the articles
3. When liability is separate- When there is no existing partnership and not all but Partnership
only some of those represented as partners consented to the representation, or Power is irrevocable without just or lawful Power to act is revocable anytime, with or
none of the partnership in an existing partnership consented to such cause. without cause (should be done by the
representation, then the liability will be separate. controlling interest)
NOTE: Vote required for removal of
Partnership tort manager:
There is a partnership tort where:
1. By any wrongful act or omission of any partner, acting in the ordinary course of For just cause- Vote of the controlling
business of the partnership or with authority of his co-partners, loss or injury partners (controlling financial interest;
is caused to any person, not being a partner in the partnership. greater capital contribution).
2. One partner, acting within the scope of his apparent authority, receives money or Without cause or for unjust cause-
property from third person, and misapplies it; or Unanimous vote.
3. The partnership, in the course of its business, receives money or property, and it Extent of Power
is misapplied by any partner while it is in the custody of the partnership. If he acts in good faith, he may do all acts As long as he is a manager, he can perform
of administration (despite opposition of his all acts of administration (if others oppose,
2023 NOTE: Partners are solidarily liable with the partnership for any penalty or damage partners); he can be removed).
arising from a partnership tort.
If he acts in bad faith, he cannot

Scope of the power of a managing partner

g. PARTNERSHIP AS DISTINGUISHED FROM JOINT VENTURE All acts of administration.
Joint Venture As a general rule, a partner appointed as manager has all the powers of a general agent as
It is considered as partnership. A joint venture is likened to a particular partnership or one well as all the incidental powers necessary to carry out the object of the partnership in the
which “has for its object determinate things, their use or fruits, or a specific undertaking, or transaction of its business. The exception is when the powers of the manager are
the exercise of a profession or vocation. However both are different in the sense that a joint specifically restricted.
venture is limited to a single transaction, while a partnership generally relates to a
continuing business of various transactions of a certain kind. Rule where there are two or more managers
1. Without specification of their respective duties and without stipulation requiring
It is an association of persons or companies jointly undertaking some commercial unanimity of action:
enterprise. Generally, all contribute assets and share risks. It requires a community of GR: Each may separately execute all acts of administration (unlimited power to
interest in the performance of the subject matter, a right to direct and govern the policy in administer).
connection therewith, and a duty which may be altered by agreement to share both in profits
and losses. XPN: If any of the managers opposes, decision of the majority prevails.
2023 NOTE: Sec. 36(h) of RA 11232 or the Revised Corporation Code of the Philippines 2023 NOTE: In case of tie- Decision of the controllinginterest (who are also
provides for the power of a corporation, “to enter into a partnership, joint venture, managers) shall prevail(Art. 1801, NCC).
merger, consolidation, or other commercial agreement with natural or juridical
persons”. 2. With specification that none of the managing partners shall act without the consent of the
others.
Basis Partnership Joint Venture GR: Unanimous consent of all the managing partners shall be necessary for the
Coverage Contemplates the undertaking of a Ordinarily limited to a single validity of the acts and absence or inability of any managing partner cannot be
general and continuous business of transaction and not intended to alleged.
a particular kind. pursue a continuous business.
Firm name Required to operate. Under a firm Has no firm name XPN: Where there is an imminent danger of grave or irreparable injury to the
name. partnership.
Transfer of The property used becomes the The property used remains
property property of the business entity and undivided property of its Rule when the manner of management has not been agreed upon
hence of all the partners. contributor. 1. All partners shall be considered agents and whatever any one of them may do
Power A partner acting in pursuance of None of the co-venturers can alone shall bind the partnership, without prejudice to the provisions of Art.
the firm business, binds not only bind the joint venture or his co- 1801 of the NCC. This right is not dependent on the amount or size of the
himself as a principal but as their venturers. partner’s capital contribution or services to the business.
agent as well, also the partnership
and the partners. NOTE: If two or more partners have been entrusted with the management of
Firm name A partnership acquires personality A joint venture has no legal the partnership without specification of their respective duties, or without
and liabilities after following the requisites personality. a stipulation that one of them shall not act without the consent of all the
required by law. others, each one may separately execute all acts of administration, but if any
of them should oppose the acts of the others, the decision of the majority shall
NOTE: SEC registration is not prevail. In case of a tie, the matter shall be decided by the partners owning the
required before a partnership controlling interest(Art. 1801, NCC).
acquires legal personality.
2. None of the partners may, without the consent of the others, make any
important alteration in the immovable property even if it may be useful to the
partnership (Art. 1802-1803, NCC).

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RIGHTS & OBLIGATIONS 4. Contribute additional capital (Art. 1791, NCC);

