apply. Art.

1773 is meant to protect third

I. NATURE; CREATION OF A persons. (Torres v CA)
PARTNERSHIP Art.1666 provides that "A partnership must
have a lawful object, and must be
Art. 1767
established for the common benefit of the
By the contract of partnership two or more persons
partners. When the dissolution of an
bind themselves to contribute money, property, or
unlawful partnership is decreed, the profits
industry to a common fund, with the intention of
shall be given to the charitable institutions
dividing the profits among themselves.
of the domicile of the partnership, or in
Two or more persons may also form a partnership
default of such, to those of the province."
for the exercise of a profession.
A charitable institution is not a necessary
party in the present case for the
A. Essential Features determination of the rights of the parties.
The action which may arise from said
1. There must be a valid contract article, in the case of an unlawful
2. The parties must have legal capacity to partnership, is that for the recovery of the
enter into the contract amounts paid in by the members from
3. There must be a mutual contribution of those in charge of the administration of
money, property, or industry to a common said partnership, and it isnt necessary for
fund the said partners to base their action on
4. The object must be lawful the existence of the partnership, but on
5. The purpose or primary purpose must be the fact of having contributed some money
to obtain profits and divide the same to the partnership capital. (Arbes v
among the parties Polistico)

Rules to determine the existence of a

B. Form of Contract partnership:
General Rule: Persons who are not partners to each
General Rule: No special form is required for its other are not partners as to third persons.
validity or existence. exception: partnership by estoppel.
Exceptions:
1. Where immovable property or real rights are Co-ownership of a property does not itself
contributed. establish a partnership, even though the
must be in writing in a public instrument co-owners share in the profits derived from
with an inventory of the property the incident of joint ownership.
contributed, signed by the parties Sharing of gross returns alone does not
2. Where the contract of partnership has a capital indicate a partnership, whether or not the
of P3,000 or more, in money or property. it shall persons sharing them have a joint or
appear in a public instrument and must be common right or interest in any property
recorded in the Office of the Securities and from which the returns are derived;
Exchange Commission. However, a partnership has The receipt of the share in the profits is a
a juridical personality even in case of failure to strong presumptive evidence of
comply with this requirement. partnership. However, no such inference
will be drawn if such profits were received
To be considered a juridical personality, a in payment:
partnership must fulfill these requisites: As a debt by installments or
(1) two or more persons bind themselves otherwise;
to contribute money, property or industry As wages of an employee or rent
to a common fund; and (2) intention on to a landlord;
the part of the partners to divide the As an annuity to a widow or
profits among themselves. It may be representative of a deceased
constituted in any form; a public partner;
instrument is necessary only where As interest on a loan, though the
immovable property or real rights are amount of payment vary with the
contributed thereto. This implies that since profits of the business;
a contract of partnership is consensual, an As the consideration for the sale of
oral contract of partnership is as good as a a goodwill of a business or other
written one. Where no immovable property property by installments or
or real rights are involved, what matters is otherwise. (art. 1769)
that the parties have complied with the
requisites of a partnership. (Tocao v CA)
All of essential features or characteristics
There is no need to attach an inventory for of partnership must be shown as being
what has been contributed in the present. Art. 1769 seeks to exclude from
partnership by the parties werent the category of partnership certain
immovable property or real rights. None of features enumerated therein which, by
the partners contributed either a fishpond themselves, are not indicative of the
or a real right to any fishpond. Art. 1773 of existence of a partnership
the Civil Code is not in point. (Agad v Issue as to whether a partnership exists is
Mabato) a factual matter. Where circumstances
taken singly may be inadequate to prove
When there are no third parties involved the intent to form a partnership,
who may be prejudiced Art. 1773 does not nevertheless the collective effect of these
 circumstances may be such as to support a distinct from
finding of the existence of the parties that of each
intent. (Heirs of Tan Eng Kee v CA) partner
Purpose Realization of Common
DISTINCTIONS: profits enjoyment of a
thing or right
Partnership Corporation
Duration No limitation An agreement to
Created by mere Created by operation of
upon the keep the thing
agreement of the law
duration is set undivided for
parties;
by law more than 10
years is not
allowed
May be organized by Requires at least 5
only two persons incorporators; Transfer of A partner may A co-owner can
Interests not dispose of dispose of his
his individual share without
Juridical personality Personality commences interest in the the consent of
commences from the from the date of partnership so the others
moment of execution of issuance of the as to make
the contract of certificate of the assignee
partnership incorporation by the a partner
SEC without
unanimous
consent
May exercise any power Can exercise such
Power to act Generally a A co-ower
authorized by the powers expressly
with Third partner may cannot
partners as long as it is granted by law or Persons
not contrary to law, etc. incident to its existence bind the represent the
partnership co-ownership
Dissolution Death or Death or
If no agreement as to Power to do business is incapacity of incapacity of a
mgt. - every partner is vested in the board of a partner co-owner does
an agent of the directors/ trustees dissolves the not necessarily
partnership partnership dissolve the co-
ownership
A partner as such may Suit against the board
sue a co-partner who of director who Representation There is There is no
mismanages mismanages must be mutual mutual
brought in the corp.s agency representation
name Profits Must be Must always
Has no right of stipulated depend upon
succession upon proportionate
Has right of succession
shares and any
stipulation to
The partners are liable The stockholders are the contrary is
personally and liable to the extent of void.
subsidiarily for the shares subscribed
partnership debts by them Under Art. 1768, a partnership "has a
juridical personality separate and distinct
Based on delectus Not based on delectus from that of each of the partners." The
personam personam partners cannot be held liable for the
obligations of the partnership unless it is
shown that the legal fiction of a different
May be established for May not be formed for a juridical personality is being used for
any period of time period exceeding 50 fraudulent, unfair, or illegal purposes.
stipulated by the years (Aguila v CA)
partners
May be dissolved at May be dissolved only ISSUE: WON 2 or more medium-sized
anytime by the will of with the consent of the corporations (contractors) may enter into a
any or all partners state partnership or joint venture/consortium
HELD: The general rule is that a
Governed by the Civil Governed by the
Code Corporation Code corporation cannot enter into a contract of
partnership with another corporation or
individual. This limitation is based on
public policy, since in a partnership the
corporation would be bound by the acts of
Partnership Co-ownership persons who are not duly appointed and
Creation Always Generally authorized agents and officers, which
created by a created by law, would be entirely inconsistent with the
contract ether but may exist policy of the law that the corporation shall
express or even without a manage its own affairs, separately and
implied contract exclusively. Exceptions may be
Juridical Has a juridical Has no juridical allowed as long as the following are met:
Personality personality personality 1. The articles of incorporation of the
separate and corporations involved must expressly
 authorized the corporation to enter into a temporary state, they cannot be
contracts of partnership with others in the considered partners. CC Art. 1769 provides
pursuit of its business; that "the sharing of gross returns does not
2. The agreement of articles of of itself establish a partnership, whether or
partnership must provide that all the not the persons sharing them have a joint
partners will manage the partnership; and or common right or interest in any
3. The articles of partnership must property from which the returns are
stipulate that all the partners are and shall derived". There must be an unmistakable
be jointly and severally liable for all the intention to form a partnership or joint
obligations of the partnership. venture. (Obillos v CIR)
Moreover, two or more corporations may
enter into a joint venture/consortium if the Particular partnership distinguished from a
nature of the venture is in line with joint adventure: A joint adventure
business authorized by its charter through presupposes generally a parity of standing
a contract or voluntary agreement between between the joint co-ventures or partners,
the said parties. Please note that no in which each party has an equal
independent legal entity is borne out of it proprietary interest in the capital or
and the same need not be registered with property contributed, and where each
the Commission. Moreover when the joint party exercises equal rights in the conduct
venture/consortium would result in the of the business. In Aurbach v. Sanitary
formation of a corporation or partnership, Wares, it was held that a joint adventure
the same has to be registered with the may be likened to a particular partnership.
Commission and the conditions and The legal concept of a joint adventure is
requirements abovementioned should be hardly distinguishable from the
complied with. (SEC OPINION to partnership. The main distinction is that
Antonio Librea dated Feb. 29, 1980) the partnership contemplates a general
business with some degree of continuity,
In deciding as to whether or not while the joint adventure is formed for the
Gatchalian, et al. formed a partnership, the execution of a single transaction, and is
Court held that they organized a thus of a temporary nature. In the
partnership of a civil nature because each Philippines this is not entirely accurate,
of them put up money to buy a since under the CC, a partnership may be
sweepstakes ticket for the sole purpose of particular or universal, and a particular
dividing equally the prize which they may partnership may have for its object a
win. The partnership was not only formed, specific undertaking. Thus, under
but upon the organization thereof and the Philippine law, a joint adventure is a form
winning of the prize, Jose Gatchalian of partnership. The Supreme Court has
personally appeared in the office of the however recognized a distinction between
Philippine Charity Sweepstakes, in his these two business forms, and has held
capacity as co-partner, as such collected that although a corporation cannot enter
the prize, the office issued the check for into a partnership contract, it may however
P50,000 in favor of Jose Gatchalian and engage in a joint adventure with others.
Company, and the said partner, in the (Heirs of Tan Eng Kee v CA)
same capacity, collected the said check.
These circumstances prove the existence A partnership constituted in such a
of a partnership. (Gatchalian v Collector manner, the existence of which was only
of Internal Revenue) known to those who had an interest in the
same, there being no mutual agreements
There is co-ownership and not between the partners, and without a
unregistered partnership when no evidence corporate name indicating to the public in
that petitioners entered into an agreement some way that there were other people
to contribute money, property or industry besides the one who ostensibly managed
to a common fund, and that they intended and conducted the business, is exactly the
to divide the profits among themselves. accidental partnership of cuentas on
Other indications (as presented in the participacion defined in article 239 of the
case): Code of Commerce.
Petitioners bought parcels of land Those who contract with the person under
but they did not sell the same nor whose name the business of such
make any improvements thereon. partnership of cuentas en participacion is
It was only after several years conducted, shall have only a right of action
when, they sold the land. against such person and not against the
The transactions were isolated. other persons interested, and the latter, on
The character of habituality the other hand, shall have no right of
peculiar to business transactions action against the third person who
for the purpose of gain was not contracted with the manager unless such
present. (Pascual and Dragon v manager formally transfers his right to
Commissioner of Internal them. (Bourns v Camran)
Revenue)
A partnership generally presupposes a
Since petitioners were not engaged in any parity of standing between the partners, in
joint venture by reason of that isolated which each party has an equal proprietary
transaction and the division of the profit interest in the capital or property
was merely incidental to the dissolution of contributed and where each party
the co-ownership, which was in fact merely exercises equal rights in the conduct of the
 business. (Sevila v CA) A partnership for the practice of law cannot
be likened to partnerships formed by other
professionals or for business. It is not a
II. CLASSIFICATION OS PARTNERSHIPS legal entity; it is a mere relationship or
AND PARTNERS association for a particular purpose it is
not a partnership formed for the purpose
of carrying on trade or business or of
Art. 1776. As to its object, a partnership is either
holding property. Thus, it has been stated
universal or particular. As regards the liability of
that the use of a nom de plume, assumed
the partners, a partnership may be general or
or trade name in law practice is improper.
limited. (1671a)
(In re Sycip)

