1 Partnership

PARTNERSHIP
CHAPTER1
GENERAL PROVISIONS
Art. 1767. By the contract of partnership, two or more persons bind

themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the

exercise of a profession. (1665a)
A partnership exists when two or more persons agree to place their

money, effects, labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the profits and
losses among them.1
Meaning of Profession
Profession is "a group of men pursuing a learned art as a common calling
in the spirit of public service, - no less a public service because it may incidentally
be a means of livelihood. ''2
Essential requisites of a contract of partnership

1. There must be a valid contract;
2. There must be a contribution of money, property, or industry to a
common fund;
3. The partnership must be organized for gain or profit; and
4. The partnership should have a lawful object or purpose, and must be
established for the common benefit or interest of the partners.
What are the two tests to determine the existence of a partnership?

1. First test
Determine whether or not there is an agreement to contribute
money, property or industry to a common fund.
2. Second test
Determine whether or not there is an intent of the contracting
parties to divide the profits among themselves.
PARTNERSHIP - A JURIDICAL PERSON

To be considered a juridical personality, a partnership must fulfill
these requisites: (1) two or more persons bind themselves to contrib t
money, property or industry to a common fund; and (2) intention on th p
1
Heirs of Jose Lim vs. Juliet Villa Lim, G.R. No. 172690, March 3, 2010.
2
In the matter of the Petition for Authority to Continue Use of the Firm Name "Syclp. et. I.. lul . 1n
1
CHAPTER 1 - GENERAL PROVISIONS
of the partners to divide the profits among themselves. It may be constituted

in any form; a public instrument is necessary only where immovable property
or real rights are contributed thereto. This implies that since a contract of
partnership is consensual, an oral contract of partnership is as good as a
written one. Where no immovable property or real rights are involved, what
matters is that the parties have complied with the requisites of a
partnership.3
Characteristics of a contract of partnership

1. Consensual
It is a contract that is perfected by mere consent because all of the
partners had a meeting of minds to enter into a contract of partnership.
2. Commutative
The contribution of each partner, whether money, property or
industry, is considered as the equivalent of the contribution of the other
partners.
3. Principal
It is a contract that does not depend on other contracts for its
existence.
4. Bilateral
It is a contract entered into by two or more persons.
5. Onerous
Each partner must contribute money, property, or industry. Of
course, a partner can contribute one, some or all of these.
6. Nominate
It is a contract which has a name in law.
7. Preparatory
It is a contract in preparation for another contract or contracts.
Example:
A and B entered into a contract ofpartnership for the purpose
of selling furniture. In this case, A and B initially entered into a
contract of partnership in preparation for contract ofsale.
Money
. The medium of exchange authorized or adopted by a government as
part of its currency. 4 .
Property
. Any external thing over which the rights of possessio use, and
enJoyment are exercised.5 n,
J Marjorie Tocao and William T. Belo vs. CA and Nenita A. Anay GR. N 12
4
seep. 1158, Black's Law Dictionary, Tenth Edition. ' ·
0
·
74 05, October 4, 2000.
5
seep. 1410, Black's Law Dictionary, Tenth Edition.
2
Industry
Diligence in the performance of a task. A particular form or branch
of productive labor. 6
Note:
Th e contribution to such fund need not be cash or fixed assets; it
could be an in tangible like credit or industry.
Problem:
Sisters X and Y, entered into a "Joint Venture Agreement OVA)"
with Z for the development of a parcel of land into a subdivision.
Pursuant to the contract, they executed a Deed of Sale covering the said
parcel of land in favor of Z, who then had it registered in his name. By
mortgaging the property, Z obtained from Q Bank a loan of P400,000
which, under the JVA, was to be used for the development of the
subdivision. All three of them also agreed to share the proceeds from the
sale of the subdivided lots.
The project was not realized, and the land was subsequently
foreclosed by Q bank.
Is there partnership?
Answer:
A reading of the terms embodied in the Agreement indubitably
shows the existence of a partnership pursuant to Article 17 6 7 of the Civil
Code, which provides:
ART. 1767. By the contract of partnership two or more persons

bind themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.
Under the above-quoted Agreement, X and Y would contribute

property to the partnership in the form of land which was to be
developed into a subdivision; while Z would give, in addition to his
industry, the amount needed for general expenses and other
costs. Furthermore, the income from the said project would be divided
according to the stipulated percentage. Clearly, the contract manifested
the intention of the parties to form a partnership.
It should be stressed that the parties implemented the
contract. Thus, X and Y transferred the title to the land to facilitate its use
in the name of Z. On the other hand, Z caused the subject land t o be
mortgaged, the proceeds of which were used for the survey and the
6
3
subdivision of the land. z developed the roads, the curbs, a nd th e gutters

of the subdivision.
Z's actions clearly belie X and Y's contention that h_e _made no
contribution to the partnership. Under Article 1767 of the C~vil Code, a
partner may contribute not only money or property, but also mdustry,7
Partnership vs. Joint Venture

A partnership exists when two or more persons agree to place their
money, effects, labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the profits and
losses between them. A contract of partnership is defined by the Civil Code
as one ,,vhere tv,'o or more persons bound themselves to contribute money,
property, or industry to a common fund with the intention of dividing the
profits among themselves. A joint venture, on the other hand, is hardly
distinguishable from, and may be likened to, a partnership since their
elements are similar, i.e., community of interests in the business and sharing
of profits and losses. Being a form of pa1tnership, a joint venture is generally
governed by the lav,, on partnership. 8
DOCTRINE OF DELECTUS PERSONAE

The ri~t to choose with whom a person wishes to associate himself
is the very foundation and essence of partnership. Its continued existence is,
in turn, dependent on the constancy of that mutual resolve, along with each ,
partner's capability to give it, and the absence of cause for dissolution
provided by the law itself. 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 bad faith can prevent the
dissolution of the partnership but that it can result in a liability for damages. 9
An unjustified dissolution by a partner can subject him to action for I
damages because by the mutual agency that arises in a partnership, the ,

doctrine ofdelectus personae allows the partners to have :
the power, although not necessarily the right to dissolve the partnership. '
Among partners, mutual agency arises and the doctrine of delectus

personae allows them to have the power, although not necessarily the right,
to dissolve the partnership. An unjustified dissolution by the partner can
subject him to a possible action for damages.10
7
see Antonia Torres and Emeteria Baring vs. CA and Manuel Torres, G.R No. 134559, December 9 1999.
8
Aurelio K Litonjua, Jr. vs. Eduardo K. Litonjua, Sr. etaJ., G.R Nos. 166299 -3 00, December 13 2005
9
Marjori~ Tocao and William T. Belo vs. CA and Nenita A. Anay, G.R No. 127405, October 4, 2000. ·
10
Gregono F. Ortega, etal. vs. CA, G.R No. 109248, July 3, 1995.
4
Delectus personarum ("choice of persons") or Delectus personae ("Choice

of the person")
The rule that when personal relations are important, a person cannot
be compelled to associate with another person; specifically, the principle that
one has the right to select the person or persons with one whom one might
form a partnership.11
Note:
Although a partnership is based on delectus personae or mutual
agency, whereby any partner can generally represent the partnership in
its business affairs, it is non sequitur that a suit against the Qartnership is
necessarily a suit iropleading each and eyery partner. It must be
remembered that a partnership is a juridical entity that has a distinct and
separate personality from the persons composing it.
In Aguila v. Court of Appeals, the complainant had a cause of
action against the partnership. Nevertheless, it was the partners
themselves that were impleaded in the complaint. The Court dismissed the
complaint and held that it was the partnership, not its partners, q{ficers or
agents. which should be iropleaded for a cause qf action against the
partnership itselt The Court added that the partners could not be held
liable for the obligations of the partnership unless it was shown that the
legal fiction of a different juridical personality was being used for
fraudulent, unfair, or illegal purposes.1 2
Note:
it is a better rule that a partner must first
In the spirit offair play,
be impleaded before he could be Prnivdiced by the iudgment against the
partnership. A partner may raise several defenses during the trial to avoid
or mitigate his obligation to the partnership liability. Necessarily, before
he could present evidence during the trial, he must first be impleaded and
informed of the case against him. It would be the height of injustice to rob
an innocent partner of his hard-earned personal belongings without giving
him an opportunity to be heard.13
Partnership at will
A partnership that does not fix its term is a partnership at will. 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
associate himself is the very foundation and essence of that partnership.14
11 seep. 518, Black's Law Dictionary, Tenth Edition.