Liability of a capitalist partner to contribute additional capital

a. RIGHTS AND OBLIGATIONS OF THE PARTNERSHIP GR: A capitalist partner is not bound to contribute to the partnership more
1. Refund the amounts disbursed by partner in behalf of the partnership plus than what he agreed to contribute
corresponding interest from the time the expenses are made, not from the date XPNs:
of demand (e.g., loans and advances made by a partner to the partnership 1. In case of imminent loss of the business; and
aside from capital contribution); 2. There is no agreement to the contrary.
2. Answer for obligations the partner may have contracted in good faith in the
interest of the partnership business; He is under obligation to contribute an additional share to save the venture. If
3. Answer for risks in consequence of its management (Art. 1796, NCC). he refuses to contribute, he shall be obliged to sell his interest to the other
partners.
b. OBLIGATIONS OF PARTNERS AMONG THEMSELVES
1. Contribution of property (Art. 1786, NCC); Requisites before capitalist partners are compelled to contribute
additional capital
Withdrawal or disposal of money or property by a contributing partner 1. Imminent loss of the business of the partnership;
Money or property contributed by a partner cannot be withdrawn or disposed 2. Majority of the capitalist partners are of the opinion that an additional
of by the contributing partner without the consent or approval of the contribution to the common fund would save the business;
partnership or of the other partners because the money or property contributed 3. Capitalist partner refuses deliberately to contribute (not due to financial
by a partner becomes the property of the partnership. inability);
4. There is no agreement to the contrary.
Who bears the risk of loss of things contributed?(Art. 1795, NCC)
4BLUE 95 NOTE: The refusal of the partner to contribute his additional
Kinds of property/ thing Who bears the risk
share reflects his lack of interest in the continuance of the partnership. It shall
Specific and determinate things Partners
be obliged to sell his interest to the other partners except if there is an
which are not fungible where only the
agreement to the contrary (Art. 1791, NCC).
use is contributed
Specific and determinate things the It is to be noted that the industrial partner is exempted from the
ownership of which is transferred to
requirement to contribute an additional share. Having contributed his
the partnership entire industry, he can do nothing further.
Fungible things (Consumable) (use is Partnership
impossible without the things being 5. Managing partner who collects debt (Art. 1792, NCC);
consumed or impaired)
Things brought and appraised in the *Obligations of managing partners who collect his personal receivable
inventory from a person who also owes the partnership
1. Apply sum collected to 2 credits in proportion to their amounts.
Effect if a partner fails to contribute the property which he promised to 2. If he received it for the account of partnership, the whole sum shall be
deliver to the partnership applied to partnership credit.
1. Partner becomes ipso jure a debtor of the partnership even in the
absence of any demand (Art. 1786, NCC); -even though he may have given a receipt for his own credit only.
2. Remedy of the other partner is not rescission but specific performance Requisites:
with damages and interest from defaulting partner from the time he At least 2 debts, one where the collecting partner is creditor and the other,
should have complied with his obligation. where the partnership is the creditor;
1. Both debts are demandable;
When the capital or part hereof which a partner is bound to contribute consists 2. Partner who collects is authorized to manage and actually manages the
of goods, their appraisal must be made in the manner prescribed in the partnership.
contract of partnership, and in the absence of stipulation, it shall be current
prices, the subsequent changes thereof being for the account of the partnership 4BLUE 95 NOTE: The debtor is given the right to prefer payment of the
(Art. 1787, NCC). credit of the partner if it should be more onerous to him in accordance with
his right to application of payment (Art. 1252, NCC).
2. Contribution of money and money converted to personal use (Art. 1788, NCC);
Reason for applying payment to partnership credit
Rules regarding contribution of money to the partnership The law safeguards the interests of the partnership by preventing the
1. To contribute on the date fixed the amount the partner has undertaken possibility of their being subordinated by the managing partner to his own
to contribute to the partnership; interests to the prejudice of the other partners.
2. To reimburse any amount the partner may have taken from the
partnership coffers and converted to his own use; 6. Partner who receives share of partnership credit (Art. 1793, NCC);
3. To indemnify the partnership for the damages caused to it by delay in
the contribution or conversion of any sum for the partner’s personal Obligation of a partner who receives share of partnership credit
benefit; To bring to the partnership capital what he has received even though he may
4. To pay the agreed or legal interest, if the partner fails to pay his have given receipt for his share only.
contribution on time or in case he takes any amount from the common
fund and converts it to his own use. Requisites:
1. A partner has received in whole or in part, his share of the partnership
Rules regarding obligation to contribute to partnership capital credit;
Unless there is a stipulation to the contrary, the partners shall contribute equal 2. Other partners have not collected their shares;
shares to the capital of the partnership (Art. 1790, NCC). It is not applicable to 3. Partnership debtor has become insolvent.
an industrial partner unless, besides his service, he has contributed capital
pursuant to an agreement. 7. Damages to partnership (Art. 1794, NCC);

3. Prohibition in engaging in business for himself (Art. 1789, NCC);
Rules regarding the prohibition to engage in another business
Capitalist Partner Industrial Partner
Prohibition
Relative: Cannot engage in business Absolute: Cannot engage in
(with same kind of business with business for himself,unless the
the partnership) for his own partnership expressly permits him to
account, unless there is a do so.
stipulation to the contrary.
(because as an industrial partner, he
has to devote his full time to the
business of the partnership)
Remedy
Capitalist partner, who violated Capitalist partner may: Exclude him
shall: Bring to the common fund from the firm, or avail themselves of
any profits accruing to him from the benefits which he may have
said transaction; and personally obtained; Damages, in either case
bears all losses(Art. 1808, NCC). (Art. 1789, NCC).
Rule with regard to the obligation of a partner as to damages suffered by the partner
through his fault
GR: Every partner is responsible to the partnership for damages suffered by it through his
fault and he cannot compensate them with the profits and benefits which he may have
earned for the partnership by his industry.
XPN: The courts may equitably lessen this responsibility if through the partner’s
extraordinary efforts in other activities of the partnership, unusual profit has been realized
(Art. 1794, NCC).
Set-off of damages caused by a partner
GR: The damages caused by a partner to the partnership cannot be offset by the profits or
benefits which he may have earned for the partnership by his industry.
Ratio: The partner has the obligation to secure benefits for the partnership. Hence, the
profits which he may have earned pertain as a matter of law or right, to the partnership.
XPN: If unusual profits are realized through the extraordinary efforts of the partner at fault,
the courts may equitably mitigate or lessen his liability for damages. This rule rests on
equity.