A. Kinds of partnerships A general professional partnership, unlike

an ordinary business partnership (which is
1) as to the extent of its subject matter treated as a corporation for income tax
a. universal (1777) purposes and so subject to the corporate
i. as to all present property (1778) income tax), is not itself an income
ii. as to profits (1780) taxpayer. The income tax is imposed not
b. particular (1783) on the professional partnership, which is
2) as to liability of the partners tax exempt, but on the partners
a. general - liable pro rata (1816) or themselves in their individual capacity
solidarily (1822-1824) computed on their distributive shares of
b. limited (1843) partnership profits. Under the Tax Code on
3) as to its duration income taxation, the general professional
a. at will (1785) partnership is deemed to be no more than
b. with a fixed term a mere mechanism or a flow-through
4) as to legality of its existence entity in the generation of income by, and
a. de jure - one w/c has complied with all the ultimate distribution of such income to,
the legal requirements for its establishment respectively, each of the individual
(1772par2, 1773) partners. (Tan v del Rosario)
b. de facto one w/c has failed to comply
with all the legal requirements for its establishment B. Kinds of partners (under the CC)
5) as to representation to others
a. ordinary or real one w/c actually
a. capitalist contributes money or property
exists among the partners and also as to third
b. industrial contributes industry or personal
persons
service
b. ostensible or by estoppel one w/c in
c. general liability extends to separate
reality is not a partnership, but is considered one in
property
relation to those who, by their conduct or
- may be capitalist or industrial
admission, are precluded to deny or disprove its
- aka real
existence (1825)
d. limited liability to 3rd persons limited to
6) as to publicity
capital contribution
a. secret
- aka special
b. open or notorious
e. managing manages the affairs or business
7) as to purpose
of the partnership
a. commercial or trading (1767)
- may be appointed either in the articles
b. professional or non-trading
of partnership or after the constitution of
the partnership
A partnership that does not fix its term is a
- aka general or real
partnership at will. The 'purpose' of the
f. liquidating takes charge of the winding up
partnership is not the specific undertaking
g. by estoppel liable as if he is a partner for
referred to in the law. Otherwise, all
the protection of 3rd persons
partnerships, which necessarily must have
- aka by implication or nominal or quasi-
a purpose, would all be considered as
partner
partnerships for a definite undertaking.
h continuing continues the business after
There would therefore be no need to
partnership has been dissolved
provide for articles on partnership at will
i. surviving remains after dissolution due to
as none would so exist. Apparently what
death
the law contemplates, is a specific
j. subpartner not a partner, but contracts w/ a
undertaking or 'project' which has a
partner re the latters share in the
definite or definable period of completion."
partnership
The birth and life of a partnership at will is
predicated on the mutual desire and
consent of the partners. The right to
choose with whom a person wishes to Industrialist Capitalist
Partner Partner
associate himself is the very foundation
and essence of that partnership. Its Contribution Contributes his Contributes
continued existence is, in turn, dependent industry money or
on the constancy of that mutual resolve, property
along with each partner's capability to give Prohibition Cannot engage Cannot
it, and the absence of a cause for to engage in in any business generally
dissolution provided by the law itself. other for himself engage in the
(Ortega v CA) business same or
similar
 enterprise as partnership;
that of his firm (2) When no partnership liability results, he is
liable pro rata with the other persons, if any, so
Profits Receives a just Shares in
consenting to the contract or representation as to
and equitable profits
share according to
incur liability, otherwise separately.
agreement When a person has been thus represented to be a
thereon partner in an existing partnership, or with one or
more persons not actual partners, he is an agent of
if none, pro
the persons consenting to such representation to
rata to his
bind them to the same extent and in the same
contribution
manner as though he were a partner in fact, with
Losses Exempted as to 1. stipulation respect to persons who rely upon the
losses as as to losses representation. When all the members of the
between existing partnership consent to the representation,
partners but it a partnership act or obligation results; but in all
is liable to 3rd 2. if none, the
other cases it is the joint act or obligation of the
persons without agreement as
to profits person acting and the persons consenting to the
prejudice to
representation. (n)
reimbursement
from the
capitalist 3. if none, pro When is a person a partner by estoppel?
partners rata to When by words or by conduct he:
contribution 1. Directly represents himself to
anyone as a partner in an existing
partnership or in a non-existing
partnership (w/ one or more
The ff become common property of all partners:
persons not actual partners);
property w/c belonged to each of them at
2. Indirectly represents himself by
the time of the constitution of the
consenting to another
partnership
representing him as a partner in
profits w/c thay may acquire from the
an existing partnership or in a
property contributed
non-existing partnership.
To hold the party liable, the 3rd person
General rule:
must prove such misrepresentation and
future properties cannot be contributed
that a bona fide reliance by him upon it
profits from other sources (not from the
caused him injury.
properties contributed) will become
common property only if there is a
When partnership liability results
stipulation
When all actual partners
consented to the representation,
Please note: Art. 1782. Persons who are
then the liability of the person who
prohibited from giving each other any donation or
represented himself to be a
advantage cannot enter into universal partnership.
partner or who consented to such
(1677)
representation and the actual
partners is considered a
Art. 739. The following donations shall be void:
partnership liability.
(1) Those made between persons who were
Case of partnership by estoppel.
guilty of adultery or concubinage at the time of
donation;
When liability pro rata
(2) Those made between persons found guilty of
When there is no existing
the same criminal offense, in consideration thereof;
partnership and all those
(3) Those made to a public officer or his wife,
represented as partners consented
descendants and ascendants, by reason of his
to the representation, or not all of
office.
the partners of an existing
partnership consented to the
C. Partnership and Partner by representation, then, the liability
Estoppel of the person who represented
himself to be a partner or who
Art. 1825. When a person, by words spoken or consented to his being
written or by conduct, represents himself, or represented as partner, and all
consents to another representing him to anyone, as those who made and consented to
a partner in an existing partnership or with one or such representation, is joint or pro
more persons not actual partners, he is liable to rata.
any such persons to whom such representation has
been made, who has, on the faith of such When liability separate
representation, given credit to the actual or When there is no existing
apparent partnership, and if he has made such partnership and not all but only
representation or consented to its being made in a some of those represented as
public manner he is liable to such person, whether partners consented to the
the representation has or has not been made or representation, or none of the
communicated to such person so giving credit by or partners in an existing partnership
with the knowledge of the apparent partner making consented to such representation,
the representation or consenting to its being made: then the liability will be separate
(1) When a partnership liability results, he is that of the person who
liable as though he were an actual member of the represented himself as a partner
 or who consented to his being partnership has no juridical personality,
represented as partner, and those nevertheless, where two or more persons
who made and consented to the attempt to create a partnership, failing to
representation, or that only of the comply with all the legal formalities, the
person who represented himself as law considers them as partners. The
partner. association then is a partnership in so far
as it is a favorable to third persons, by
Art. 1825 does not create a partnership as reason of the equitable principle of
between the alleged partners. The law estoppe. If the law recognizes a defectively
considers them as partners and the organized partnership as de facto as far as
association as a partnership only insofar as third persons are concerned, for purposes
favorable to 3rd persons by reason of of its de facto existence it should have
estoppel. such attribute of a regular partnership as a
domicile. (MacDonald v. National City
The law will not permit a denial or such Bank)
representation where 3rd parties have in
the exercise of reasonable diligence relied While it is ordinarily held that persons who
thereon to their detriment. attempt but fail to form a corporation and
who carry on business under the corporate
Difference w/ Art. 1834 (last par), w/c is name occupy the position of partners inter
not a partnership by estoppel, but rather, a se, persons cannot be made to assume the
partnership liability w/c continues for lack relation of partners, as between
of proper termination. themselves, when their purpose is that no
partnership shall exist. (Pioneer
Applicability of general provisions of Insurance v. CA)
partnership
If the law recognizes a defectively D. Relations created by a contract of
organized partnership as de facto
partnership
as far as 3rd persons are
concerned, it should have such
attribute of partnership as Relations among the partners
domicile. themselves
Although it has no legal standing Relations of the partners with the
or juridical personality, it is a partnership
partnership de facto and the Relations of the partnership with
general provisions of the Civil 3rd persons with whom it contracts
Code applicable to all partnerships Relations of the partners with such
apply to it. 3rd persons
Domicile place where partnership
conducts business; registration of a chattel
mortgage therein is valid.
III. OBLIGATIONS OF PARTNERS
Elements to establish liability as a partner
on ground of estoppel A. Contribute
1. Proof by plaintiff that he was
individually aware of defendants 1. Obligation with respect to contribution of
representations as to his being a property
partner or that such Art. 1786. Every partner is a debtor of the
representations were made by partnership for whatever he may have promised to
others and not denied or refuted contribute thereto. He shall also be bound for
by the defendant; warranty in case of eviction with regard to specific
2. Reliance on such representations and determinate things which he may have
by the plaintiff; contributed to the partnership, in the same cases
3. Lack of any denial or refutation of and in the same manner as the vendor is bound
the statements by the defendant; with respect to the vendee. He shall also be liable
such denial need not precede for the fruits thereof from the time they should
plaintiffs acting thereon if the have been delivered, without the need of any
denial was forthcoming promptly demand. (1681a)
upon hearing of the
representations, and if, by To contribute at the beginning of the
prudence and diligence the partnership or the stipulated time the
plaintiff might have learned of the money, property, or industry which he may
truth or untruth of the have promised to contribute
representations. To answer for eviction in case the
partnership is deprived of the determinate
The Corporation Code (Sec. 21) makes property contributed
liable as general partners all persons who To answer to the partnership for the fruits
assume to act as a corporation and may of the property the contribution of which
include persons who attempt, but fail to he delayed, from the date they should
form a corporation and who carry on have been contributed up to the time of
business under the corporate name. A de actual delivery.
facto partnership among them is created. To preserve said property with the
diligence of a good father of a family
While an unregistered commercial pending delivery to the partnership
 To indemnify the partnership for any
damage caused to it by the retention of The capital having been received by the
the same or by the delay in its contribution partnership, and with the business
commenced and profits accrued, the action
Effect of failure to contribute property promised: that lies with the partner who furnished
makes the partner ipso jure a debtor of the the capital for the recovery of his money is
partnership even in the absence of any demand. not a criminal action for estafa, but a civil
Remedy of other partner or partnership: not one arising from the partnership contract
rescission but an action for specific performance for a liquidation of the partnership and a
with damages and interest levy on its assets if there should be any.
(US v Clarin)
2. Appraisal of goods or property
contributed
Art. 1787. When the capital or a part thereof 4. Bring to partnership capital
which a partner is bound to contribute consists of credit received
goods, their appraisal must be made in the manner Art. 1790. Unless there is a stipulation to the
prescribed in the contract of partnership, and in the contrary, the partners shall contribute equal shares
absence of stipulation, it shall be made by experts to the capital of the partnership.
chosen by the partners, and according to current Above rule not applicable to industrial
prices, the subsequent changes thereof being for partner unless in addition to his services,
account of the partnership. he contributed capital.