12
Michael C. Guy vs. Atty. Glenn C. Gacott, G.R. No. 206147, January 13, 2016.
13
Michael C. Guy vs. Atty. Glenn C. Gacott, G.R. No. 206147, January 13, 2016.
14
Gregorio F. Ortega, etal. vs. CA, G.R. No. 109248, July 3, 1995.
s
Problem:
A contract of partnership of a law firm has the following
provisions, among others:
1. " The purpose for which the partnership is formed, is to act as legal
adviser and representative of any individual, firm, and corporation
engaged in commercial, industrial or other lawful businesses and
occupations; to counsel and advise such persons and entities with respect
to their legal and other affairs; and to appear for and represent their
principals and client in all courts ofJustice and government departments
and offices in the Philippines, and elsewhere when legally authorized to do
so." and
2. "The partnership shall continue so long as mutually satisfactory and
upon the death or legal incapacity ofone of the partners, shall be continued
by the surviving partners."
Is the purpose of the partnership, as stated in its Articles of

partnership, the sole determinant if it is a partnership for a particular
undertaking?
Answer:
The "purpose" of the partnership is not the specific undertaking
referred to in the law. Otherwise, all partnerships, which necessarily
must have a purpose, would all be considered as partnerships for a
definite undertaking. There would, therefore, be no need to provide for
articles on partnership at will as none would so exist. Apparently what '
the law contemplates, is a specific undertaking or "project" which has a
definite or definable period of completion. 15
Problem:
On behalf of "Q Corp.," X and Y entered into a contract, for the
purchase of fishing nets of various sizes from G, Inc. They claimed that
they were engaged in a business venture with Z, who, however, was not
a signatory to the agreement. The total price of the nets amounted to
P532,045. Four Hundred pieces of floats worth P68,000 were also sold to :
the Corporation.
The buyers, however, failed to pay for the fishing nets and the
floats; hence, G, Inc. filed a collection suit against X, Y and Z. The suit was
brought against the three in their capacities as general partners, on the
allegation that "Q Corp." was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission.
Instead of answering the Complaint, X filed a Manifestation
admitting his liability. Y and Z filed their Answer.
15 see Gregorio F. Ortega, etal. vs. CA, G.R. No. 109248, July 3, 1995.
6
The trial court ordered the sale of the fishing nets at a public
auction. G, Inc. won the bidding and deposited with the said court the
sales proceeds of P900,000.
Are the acts of X, Y and Z deemed to have entered into a
partnership?
Answer:
It is clear that X, Y and Z had decided to engage in a fishing
business, which they started by buying boats. In their Compromise
Agreement, X, Y and Z subsequently revealed their intention to pay the
loan with the proceeds of the sale of the boats, and to divide equally
among them the excess or loss. These boats, the purchase and the repair
of which were financed with borrowed money, fell under the term
"common fund" under Article 1767. The contribution to such fund need
not be cash or fixed assets; it could be an intangible like credit or industry.
That the parties agreed that any loss or profit from the sale and operation
of the boats would be divided equally among them also shows that they
had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the
purchase of the boat, but also to that of the nets and the floats. The fishing
nets and the floats, both essential to fishing, were obviously acquired in
furtherance of their business. It would have been inconceivable for Z to
involve himself so much in buying the boat but not in the acquisition of
the aforesaid equipment, without which the business could not have
proceeded. 16
Best Evidence of The Existence of a Partnership

In /dos v. Court ofAppeals, the Supreme Court said:
The best evidence of the existence of the partnership, which was not
yet terminated (though in the winding up stage], were the unsold goods and
uncollected receivables, which were presented to the trial court. Since the
partnership has not been terminated. the petitioner and private complainant
remained as co-partners.xx x. 17
Note:
A partnership may be deemed to exist among parties who agree
to borrow money to pursue a business and to divide the profits or losses
that may arise therefrom, even if it is shown that they have not contributed
any capital of their own to a "common fund." Their contribution may be in
the form Qf credit or industry, not necessarflv cash or fixed assets. Being
partner, they are all liable for debts incurred by or on behalf of the
partnership. The liability for a contract entered into on behalf of an
16
see Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc., G.R No. 136448, November 3, 1999.
17
cited in Marjorie Tocao and William T. Belo vs. CA and Nenita A. Anay, G.R No. 127405, October 4, 2000.
7
unin corporated asso~iation or ostensible corporation may lie in a person

who may not have directly transacted on its behalf, but reaped benefits
from that contract.1 8
Art. 17 68. The partnership has a judicial personality separate and

distinct from that of. each of the partners, even in case of failure to .
comply with the reqmrements of Article 1772, first paragraph. (n)
Under Art. 1768 of the Civil Code, a partnership "has a juridical ·

personality separate and distinct from that of each of the partners." The
partners cannot be held liable for the obligations of the partnership unless it
is shO\vn that the legal fiction of a different juridical personality is being used
for fraudulent, unfair, or illegal purposes. Hence, it is the partnership, not its :
officers or agents, ,vhich should be impleaded in any litigation involving ·
property registered in its name. 19
Article 1772 of the New Civil Code (NCC) states:
Art 1772. Every contract of partnership having a capital of three thousand

pesos or more, in money or property, shall appear in a public instrument,
which must be recorded in the Office of the Securities and Exchange
Commission.
Failure to comply with the requirements of the preceding

paragraph shall not affect the liability of the partnership and the members
thereof to third persons.
ARTIFICIAL PERSON/ JURIDICAL PERSON

An entity, such as a corporation, created by law and given certain,
legal rights and duties of a human being; a being, real or imaginary, who for;
the purpose of legal reasoning is treated more or less as a human being.20 1
Example:
A B, and C entered into a contract of partnership named ABC
Partnership. In here, there are four persons, that is, three natural persons
(A, B, and CJ and one juridical person (ABC Partnership).
Thus/ ABC Partnership can:

1. acquire and possess real and personal property;
2. incur obligations; and
3. bring civil or criminal actions. 21
1e Lim Tong Lim ~s. Philippine Fishing Gear Industries, Inc., G.R. No. 136448, November 3, 1999.
19 Alfredo N. Aguila, Jr. vs. CAand Felicidad S. Vda. De Abrogar, G.R. No. 12734 7, November 25, 1999
20 seep. 1325, Black's Law Dictionary, Te nth edition. ·
21 Art 46, New Civil Code (NCC).
8
Problem:
X introduced Z to Y, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of kitchen
cookwares. X volunteered to finance the joint venture and assigned to Z
the job of marketing the product considering her experience and
established relationship with W Co., a manufacturer of kitchen wares in
the U.S.A. Under the joint venture, X acted as capitalist, Y as president and
general manager, and Z as vice-president for sales. Z organized the
administrative staff and sales force while Y hired and fired employees,
determined commissions and/ or salaries of the employees, and assigned
1
them to different branches. The parties agreed that X s name should not
appear in any documents relating to their transactions with W
1
Company. Instead, they agreed to use Z s name in securing
distributorship of cookware from that company. The parties agreed
further that Z would be entitled to: (1) 10% of the annual net profits of
the business; (2) commission of 60fci of the overall weekly production; (3)
30°/4 of the sales she would make; and (4) 2% for her demonstration
services. The agreement was not reduced to writing on the strength of X
assurances that he was sincere, dependable, and honest when it came to
financial commitments.
Z having secured the distributorship of cookware products from
W Co. and organized the administrative staff and the sales force, the
cookware business took off successfully. They operated under the name
of Y Enterprise, a sole proprietorship registered in Y1 s name. X made good
his monetary commitments to Z.
Subsequently, Z learned that Y had signed a letter addressed to
the Cubao sales office to the effect that she was no longer the vice-
president of Y Enterprise. The following day, she received a note that Y
had barred her from holding office and conducting demonstrations in
both Makati and Cubao offices. Consequently, Z filed a complaint against
Xand Y.
Does partnership exist?
Answer:
The fact that there appears to be no record in the Securities and
Exchange Commission of a public instrument embodying the partnership
agreement pursuant to Article 1772 of the Civil Code did not cause the
nullification of the partnership. The pertinent provision of the Civil Code
on the matter states:
Art.1768. The partnership has a juridical personality separate and distinct

from that of each of the partners, even in case offailure to comply with the
requirements of article 1772, first paragraph.
9
X and Y_adm itt~d that Z had the expertise to engage in the

busmess of d1stn butorsh1p of cookware. Z contributed such expertise t
the partnership and hence, under the law, she was the industrial 0
O
managing partner. It was through her reputation with W Co. that th t
partnership was abl e to open the business of distributorship of tha;
rnmpam ·s cookware products; it was through the same efforts that th
busmfs. wa. propelled to fina ncial success. e
The business venture operated under Y Enterprise did not result
1n an em plover-employee relationship between X and Y and Z. While it is
truf that th e receipt of a percentage of net profits constitutes only prinia
1ac1f e,1dence that the recipient is a pa1tner in the business, the evidence
1]' tt1f ca~e at bar controverts an employer-employee relationship
_e0 · eer z_he parbes. In the first place, Z had a voice in the management ·
, r z_he affairs of the coohvare distributorship, including selection of
~eoD1E who would constitute the administrative staff and the sales force.
:e:ond1,· Y s adm1ss10ns militate against an employer-employee
,..e 2 :-i::mship. She admitted that Z received only commissions and
:-ansportatJon and representation allowances and not a fixed salary.
Undoubtedly, Y unilaterally excluded Z from the partnership to
-ea~ for nerself and/ or for X fin ancial gains resulting from Z's efforts to
ma.K e tne busrness venture a success. Her instruction to the marketing
manager not to allm.v Z to hold offi ce in both the Makati and Cubao sales
offi ces concretely spoke of her perception that Z was no longer necessary
ir: ttie business operation, and resulted in a falli ng out between the two.
However, a mere falli ng out or misunderstanding between partners does
not convert the partnership into a sham organization. The partnership
exists until dissolved under the law. Since the partnership created by 4
and y and Z has no fixed term and is therefore a partnership at Will
predicated on their mutual desire and consent, it may be dissolved by the
will of a partner.22
Problem:
X filed a complaint against V and Y, daughter and wife,
respectively of the deceased Z, for Winding Up of Partnership Affairs and ,
Accounting.
Xalleged that he verbally entered into a partnership with z in the
distribution ~f LPG in M~ila. For business ~onvenience, X and z allegedly
agreed to register the busmess name of their partnership, Shellite under
the name of Z as a sole proprietorship. The partnership allegedly h~d z as ,
manager. As compensation, Z would receive a manager's fee of 10<¾ of
the gross profit. 0
22
see Marjone Tocao and William T. Belo vs. CA and Nenita A. Anay, G.R. No. 12740S
, 0 ctober 4, 2000.
10
Allegedly, from the time that Shellite opened for business, its
business operation was profitable.
Upon Z's death, his surviving wife, Y and particularly his
daughter, V, took over the operations and management of Shellite
without X's consent. Despite X's repeated demands upon Y and V for
accounting and winding up of the partnership, Y and V failed to comply.
Did X and Z enter into a contract of partnership?
Answer:
The action for accounting filed by X 3 years after Z's death was
well within the prescribed period. The Civil Code provides that an action
to enforce an oral contract prescribes in 6 years while the right to
demand an accounting for a partner's interest as against the person
continuing the business accrues at the date of dissolution, in the absence
of any contrary agreement. Considering that the death of a partner
results in the dissolution of the partnership, in this case, it was Z's death
that X as the surviving partner had the right to an account of his interest
as against V and Y.
In a desperate bid to cast doubt on the validity of the oral
partnership between X and Z, Y and V maintain that said partnership that
had initial capital of P200,000 should have been registered with the
Securities and Exchange Commission (SEC) since registration is
mandated by the Civil Code. True, Article 1772 of the Civil Code requires
that partnerships with a capital of P3,000 or more must register with the
SEC, however, this registration requirement is not mandatory. Article
17 68 of the Civil Code explicitly provides that the partnership retains its
juridical personality even if it fails to re~ister. The failure to register the
contract of partnership does not invalidate the same as among the
partners, so long as the contract has the essential requisites, because the
main purpose of registration is to give notice to third parties, and it can
be assumed that the members themselves knew of the contents of their
contract. In the case at bar, non-compliance with this directory provision
of the law will not invalidate the partnership considering that the totality
of the evidence proves that X and Z indeed forged the partnership in
question. 23
Art.1769. In determining whether a partnership exists, these rules shall

apply:
(1) Except as provided by Article 1825, persons who are not
partners as to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such-co-owners or co-possessors do or do
not share any profits made by the use of the property;
23
see Lilibeth Sunga-Chan and Cecilia Sunga vs. Lamberto T. Chua, G.R. No. 143340, August 15, 2001
11
(3) The sharing of gross returns does not of itself establish

partnership, whe~her or_ not the. persons sharing them have :
joint or common nght or mterest 1n any property from which the
returns are derived;
(4) The receipt by a person of a share of the profits of a business is .
prima fade evidence that he is a partner in the business, but no
such inference shall be drawn if such profits were received in
payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased
partner;
(d) As interest on a loan, though the amount of payment vary
with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business .
or other property by installments or otherwise. (n) :
I
Rule 1: Persons who are not partners as to each other are not partners
1
as to third persons ·
Example:
X and Y are not partners as to each other. Thus, as to Z, a third
person, it follows that they are not also partners.
The exception is that ifX misrepresents to Z that they are partners

with Y and the latter consented or Y did not object; then, as to Z, X and Y
will be considered as partners by operation of law. This is the concept of
partnership by estoppel.
Partnership by Estoppel ,
Where a partnership not duly organized has been recognized as such :
in its dealings with certain persons, it shall be considered as "partnership by ;
estoppel" and the persons dealing with it are estopped from denying its '
partnership existence. 24
Rule 2: Co-ownership or co-possession does not of itself establish a :

partnership
Example:
X and Yare recipients of a gift consisting ofan undivided parcel of
land from Z. In this case, X and Y are co-owners and not partners.
~ ~et Paul MacDcmal, elal., v~ Tht National City Bank of New York, G.R. No. L-7991, May 21, 1956.
12
Partnership vs. Co-owners 1p .. -~c, ,,