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 8. Keep the partnership books (Art. 1805, NCC); RIGHTS OF PARTNERS

Duty of the partner with respect to keeping the partnership books

The partnership books shall be kept, subject to any agreement between 1. Right to reimbursement for amounts advances to the partnership and to
partners, at the principal place of business of the partnership (Art. 1805, indemnification for risks in consequence of management (Art. 1796, NCC);
NCC). 2. Right on the distribution of profits and losses (Art. 1797, NCC);

Duty to keep partnership book belongs to managing or active partner
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 or the particular partner
given record-keeping duties(Art. 1805, NCC).
9. Render information (Art. 1806, NCC);
NOTE: The agreement to contribute to a common fund and intent to divide
profits constitute partnership. It is founded upon an express trust. It is
imprescriptible unless repudiated.
Rules regarding a stipulation excluding a partner in the sharing of profits
and losses
GR: Such stipulation is void(Art. 1799, NCC);

Duty of the partners with respect to information affecting partnership XPN: Industrial partner is not liable for losses(Art. 1797(2), NCC).
Partners shall render on demand true and full information of all things However, he is not exempted from liability insofar as third persons are
affecting the partnership to: concerned (loss is different from liability). Industrial partners can seek
1. Any partner; or reimbursement from other partners.
2. Legal representative of any deceased or any partner under legal
disability (Art. 1806, NCC). Rules regarding distribution of profits and losses
1. Distribution of profits
NOTE: Under the same principle of mutual trust and confidence among a. The partners share in the profits according
partners, there must be no concealment between them in all matters affecting to their agreement.
the partnership. The information, to be sure, must be used only for a b. In the absence of such:
partnership purpose. i. Capitalist partner- in
proportion to his contribution
10. Accountable as fiduciary (Art. 1807, NCC). ii. Industrial partner- what is
just and equitable under the
Accountability of partners to each other as fiduciary circumstances
Every partner must account to the partnership for any benefit, and hold as
trustee for it any profits derived by him without the consent of the other 4BLUE 95 NOTE: If the industrial partner has contributed capital other than
partners from any transaction connected with the formation, conduct, or his services, he shall also receive a share in the profits in proportion to his
liquidation of the partnership or from any use by him of his property(Art. capital.
1807, NCC).
2. Distribution of losses
Duty of a partner to act with utmost good faith towards co-partners a. The partners share in the losses according
continues even after dissolution to their agreement.
The duty of a partner to act with utmost good faith towards his co-partner b. In the absence of such, according to their
continues throughout the entire life of the partnership even after dissolution agreement as to profits.
for whatever reason or whatever means, until the relationship is terminated, c. In the absence of profit agreement, in
i.e., the winding up of partnership affairs is completed. proportion to his capital contribution.

Failure to disclose facts, when there is a duty to reveal them, as when parties 3. Right to associate another person with him in his share without the consent of the
are bound by confidential relations, constitutes fraud (Art. 1339, NCC). other partners (Sub-partnership)(Art. 1804, NCC);

NOTE: Such partnership formed between a member of a partnership and a

BAR: True or False: An oral partnership is valid. (2009 Bar)
A: TRUE. Partnership is a consensual contract hence, it is valid even though not in writing.
BAR: A, B, and C entered into a partnership to operate a restaurant business. When the
restaurant had gone past break-even stage and started to garner considerable profits, C died.
A and B continued the business without dissolving the partnership. They in fact opened a
branch of the restaurant, incurring obligations in the process. Creditors started demanding
for the payment of their obligations.
A. Who are liable for the settlement of the partnership’sobligations?Explain?
A: A. The two remaining partners, A and B, are liable. When any partner dies and the
business is continued without any settlement of accounts as between him or his estate,
the surviving partners are held liable for continuing the business provided that A and
B had knowledge or notice of the death of C (Art. 1841, 1785, par 2, and Art 1833).
B. What are the creditors’ recourse/s? Explain. (2010 Bar)
B. Creditors can file the appropriate actions, for instance, an action for collection of
sum of money against the “partnership at will” and if there are no sufficient funds, the
creditors may go after the private properties of A and B (Art 1816). Creditors may
also sue the estate of C. The estate is not excused from the liabilities of the partnership
even if C is dead already but only up to the time that he remained a partner (Art. 1829,
1835, par 2; Testate Estate of Mota v. Serra, G.R. No. L-22825, February 14, 1925).
However, the liability of C’s individual properties shall be subject to the prior
payment of his separate debts. (Art. 1835, par 3)
BAR: Joe and Rudy formed a partnership to operate a car repair shop in Quezon City. Joe
provided the capital while Rudy contributed his labor and industry. On one side of their
shop, Joe opened and operated a coffee shop, while on the other side, Rudy put up a car
accessories store. May they engage in such separate businesses? Why? (2001 Bar)
A: Joe, the capitalist partner, may engage in the restaurant business because it is not the
same kind of business the partnership is engaged in. On the other hand, Rudy may not
engage in any other business unless their partnership expressly permits him to do so
because as an industrial partner he has to devote his full time to the business of the
partnership. (Art. 1789)
third person for a division of the profits coming to him form the partnership
enterprise is termed subpartnership.
4. Right to free access and to inspect and copy at any reasonable hour the
partnership books (Art. 1805, NCC);
5. Right to formal account as to partnership affairs (even during existence of
partnership):
a. If he is wrongfully excluded from the partnership business or
possession of its property by his co-partners;
b. If the right exist under the terms of any agreement;
c. Duty to account as provided by Art 1807;
d. Whenever there are circumstanced render it just and reasonable;
6. Right to have the partnership dissolved; and
7. Property rights of a partner (Art. 1810, NCC);
a. His rights is specific partnership property;
b. His interest in the partnership (share in the profits and losses);
and
c. His right to participate in the management.
BAR: W, X, Y and Z organized a general partnership with W and X as industrial partners
and Y and Z as capitalist partners. Y contributed P50,000.00 and Z contributed P20,000.00
to the common fund. By a unanimous vote of the partners, W and X were appointed
managing partners, without any specification of their respective powers and duties. A
applied for the position of Secretary and B applied for the position of Accountant of the
partnership. The hiring of A was decided upon by W and X, but was opposed by Y and Z.
The hiring of B was decided upon by W and Z, but was opposed by X andY. Who of the
applicants should be hired by the partnership? Explain and give your reasons. (1992 Bar)
A: A should be hired as Secretary. The decision for the hiring of A prevails because it is an
act of administration which can be performed by the duly appointed managing partners,
Wand X. B cannot be hired, because in case of a tie in the decision of the managing
partners, the deadlock must be decided by the partners owning the controlling interest. In
this case, the opposition of X and Y prevails because Y owns the controlling interest. (Art.
1801, Civil Code)