5. Obligation of capitalist partner

3. Obligation with respect to to contribute additional capital
contribution of money and money converted Art. 1791. If there is no agreement to the
to personal use contrary, in case of an imminent loss of the
Art. 1788. A partner who has undertaken to business of the partnership, any partner who
contribute a sum of money and fails to do so refuses to contribute an additional share to the
becomes a debtor for the interest and damages capital, except an industrial partner, to save the
from the time he should have complied with his venture, shall he obliged to sell his interest to the
obligation. other partners.
The same rule applies to any amount he may
have taken from the partnership coffers, and his Requisites:
liability shall begin from the time he converted the There is an imminent loss of the business
amount to his own use. (1682) The majority of the capitalist partners are
of the opinion that an additional
To contribute on the date due the amount contribution to the common fund would
he has undertaken to contribute save the business
To reimburse any amount he may have The capitalist partner refuses deliberately
taken from the partnership coffers and to contribute an additional share
converted to his own use There is no agreement to the contrary
To pay the agreed or legal interest, if he An industrial partner is exempted from the
fails to pay his contribution on time or in requirement to contribute
case he takes any amount from the
common fund and converts it into his own
use.
To indemnify the partnership for he 6. Obligation of partner who
damages caused to it by the delay in the receives share of partnership credit
contribution or the conversion of any sum Art. 1793. A partner who has received, in whole or
for his personal benefit. in part, his share of a partnership credit, when the
other partners have not collected theirs, shall be
An action for rescission under art.1191 obliged, if the debtor should thereafter become
cannot be applied to a case where a insolvent, to bring to the partnership capital what
partner failed to contribute what he he received even though he may have given receipt
promised to the partnership, because it for his share only.
refers to the resolution of obligations in
general, whereas Arts. 1681 and 1682, Different from 1792 which treats 2 distinct
OCC now Arts. 1786 and 1788 specifically credits, one in favor of the partnership and
refer to the contract of partnership in another in favor of the managing partner.
particular.(Sancho v Lizarraga)
Requisites:
Equipment which was contributed by one A partner has received, in whole or in part,
of the partners to the partnership becomes his share of the partnership credit
the property of the property and as such The other partners have not collected their
cannot be disposed of by the party shares
contributing the same without the consent The partnership debtor has become
or approval of the partnership or of the insolvent
other partner. (Lozana v Depakakibo)
B. Pay damages
When money or property have been
received by a partner for a specific purpose
Art. 1794. Every partner is responsible to the
and he later misappropriated it, such
partnership for damages suffered by it
partner is guilty of estafa. (Liwanag v
through his fault, and he cannot
CA)
 compensate them with the profits and agreed upon:
benefits which he may have earned for the All partners considered managers and
partnership by his industry. However, the agents.
courts may equitably lessen this All partners have equal rights in the
responsibility if through the partner's management and conduct of partnership
extraordinary efforts in other activities of affairs and whatever any one of them may
the partnership, unusual profits have been do alone shall bind the partnership
realized. (1686a) (subject to Art 1801 that in case of timely
opposition of any partner, the matter shall
General Rule: The damages caused by a partner to first be decided by the majority vote. In
the partnership cannot be offset by the profits or case of a tie, the matter shall be decided
benefits which he may have earned for the by the vote of the partners representing
partnership by his industry. the controlling interest.).
Exception: If unusual profits are realized through Note: Art. 1803(1) should be read in relation to
extraordinary efforts of the partner at fault, the Article 1818.
courts may equitably mitigate or lessen his liability Unanimous consent required for alteration
for damages. Rule rests on equity. of immovable property.
Consent need not be express, but may be
C. Bear risk of loss presumed from the fact of knowledge of
the alteration without interposing any
objection.
Art. 1795. The risk of specific and determinate
things, which are not fungible, contributed to the
Art. 1818. Powers of partner as agent of
partnership so that only their use and fruits may be
partnership
for the common benefit, shall be borne by the
partner who owns them.
If the things contribute are fungible, or cannot Acts for carrying on in Every partner is an agent
the usual way the and may execute acts
be kept without deteriorating, or if they were
business of the with binding effect even if
contributed to be sold, the risk shall be borne by
partnership he has no authority
the partnership. In the absence of stipulation, the
risk of the things brought and appraised in the Except: when 3rd person
inventory, shall also be borne by the partnership, has knowledge of lack of
and in such case the claim shall be limited to the authority
value at which they were appraised. (1687) Act w/c is not Does not bind partnership
apparently for the unless authorized by
Risk of loss of things contributed carrying of business other partners
in the usual way
Specific and determinate Risk is borne by
things which are not partner
Acts of strict
fungible where only the
dominion or
use is contributed
ownership:
Specific and determinate Risk is borne by
things the ownership of partnership
which is transferred to Assign partnership
the partnership property in trust for
creditors
Fungible things Risk is borne by
(consumable) partnership
Things contributed to be Risk is borne by Dispose of good-will
sold partnership of business

Things brought and Risk is borne by

appraised in the partnership Do an act w/c would
inventory make it impossible to
carry on ordinary
business of
D. Mutual agency partnership

Art. 1803. When the manner of management has Confess a judgement

not been agreed upon, the following rules shall be
observed:
(1) All the partners shall be considered agents Enter into
and whatever any one of them may do alone compromise
shall bind the partnership, without prejudice to concerning a
the provisions of Article 1801. partnership claim or
(2) None of the partners may, without the liability
consent of the others, make any important
alteration in the immovable property of the
Submit partnership
partnership, even if it may be useful to the claim or liability to
partnership. But if the refusal of consent by the arbitration
other partners is manifestly prejudicial to the
interest of the partnership, the court's
intervention may be sought. (1695a) Renounce claim of
partnership
Rules when manner of management has not been Acts in contravention Partnership not liable to
 of a restriction on 3rd persons having actual affecting partnership affairs (see Art.
authority or presumptive 1821)
knowledge of the
restrictions F. Account for benefits

Art. 1807. Every partner must account to the

Liability of partner acting without partnership for any benefit, and hold as
authority: generally, personal liability. trustee for it any profits derived by him
without the consent of the other partners
Art. 1698 declares that a member of a civil from any transaction connected with the
partnership is not liable solidarily formation, conduct, or liquidation of the
(solidariamente) with his co-partners for partnership or from any use by him of its
its entire indebtedness; but read in property. (n)
connection with art. 1137, each is liable
with the others (mancomunadamente) for Relationship between partners is
his part of such indebtedness (Co-Pitco essentially fiduciary involving trust and
vs. Yulo/Bachrach v. La Protectora). confidence. Duties of a partner are
analogous to those of a trustee.
Strangers dealing with a partnership have A partner cannot, at the expense or to the
the right to assume, in the absence of detriment of the other partners, sue or
restrictive clauses in the co-partnership apply exclusively to his own individual
agreement, that every general partner has benefit partnership assets or the results of
power to bind the partnership, specially the knowledge and information gained in
those partners acting with ostensible the character of partner (Pang Lim v. Lo
authority. Though Art. 129, Code of Seng)
Commerce provides that if the
management of the general partnership G. Liable for Partnership contracts
has not been limited by special agreement
to any of the members, all shall have the
Art. 1816. All partners, including industrial ones,
power to take part in the direction and
shall be liable pro rata with all their
management of the common business, and
property and after all the partnership
the members present shall come to an
assets have been exhausted, for the
agreement for all contracts or obligations
contracts which may be entered into in the
which may concern the association, this
name and for the account of the
obligation is one imposed by law on the
partnership, under its signature and by a
partners among themselves, and doesnt
person authorized to act for the
necessarily affect the validity of the acts of
partnership. However, any partner may
a partner, while acting within the scope of
enter into a separate obligation to perform
the ordinary course of business of the
a partnership contract. (n)
partnership, as regards third persons
without notice. (Goquiolay et al v Sycip)
Partnership liability- All partners, including
the industrial partner, are liable to
Note: This case creates a presumption which 1818
creditors of the partnership for its
does not provide.
contractual obligations.
Individual liability- a partner may assume
The stipulation in the articles of
a separate undertaking in his name with
partnership that any of the two managing
a3rd party to perform a partnership
partners may contract and sign in the
contract or make himself solidarily liable
name of the partnership with the consent
ob a partnership contract. In such case,
of the other, creates an obligation between
partner is personally bound.
the two partners, which consists in asking
the other's consent before contracting for
There is a marked distinction between a
the partnership. This is not imposed upon
liability and a loss, and the inability of a
a third person who contracts with the
partnership to pay a debt to a third party
partnership. A third person may and has a
at a particular time does not necessarily
right to presume that the partner with
mean that the partnership business, as a
whom he contracts has, in the ordinary
whole, has been operated at a loss. The
and natural course of business, the
partnership may have outstanding credits
consent of his copartnert. (Litton v Hill)
which for the moment may be unavailable
for the payment of debts, but which
E. Render full information eventually may be realized upon and yield
profits more than sufficient to cover all
Art. 1806. Partners shall render on demand true losses. Bearing this in mind it will be found
and full information of all things affecting that there in reality is no conflict between
the partnership to any partner or the legal the two articles quoted; one speaks of
representative of any deceased partner or liabilities, the other of losses. (Pacific
of any partner under legal disability. (n) Commercial vs. Aboitiz)
The exemption of the industrial partner to
A partner is not only bound to give pay for losses relates exclusively to the
information on demand in certain settlement of the partnership affairs
circumstances, but he is under the duty of among the partners themselves and has
voluntary disclosure of material facts nothing to do with the liabilities of the
within his knowledge relating to or partners to third persons. (La Compania
 Maritima v Munoz)
Art. 1824. All partners are liable solidarily with the
Art. 1817. Any stipulation against the liability laid partnership for everything chargeable to
down in the preceding article shall be void, except the partnership under Articles 1822 and
as among the partners. (n) 1823. (n)