.'% Partnershi'J> ,
Go-ownershit> ,l
.,,1
'o><I!,-;.
Creation
Created by contract Created by contract and law
Juridical Personality
It has legal or juridical It has no juridical personality.
personality. Thus it can sue Thus it cannot sue or be sued.
and be sued.
Purpose
For profit Common enjoyment of a thing or
right. It is not necessarily for profit.
Profit
It may be stipulated upon. Profits must always depend on the
proportionate shares. Any
stipulation to the contrary is VOID.
Dissolution
It is dissolved by death or It is not dissolved by the death or
incapacity of a partner. incapacity of co-owner.
Form
It may appear in any form. No public instrument is needed
However, when real property is even if real property is the object of
contributed, a public co-ownership.
instrument is required.
Rule 3: The sharing of gross returns does not of itself establish a

partnership
Note:
There is a disputable presumption of establishing a partnership if
what is being shared by two or more persons are net profit However, if
what is being shared by two or more persons are gross returns or gross
profit, then there is no presumption of establishing a partnership.
Example:
In a merchandising business, the basic formula for net profit is:
Gross Sales P xx
Less: Cost of Sales (xx)
Gross Profit xx
Less: Expenses (xx)
Net Profit or Net Loss xx or (xx)
Note:
It can be observed from the illustration that even if there is a
positive amount or figure for Gross Profit, you cannot still ascertain if
13
it will arrive at Net Profit because it may still turn out to be Net L
as the expenses are controlling factor. oss
For example_, if the Gross Profit is PS0,000 and the Expenses is

?20,000, then there rs a Net Profit of P30,000. However, if the Gross
Profit remains at PS0,000 and the Expenses amoun ts to P60,000 then
there is a Net Loss of Pl 0,000. Hence, the sharing ofgross returns does
not of itself establish a partnership.
Rule 4: The receipt by a person of a share of the profits of a business . ·

18
prima fade evidence that he is a partner in the business
Prima facie
Sufficient to establish a fact or raise a presumption unless disproved'
or rebutted; based on ,-vhat seems to be true on first examination, even
though it may later be proved to be untrue. 25
Example:
X received from Y PS0,000 as his share in the net profit of their
business amounting to Pl00,000. In this case, there is a disputable
presumption that X and Y are partners in a contract of partnership.
Note:
From the above, it appears that the fact that those who agree to
form a co-ownership share or do not share any profits made by the use of
the property held in common does not convert their venture into a
partnership. Or the sharing of the gross returns does not of itself establish
a partnership whether or not the persons sharing therein have a joint or
common right or interest in the property. This only means that aside from
the circumstance of profit, the presence of other elements constituting
partnership is necessary, such as the clear intent to form a partnership, the
existence of a juridical personality different from that of the individual
partners, and the freedom to transfer or assign any interest in the property
by one with the consent of the others.
It is evident that an isolated transaction whereby two or more:

persons contribute funds to buy certain real estate for profit in the absence
I
of other circumstances showing a contrary intention cannot be considered 3:
partnership. 1
Persons who contribute property or funds for a common enterprise:

and agree to share the gross returns of that enterprise in proportion to their
contribution, but who severally retain the title to their respective
25 seep. 1382, Blacl<s Law Dictionary, Tenth Edition.
14
contribution, are not thereby rendered partners. They have no common stock
or capital, and no community of interest as principal proprietors in the
business itself which the proceeds derived.
A joint purchase of land, by two, does not constitute a co-partnership

in respect thereto; nor does an agreement to share the profits and losses on
the sale of land create a partnership; the parties are only tenants in common.
Where plaintiff, his brother, and another agreed to become owners of

a single tract of realty, holding as tenants in common, and to divide the profits
of disposing it, the brother and the other not being entitled to share in
plaintiffs' commission, no partnership existed as between the three parties,
whatever their relation may have been as to third parties.
In order to constitute a partnership inter se, there must be: ( a) An intent to

form the same; (b) generally participating in both profits and losses; (c) and
such a community of interest, as far as third persons are concerned as enables
each party to make contract, manage the business, and dispose of the whole
property. xx x.
The common ownership of property does not itself create a

partnership between the owners. though they may use it for the purpose of
making gains; and they may, without becoming partners, agree among
themselves as to the management, and use of such property and the
application of the proceeds therefrom.26
Exceptions to Rule 4:
a. As a debt by installments or otherwise
Example:
A partnership named ABC Co. earned a net profit of P100,000 for
its first year of operation. Xis a creditor ofABC Co. in the amount ofPS,000.
Later, ABC Co. paid the PS,000 to X and this amount was taken from its net
profit for the year. Is X a partner in the ABC Co.? No, even though X
received PS,000 which came from the net profit of ABC Co., he is not a
partner because this is in payment of its debt to X
b. As wages of an employee or rent to a landlord
Example:
X, Y and Zformed XYZ partnership. Vis the accountant of the
partnership. In the contract of employment between XYZ partnership
and V, it was stipulated that the latter will receive 15% of the net profit
26
Federico Jarantilla, Jr. vs. Antonieta Jarantilla, G.R. No. 154486, December 1, 2010.
15
of the partnership. ls \! a partner? No, Vis an employee even though

IHS salary will come Jr·om the net profit of the partnership. Their
agreement is a contract of emplnyment
c. As an annuity to a widow or representative of a deceased partner
Example:
H, I, and J formed HI} partnership. Subsequently, H died
swvived l~v his widow, W It was agreed between I,], and W that W
will receive S% of the annual net income of the partnership pending
liquidation. W will not become a partner.
d. As an interest on a loan
Example:
X }~and Z formed XYZ partnership. One of its creditors is W.
The credit is Pl 00,000 with a stipulation as to interest of 6% per
annum. It was agreed between XYZ partnership and W that the
payment of interest will come from the annual net profit of XYZ
partnership. Wis not a partner in XYZ partnership.
e. As the consideration for the sale of a goodwill of a business or

other property
Example:
X, Y, and Z formed XYZ partnership. Q sold his only parcel of
land to XYZ partnership. In their contract of sale, it was agreed that
the payment will come from the annual profit ofXYZ partnership. Q is
not a partner in XYZ partnership.
Problem:
The heirs of the late X, namely: X's widow Y; and their
children A, and B filed a Complaint against W, widow of the late H,:
who was the eldest son of X and Y.
Y, A and B alleged that sometime in 1980, X, together with
his friends U and V, formed a partnership to engage in the trucking:
business. Initially, with a contribution of PS 0 000 each, they:
1
purchased a truck to be used in the hauling and transport of lumber

of the sawmill. X managed the operations of this trucking business:
until his death on August 15, 1981. Thereafter, X's heirs, including H,
and partners agreed to continue the business under the management
ofH.
On May 18, 1995, H died, leaving Was his sole surviving heir,·
Y A and B claimed that W took over the administration of the.
1
16
CHAPTER 1 ~ GENERAL PROVISIONS
aforementioned properties, which belonged to the estate of X,

without their consent and approval.
W claimed that H was himself a partner of U and V. W also
claimed that per testimony of Y, sometime in 1980, X gave H PS0,000
as the latter's capital in an informal partnership with U and V. When
H and W got married in 1981, the partnership only had one truck;
but through the efforts of H, the business flourished.
W also alleged that when X died in 1981, he left no known
assets, and the partnership with U and V ceased upon his demise. W
also stressed that X left no properties that H could have held in trust.
Who is the partner in the trucking business, X or H?
Answer:
Applying Article 1769 of the Civil Code to the facts of this
case, the following circumstances tend to prove that Hwas himself
the partner of Uand V: 1) Y testified that X gave H PS0,000, as share
in the partnership, on a date that coincided with the payment of the
initial capital in the partnership; (2) H ran the affairs of the
partnership, wielding absolute control, power and authority, without
any intervention or opposition whatsoever from any ofY, A and B; (3)
all of the properties, particularly the nine trucks of the partnership,
were registered in the name of H; (4) U testified that H did not receive
wages or salaries from the partnership, indicating that what he
actually received were shares of the profits of the business; and (5)
none of Y, A and B, as heirs of X, the alleged partner, demanded
periodic accounting from H during his lifetime. A demand for
periodic accounting is evidence of a partnership. 27
Art. 1770. A partnership must have a lawful object or purpose, and must
be established for the common benefit or interest of the partners.
When an unlawful partnership is dissolved by a judicial decree,
the profits shall be confiscated in favor of the State, without prejudice
• to the provisions of the Penal Code governing the confiscation of the
instruments and effects of a crime. (1666a)
Lawful object or purpose