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c. OBLIGATIONS OF PARTNERSHIP/PARTNERS TO THIRD PERSONS
Effect of the acts of partners acting as an agent of the partnership
1. Every partner shall operate under a firm name (Art. 1815, NCC);
Acts of a Partner Effect
4BLUE 95 NOTE: Persons who, not being partners, include their names in Acts for apparently carrying on in the With binding effect except:
the firm name do not acquire the rights of a partner but they shall be subject to usual way the business of the partnership When the partner so acting has in fact no
the liability of a partner (Art. 1816, NCC) insofar as third persons without authority to act for the partnership in the
notice are concerned. particular matter, and the person with
whom he is dealing has knowledge of the
2. All partners (capitalist and industrial) shall be liable pro rata with all their fact that he has no such authority (Art.
property and after all the partnership assets have been exhausted, for the 1818(1), NCC);
contracts which may be entered into in the name and for the account of the Acts not in the ordinary course of Do not bind partnership unless authorized
partnership, under its signature and by a person authorized to act for the business by other partners (Art. 1818, NCC);
partnership. However, any partner may enter into a separate obligation to Acts of strict dominion or ownership GR: One or more but less than all the
perform a partnership contract. partners have no authority
a. Pro rata Assigning partnership property in trust for
b. Subsidiary (Art. 1816, NCC); creditors; XPN: Authorized by the other partners; or
XPN: All partners shall be liable solidarily with the partnership Disposing of goodwill of business; Partners have abandoned the business (Art.
for everything chargeable to the partnership under Art. 1822 and Doing an act which would make it 1818(3), NCC);
1823 (Art. 1824, NCC); impossible to carry on the ordinary business
of partnership;
Art. 1822. Where, by any wrongful act or omission of any Confessing a judgment;
partner acting in the ordinary course of the business of the Entering into a compromise concerning a
partnership or with the authority of co-partners, loss or injury is partnership claim or liability;
caused to any person, not being a partner in the partnership, or Submitting partnership claim or liability to
any penalty is incurred, the partnership is liable therefor to the arbitration;
same extent as the partner so acting or omitting to act. Renouncing claim of partnership.
Acts in contravention of a restriction on Partnership is not liable to 3rd persons
Art. 1823. The partnership is bound to make good the loss: authority having actual or presumptive knowledge
of the restriction (Art. 1818(4), NCC);
(1) Where one partner acting within the scope of his apparent
authority receives money or property of a third person and Effect of conveyance of a real property
misapplies it; and
Type of Conveyance Effect
Title in the partnership’s name; Conveyance passes title but partnership can
(2) Where the partnership in the course of its business receives
Conveyance in partnership name recover, unless:
money or property of a third person and the money or property
1. Conveyance was done in the usual
so received is misapplied by any partner while it is in the
way of business, and
custody of the partnership.
The partner so acting has the
authority to act for the partnership;
Art. 1824. All partners are liable solidarily with the partnership
or
for everything chargeable to the partnership under Articles 1822
and 1823.
2. The property which has been
conveyed by the grantee or a
4BLUE 95 NOTE:Any stipulation against the liability laid
person claiming through such
down in Art 1816 shall be void except as among the
grantee to a holder for
partners(Art. 1817, NCC);
valuewithout knowledge that the
partner, in making the
4BLUE 95 NOTE: A partner is liable for his pro rata share.
conveyance, has exceeded his
Dissolution of a partnership caused by the termination of the
authority.
particular undertaking specified in the agreement does not
extinguish obligations, which must be liquidated during the Title in the partnership’s name; Conveyance does not pass title but only
“winding up” of the partnership affairs (Art. 1830 (par.1(a), Conveyance in the partner’s name equitable interest, provided:
NCC); Conveyance was done in the usual way of
business, or the partner so acting has the
3. Partner as an agent of the partnership (Art. 1818, NCC); authority to act for the partnership.
4. Conveyance of real property belonging to the partnership (Art. 1819, NCC); Title in the name of 1 or more Conveyance passes titlebut the partnership may
5. Admission or representation made by any partner concerning partnership affairs partners, and the record does not recover such property if the partners’ act does
within the scope of his authority is evidence against the partnership (Art. disclose the right of the partnership; not bind the partnership:
1820, NCC); Conveyance in the name of partner/s The partner so acting has no authority to act for
6. Notice to partner of any matter relating to partnership affairs operates as notice to in whose name title stands the partnership, and the person with whom he is
partnership except in case of fraud: dealing has knowledge of the fact unless the
a. Knowledge of partner acting in the particular matter acquired purchaser of hi assignee, is a holder for value,
while a partner without knowledge.
b. Knowledge of the partner acting in the particular matter then Title in the name of 1 or more or all Conveyance will only pass equitable interest,
present to his mind partners or 3rd person in trust for provided:
c. Knowledge of any other partner who reasonably could and partnership; The act is one within the authority of the
should have communicated it to the acting partner (Art. 1821, Conveyance executed in partnership partner, and conveyance was done in the usual
NCC); name or in name of partners was of the business.
Title in the names of all the Conveyance will pass all the rights in such
7. Partners and the partnership are solidarily liable to 3rd persons for the partners; property.
partner’s tort or breach of trust (Art. 1822-24, NCC); Conveyance executed by all the
8. Liability of incoming partner is limited to: partners
a. His share in the partnership property for existing obligations
b. His separate property for subsequent obligations(Art. 1826,
NCC);

9. Creditors of partnership re preferred in partnership property and may attach

partner’s share in partnership assets (Art. 1827, NCC);

2023 NOTE: On solidary liability, Art. 1816 should be construed together with Art.
1824. While the liability of the partners is merely joint in transactions entered into by
the partnership, a third person who transacted with said partnership may hold the
partners solidarily liable for the whole obligation in the case of the third person falls
under Arts. 1822-23.