The dismissal of the complaint to favor one Art. 1822. Where, by any wrongful act or omission
of the general partners of a partnership of any partner acting in the ordinary course of the
does not increase the liability of each of business of the partnership or with the authority of
the remaining partners. In the instant co-partners, loss or injury is caused to any person,
case, there were 5 general partners when not being a partner in the partnership, or any
the promissory note in question was penalty is incurred, the partnership is liable
executed for and in behalf of the therefor to the same extent as the partner so
partnership. Since the liability of the acting or omitting to act. (n)
partners is pro rata, the liability of each
partner shall be limited to only 1/5 of the Art. 1823. The partnership is bound to make good
obligations of United. The fact that the the loss: (1) Where one partner acting within the
complaint against Lumauig was dismissed, scope of his apparent authority receives money or
upon motion of Island Sales, does not property of a third person and misapplies it; and
unmake Lumauig as a general partner in (2) Where the partnership in the course of its
United. In so moving to dismiss the business receives money or property of a third
complaint, Island Sales merely condoned person and the money or property so received is
Lumauigs individual liability.(Island Sales misapplied by any partner while it is in the custody
v. United Pioneers) of the partnership. (n)

It is but fair that the consequences of any

wrongful act committed by any of the IV. OBLIGATION OF PARTNERSHIP
partners therein should be answered
solidarily by all the partners and the A. Bear risk of loss
partnership as a whole. While the liability
of the partners are merely joint in
Art. 1795. The risk of specific and determinate
transactions entered into by the
things, which are not fungible, contributed to the
partnership, a third person who transacted
partnership so that only their use and fruits may be
with said partnership can hold the partners
for the common benefit, shall be borne by the
solidarily liable for the whole obligation if
partner who owns them.
the case of the third person falls under
If the things contribute are fungible, or cannot
Articles 1822 or 1823. The obligation is
be kept without deteriorating, or if they were
solidary because the law protects him who
contributed to be sold, the risk shall be borne by
in good faith relied upon the authority of a
the partnership. In the absence of stipulation, the
partner, whether such authority is real or
risk of the things brought and appraised in the
apparent. (Muasque v. CA)
inventory, shall also be borne by the partnership,
and in such case the claim shall be limited to the
Art. 1826. A person admitted as a partner into an
value at which they were appraised. (1687)
existing partnership is liable for all the obligations
of the partnership arising before his admission as
though he had been a partner when such B. Reimburse
obligations were incurred, except that this liability
shall be satisfied only out of partnership property, Art. 1796. The partnership shall be responsible to
unless there is a stipulation to the contrary. (n) every partner for the amounts he may have
disbursed on behalf of the partnership and for the
Liability of incoming partner for partnership corresponding interest, from the time the expense
obligations: are made; it shall also answer to each partner for
Limited to his share in partnership the obligations he may have contracted in good
property for existing obligations. faith in the interest of the partnership business,
Extends to his separate property for and for risks in consequence of its management.
subsequent obligations (1688a)
Incoming partner personally not liable for
existing partnership obligations unless 1796 speaks of the 3 obligations of the partnership
there is a stipulation to the contrary. to the partners:
1. Refund amounts disbursed on behalf of the
Liability of outgoing / incoming partner: partnership plus corresponding interest from the
Where a partner gives notice of his time expenses are made (not from date of
retirement or withdrawal, he is freed from demand). Here, the law refers to loans or
any liability on contracts entered into advances made by a partner to the partnership
thereafter, but his liability on existing other than capital contributed by him.
incomplete contracts continues. 2. Answer for obligations the partner may have
He is liable for goods sold and delivered contracted in good faith in the interest of the
after his retirement or withdrawal and partnership business, and
notice thereof, if the sale was pursuant to 3. Answer for risks in consequence of its
a contract made before such retirement or management.
withdrawal.
Being a mere agent, the partner is NOT
H. Solidarily liable with partnership personally liable, provided, however, that
he is free from all fault (Art. 1912), and
 acted within the scope of his authority made w/in the scope of his authority.
(1897, 1898, 1910 par. 2). But unlike an Exception to exception: When a partner makes
ordinary agent, he is not given the right of admissions for himself only w/o purporting to act
retention if he is not reimbursed or for the partnership, he alone shall be chargeable w/
indemnified (1914). his admissions.

C. Operate under firm name An admission by a partner who was no

longer a partner at the time is not
admissible in evidence against the
Art. 1815. Every partnership shall operate under a
partnership. (Congco vs. Trillana)
firm name, which may or may not include the
name of one or more of the partners.
Those who, not being members of the E. Bound by notice to partner
partnership, include their names in the firm name,
shall be subject to the liability of a partner. (n) Art. 1821. Notice to any partner of any matter
relating to partnership affairs, and the knowledge
Liability for inclusion of name in the firm name: of the partner acting in the particular matter,
Persons who, not being partners include their name acquired while a partner or then present to his
in the firm name do not acquire the rights of a mind, and the knowledge of any other partner who
partner BUT they shall be subject to liabilities of a reasonably could and should have communicated it
partner. to the acting partner, operate as notice to or
knowledge of the partnership, except in the case of
Art. 1815 does NOT cover fraud on the partnership, committed by or with the
a limited partner who allows his name to consent of that partner. (n)
be included in the firm name (Art. 1815)
a person continuing the business of a F. Liable for wrongful act of partner
partnership after a dissolution who uses
the name of the dissolved partnership or
Art. 1822. Where, by any wrongful act or omission
the name of a deceased partner as part
of any partner acting in the ordinary course of the
thereof (Art. 1840, last par.)
business of the partnership or with the authority of
co-partners, loss or injury is caused to any person,
The corporate name should contain the
not being a partner in the partnership, or any
word Corporation or Incorporated, while
penalty is incurred, the partnership is liable
the partnership name should contain the
therefor to the same extent as the partner so
word Company. The only instance when
acting or omitting to act. (n)
a domestic partnership name may be
recorded in this Commission without the
Art. 1823. The partnership is bound to make good
use of the word Company is when the
the loss:
primary purpose for which the partnership
(1) Where one partner acting within the scope of
is organized is to engage in the practice of
his apparent authority receives money or
profession of a particular discipline. (SEC
property of a third person and misapplies it;
Opinion dated Oct 19, 1984 addressed
and
to Atty. Renato J. Santiago)
(2) Where the partnership in the course of its
business receives money or property of a third
Note that the ruling in In re Sycip here has
person and the money or property so received
been abandoned in view of Rule 3.02 of
is misapplied by any partner while it is in the
the Code of Professional Responsibility,
custody of the partnership. (n)
which permits the surviving partners of a
law firm the continued use of the name of
a deceased partner provided there is an V. RIGHTS OF PARTNERS
indication that the partner is already dead.

A. Share in losses and profits

D. Bound by admission of partner
Art. 1797. The losses and profits shall be
distributed in conformity with the agreement. If
Art. 1820. An admission or representation made only the share of each partner in the profits has
by any partner concerning partnership affairs been agreed upon, the share of each in the losses
within the scope of his authority in accordance with shall be in the same proportion.
this Title is evidence against the partnership. (n) In the absence of stipulation, the share of each
partner in the profits and losses shall be in
General Rule: Person is not bound by the act, proportion to what he may have contributed, but
admission, statement, or agreement of another of the industrial partner shall not be liable for the
w/c he has no knowledge or to w/c he has not losses. As for the profits, the industrial partner
given his consent except by virtue of a particular shall receive such share as may be just and
relation between them. equitable under the circumstances. If besides his
Exception: Admissions by a party as testified to by services he has contributed capital, he shall also
a 3rd person are admissible in evidence against him receive a share in the profits in proportion to his
in litigation. Admissions by another are received capital. (1689a)
against a party if the former is acting in the
capacity of agent of the latter. Under Art. 1820,
the admission of a partner made during the
existence of the partnership are binding against the Rules for distribution of profits and losses
partnership and co-partners when such admissions
refer to a matter concerning partnership affairs and
 DISTRIBUTION DISTRIBUTION reasonable hour: reasonable hours on
OF PROFITS OF LOSSES business days throughout the year and not
merely during some arbitrary period of a
With According to According to
agreement few days chosen by the managing partners
agreement agreement
(Pardo v. Lumber Co.)
Without Share of capitalist If sharing of
agreement partner is in profits is
proportion to his stipulated - apply D. Obtain formal account
capital to sharing of
contribution losses Art. 1809. Any partner shall have the right to a
Share of If no profit sharing formal account as to partnership affairs:
industrial partner stipulated - losses (1) If he is wrongfully excluded from the
is not fixed - as shall be borne partnership business or possession of its
may be just and according to property by his co-partners;
equitable under capital (2) If the right exists under the terms of any
the circumstances contribution agreement;
Purely industrial
(3) As provided by article 1807;
partner not liable (4) Whenever other circumstances render it just
for losses and reasonable. (n)

Art. 1807. Every partner must account to the

partnership for any benefit, and hold as trustee for
Art. 1798. If the partners have agreed to intrust it any profits derived by him without the consent of
to a third person the designation of the share of the other partners from any transaction connected
each one in the profits and losses, such designation with the formation, conduct, or liquidation of the
may be impugned only when it is manifestly partnership or from any use by him of its property.
inequitable. In no case may a partner who has (n)
begun to execute the decision of the third person,
or who has not impugned the same within a period GEN RULE: During the existence of the partnership,
of three months from the time he had knowledge a partner is not entitled to a formal account of the
thereof, complain of such decision. partnership affairs.
The designation of losses and profits cannot be EXCEPTIONS: the special and unusual situations
intrusted to one of the partners. (1690) enumerated under Article 1809.

Art. 1799. A stipulation which excludes one or The right to an account of his interest shall
more partners from any share in the profits or accrue to any partner, or his legal
losses is void. (1691) representative as against the winding up
partners or the surviving partners or the
Although this stipulation is void, the person or partnership continuing the
partnership is valid, subsists and the business, at the date of dissolution, in the
profits or losses shall be apportioned as if absence of any agreement to the contrary.
there were no stipulation on the same. Articles 1806, 1807, and 1809 show that
The industrial partner is not liable for the right to demand an accounting exists
losses because he cannot withdraw the as long as the partnership
work or labor already done by him. His exists. Prescription begins to run only upon
laboring in vain is his contribution to the the dissolution of the partnership when the
loss. final accounting is done. (Fue Leung v.
B. Associate another person IAC)

Art. 1804. Every partner may associate another E. Property rights

person with him in his share, but the associate
shall not be admitted into the partnership without Art. 1810. The property rights of a partner are:
the consent of all the other partners, even if the (1) His rights in specific partnership property;
partner having an associate should be a manager. (2) His interest in the partnership; and
(1696) (3) His right to participate in the management. (n)