The object or purpose of a partnership must be within the commerce
· of man, not impossible, and it must not be contrary to law, morals, good
customs, public order or public policy.
Examples of Unlawful Partnership

1. A partnership formed for gambling purposes.
2. A partnership formed to furnish houses for prostitution purposes.
27 see Heirs of Jose Lim vs. Juliet Villa Lim, G.R. No. 172690, March 3, 2010.
17
3. A partnership formed to create illegal monopolies or combinations in

restraint of trade.
Effects of an unlawful partnership

1. The contract is void from the very beginning; 28
Note:
A void contract is as if it never existed from the very
beginning. Thus, it has 110 legal personality.
2. The profits shall be confiscated in favor of the government;

3. The mstruments or tools and proceeds of the crime shall be forfeited
in favor of the government 29 ; and
4. The contributions of the partners shall not be confiscated unless they
fall under no. 3.
Art. 17i1. A partnership may be constituted in any form, except where

immovable property or real rights are contributed thereto, in which :
case a public instrument shall be necessary. (1667a)
FORM OF CONTRACT OF PARTNERSHIP
General Rule:
No form is required. Thus, the contract may be oral or in writing.
Exception:
If real properties or real rights in real properties are contributed
regardless of the value. A public instrument is needed; otherwise, the
contract of partnership is void.
REAL RIGHTS
A right that is connected with a thing rather than a person. Real .
rights include ownership, use, habitation, usufruct, predial servitude, pledge,
and real mortgage. 30
PUBLIC INSTRUMENT
A document prepared by a notary public in the presence of the
parties who sign it before witnesses. 31
2& Art 1409, NCC.

29 Art 45, Revised Penal Code
30 seep. 1519, Black's Law D1ct1onary, Tenth Ed1t10n .
31 seep. 1427, Black's Law D1cbonary, Tenth Edition.
18
Example:
A and B agreed to form a partnership where A promised to contribute
his only parcel of land while B undertook to contribute Pl00,000. In this case
since A will contribute his only parcel of land, a real property, their contract
must be executed in a public instrument. Otherwise, it is void.
What ifA will contribute his only car while B will contribute Pl 00,000?
The contract may be oral or in writing whether private or public instrument
and the contract of partnership is valid.
A partnership may be constituted in any form
Problem:
X, Y, and Z, are brother and sisters, who are co-owners of certain
lots which were then being leased to SHELL Co. They agreed to open and
operate a gas station thereat to be known as XYZ Shell Service Station
with an initial investment of P950,000 to be taken from the advance
rentals due to them from SHELL for the occupancy of the said lots owned
in common by them. A joint affidavit was executed by them which was
prepared by Atty. W.
Y and Z agreed to help their brother X by allowing him to operate
and manage the gasoline service station of the family. They negotiated
with SHELL. For practical purposes and in order not to run counter to the
company's policy of appointing only one dealer, it was agreed that X
would apply for the dealership. Y helped in managing the business.
For some time, X submitted financial statements regarding the
operation of the business to Y and Z, but thereafter X failed to render
subsequent accounting. Hence, a demand was made on X to render an
accounting of the profits. Thereafter, Y and Z filed a complaint.
Does a partnership exist between members of the same family
arising from their joint ownership of certain properties?
Answer:
Let it be noted that it is against the policy of SHELL that the
business of the dealer is a partnership. It should be a sole proprietorship.
Evidence in the record shows that there was in fact such
partnership agreement between the parties. This is attested by the
testimonies of Y and Atty. W. X submitted to Y and Z periodic accounting
of the business. X gave a written authority to Y, his sister, to examine and
II
audit the books of their common business". Y assisted in the running of
the business. There is no doubt that the parties hereto formed a
partnership when they bound themselves to contribute money to a
common fund with the intention of dividing the profits among
themselves. The sole dealership by X and the issuance of all government
permits and licenses in the name of X was in compliance with the afore-
19
. tatect policy of SHELL and the understanding of the parties of havin

only one ctC'alC'r of th<' SHELL products.n g
Art 1772. Every contract of partnership having a capital of three

thousand pe. o, or more, in money or property, shall appear in a public
in trument, ,1hich must be recorded in the Office of the Securities and
E ·change Commis~ ion.
Failure to comply with the requirements of the preceding
paragraph , hall not affect the liability of the partnership and the
member, thereof to third persons. (n)
artner. hip having a capital of P3,000 or more (personal property only)

Thr contract of partnership must appear in a public instrument and
mu. t c re 'l)rded in the office of the SEC. Take note that non-compliance with
re 1rement of execution in a public instrument will not make the
c ntract Y01d . Hence. it is still valid.
Partnership ha,'ing a capital of below P3,000 (personal property only)

• 0 form is required. Thus, it may be verbal.
1
Purpose of registration
The re0stration
t, is to set "a condition for the issuance of licenses to
e gage in business or trade. In this way, the tax liabilities of big partnerships
cannot be evaded, and the public can also determine more accurately their
membership and capital before dealing with them." 33
Problem:
X filed a complaint against V and Y, daughter and wifo
respectivel) of the deceased Z, for Winding Up of Partnership Affairs ano
Accounting.
X alleged that in 1977, he verbally entered into a partnershiy
with Zin the distribution of LPG in Manila. For business convenience, X
and Zallegedly agreed to register the business name of their partnership
Shellite, under the name of Z as a sole proprietorship. The partnershir
allegedJy had Z as manager. As compensation, Z would receive ,
manager's fee of 10% of the gross profit.
Allegedly, from the time that Shellite opened for business on Jul!
8, 1977, its business operation was profitable.
Upon Z's death in the later part of 1989, his surviving wife, y an'
particularly his daughter, V, took over the operations and management r.
Shellite without X's consent. Despite X's repeated demands upon y and l
,1 set Eligio Estaruslao, Jr. YECA, eta!., G.R. No. L-49982, April 27, 1988.
1, Dean Capistrano, IV Civil Code of the Phtljppines, p. 260.
20
for accounting and winding up of the partnership, Y and V failed to

comply. Did X and Y form a partnership?
Answer:
partnership between X and Z, Y and V maintain that said partnership had
initial capital of P200,000 which should have been registered with the
SEC since registration is mandated by the Civil Code, True, Article 1772
of the Civil Code requires that partnerships with a capital of P3,000 or
more must re~ister with the SEC, however, this re~istration requirement
is not mandatory, Article 17 68 of the Civil Code explicitly provides that
the partnership retains its juridical personality even if it fails to register.
The failure to register the contract of partnership does not invalidate the
same as among the partners, so long as the contract has the essential
requisites, because the main purpose of re~istration is to ~ive notice to
third parties, and it can be assumed that the members themselves knew
of the contents of their contract. In the case at bar, non-compliance with
this directory provision of the law will not invalidate the partnership
considering that the totality of the evidence proves that Xand Z indeed
for~ed the partnership in question. 34
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.
(1668a)
Note:
An inventory is still required if aside from real property, personal
property is contributed. However, the inventory need not include the
personal property.
A partnership may be constituted in any form, save when immovable