5
DISSOLUTION & WINDING UP Effect of dissolution on the authority of a partner
GR: The partnership ceases to be a going concern
DISSOLUTION XPN: The partner’s power of representation is confined only to acts incident to winding up or
Final stages of partnership completing transactions begun but not then finished (Art. 1832, NCC).
1. Dissolution
2. Winding up; and 2023 NOTE: Subject to the qualifications set forth in Articles 1833 and 1834 in relation to Article
3. Termination 1832:
1. In so far as the partners themselves are concerned- The authority of any partner to bind
Dissolution Winding up Termination the partnership by a new contract is immediately terminated when the dissolution is
A change in the relation of Settling the partnership Point in time when all not by the act, insolvency, or death of a partner.
the partners caused by any business or affairs after partnership affairs are wound 2. When the dissolution is by the act, insolvency, or death, the termination of authority
partner ceasing to be dissolution. up or completed; the end of depends upon whether or not the partner had knowledge or notice of dissolution(Art.
associated in carrying on the the partnership life. 1833, NCC);
business.
It is that point in time when It is the final step after It signifies the end of the Liability of a partner where the dissolution is caused by the act, death, or insolvency of a
the partners cease to carry on dissolution in the termination partnership life. It takes place partner
the business together. It of the partnership. after both dissolution and GR: Each partner is liable to his co-partners for his share of any liability created by any partner for
represents the demise of a winding up have occurred. the partnership, as if the partnership has not been dissolved.
partnership. Thus, any time a
partner leaves the business, XPNs: Partners shall not be liable when:
the partnership is dissolved. 1. The dissolution, being by act of any partner, the partner acting for the partnership
hadknowledge of the dissolution; or
Causes of dissolution(Art. 1830, NCC) 2. The dissolution, being by the death or insolvency of a partner, the partner acting for the
1. Without violating the agreement: partnership has knowledge or notice of the death or insolvency(Art. 1833, NCC);
a. Termination of the definite term or specific undertaking
b. Express will of any partner in good faith, when there is no definite After the dissolution of a partnership, can a partner still bind the partnership?
term and no specific undertaking GR: A partner continues to bind partnership even after dissolution in the following cases:
c. Express will of all partners (except those who have assigned their 1. Transactions to wind up partnership affairs or to complete transactions unfinished at
interests or suffered them to be charged for their separate debts) dissolution;
either before or after the termination of any specifies term or 2. Transactions which would bind partnership if dissolution had not taken place, provided
particular undertaking the other party/obligee:
d. Expulsion of any partner in good faith of a member a. Had extended credit to partnership prior to dissolution; and had no
knowledge/notice of dissolution; or
2. Violating the agreement b. Did not extend credit to partnership; had known partnership prior to
3. Unlawfulness of the business dissolution; AND had no knowledge/ notice of dissolution/ fact of
4. Loss dissolution not advertised in a newspaper of general circulation in the
a. Specific thing promised as contribution is lost or perished before place where partnership is regularly carried on (Art. 1834(1), nos.1-2,
delivery NCC);
b. Loss of a specific thing contributed before or after delivery, if only
the use of such is contributed XPNs: Partner cannot bind the partnership anymore after dissolution:
1. Where dissolution is due to unlawfulness to carry on business; or
NOTE: The partnership shall not be dissolved by the loss of the thing when it 2. Where partner has become insolvent; or
occurs after the partnership has acquired the ownership thereof. 3. Act is not appropriate for winding up or for completing unfinished transactions; or
4. Partner is unauthorized to wind up partnership affairs, except by transaction with one
5. Death of any of the partners who:
a. Had extended credit to partnership prior to dissolution; AND had no
2023 NOTE: When any partner dies and the business is continued without any knowledge or notice of dissolution; or
settlement of accounts as between hi or his estate, the surviving partners are held b. Did not extend credit to partnership prior to dissolution; Had known
liable for continuing the business despite the death of a partner. Creditors can file partnership prior to dissolution; AND had no knowledge/ notice of
the appropriate action (action for the collection of sum of money against the dissolution/ fact of dissolution not advertised in a newspaper of
“partnership at will” and if there are no sufficient funds, the creditors may go after general circulation in the place where partnership is regularly carried
the private properties of the remaining partners (Art. 1816, NCC). Creditors may on (Art. 1834(3), NCC);
also sue the estate of the deceased. The estate is not excused from the liability of the
partnership even if the partner already died but only up to the time he remained a 5. Completely new transactions which would bind the partnership if dissolution had not
partner (Art. 1829, 1835(2), NCC). However, the liability of the deceased partner taken place with third persons in bad faith.
shall be subject first to the payment of his separate debts (Art. 1835, NCC);

6. Insolvency of any partner or of the partnership

7. Civil interdiction of any partner Does dissolution of a partnership discharge existing liability of a partner?
8. By decree of court under Article 1831
a. A partner has been declared insane or of unsound mind GR: Dissolution does not discharge the existing liability of a partner (Art. 1835(1), NCC).
b. A partner becomes in any other way incapable of performing his part
of the partnership contract XPN: Said liability is discharged when there is an agreement between:
c. A partner has been guilty of such conduct as tends to affect 1. Partner himself;
prejudicial the carrying of the business 2. Persons continuing the business; and
d. A partner willfully or persistently commits a breach of the 3. Partnership creditors (Art. 1835(2), NCC);
partnership agreement
e. The business of the partnership can only be carried on at a loss Liability of the estate of a deceased partner
f. Other circumstances render a dissolution equitable. In accordance with Article 1816, the individual property of a deceased partner shall be liable for all
obligations of the partnership incurred while he was partner. Note that the individual creditors of
the deceased partner are to be preferred over partnership creditors with respect to the separate
EFFECTS OF DISSOLUTION property of said deceased partner.