Contract of subpartnership: The partnership formed Property used by the partnership. A

between a member of a partnership and a third partner may:
person for a division of the profits coming to him contribute to the partnership only
from the partnership enterprise. Subpartner does the use of property
not acquire the rights of a partner, nor is he liable allow the partnership to use his
for partnership debts separate propert
hold the title to partnership
C. Access partnership books property in his own name without
having it belong to him.
Property acquired by a partners with
Art. 1805. The partnership books shall be kept,
partnership funds.
subject to any agreement between the partners, at
General rule: Property acquired by a partner in his
the principal place of business of the partnership,
own name with partnership funds
and every partner shall at any reasonable hour
is partnership property.
have access to and may inspect and copy any of
Exceptions:
them. (n)
Contrary intention appears
Property was acquired after dissolution but
Access to partnership books at any
before the winding up [but he would be
 liable to account to the partnership] the management of the partnership, the assignee
may avail himself of the usual remedies.
Art. 1811. A partner is co-owner with his partners In case of a dissolution of the partnership, the
of specific partnership property. assignee is entitled to receive his assignor's
The incidents of this co-ownership are such that: interest and may require an account from the date
(1) A partner, subject to the provisions of this Title only of the last account agreed to by all the
and to any agreement between the partners, partners. (n)
has an equal right with his partners to possess
specific partnership property for partnership
purposes; but he has no right to possess such Rights of the What assignees
property for any other purpose without the transferee or cannot do
consent of his partners; assignee
(2) A partner's right in specific partnership property
To receive in accordance Interfere in the
is not assignable except in connection with the with his contract the management;
assignment of rights of all the partners in the profits accruing to the
same property; assigning partner
(3) A partner's right in specific partnership property
is not subject to attachment or execution To avail of the usual Require any information
remedies provided by or account
except on a claim against the partnership.
law in the event of
When partnership property is attached for a
fraud in the
partnership debt the partners, or any of them,
management
or the representatives of a deceased partner,
cannot claim any right under the homestead or
exemption laws; To receive the Inspect any of the
(4) A partner's right in specific partnership property assignors interest in partnership books.
is not subject to legal support under Article case of dissolution
291. (n)

Art. 291,CC is now Art. 195,FC Partnership is a relation in which delectus

Art. 195. Subject to the provisions of the personae is an important element. No one
succeeding articles, the following are obliged to may be introduced into the firm as a
support each other to the whole extent set forth in partner without the unanimous consent of
the preceding article: the other partners.
(1) The spouses;
(2) Legitimate ascendants and descendants; Art. 1814. Without prejudice to the preferred
(3) Parents and their legitimate children and the rights of partnership creditors under Article 1827,
legitimate and illegitimate children of the on due application to a competent court by any
latter; judgment creditor of a partner, the court which
(4) Parents and their illegitimate children and the entered the judgment, or any other court, may
legitimate and illegitimate children of the charge the interest of the debtor partner with
latter; and payment of the unsatisfied amount of such
(5) Legitimate brothers and sisters, whether of judgment debt with interest thereon; and may then
full or half-blood (291a) or later appoint a receiver of his share of the
profits, and of any other money due or to fall due
A partner cannot separately assign his to him in respect of the partnership, and make all
right to specific partnership property. other orders, directions, accounts and inquiries
A partners right is limited to his share of which the debtor partner might have made, or
what remains after all partnership debts which the circumstances of the case may require.
have been paid. Thus,specific partnership The interest charged may be redeemed at any
property is not subject to attachment, time before foreclosure, or in case of a sale being
execution, garnishment, or injunction, directed by the court, may be purchased without
without the consent of all partners, except thereby causing a dissolution:
on a claim against the partnership (1) With separate property, by any one or more
of the partners; or
Art. 1812. A partner's interest in the partnership (2) With partnership property, by any one or
is his share of the profits and surplus. (n) more of the partners with the consent of all the
Profit net income during the carrying out partners whose interests are not so charged or
of the business of the partnership sold.
Surplus the excess of assets over Nothing in this Title shall be held to deprive a
liabilities (after accounting/dissolution) partner of his right, if any, under the
exemption laws, as regards his interest in the
Art. 1813. A conveyance by a partner of his whole partnership. (n)
interest in the partnership does not of itself
dissolve the partnership, or, as against the other F. Convey real property
partners in the absence of agreement, entitle the
assignee, during the continuance of the Art. 1819. Where title to real property is in the
partnership, to interfere in the management or partnership name, any partner may convey title to
administration of the partnership business or such property by a conveyance executed in the
affairs, or to require any information or account of partnership name; but the partnership may recover
partnership transactions, or to inspect the such property unless the partner's act binds the
partnership books; but it merely entitles the partnership under the provisions of the first
assignee to receive in accordance with his contract paragraph of article 1818, or unless such property
the profits to which the assigning partner would has been conveyed by the grantee or a person
otherwise be entitled. However, in case of fraud in claiming through such grantee to a holder for value
without knowledge that the partner, in making the partners of the partnership
conveyance, has exceeded his authority. (1818) hence binding
Where title to real property is in the name of the partnership
the partnership, a conveyance executed by a
partner, in his own name, passes the equitable
interest of the partnership, provided the act is one Art. 1819 provides that: Where the title to
within the authority of the partner under the real property is in the names of all the
provisions of the first paragraph of Article 1818. partners a conveyance executed by all the
Where title to real property is in the name of one partners passes all their rights in such
or more but not all the partners, and the record property. The term conveyance used in
does not disclose the right of the partnership, the this provision includes a mortgage. (Syjuco
partners in whose name the title stands may v Castro)
convey title to such property, but the partnership NOTE: This is different from the provisions on
may recover such property if the partners' act does agency, which provide that a special power to sell
not bind the partnership under the provisions of excludes the power to mortgage [Art. 1879].
the first paragraph of Article 1818, unless the
purchaser or his assignee, is a holder for value,
without knowledge.
VI. RIGHTS OF PARTNERSHIP
Where the title to real property is in the name
of one or more or all the partners, or in a third A. Acquire immovables
person in trust for the partnership, a conveyance
executed by a partner in the partnership name, or Art. 1774. Any IMMOVABLE property OR an
in his own name, passes the equitable interest of INTEREST therein may be acquired in the
the partnership, provided the act is one within the partnership name. Title so acquired can be
authority of the partner under the provisions of the conveyed ONLY in the partnership name. (n)
first paragraph of Article 1818.
Where the title to real property is in the name *cf. Art. 1819
of all the partners a conveyance executed by all the
partners passes all their rights in such property. (n)
B. Preference of creditors
Effects of Conveyance of Real Property
Art. 1827. The creditors of the partnership shall
Title in partnership Conveyance passes
be preferred to those of each partner AS REGARDS
name title but partnership
PARTNERSHIP PROPERTY. Without prejudice to this
can recover unless:
Any partner may convey right, the private creditors of each partner may ask
1)The partner who sold
under partnership name the attachment and public sale of the share of the
it was carrying on in
the usual way the latter in the partnership assets. (n)
business of the
partnership (1818)
hence binding
partnership; or
the
2)
VII. DISSOLUTION AND WINDING UP
Buyer had no
knowledge of the lack
of authority of the Art. 1828. The dissolution of a partnership is the
seller CHANGE IN RELATION of the partners caused by
ANY PARTNER CEASING TO BE ASSOCIATED in the
Title in partnership Conveyance does not
carrying on as distinguished from the winding up of
name, pass title but only
equitable interest. the business. (n)
Conveyance in partner's
Provided that: The
name Any change in the membership of a
partner who sold it was
carrying on in the partnership produces an immediate
usual way the business dissolution of the existing partnership
of the partnership relation and the formation of a new one.
(1818) hence binding Strictly and technically speaking, there is
the partnership no such thing as an incoming partner or
Title in name of 1/ more Conveyance passes admission of a person into an existing
partners, Conveyance in title but partnership firm. All persons forming the new
name if partner/partners can recover unless: partnership upon the admission of the new
in whose name title 1)The partner who sold person into the business are incoming
stands it was carrying on in partners, even though the same business
the usual way the has theretofore been conducted by the
business of the others.
partnership (1818)
hence binding the Art. 1829. On dissolution the partnership is NOT
partnership; or 2) TERMINATED, but continues until the winding up of
Buyer had no partnership affairs is COMPLETED. (n)
knowledge of the lack
of authority of the Effects of Dissolution:
seller Dissolution does not automatically result in
Title in name of Conveyance will only the termination of the legal personality of
1/more/all partners or pass equitable interest. the partnership, nor of the relations of the
3rd person in trust for Provided that: The partners among themselves. Partnership
partnership, Conveyance partner who sold it was continues for the limited purpose of
executed in partnership carrying on in the winding up its affairs.
name of in name of usual way the business
 Perpetua had, the partnership bond having
The dissolution of a partnership must not been dissolved. (Bearneza v Dequilla)
be understood in the absolute and strict
sense so that at the termination of the The dissolution of the partnership did not
object for which it was created the mean that the juridical entity was
partnership is extinguished, pending the immediately terminated and that the
winding up of some incidents and distribution of the assets to its partners
obligations of the partnership, but in such should perfunctorily follow. The dissolution
case, the partnership will be reputed as simply effected a change in the
existing until the juridical relations arising relationship among the partners. The
out of the contract are dissolved. The partnership, although dissolved, continues
dissolution of a firm does not relieve any of to exist until its termination, at which time
its members from liability for existing the winding up of its affairs should have
obligations, although it does save them been completed and the net partnership
from new obligations to which they have assets are partitioned and distributed to
not expressly or impliedly assented, and the partners. (Sy v CA)
any of them may be discharged from old
obligations by novation or other form of A. Causes of Dissolution
release. (Testate of Mota v Serra)
The statutory enumeration of causes of dissolution
The three final stages of a partnership are:
is exclusive. Art. 1830 (extrajudicial) and
(1) Dissolution- the change in the relation
1831(judicial) provide for causes of dissolution.
of the partners caused by any partner
Other causes are provided in Art. 1840.
ceasing to be associated in the carrying on
of the business (Art. 1828). It is that point
Causes:
of time the time the partners cease to
Without violation of the agreement
carry on the business together.
between the partners:
(2) Winding Up - the process of settling
termination of the definite term or
business affairs of dissolution. (Ex: paying
particular undertaking specified in
of previous obligations; collecting of assets
the agreement;
previously demandable; even new business
express will of any partner, who
if needed to wind up, as the contracting
must act in good faith, when no
with a demolition company for the
definite term or particular is
demolition of the garage used in a "used
specified;
car" partnership.)
express will of all the partners who
(3) Termination Defined- the point in time
have not assigned their interests
after all the partnership affairs have been
or suffered them to be charged for
wound up. (Idos v CA)
their separate debts, before or
after the termination of any
The provision prohibiting the dissolution of
specified term or particular
the association under review, except by
undertaking;
the consent and agreement of two-thirds
expulsion of any partner in
of its partners, in no wise limited or
accordance with such a power
restricted the rights of the individual
conferred by the agreement;
partners in the event the dissolution of the
when business becomes unlawful
association was effected, not by any act of
when a specific thing promised to
theirs, but by the express mandate of
be contributed to the partnership
statutory law. It would be unreasonable to
perishes before delivery
hold that such an association could never
loss of a specific thing when the
be dissolved and liquidated without the
partner reserved ownership over it
consent and agreement of two-thirds of its
death
partners, notwithstanding that it had lost
insolvency of a partner/
all its capital, or had become bankrupt, or
partnership
that the enterprise for which it had been
civil interdiction
organized had been concluded or
abandoned. (Lichauco v Lichauco)
In contravention of the agreement
Not being a mercantile partnership (hence,
between the partners:
not governed by the Code of Commerce,
where the circumstances do not
but the CC), it was dissolved by the death
permit a dissolution under 1830 by
of Perpetua. It cannot be maintained that
the express will of any partner at
the partnership continued to exist after the
any time; 1830
death of Perpetua for it does not appear
that any stipulation to that effect has ever
Upon application of a partner:
been made by her and Dequilla, pursuant
partner has been declared insane
to the provisions of art. 1704. The
or is shown to be of unsound
partnership having been dissolved, its
mind;
subsequent legal status was that of a
partner becomes incapable of
partnership in liquidation, and the only
performing his part of the
rights inherited by Perpetuas heir, were
contract;
those resulting from the liquidation in favor
partner has been guilty of such
of the Perperua, and nothing more. Before
conduct that prejudices the
this liquidation is made, it is impossible to
business;
determine what rights or interests, if any,
 partner wilfully or persistently continued existence is, in turn, dependent
commits a breach of the on the constancy of that mutual resolve,
partnership agreement along with each partner's capability to give
business of the partnership can it, and the absence of a cause for
only be carried on at a loss; dissolution provided by the law itself.
equitable grounds Verily, any one of the partners may, at his
sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act
in good faith, not that the attendance of
On the application of the purchaser of a bad faith can prevent the dissolution of the
partner's interest under Article 1813 or partnership but that it can result in a
1814: liability for damages. (Ortega v CA)
TERMINATION of the term
or undertaking Under art. 1830, a partner may cause the
when partnership is at will dissolution of the partnership, even if there
and the INTEREST of one is specified term in the articles of
partner is ASSIGNED partnership and even before the expiration
of this period, with or without justifiable
cause. If no cause was given or if it is
Art. 1813. A conveyance by a partner of his whole unjustified, the withdrawing partner
interest in the partnership does not of itself becomes liable for damages, but he cannot
dissolve the partnership, or, as against the other be compelled to remain in the firm. (Rojas
partners in the absence of agreement, entitle the v. Maglana)
assignee, during the continuance of the
partnership, to interfere in the management or B. Consequences of dissolution
administration of the partnership business or
affairs, or to require any information or account of
1. As to partner's authority to act for the
partnership transactions, or to inspect the
partnership
partnership books; but it merely entitles the
assignee to receive in accordance with his contract
General Rule: Authority of partners to bind
the profits to which the assigning partner would
partnership is terminated (1832)
otherwise be entitled. However, in case of fraud in
Exception:
the management of the partnership, the assignee
Wind up partnership affairs
may avail himself of the usual remedies.
Complete transactions not finished
In case of a dissolution of the partnership, the
Qualifications:
assignee is entitled to receive his assignor's
1.With respect to the partners (1833)
interest and may require an account from the date
if dissolution is not by act, insolvency, or
only of the last account agreed to by all the
death of a partner the general rule applies.
partners.
Dissolution terminates the actual authority
of a partner to undertake new business for
Art. 1814. Without prejudice to the preferred
the partnership.
rights of partnership creditors under Article 1827,
if dissolution is by act, insolvency or death
on due application to a competent court by any
of a partner the rule is that the authority of
judgment creditor of a partner, the court which
partners inter se to act for the partnership
entered the judgment, or any other court, may
is not deemed terminated. Thus, each
charge the interest of the debtor partner with
partner is liable to his copartners for his
payment of the unsatisfied amount of such
share of any liability created by any
judgment debt with interest thereon; and may then
partner acting for the partnership as if the
or later appoint a receiver of his share of the
partnership has not been dissolved.
profits, and of any other money due or to fall due
Exception:
to him in respect of the partnership, and make all
a. The cause of the dissolution is the act of a
other orders, directions, accounts and inquiries
partner and the acting partner had
which the debtor partner might have made, or
knowledge of such dissolution
which the circumstances of the case may require.
b. the cause of dissolution is the death or
The interest charged may be redeemed at any
insolvency of a partner and the acting
time before foreclosure, or in case of a sale being
partner had knowledge or notice of such
directed by the court, may be purchased without
dissolution
thereby causing a dissolution:
2. With respect to third persons (1834)
(1) With separate property, by any one or more
When partner continues to bind the
of the partners; or
partnership even after dissolution
(2) With partnership property, by any one or
By an act appropriate for winding
more of the partners with the consent of all the
up partnership affairs
partners whose interests are not so charged or
Act for completing unfinished
sold.
transactions
Nothing in this Title shall be held to deprive a
Transaction which would bind the
partner of his right, if any, under the exemption
partnership if dissolution had not
laws, as regards his interest in the partnership. (n)
taken place provided that the
other party:
The birth and life of a partnership at will is
predicated on the mutual desire and
Had extended credit to partnership prior to
consent of the partners. The right to
dissolution
choose with whom a person wishes to
Had no knowledge/notice of dissolution,
associate himself is the very foundation
OR
and essence of that partnership. Its
Did not extend credit to partnership and who continue the business of the dissolved
Had known partnership prior to dissolution partnership;
Had no knowledge/notice of dissolution/fact of (5) When any partner wrongfully causes a
dissolution not advertised in a newspaper of dissolution and the remaining partners continue the
general circulation in the place where partnership is business under the provisions of article 1837,
regularly carried on second paragraph, No. 2, either alone or with
others, and without liquidation of the partnership
When partner cannot bind the partnership affairs;
after dissolution (6) When a partner is expelled and the remaining
where partnership was dissolved partners continue the business either alone or with
because it was unlawful to carry others without liquidation of the partnership affairs.
on the business except when the
act is for winding up The liability of a third person becoming a
where the partner has become partner in the partnership continuing the
insolvent business, under this article, to the
where the partner is unauthorized creditors of the dissolved partnership shall
to wind up partnership affairs, be satisfied out of the partnership property
except by transaction with one only, unless there is a stipulation to the
who: contrary.