property or real rights are contributed thereto or when the partnership has
a capital of at least P3,000, in which case a public instrument shall be
necessary. And an inventory to be signed by the parties and attached to the
public instrument is also indispensable to the validity of the partnership
whenever immovable property is contributed to it.3 5
Lest it be overlooked, the contract-validating inventory requirement

under Article 1773 of the Civil Code applies as long as real property or real
rights are initially brought into the partnership. In short, it is really of no
moment which of the partners, contributed immovables. In context, the more
important consideration is that real property was contributed, in which case
34
see Lllibeth Sunga-Chan and Cecilia Sunga vs. Lamberto T. Chua, G.R. No. 143340, August 15, 2001.
35 Aurelio K. Litonjua, Jr. vs. Eduardo K. Litonjua, Sr. etal.. G.R. Nos. 166299-300, December 13, 2005.
21
an inventory of the contributed property duly si~ned by the parties shm

attached to the public instrument. else there is legally no partnership to ~
of.36 spea~
WHAT IS THE INTENTION OF ARTICLE 1773?

Article 1773 was intended primarily to protect thir~ persons. Thus, th
eminent Arturo M. Tolentino states that under the aforecited provision wh· ~
is a complement of Article 1771, the execution of a public instrument wo~~d
be useless if there is no inventory of the property contributed, becau
'"rithout its designation and description, they cannot be subj ect to inscripti~e
in the Registry of Property, and their contribution can~ot prejudice thir~
persons. This will result in fraud to those wh~ cont:act wit~ the partnership
in the belief in the efficacy of the guar~nty m which the immov~bles may
consist Thus, the contract 1s declared v~1d by the I~w when _no 5Ych myentD.ll
is made. The case at bar does not mvolve third parties who may be
prejudiced. 37
Art. 1774. Any immovable property or an interest therein may be

acquired in the partnership name. Title so acquired can be conveyed
only in the partnership name. (n)
The reason for the above-stated provision is that a partnership has a

judicial personality separate and distinct from that of each of the partners;
hence, immovable property to be acquired must be in the name of the ·
partnership and if conveyed must also be in the partnership name.
Example:
A, B, and Cformed ABC partnership. Thus, ifABC partnership will
be a do nee or a buyer of a specific real property then it shall be registered
in its name and not in the name of one or some or all of the partners.
Consequently, if this will be conveyed, like sale or donation, the seller or
donor must only be in the name of the partnership.
Art 1775. Associations and societies, whose articles are kept secret
among the members, and wherein any one of the members may contract
inh1s own name with third persons, shall have no juridical personality
and shall be governed by the provisions relating to co-ownership'
(1669) •
J..urtl1rJ I~ L,trJflJud, Jr v~ E.duardu K L1Lun1ua, Sr. eta!., G.R, Nos. 166299-3 00, December
~tt llr,t0rJ10 ·r 0rrt~ dr,d E.rnt:ttrJd 8dnng v~ CA an d Manuel Torres, G.R, No. 134559 D
13b, 2OOS,
' ecem er 9, 1999.
22
Partnershi vs. Association

Partnershi Association
uridical Personali
It has ·uridical
Pur
It is for rofit. not be for rofit.
Contribution of Members
There is a contribution of money, There is no contribution of capital
property, or industry or a although fees are usually collected
combination of these. from the members to maintain the
or anization.
Liabili
The partnership is the one liable. Members are individually liable for
the debts of the association.
The associations or societies here cannot sue because it has no legal

personality. However, the fact that it has no legal personality as a partnership
cannot be invoked by the "partners" for the purpose of evading compliance
with obligations contracted by them, because they who caused the nullity of
a contract are prohibited from availing of its benefits. 38
Art. 1776. As to its object, a partnership is either universal or particular.

As regards the liability of the partners, a partnership may be general or
Hmited. (1671a)
CLASSIFICATION OF PARTNERSHIP
1. According to object
a. Universal partnership
Two Kinds
(1) Universal partnership of all present property
The partners contribute all the property which
actually belongs to them to a common fund, with the
intention of dividing the same among themselves, as well as
all the profits which they may acquire therewith.
(2) Universal partnership of all profits

It comprises all that the partners may acquire by
their industry or work during the existence of the
partnership.
38 11 Manresa 289-290.
23
CHAPTER 1- GENERAL PROVISIONS
b. Particular partnership
A particular partnership has for its object determinate
things, their use or fruits, or specific undertaking, or the exercise of
a profession or vocation.
Z. According to liability
a. General partnership
It is one where all the partners are general partners. All
general partners here are liable up to the extent of their separate
properties after the assets of the partnership have b een exhausted,
b. Limited partnership
It is one where there is at least one general partner and one
limited partner. A general partner is liable beyond his contribution ·
while a limited partner is liable only to the extent of his ·
contribution.
Note:
Limited partnership will be discussed in chapter 4.
3. According to duration
a. Partnership at will
It is one where there is no fixed term or it is not formed for
a particular undertaking, or it is one for a fixed term or particular
undertaking which is continued after the termination of such term
or particular undertaking without any express agreement.
Example:
A, B, and Cformed a partnership where A contributed cash
of PS00,000. For B, computers valued at P200,000 and C, his only
truck valued at P300,000. In here, there is no fixed term agreed
upon nor it is for a particular undertaking so that it can be dissolved
anytime.
b. Partnership with a fixed term

It is one where the life or period of existence of the
partnership has been agreed upon by the partners.
Example:
AB, and Cformed a partnership where A contributed cash
of PS00,000. For B, computers valued at P200,000 and C, his only
truck valued at ?300,000. The partners agreed that the life of the
partnership will be 15 years. In here, the partnership, as a rule, can
be dissolved after the lapse of 15 years.
24
c. Partnership for a particular undertaking

It is one where it will exist until the purpose is
accomplished.
Example:
A, B, and Cformed a partnership for the manufacture of300
tables for a particular school where A contributed cash of P150,000,
B contributed lumber valued at P200,000 and C, the use of his truck
In here, the partnership will be dissolved after the completion of the
300 tables.
4. According to representation to others

a. Ordinary partnership
It is one where two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.
Example:
A, B, and C established a partnership where A contributed
cash of PS0,000, B contributed a specific car worth P200,000 and C,
his industry.
b. Partnership by estoppel
It is one where persons, by words spoken or written or by
conduct, represent themselves, or consent to another representing
them to anyone, as partners in an existing partnership or with one or
more persons not actual partners.
Example:
A, B, and Care partners in ABC partnership. Subsequently, X
misrepresented to Y that he is a partner in ABC partnership. When
Y inquired from A, B and C if X is one of their partner, A, B, and C
answered in the affirmative. In here A, B, C and X are partners by
estoppel and there is also a partnership by estoppel so that if Y
suffered damages because of that misrepresentation, the net assets
of ABC partnership is liable together with the separate property of
X
5. According to the legality of its existence

a. De jure partnership
It is one which has complied with all the legal
requirements for its creation.
25
Example:
A, B, and Cformed ABC Partnership where A contributed
cash of Pl,000,000, B contributed his only parcel of land and C will
contribute his indusny during the term of the partnership which is
10 years. The contract of partnership was written in a public
instrument The partners made also an inventory which they all
signed and thereafter they attached it to their contract of
partnership. In here, we have a de Jure partnership.
b. De facto partnership
It is one ,,vhich has not complied with all the legal .
requirements for its creation.
Example:
A, B, and Cformed ABC Partnership where A contributed
cash of Pl,000,000, B contributed his only car and C will contribute
his industry during the term of the partnership. Th eir agreement is
verbal. In here, the partnership is a de facto partnership as it was
not written in a public instrument and it was not registered in the
SEC.
Art. 1777. A universal partnership may refer to all the present property
orto all the profits. (1672)
Kinds of Universal Partnerships