1. Partnership is NOT terminated;

2. Partnership continues for a limited purpose;
3. Transaction of new business is prohibited.
As to previous obligations, the dissolution of partnership does not mean that the partners can evade
previous obligations entered into.
As to new obligations, the dissolution spares the former partners from new obligations entered into
by the partnership without their consent, implied or express, unless the obligation are essential for
the winding up of partnership affairs.
Dissolution does not automatically result in the termination of the legal personality of the
partnership, nor the relations of the partners among themselves who remain as co-partners until the
partnership is terminated.
A partner cannot be expelled from the partnership without agreement thereto
In the absence of an express agreement to that effect, there exist no right or power of nay member,
or even a majority of the members, to expel all other members of the firm at will. Nor can they at
will forfeit the share or interest of a member or members and compel him or them to quit the firm,
even paying what is due him.
Order of priority in the distribution of assets during the dissolution of a limited partnership
In settling the accounts after dissolution, the liabilities of the partnership shall be entitled to
payment in the following order:
1. Those 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 profit;
5. Those to general partners in respect to profits;
6. Those to general partners in respect to capital (Art. 1863, NCC);
4BLUE 95 NOTE: Subject to any statement in the certificate or to subsequent agreement, limited
partners share in the partnership assets in respect to their claims for capital, and in respect to their
claims for profits or for compensation by way of income on their contribution respectively, in
proportion to the respective amounts of such claims (Art. 1863, NCC);

The expulsion has the effect of decreasing number of the partners, hence, the dissolution. The
expulsion must be mad in good faith. The partner expelled in bad faith can claim damages.