Had extended credit to partnership prior to This article treats more of a commercial
dissolution & partnership, with a goodwill to protect
Had no knowledge/notice of dissolution, rather than a professional partnership with
OR no saleable goodwill but whose reputation
Did not extend credit to partnership prior to depends on the personal qualifications of
dissolution its individual members.
Had known partnership prior to dissolution
Had no knowledge/notice of dissolution/fact of Creditors of the old partnership can go
dissolution not advertised in a newspaper of after the partnership continuing the
general circulation in the place where partnership is business except: (1) when there is a
regularly carried on stipulation to the contrary; and, (2) when
there has been a liquidation of partnership
2. As to partner's existing affairs
liability
General Rule: Dissolution does not automatically Not only the retiring partners but also the
discharge the existing liability of any partner. new partnership itself which continued the
(1835) business of the old, dissolved, one, are
Exception: A partner may be relieved from all liable for the debts of the preceding
existing liabilities upon dissolution only by an partnership. A withdrawing partner
agreement between: remains liable, to a third party creditor of
1. partner concerned the old partnership. (Singsong vs.
2. person/partnership continuing the business Isabela Sawmill)
3. partnership creditors
The liability of a third person becoming a
3. Liability of partnership continuing the business, under
person/partnership continuing the business 1840, to the creditors of the dissolved
partnership shall be satisfied out of the
Art. 1840. In the following cases creditors of the partnership property only, unless there is a
dissolved partnership are also creditors of the stipulation to the contrary. When the
person or partnership continuing the business: business of a partneship after dissolution is
(1) When any new partner is admitted into an continued under any conditions set forth in
existing partnership, or when any partner retires 1840 the creditors of the retiring or
and assigns (or the representative of the deceased deceased partner or the representative of
partner assigns) his rights in partnership property the deceased partner, have a prior right to
to two or more of the partners, or to one or more any claim of the retired partner or the
of the partners and one or more third persons, if representative of the deceased partner
the business is continued without liquidation of the against the person or partnership
partnership affairs; continuing the business on account of the
(2) When all but one partner retire and assign (or retired or deceased partner's interest in
the representative of a deceased partner assigns) the dissolved partnership on account of
their rights in partnership property to the any consideration promised for such
remaining partner, who continues the business interest or for his right in partnership
without liquidation of partnership affairs, either property. Nothing in this article shall be
alone or with others; held to modify any right of creditors to set
(3) When any partner retires or dies and the wide any assignment on the ground of
business of the dissolved partnership is continued fraud. (Yu v NLRC)
as set forth in Nos. 1 and 2 of this article, with the
consent of the retired partners or the C. Rights of Partners upon
representative of the deceased partner, but without
dissolution
any assignment of his right in partnership
property;
(4) When all the partners or their representatives 1. Right to wind up
assign their rights in partnership property to one or
more third persons who promise to pay the debts Art. 1836. Unless otherwise agreed, the partners
who have not wrongfully dissolved the partnership payment by bond approved by the court, or
or the legal representative of the last surviving pay any partner who has caused the
partner, not insolvent, has the right to wind up the dissolution wrongfully, the value of his interest
partnership affairs, provided, however, that any in the partnership at the dissolution, less any
partner, his legal representative or his assignee, damages recoverable under the second
upon cause shown, may obtain winding up by the paragraph, No. 1 (b) of this article, and in like
court. (n) manner indemnify him against all present or
future partnership liabilities.
Winding up may be done either: judicially (3) A partner who has caused the dissolution
or extrajudicially wrongfully shall have:
The ff. are authorized to wind up the (a) If the business is not continued under the
affairs of the partnership: provisions of the second paragraph, No. 2,
1. partners designated by the all the rights of a partner under the first
agreement paragraph, subject to liability for damages
2. in the absence of such agreement, in the second paragraph, No. 1 (b), of this
all the partners who have not article.
wrongfully dissolved the (b) If the business is continued under the
partnership, or second paragraph, No. 2, of this article,
3. the legal representative (executor/ the right as against his co-partners and all
administrator) of the last surviving claiming through them in respect of their
partner (when all the partners are interests in the partnership, to have the
already dead), not insolvent value of his interest in the partnership, less
The court may appoint a receiver to wind any damage caused to his co-partners by
up the partnership affairs. the dissolution, ascertained and paid to
him in cash, or the payment secured by a
Powers of a liquidating partner: bond approved by the court, and to be
Make new contracts released from all existing liabilities of the
Raise money to pay partnership debts partnership; but in ascertaining the value
Incur obligations to complete existing of the partner's interest the value of the
contracts or preserve partnership assets good-will of the business shall not be
Incur expenses necessary in the conduct of considered. (n)
litigation
4. Rights where dissolution not
wrongfully dissolved -done in in contravention of agreement (unless
contravention of the agreement otherwise agreed), which constitute the
partners lien:
When a member of a mercantile to have the partnership property applied to
partnership dies, the duty of liquidating its discharge partnership liabilities and
affairs devolves upon the surviving the surplus assets, if any, distributed in
member/s of the firm, not upon the legal cash to the respective partners, after
representatives of the deceased partner. deducting what may be due to the firm
Upon the death of a partner, it is the duty from them as partners
of the surviving associates to take the
proper steps to settle the affairs of the 5. Rights of innocent party:
firm,and any claim against him or his (dissolution in contravention of agreement)
estate should be prosecuted against his Apply partnership property to discharge
estate in administration. (Lota v liabilities of partnership
Tolentino) Apply surplus, if any to pay in cash the net
amount owed to partners
2. Right to damages for wrongful Indemnity for damages caused by partner
dissolution guilty of wrongful dissolution
Continue business in same name during
Art. 1837. When dissolution is caused in agreed term
contravention of the partnership agreement the Posses partnership property if business is
rights of the partners shall be as follows: continued
(1) Each partner who has not caused dissolution
wrongfully shall have: 6.Rights of guilty party: one who
(b) The right, as against each partner who wrongly caused dissolution
has caused the dissolution wrongfully, to If business not continued by others - apply
damages breach of the agreement. partnership property to discharge liabilities
of partnership & receive in cash his share
3. Right to continue business on of surplus less damages caused by his
wrongful dissolution wrongful dissolution
If business continued by others - have the
Art. 1837. xxx When dissolution is caused in value of his interest at time of dissolution
contravention of the partnership agreement the ascertained and paid in cash/secured by
rights of the partners shall be as follows: bond & be released from all existing/future
(2) The partners who have not caused the partnership liabilities
dissolution wrongfully, if they all desire to
continue the business in the same name either 7. Rights of injured partner where
by themselves or jointly with others, may do partnership contract is rescinded on ground of
so, during the agreed term for the partnership fraud/misrepresentation by 1 party: (1838)
and for that purpose may possess the
partnership property, provided they secure the Right to lien on surplus of partnership
 property after satisfying partnership (a) Those owing to creditors other than
liabilities partners,
Right to subrogation in place of creditors (b) Those owing to partners other than for
after payment of partnership liabilities capital and profits,
Right of indemnification by guilty partner (c) Those owing to partners in respect of
against all partnership debts & liabilities capital,
(d) Those owing to partners in respect of
8. Right of retiring/ deceased profits.
partner (3) The assets shall be applied in the order of
their declaration in No. 1 of this article to the
Art. 1841. When any partner retires or dies, and satisfaction of the liabilities.
the business is continued under any of the (4) The partners shall contribute, as provided by
conditions set forth in the preceding article, or in article 1797, the amount necessary to satisfy
Article 1837, second paragraph, No. 2, without any the liabilities.
settlement of accounts as between him or his (5) An assignee for the benefit of creditors or any
estate and the person or partnership continuing the person appointed by the court shall have the
business, unless otherwise agreed, he or his legal right to enforce the contributions specified in
representative as against such person or the preceding number.
partnership may have the value of his interest at (6) Any partner or his legal representative shall
the date of dissolution ascertained, AND shall have the right to enforce the contributions
receive as an ordinary creditor an amount equal to specified in No. 4, to the extent of the amount
the value of his interest in the dissolved which he has paid in excess of his share of the
partnership with interest, or, at his option or at the liability.
option of his legal representative, in lieu of (7) The individual property of a deceased partner
interest, the profits attributable to the use of his shall be liable for the contributions specified in
right in the property of the dissolved partnership; No. 4.
provided that the creditors of the dissolved (8) When partnership property and the individual
partnership as against the separate creditors, or properties of the partners are in possession of
the representative of the retired or deceased a court for distribution, partnership creditors
partner, shall have priority on any claim arising shall have priority on partnership property and
under this article, as provided Article 1840, third separate creditors on individual property,
paragraph. (n) saving the rights of lien or secured creditors.
(9) Where a partner has become insolvent or his
9. Right to account estate is insolvent, the claims against his
separate property shall rank in the following
Art. 1842. The right to an account of his interest order:
shall accrue to any partner, or his legal (a) Those owing to separate creditors;
representative as against the winding up partners (b) Those owing to partnership creditors;
or the surviving partners or the person or (c) Those owing to partners by way of
partnership continuing the business, at the date of contribution. (n)
dissolution, in the absence of any agreement to the
contrary. (n)
This provision sets forth a priority system
The profits of a business cannot be for the distribution of partnership property
determined by taking into account the [see Art. 1810] and individual property
result of one particular transaction instead when a partnership is dissolved.
of all the transactions had, hence the need These rules are subject to variation by
for a general liquidation before a partner agreement of the partners, either in their
may claim a specific sum as his share of original partnership agreement or in a
the profits [Sison vs. McQuaid]. dissolution agreement, subject to the
A partners share cannot be retuned rights of partnership creditors.
without first dissolving and liquidating the ORDER OF PAYMENT IN THE WINDING UP
partnership, for the firms outside creditors OF PARTNERSHIP LIABILITIES in a general
have preference over the assets of the partnership: 1839 (2)
enterprise [Arts. 1839(2), 1827] and the 1. Those owing to creditors other
firms property cannot be diminished to than partners;
their prejudice [Magdusa vs. Albaran]. 2. Those owing to partners other
than for capital or profits;
3. Those owing to partners in respect
VIII. SETTLEMENT OF ACCOUNTS of capital;
BETWEEN PARTNERS 4. Those owing to partners in respect
of profits.
Art. 1839. In settling accounts between the
Doctrine of Marshalling of Assets 1839 (8):
partners after dissolution, the following rules shall
1. Partnership creditors have preference in
be observed, subject to any agreement to the
partnership assets
contrary:
2. Separate or individual creditors have preference
(1) The assets of the partnership are:
in separate or individual properties
(a) The partnership property,
3. Anything left from either goes to the other
(b) The contributions of the partners
necessary for the payment of all the
liabilities specified in No. 2. IX. LIMITED PARTNERSHIP
(2) The liabilities of the partnership shall rank in
order of payment, as follows:
Art. 1843. A limited partnership is one formed by
two or more persons under the provisions of the
effect of Retirement, Does not have
following article, having as members one or more
retirement death, same effect;
general partners and one or more limited partners.
death insanity insolvency, rights
The limited partners as such shall not be bound by or insolvency insanity of transferred to
the obligations of the partnership. gen partner legal
dissolves representative
Characteristics: partnership
formed by compliance with the statutory (1860)
requirements (1844)
firm name must contain Name must be
One or more general partners control the
the word followed by
business and are personally liable to
company or "limited" (SEC
creditors (1848, 1850) Co. (SEC Memo Circular
One or more limited partners contribute to Memo Circular No. 14-00)
the capital and share in the profits but do No. 14-00)
not participate in the management of the
*unless it is a
business and are not personally liable for
professional
partnership obligations beyond the amount
partnership
of their capital contributions. (1845, 1848,
1856) members of composed composed of
The limited partners may ask for the return the only of one or more
of their capital contributions under the partnership general general
conditions prescribed by law (1844(h), partners partners and
one or more
1857)
limited
The partnership debts are paid out of the
partners
common fund and the individual properties
of the general partners.