1. Partnership of all present property
2. Partnership of all profits
Art 1778. A partnership of all present property is that in which the :

partners contribute all the property which actually belongs to them to 1
a common fund, with the intention of dividing the same among ,
themselves, as well as all the profits which they may acquire therewith, ,
(1673) .
The contributions of the partners here are the following:

1.All the properties actually belonging to the partners; and
2. The profits acquired with said properties.
Art. 1779. In a universal partnership of all present property the ~

property which belongs to each of the partners at the time of the .
constitution of the partnership, becomes the common property of II the ·
partners, as well as all the profits which they may acquire ther ~th
ew1 . )
A stipulation for the common enjoyment of any other
may also be made; but the property which the partner pro~ts
s may acquire •
26
subsequently by inheritance, legacy, or donation cannot be included in

such stipulation, except the fruits thereof. (1674a)
Future Property (Inheritance, Legacy, or Donation)

Future properties cannot be included because:
1. As a rule, contracts regarding successional rights cannot be made;
2. A partnership demands that the contributed things be determinate,
known, and certain;
3. A universal partnership of all present properties really implies a
donation, and it is well-known that generally, future property cannot
be donated. 39
Example:
A, B, and C entered into a partnership named ABC
Partnership. A contributed all his present properties comprising two
parcels of land. B contributed his only property which is a specific car.
C contributed his house and lot which is his only property. The
contract of partnership formed by A, B, and C is a universal
partnership of all present property.
Art. 1780. A universal partnership of profits comprises all that the

partners may acquire by their industry or work during the existence of
the partnership.
Movable or immovable property which each of the partners may
possess at the time of the celebration of the contract shall continue to
pertain exclusively to each, only the usufruct passing to the partnership.
(1675)
Partners retain their ownership over their present and future

property. What passes to the partnership are the profits and the use of the
same. 40
Example:
A, B, and C entered into a partnership named ABC
Partnership. A contributed the use of his of two parcels of land. B
contributed also the use of his specific car for purposes of delivery of
goods. C contributed his house and lot to be used by the partnership as
warehouse. The contract of partnership formed by A, B, and C is a
universal partnership of all profits.
3~ 11 Manresa 304-314; Art 751, NCC.

40 11 Manresa 303.
27
CHAPTER 1 " GENERAL PROVISIONS
Universal Partnership of all Universal Partnership of Pl'o~

present Property (During the existence of - th:
(At the time of constitution of the partnership) , : ~
,, ,,,, ; /
artnershi ( 7,..-}, ;.·
All the present property actually Only the usufruct (use an'ct frui,t~)wr
belonging to the partners are the properties of the partne;:
contributed to the partnership which becomes common property of all the
become common property of all the partners and the partnership.
artners and the artnershi
General Rule: All profits acquired through th
Onl>T the profits of said contributed "industry" or "work" of the partner:
property become common property become common property.
but not profits arising from other
p operty of the partners.
E ·ception:
J f s'Clpu]ated, the profits from other
o-oDe'L'I of the partners may become
common
~he propemes subsequently

acqwreo bJ ,nhentance, legacy or
aonatwn cannot be included in the
stzpulatwn but the fruits thereof can
be included in the sti ulation.
Art. 1781. Articles of universal partnership, entered into without

specification of its nature, only constitute a universal partnership of
profits. (1676)
Presumption in favor of universal partnership of profits

The universal partnership of profits imposes less obligation because
their real and personal properties are retained by them in naked ownership.
Art. 1782. Persons who are prohibited from giving each other any
donation or advantage cannot enter into universal partnership. (1677)
Rationale:
A niversal partnership is virtually a donation to each other of the
partner's properties (or at least, their usufruct). Therefore, if persons are
prohibited to donate to each other, they should not be allowed to do indirectly
what the law forbids directly. 41
~: Manre!>a31 7
28
Effect of Violation of Art. 1782

The partnership is null and void, and its nullity may be raised
anytime. No legal personality was ever acquired. 42
Examples of persons who cannot enter into a universal partnership

1. legally married spouses; 43
Note:
However spouses may enter into a particular partnership like
the exercise of a profession or vocation. 44
2. Persons living together as husband and wife without a valid marriage;45

3. Persons who were guilty of adultery or concubinage at the time of the
donation; 46
4. Persons found guilty of the same criminal offense, in consideration
thereof; 47
5. A person or persons and a public officer or his wife, descendants and
ascendants, by reason of his office.
Problem:
A limited partnership, named "WJG Ltd.," was formed by Was the
general partner, and J and G, as the limited partners. The partners
contributed, respectively, P20,000, P18,000 and P20,000 to the
partnership.
Subsequently, general partner W and limited partner J got
married and, thereafter, limited partner G sold his share in the
partnership to them.
Was the partnership dissolved after the marriage of the partners,
W and J and the subsequent sale to them by G of his share?
Answer:
The thesis that the limited partnership, WJG Ltd., has been
dissolved by operation of law because of the marriage of the only general
partner, W to the originally limited partner, J one year after the
partnership was organized is rested upon the theory that:
A husband and a wife may not enter into a contract of general co-
partnership, because under the Civil Code, which applies in the absence of
express provision in the Code of Commerce, persons prohibited from
making donations to each other are prohibited from entering
42 11 Manresa 317.
43 Art. 87, Family Code of the Philippines.
44 Commissioner of Internal Revenue vs. William). Suter and CA. G.R. No. L-25532, February 28, 1969.
45 Art 87, Family Code of the Philippines.
46 Art. 739, NCC.
47 Art. 739, NCC.
29
into universal partnerships. ft follows that the marriage of partners

necessarily brings about the dissolution of a pre-existing partnership.
. WJ G, Ltd. was not a universal partnership, but a p~rticular QJJt