6
WINDING UP OF THE PARTNERSHIP
It is during this time after dissolution that partnership business or affairs are being settled.
Order of payment in winding up
1. In a general partnership
a. Those owing to creditors other than partners
b. Those owing to partners other than for capital or profits
c. Those owing to partners in respect of capital
d. Those owing to partners in respect to profits(Art. 1839(2),
NCC);
2. In a limited partnership
a. 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.
b. Those to limited partnersin respect to their share of the profits
and other compensation by way of income on their
contributions.
c. Those to limited partners in respect to the capital of their
contributions.
d. Those to general partners other than for capital and profits.
e. Those to general partners in respect to profits.
f. Those to general partners in respect to capital.
Doctrine of marshalling of assets
The doctrine of marshalling of assets provides that:
1. Partnership creditors have preference in partnership assets.
2. Separate or individual creditors have preference in separate or individual
properties.
3. Anything left from either goes to the other.
NOTE: The doctrine of marshalling of assets involves the ranking of assets in a certain
order toward the payment of outstanding debts.
Rights of a partner where dissolution is not in contravention of the agreement
Unless otherwise agreed, the rights of each partner are as follows:
1. To have the partnership property applied to discharge the liabilities of
partnership; and
2. To have the surplus, if any, applied, to pay in case the net amount owing to the
respective partners.
Rights of a partner where dissolution is in contravention of the agreement
The rights of a partner vary depending upon whether he is the innocent or guilty partner.
1. Rights of partner who has not caused the dissolution wrongfully:
a. To have partnership property applied for the payment of its
liabilities and to receive in case his share of the surplus.
b. To be indemnified for the damages caused by the partner guilty
of wrongful dissolution.
c. To continue the business in the same name during the agreed
term of the partnership, by themselves or jointly with others.
d. To possess partnership property should they decide to continue
the business.
2. Rights of partner who has wrongfully caused the dissolution
a. If the business is not continued by the other partner, to have the
partnership property applied to discharge its liabilities and to
receive in cash his share of the surplus less damages caused by
his wrongful dissolution
b. If the business is continued:
i. To have the value of his interest in the partnership
at the time of the dissolution, less any damages
caused by his dissolution to his co-partners,
ascertained and paid in cash, or secured by bond
approved by the court; and
ii. To be released from all existing and future
liabilities of the partnership.
Rights of injured partner where partnership contract is rescinded
1. Right of a lien on, or retention of, the surplus of partnership property after
satisfying partnership liabilities for any sum of money paid or contributed by
him;
2. Right of subrogation in place of partnership creditors after payment of
partnership liabilities; and
3. Right of indemnification by the guilty partner against all debts and liabilities of
the partnership.
7
Settlement of accounts between partners
1. Assets of the partnership include:
a. Partnership property (including goodwill)
b. Contributions of the partners
2. *Order of application of the assets:
a. First, those owing to partnership creditors
b. Second, those owing to partners other than for capital and
profits such as loans given by the partners or advances for
business expenses
c. Third, those owing for the return of the capital contribution by
the partners
d. Fourth, the share of the profits, if any, due to each partner.
Partner’s lien
It is the right of every partner to have the partnership property applied, to discharge
partnership liabilities and surplus assets, if any, distributed in cash to the respective
partners, after deducting what may be due to the partnership from them as partners.
Effects when the business of a dissolved partnership is continued
1. Creditors of old partnership are also creditor of the new partnership who
continues the business of the old one without liquidation of the partnership
affairs.
2. Creditors have an equitable lien on the consideration paid to the retiring/deceased
partner by the purchaser when retiring/deceased partner sold his interest
without final settlement with creditors.
3. Rights of retiring/ estate of the deceased partner:
a. To have the value of his interest ascertained as of the date of
dissolution; and
b. To receive as ordinary creditor the value of his share in the
dissolved partnership with interest or profits attribute to use of
his right, at his option.
4BLUE 95 NOTE: The right to demand on accounting of the value of his interest accrues
to any partner or his legal representative after dissolution in the absence of an agreement to
the contrary.
BAR: Pauline, Patricia and Priscilla formed a business partnership for the purpose of
engaging in neon advertising for a term of five (5) years. Pauline subsequently assigned to
Philip her interest in the partnership. When Patricia and Priscilla learned of the assignment,
they decided to dissolve the partnership before the expiration of its term as they had an
unproductive business relationship with Philip in the past. On the other hand, unaware of
the move of Patricia and Priscilla but sensing their negative reaction to his acquisition of
Pauline's interest, Philip simultaneously petitioned for the dissolution of the partnership.
1. Is the dissolution done by Patricia and Priscilla without the consent of Pauline or
Philip valid? Explain.
2. Does Philip have any right to petition for the dissolution of the partnership before
the expiration of its specified term? Explain. (1995 Bar)
A:
1. Under Art. 1830 (1) (c), the dissolution by Patricia and Priscilla is valid and did not
violate the contract of partnership even though Pauline and Philip did not consent
thereto. The consent of Pauline is not necessary because she had already assigned her
interest to Philip. The consent of Philip is not also necessary because the assignment
to him of Pauline's interest did not make him a partner, under Art. 1813.
2. No, Philip has no right to petition for dissolution because he does not have the
standing of a partner.(Art.1813)
BAR: Dielle, Karlo and Una are general partners in a merchandising firm. Having
contributed equal amounts to the capital, they also agree on equal distribution of whatever
net profit is realized per fiscal period. After two years of operation, however, Una conveys
her whole interest in the partnership to Justine, without the knowledge and consent of Dielle
and Karlo. 1. Is the partnership dissolved? 2. What are the rights of Justine, if any, should
she desire to participate in the management of the partnership and in the distribution of a net
profit of P360,000.00 which was realized after her purchase of Una’s interest? (1995, 1998
Bar)
A: 1. No, a conveyance by a partner of his whole interest in a partnership does not of itself
dissolve the partnership in the absence of an agreement.(Art.1813) 2. Justine cannot
interfere or participate in the management or administration of the partnership business or
affairs. She may, however, receive the net profits to which Una would have otherwise been
entitled. In this case, P120,000.(Art.1813)
LIMITED PARTNERSHIP
It is 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 partnership debts
(Art. 1843, NCC);
General partner vs. Limited partner
Basis
Liability Personally
partnership obligations.
Right in Management
Contribution
If Proper Party to
Proceedings By or
Against Partnership
Assignment of interest
Firm Name
Prohibition to Engage in
Other Business
Effect of Death,
Insolvency, Retirement,
Insanity
Creation
Composition/Membership
General
liable for
When manner of
management has not agreed
upon, all general partners
have equal right in the
management of the
business.
Money, property, or
industry.
Proper party proceedings
by/ against partnership.
Interest is not assignable
without consent of other
partners.
It must operate under a
firm name, which may or
may not include the name
of the partners.
NOTE: Those, who, not
being members of the
partnership, include their
name in the firm name,
shall be subject to the
liability of a partner (Art.
1815, NCC).
a. The capitalist partner
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.
b. If he is an industrial
partner- in any business for
himself.
Retirement, death,
insolvency, insanity of
general partner dissolves
partnership.
As a rule, it maybe
constituted in any form, by
contract or conduct of the
parties.
Composed only of general
partners.
Limited
Liability extends inly to his
capital contributions. Not
liable with his personal
properties to answer for the
obligations of the
partnership.
No participation in
management.
Cash or property only, not
services.
No proper party to
proceedings by/against
partnership, unless:
He is also a general partner;
or
Where the object of the
proceeding is to enforce a
limited partner’s right or
liability to the partnership.
Interest is freely assignable.
It must also operate under a
firm name, followed by the
word “Limited”.
GR: The surname of a
limited partner shall not
appear in the partnership
name.
XPNs:
It is also the surname of a
general partner; prior to the
time when the limited
partner became such, the
business had been carried on
under a name in which his
surname appeared.
NOTE: A limited partner
whose surname appears in a
partnership name is liable as
a general partner to
partnership creditors who
extend credit to the
partnership without actual
knowledge that he is not a
general partner (Art. 1846,
NCC).
No prohibition against
engaging in business.
Does not have same effect;
rights are transferred to legal
representative.
Created by the members
after substantial compliance
in good faith of the
requirements set forth by
law.
Composes of at least one
general partner and one
limited partner.
8
Characteristics of limited partnership
1. It is formed by compliance with the statutory requirements.
2. One or more general partners control the business and are personally liable to