General Limited Essential requirements for the formation of a

Partnership Partnership limited partnership: (1844)
the certificate or articles of the limited
extent of Personally Liability
liability liable for extends only to partnership which states the matters
partnership his capital enumerated in the article, must be signed
obligations contributions and sworn to.
(1848) Such certificate must be filed for record in
the office of the SEC
right to When manner No
paticipate in of mgt. not participation in
Who may become Limited Partners
the agreed upon, management
management all gen
A partnership cannot become a limited
partners have partner.
an equal right A general partnership may be changed into
in the mgt. of a limited one, and a partner in the former
the business general partnership may become a limited
partner in the limited partnership just
contribution Contribute Contribute
formed.
cash, property cash or
or industry property only,
not industry The general rule for those who seek to
(1845) avail of the protection of the laws
permitting the creation of limited
proper party Proper party Not proper partnerships must show a substantially full
to proceedings to party to compliance of such laws. A limited
by or against proceedings proceedings
partnership that has not complied with the
the by/against by/against
law of its creation is not considered a
partnership partnership partnership
unless: limited partnership at all; but a general
partnership in which all members are
1. he is also a liable. (Jo Chung Cang V. Pacific
general partner Commercial)
2. where the
object of the Art. 1847. If the certificate contains a false
proceedigns is statement, one who suffers loss by reliance on
to enforce a such statement may hold liable any party to the
limited certificate who knew the statement to be false:
partner's right (1) At the time he signed the certificate, or
against or (2) Subsequently, but within a sufficient time
liability to the
before the statement was relied upon to enable him
partnership
to cancel or amend the certificate, or to file a
inclusion of Name may Name must petition for its cancellation or amendment as
partner's appear in firm appear in firm provided in Article 1865.
name in the name name
firm name Art. 1864. The certificate shall be cancelled when
prohibition to Prohibition No prohibition the partnership is dissolved or all limited partners
engage in against against cease to be such.
other business engaging in engaging in A certificate shall be amended when:
business business (1) There is a change in the name of the
partnership or in the amount or character of the the control of business:
contribution of any limited partner; Board of directors chosen by
(2) A person is substituted as a limited partner; limited partners
(3) An additional limited partner is admitted; An appointee of a limited partner
(4) A person is admitted as a general partner; becomes the directing manager of
(5) A general partner retires, dies, becomes the firm
insolvent or insane, or is sentenced to civil
interdiction and the business is continued under Art. 1858. A limited partner is liable to the
Article 1860; partnership:
(6) There is a change in the character of the (1) For the difference between his contribution as
business of the partnership; actually made and that stated in the certificate as
(7) There is a false or erroneous statement in the having been made; and
certificate; (2) For any unpaid contribution which he agreed in
(8) There is a change in the time as stated in the the certificate to make in the future at the time and
certificate for the dissolution of the partnership or on the conditions stated in the certificate.
for the return of a contribution; A limited partner holds as trustee for the
(9) A time is fixed for the dissolution of the partnership:
partnership, or the return of a contribution, no time (1) Specific property stated in the certificate as
having been specified in the certificate, or contributed by him, but which was not contributed
(10) The members desire to make a change in any or which has been wrongfully returned, and
other statement in the certificate in order that it (2) Money or other property wrongfully paid or
shall accurately represent the agreement among conveyed to him on account of his contribution.
them.
Liabilities of a limited partnership:
Requirements to amend a certificate: 1. To the partnership (see 1858)
amendment must be in writing; 2. To partnership creditors and other partners
it must be signed and sworn to by a. Art. 1845 when he contributes
all the members, including the services
new members, and the assigning b. Art. 1846
members in case of substitution or c. Art. 1847
addition of a GP or LP; and d. Art. 1848
the certificate, as amended, must e. Art. 1854 in fraud of partnership
be filed for record in the SEC creditors
f. Art. 1844 (2) failure to substantially
Requirements to cancel a certificate: comply with the legal requirements governing
in writing; formation of limited partnerships
signed by all the members; and 3. To separate creditors (see 1862)
filed with the SEC; if the
cancellation is ordered by the The liabilities of a limited partner as set
court, a certified copy of such forth in this article can be waived or
order shall be filed with the SEC as compromised only by the consent of all
well members; but a waiver or compromise
shall not affect the right of a creditor of a
Art. 1860. The retirement, death, insolvency, partnership who extended credit or whose
insanity or civil interdiction of a general partner claim arose after the filing and before a
dissolves the partnership, unless the business is cancellation or amendment of the
continued by the remaining general partners: certificate, to enforce such liabilities.
(1) Under a right so to do stated in the
certificate, or C. Rights in common with general
(2) With the consent of all members.
partner