creditors.
3. One or more limited partners contribute to the capital and share in the profits but
do not participate in the management of the business and are not personally
liable for partnership obligations beyond their capital contributions.
4. The limited partners may ask for the return of their capital contributions under
conditions prescribed by law.
5. Partnership debts are paid out of common fund and the individual properties of
general partners.
FORMATION AND AMENDMENT OF LIMITED PARTNERSHIP
Essential requirements for the formation of limited partnership
1. Certificate of Articles of Limited Partnership which states the matters enumerated
in Art. 1844, must be signed and sworn; and
NOTE: Among the contents of the Certificate of Articles of Partnership
should be the name of the partnership, adding thereto the word “limited”.
2. Certificate must be filed for record in the office of the SEC.
2023 NOTE: Strict compliance with legal requirements is not necessary. It is
sufficient that there is substantial compliance in good faith. If there is no
substantial compliance, the partnership becomes general partnership as far as
third persons are concerned, in which the member are liable as general
partners.
Cancellation of certificate or articles of limited partnership
1. When the partnership is dissolved
2. When all the limited partners ceased to be such (Art. 1864, NCC);
Instances when a certificate of limited partnership can be amended
1. It must fall under the following changes and conditions:
a. There is a change in the name of the partnership or in the
amount or character of the contribution of any limited partner;
b. A person is substituted as a limited partner;
c. An additional limited partner is admitted;
d. A person is admitted as a general partner;
e. A general partner retired, dies, becomes insolvent or insane, or
is sentences to civil interdiction and the business is continued
under Article 1860;
f. There is a change in the character of the business of the
partnership;
g. There is a false or erroneous statement in the certificate;
h. 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;
i. A time is fixed for the dissolution of the partnership, or the
return of a contribution, no time having been specified in the
certificate;
j. 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. 1864, NCC);
2. Must be signed and sworn to by all of the members including the new members if
some added; in case of subrogation, the assigning limited partner must also
sign.
3. Must be recorded in the SEC.
Instances when a general partner needs consent or ratification of all the limited
partners
When he:
1. Does nay act in contravention of the certificate;
2. Does any act which would make it impossible to carry on the ordinary business of
the partnership;
3. Confesses judgment against partnership;
4. Possesses partnership property/ assigns rights in specific partnership property
other than for partnership purpose;
5. Admits person as general partner;
6. Admits person as limited partner- unless authorized in certificate; or
7. Continues business with partnership property on death, retirement, civil
interdiction, insanity, or insolvency of general partner unless authorized in the
certificate(Art. 1850, NCC);
RIGHTS AND OBLIGATIONS OF A LIMITED PARTNER
Rights of a limited partner(Art. 1851, NCC)
1. To have partnership books kept at principal place of business;
2. To inspect/copy books at reasonable hours;
3. To have on demand true and full information of all things affecting partnership;
4. To have formal account of partnership affairs whenever circumstances render it
just and reasonable;
5. To ask for dissolution and winding up by decree of court;
6. To receive share of profits/ other compensation by way of income; and
7. To receive return of contributions provided the partnership assets are in excess of
all its liabilities.
Transactions allowed or prohibited in a limited partnership
1. Allowed
a. Granting loans to partnership
b. Transacting business with partnership
c. Receiving pro rata share of partnership assets with general
creditors if he is not also a general partner.
2. Prohibited
a. Receiving/holding partnership property as collateral security
b. Receiving any payment, conveyance, release from liability if it
will prejudice right of 3rd persons
2023 NOTE: The prohibition is not absolute because there is no prohibition if
the partnership assets are sufficient to discharge partnership liabilities to
persons not claiming as general or limited partners.
Substituted limited partner
It is a person admitted to all the rights of a limited partner who has died or assigned his
interest in the partnership.
Rights and liabilities of a substituted limited partner (Art. 1859, NCC)
GR: He has all the rights and powers and is subject to all the restrictions and liabilities of
his assignor.
XPN: Those liabilities which he was ignorant of at the time that he became a limited
partner and which could not be ascertained from the certificate.
Requirements for the admission of a substituted limited partner
1. All the members must consent to the assignee becoming a substituted limited
partner or the limited partner, being empowered by the certificate must give
the assignee the right to become a limited partner;
2. The certificate must be amended in accordance with Art. 1865 of the NCC; and
3. The certificate as amended must be registered in the SEC.
Basis of preference given to limited partners over other limited partners
Priority or preference may be given to some limited partners over other limited partners as
to the:
1. Return of their contributions;
2. Their compensation by way of income; or
3. Any other matter.
2023 NOTE: In the absence of such statement in the certificate, even if there is an
agreement, all limited partners shall stand on equal footing in respect to these matters.
Requisites for return of contribution of a limited partner (Art. 1857, NCC)
1. All liabilities of the partnership have been paid or if they have not yet been paid,
the assets of the partnership are sufficient to pay such liabilities;
2. The consent of all the members (general and limited partners) has been obtained
except when the return may be rightfully demanded; and
3. The certificate of limited partnership is cancelled or amended.
When return of contribution is a matter of right
When all liabilities of a 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 and the certificate is cancelled or so amended as to set
forth the withdrawal or reduction:
1. On the dissolution of the partnership;
2. Upon the arrival of the date specified in the certificate for the return; or
3. After the expiration of 6-month notice in writing given by him to the other
partners if no time is fixed in the certificate for the return of the contribution
for the dissolution of the partnership.
4BLUE 95 NOTE: Even if a limited partner has contributed property, he has only the right
to demand and receive cash for his contribution. The exceptions are:
1. When there is stipulation to the contrary in the certificate; or
2. When all partners (general and limited partners) consent to the return other than
in the form of cash.
Liabilities of a limited partner
1. To the partnership
Since limited partners are not principals in the transaction of a partnership,
their liability as a rule, is to the partnership, not to the creditors of the
partnership. The general partners cannot however waive any liability of the
limited partners to the prejudice of such creditors.
2. To the partnership creditors and other partners
a. A limited partner is liable for partnership obligations when he
contributed services instead of only money or property to the
partnership;
b. When he allows his surname to appear in the firm name;
c. When he fails to have a false statement in the certificate
corrected, knowing it be false;
d. When he takes part in the control of the business;
e. When he receives partnership property as collateral security,
payment, conveyance, or release in fraud of partnership
creditors;
f. When there is failure to substantially comply with the legal
requirements governing the formation of limited partnerships.
3. To separate creditors
As in a general partnership, the creditor of a limited partner may, in addition
to other remedies allowed under existing laws, apply to the proper court for a
charging order subjecting the interest in the partnership of the debtor partner
for the payment of his obligation.
Requisites for waiver or compromise of liabilities
1. Is made with the consent of all partners; and
2. Does not prejudice partnership creditors who extended credit or whose claims
arose before the cancellation or amendment of the certificate.
When may a limited partner have the partnership dissolved
1. When his demand for the return of his contribution is denied although he has a
right to such return; or
2. When his contribution is not paid although he is entitled to its return because the
other liabilities of the partnership have not been paid or the partnership
property is insufficient for their payment.
Effect of retirement, death, civil interdiction, insanity, or insolvency of a partner
1. General partner- the partnership is dissolved(Art. 1860, NCC) unless the business
in continued by the remaining general partners:
a. Under the right stated in the certificate; or
b. With the consent of all the partners.
2. Limited partner- the partnership is not dissolved except all limited partners cease
to be such.
Rights of the executor/ administrator on the death of the limited partner
1. All the rights of a limited partner for the purpose of settling his estate
2. To have the same power as the deceased has to constitute his assignee as
substituted limited partner.
In settling accounts after dissolution, the liabilities of the partnership shall be entitled
to payment in the following order
1. Those creditors, in the order of priority as provided by law except those to limited
partners on accounts 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 in respect to profits
5. Those to general partners in respect to capital (Art. 1863, NCC);
GR: A limited partner is not a proper party to proceedings:
1. By a partnership; or
2. Against a partnership
XPNs:
1. If he is also a general partner.
2. Where the object is to enforce a limited partner’s right against or liability to the
partnership (Art. 1866, NCC);