X. LIMITED PARTNER The specific rights of a limited partner are as

follows:
To require that partnership books be kept
A. Contribution at the principal place of business of the
partnership
Art. 1845. The contributions of a limited partner To inspect and copy at a reasonable hour
may be cash or property, but not services. partnership books or any of them
To demand true and full information of all
things affecting the partnership
B. Liability To demand a formal account of partnership
affairs whenever circumstances render it
Art. 1848. A limited partner shall not become just and reasonable
liable as a general partner unless, in addition to the To ask for dissolution and winding up by
exercise of his rights and powers as a limited decree of the court
partner, he takes part in the control of the To receive a share of the profits or other
business. compensation by way of income
To receive the return of his contribution
What constitutes control of the business provided the partnership assets are in
sufficient to make a limited partner liable excess of all its liabilities
as a general partner has not been clearly
defined by the courts.
D. Loan and other Business
Examples of limited partner taking part in
 Transactions with Limited return of the contribution may be rightfully
demanded under the provisions of the
Partnership
second paragraph; and
(3) The certificate is cancelled or so amended as to
Art. 1854. A limited partner also may loan money set forth the withdrawal or reduction.
to and transact other business with the Subject to the provisions of the first paragraph,
partnership, and, unless he is also a a limited partner may rightfully demand
general partner, receive on account of the return of his contribution:
resulting claims against the partnership, (1) On the dissolution of a partnership; or
with general creditors, a pro rata share of (2) When the date specified in the certificate for its
the assets. No limited partner shall in return has arrived, or
respect to any such claim: (3) After he has six months' notice in writing to all
(1) Receive or hold as collateral security and other members, if no time is specified in
partnership property, or the certificate, either for the return of the
(2) Receive from a general partner or the contribution or for the dissolution of the
partnership any payment, conveyance, or partnership.
release from liability if at the time the In the absence of any statement in the
assets of the partnership are not sufficient certificate to the contrary or the consent of
to discharge partnership liabilities to all members, a limited partner, irrespective
persons not claiming as general or limited of the nature of his contribution, has only
partners. the right to demand and receive cash in
return for his contribution.
The receiving of collateral security, or A limited partner may have the partnership
payment, conveyance, or release in dissolved and its affairs wound up when:
violation of the foregoing provisions is a (1) He rightfully but unsuccessfully demands the
fraud on the creditors of the partnership. return of his contribution, or
(2) The other liabilities of the partnership have not
3 allowable transactions: been paid, or the partnership property is
1. granting loans to partnership insufficient for their payment as required
2. transacting other business with by the first paragraph, No. 1, and the
it limited partner would otherwise be entitled
3. receiving a pro rata share of the to the return of his contribution.
partnership assets with general creditors if
he is not also a general partner Art. 1855
By agreement of all members, preference may be
Art. 1854 does not prohibit absolutely the taking as given over other limited partners as to the:
collateral security by a limited property of any Return of their contributions
partnership property, as no. 1 & 2 are modified by Their compensation by way of income
the requirement of sufficient assets to discharge Any other matter
the obligation of the partnership. Absent such agreement, all limited partners shall
stand on the same footing in respect of those
Prohibited transactions: matters.
Receiving or holding as collateral security
any partnership property Art. 1857
Receiving any payment, conveyance, or Requisites for the return of contribution of limited
release from liability if it will prejudice the partner:
right of third persons All liabilities of the partnership have been
Third persons always enjoy a preferential paid
right insofar as partnership assets are If not paid: assets of the partnership are
concerned sufficient to pay such liabilities
consent of all members
E. Return of contribution certificate is cancelled or so amended as to
set forth such withdrawal or reduction of
Art. 1855. Where there are several limited the contribution
partners the members may agree that one Limited partner may demand return of his
or more of the limited partners shall have contribution provided requisites 1 & 3 are complied
a priority over other limited partners as to with:
the return of their contributions, as to their on the dissolution of the partnership; or
compensation by way of income, or as to upon arrival of the date specified in the
any other matter. If such an agreement is certificate for the return; or
made it shall be stated in the certificate, after the expiration of 6 mos. notice in
and in the absence of such a statement all writing given by him to the other partners
the limited partners shall stand upon equal if no time is fixed in the certificate for the
footing. return of the contribution or for the
dissolution of the partnership
Art. 1857. A limited partner shall not receive from
a general partner or out of partnership F. Share of profits
property any part of his contributions until: Art. 1856. A limited partner may receive from the
(1) All liabilities of the partnership, except liabilities partnership the share of the profits or the
to general partners and to limited partners compensation by way of income stipulated
on account of their contributions, have for in the certificate; provided that after
been paid or there remains property of the such payment is made, whether from
partnership sufficient to pay them; property of the partnership or that of a
(2) The consent of all members is had, unless the
 general partner, the partnership assets are in accordance with Art. 1865
in excess of all liabilities of the partnership 3. The certificate as amended must
except liabilities to limited partners on be registered in the SEC.
account of their contributions and to
general partners. Substitution, withdrawal, death,
insolvency, insanity, civil interdiction,
G. Assign interests addition of a limited partner does not
necessarily dissolve the partnership.
Art. 1859. A limited partner's interest is
assignable. H. Effect of death
A substituted limited partner is a person admitted
to all the rights of a limited partner who Art. 1861. On the death of a limited partner his
has died or has assigned his interest in a executor or administrator shall have all the
partnership. rights of a limited partner for the purpose
An assignee, who does not become a substituted of setting his estate, and such power as
limited partner, has no right to require any the deceased had to constitute his
information or account of the partnership assignee a substituted limited partner.
transactions or to inspect the partnership The estate of a deceased limited partner shall be
books; he is only entitled to receive the liable for all his liabilities as a limited
share of the profits or other compensation partner.
by way of income, or the return of his
contribution, to which his assignor would I. Right of creditor
otherwise be entitled.
An assignee shall have the right to become a
Art. 1862. On due application to a court of
substituted limited partner if all the
competent jurisdiction by any creditor of a
members consent thereto or if the
limited partner, the court may charge the
assignor, being thereunto empowered by
interest of the indebted limited partner
the certificate, gives the assignee that
with payment of the unsatisfied amount of
right.
such claim, and may appoint a receiver,
An assignee becomes a substituted limited partner
and make all other orders, directions and
when the certificate is appropriately
inquiries which the circumstances of the
amended in accordance with Article 1865.
case may require.
The substituted limited partner has all the rights
The interest may be redeemed with the separate
and powers, and is subject to all the
property of any general partner, but may
restrictions and liabilities of his assignor,
not be redeemed with partnership
except those liabilities of which he was
property.
ignorant at the time he became a limited
The remedies conferred by the first paragraph
partner and which could not be ascertained
shall not be deemed exclusive of others
from the certificate.
which may exist.
The substitution of the assignee as a limited
Nothing in this Chapter shall be held to deprive a
partner does not release the assignor from
limited partner of his statutory exemption.
liability to the partnership under Articles
1847 and 1848.
Creditor of a limited partner may apply to
the proper court for an order charging the
Art. 1847. If the certificate contains a false
limited partners interest in the partnership
statement, one who suffers loss by
for the payment of his claim.
reliance on such statement may hold liable
any party to the certificate who knew the
statement to be false: J. Person erroneously believing he is
(1) At the time he signed the certificate, or a limited partner
(2) Subsequently, but within a sufficient time
before the statement was relied upon to Art. 1852. Without prejudice to the provisions of
enable him to cancel or amend the Article 1848, a person who has contributed
certificate, or to file a petition for its to the capital of a business conducted by a
cancellation or amendment as provided in person or partnership erroneously
Article 1865. believing that he has become a limited
partner in a limited partnership, is not, by
Art. 1848. A limited partner shall not become reason of his exercise of the rights of a
liable as a general partner unless, in limited partner, a general partner with the
addition to the exercise of his rights and person or in the partnership carrying on
powers as a limited partner, he takes part the business, or bound by the obligations
in the control of the business. of such person or partnership, provided
that on ascertaining the mistake he
Requisites in order that the assignee may promptly renounces his interest in the
become a substituted limited partner: profits of the business, or other
1. All the members must consent to compensation by way of income.
the assignee becoming a
substituted limited partner OR the This article provides exemption from
limited partner, being empowered general liability of a person who
by the certificate, must give the contributed capital with an erroneous belief
assignee the right to become a that he has become a limited partner in a
limited partner limited partnership, or in general
2. The certificate must be amended partnership thinking that it is a limited
 one.

Conditions for exemption:

On ascertaining the mistake, he promptly
renounces his interest in the profits of the
business or other compensation by way of
income (interest must be renounced before
partnership has become liable to 3rd
persons in good faith)
His surname does not appear in the
partnership name
He does not participate in the management
of the business

K. Dissolution

Any of such causes in 1860 affecting a

limited partner does not result in its
dissolution, unless there is only one limited
partner.

A limited partnership may be dissolved for:

the misconduct of a general
partner
for fraud practiced on the limited
partner by the general partner
Art. 1860
when all the limited partners
ceased to be such Art. 1864 (1)
expiration of the term for which it
was to exist Art. 1844 (1e)
by mutual consent of the partners
before the expiration of the firms
original term

When the firm is dissolved by the

expiration of the term fixed in the
certificate, notice of the dissolution need
not be given since the papers filed and
recorded in the SEC are notice to all the
world. Where, however, the dissolution is
by the express will of the partners, the
certificate shall be cancelled, and a
dissolution is not effected until there has
To my dearly beloved wife Raizel, my
been compliance with this requirement.
loving children, Ma. Denise, Ma. Daniela, in
all of whom I have found inspiration and
L. Settling accounts after dissolution affection I dedicate this humble work.

Order of Payment: Limited Partnership (1863) -DSP

Those owing to creditors, except those to
limited partners on account of their
contribution, and to general partners;
Those to limited partners in respect to
their share of the profits and other
compensation by way of income in their
contributions;
Those to limited partners in respect of
their capital contributions;
Those to general partners other than for
capital and profits;
Those to general partners in respect to
profits;
Those to general partners in respect to
capital.