A universal partnership requires either that the obJect of the
association be all the present property of the partners, as contributed by
them to the common fund, or else "all that the partners may acquire by
their industry or work during the existence of the partnership". WJG Ltd,
was not such a universal partnership, since the contributions of the
partners were fixed sums of money, PZ0,000 by W and P18,000 by J and
neither one of them was an industrial partner. It follows that WIG. Ltd_
was not a partnership that spouses were forbidden to enter.
Nor could the subse<Juent marria~e of the partners operate .tQ
dissolve it such marria~e not bein~ one of the causes provided for th.al
purpose. 48
Art. 1783. A particular partnership has for its object determinate things,
their use or fruits, or specific undertaking, or the exercise of a
profession or vocation. (1678)
The above-stated article defines a particular partnership.
Examples:
1. A and B formed AB Partnership where A contributed Pl,000,000 and
B contributed his only parcel of land. They agreed to engage in buy
and sell of motor vehicles.
2. A and B formed AB Partnership where A contributed Pl0,000,000
while B contributed P3,000,000 and his industry, being an engineer,
for the construction of a building as they will engage in the business of
leasing apartment units.
3. A and B, both certified public accountants, entered into a contract of
partnership to engage in accounting, audit, and tax consultancy.
Note:
If the partnership is a universal partnership, a husband and wife
cannot enter into such contract. However, if the partnership is a particular
partnership, they can.
~ see Comm issioner of Internal Revenue vs. Will iam J. Suter and CA, G.R. No J -25532 F b
• J , e ruary 28, 1969.
30
TRUE OR FALSE
1. A partnership may be constituted in any form.
2. A partnership may be constituted in any form, save when immovable
property or real rights are contributed thereto or when the partnership
has a capital of below P3,000, in which case a public instrument shall
be necessary.
3. Associations and societies, whose articles are kept secret among the
members, and wherein any one of the members may contract in his
own name with third persons, shall also have juridical personality.
4. Immovable property to be acquired must be in the name of the
partnership but if conveyed, it is not necessary that it be in the
partnership name.
5. An inventory is still required if aside from real property, personal
property is contributed.
6. The sharing of gross returns does not of itself establish a partnership,
except when the persons sharing them have a joint or common right or
interest in any property from which the returns are derived.
7. If a person receives a share in the profits of a business, he is a prima facie
presumed to be a partner in business.
8. In partnership, there is co-ownership and co-possession of partnership
property.
9. Partnerships with a capital of P3,000.00 or more must register with the
SEC. Registration requirement is mandatory.
10. The receipt by a person of a share of the profits of a business is
conclusive evidence that he is a partner in the business.
11. A general partner is liable only to the extent of his contribution while a
limited partner is liable beyond his contribution.
12. An oral contract of partnership is as good as a written one.
13. The right to choose with whom a person wishes to associate himself is
the very foundation and essence of that partnership.
14. An unjustified dissolution by a partner can subject him to action for
damages.
15. When an unlawful partnership is dissolved by a judicial decree, the
profits shall not be confiscated in favor of the State.
16. A partnership must have a lawful object or purpose, and must be
established for the common benefit or interest of the partners.
17. Where an immovable property is contributed in a partnership a private
instrument shall be necessary.
18. Articles of universal partnership, entered into without specification of
its nature, only constitute a universal partnership of all present
property.
19. Persons who are prohibited from giving each other any donation or
advantage cannot enter into universal partnership.
31
20. Co-ownership or co-possession does not in itself establish

partnership, except when such co-owners or co-possession share in th:
profits made by the use of the property.
Multiple Choice Part I

1. It means that it is a contract which has a name in law.
a. Consensual
b. Nominate
c. Preparatory
d. Onerous
2. It means that each partner must contribute money, property, or industry

Of course, a partner can contribute one, some or all of these. ·
a. Consensual
b. Nominate
c. Onerous
d. Preparatory
3. Any external thing over which the rights of possession, use, and ,
enjoyment are exercised.
a. Money
b. Property
c. Industry
d. None of the above
4. The latin phrase "delectus personae" means

a. Choice of the person
b. Choice of the people
c. Choice of the public
5. The birth and life of a partnership at will is predicated on the mutual

desire and consent of the partners.
a. Partnership at will
b. Partnership for a particular undertaking
c. Partnership for a fixed term
6. An entity created by law and given certain legal rights and duties of a'
human being or a being, real or imaginary, who for the purpose of legal :
reasoning is treated more or less as a human being.
a. Natural person :
b. Juridical person
c. Normal person
32
7. Where a partnership not duly organized has been recognized as such in

its dealings with certain persons.
a. Ordinary partnership
b. De jure partnership
c. De facto partnership
d. Partnership by estoppel
8. The following are the effects of unlawful partnership, except:

a. The contract is voidable from the very beginning.
b. The profits shall be confiscated in favor of the government.
c. The instruments or tools and proceeds of the crime shall be
forfeited in favor of the government.
d. The contributions of the partners shall not be confiscated.
9. A document prepared by a notary public in the presence of the parties

who sign it before witnesses.
a. Private instrument
b. Public instrument
c. Commercial instrument
10. When two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing
the profits among themselves.
a. Corporation
b. Partnership
c. Sole proprietorship
d. Cooperative
11. A group of men pursuing a learned art as a common calling in the spirit
of public service.
a. Business
b. Service
c. Profession
d. Artists
12. The following are requisites of partnership, except:

a. There must be a valid contract;
b. There must be a contribution of money, property, and industry to a
common fund;
c. The partnership must be organized for gain or profit; and
d. The partnership should have a lawful object or purpose, and must
be established for the common benefit or interest of the partners.
13. There are two tests to determine the existence of a partnership:

I. First test: Determine whether or not there is an agreement to
contribute money, property or industry to a common fund.
33
II. Second test: Determine whether o~ not there is an intent oft~

contracting parties to divide the profits among themselves.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
14. It means that it is a contract that is perfected by mere consent beca\lst,

all the partners had a meeting of the minds to enter into a contract ~
partnership.
a. Consensual
b. Principal
c. Preparatory
d. Commutative
15. It means that the contribution of each partner, whether money, property
or industry, is considered as the equivalent of the contribution of the,
other partners.
a. Consensual
b. Principal
c. Preparatory
d. Commutative
Multiple Choice Part II

1. It is one where persons, by words spoken or written or by conduct,
represents themselves, or consents to another representing them to
anyone, as partners in an existing partnership or with one or more-
persons not actual partners.
a. Partnership by estoppel
b. Partnership by prescription
c. Closed partnership
d. Partnership sole
2. It is one which has not complied with all the legal requirements for its
creation.
a. De facto partnership
b. De jure partnership
c. Real partnership
d. Ordinary partnership
3. I. Q was an accountant in a partnership, with a yearly salary a .

. f h mounting ,
to 10% ofthe net pro f its or t e year. Thus, he is a partner in th .
partnership. e said
II. The receipt by a person of a share of the profits of a bus• .
. . d h h .
cone Ius1ve ev1 ence t at e 1s a partner in the business
iness is
a. Only I is true
b. Only II is true
34
c. Both are true

d. Both are false
4. May contribute money, property or industry to a common fund.

a. Limited partner
b. General partner
c. Both limited and general partner
d. Both limited and industrial partner
5. The following are disqualified to form a universal partnership, except

one:
a. Brother and sister
b. Husband and wife
c. Those guilty of adultery or concubinage
d. Those guilty of the same offense, if the partnership is entered into
in consideration of the same
6. X and Y verbally entered into a partnership with each of them

contributing P2,000 each and some personal properties in the amount
of PSOO each. The partnership contract is:
a. Unenforceable because the amount involved exceeds PS00.00.
b. Void because it is not in public instrument.
c. Valid
d. Void, because it is not registered with the SEC.
7. The following are instances, except one, when a partnership is

unlawful. Which is the exception?
a. A partnership formed for the purpose of selling illegal drugs.
b. A partnership formed for the purpose of buying lands.
c. A partnership formed to create illegal gambling.
d. A partnership formed for selling smuggled cars.
8. X and Y orally agreed to form a partnership. Each contributed cash

worth P15, 000 to common fund. But they did not register the
partnership with the Securities and Exchange Commission.
a. The partnership is void
b. The partnership is voidable
c. The partnership is still valid
d. The partnership is valid and unenforceable
9. The partners contribute all the property which actually belongs to them
to a common fund, with the intention of dividing the same among
themselves, as well as all the profits which they may acquire therewith.
a. Universal partnership of all profits
b. Universal partnership of all present property
c. Particular partnership
35
10.
~ c~mp rises ~11 that the partners may acq uire by thei r industry or Wo
unng ~he existence of the partnership. t\
11. A particular partnership has for its object determinate things, their u
or fruits, or specific undertaking, or the exercise of a profession ~e
.
vocation. r
12. It is one where all the partners are general partners.

c. Limited partnership
d. General partnership
13. It is one where there is at least one general partner and one limitea:
partner.
c. Limited partnership
d. General partnership
14. It is one where the life or period of existence of the partnership has been
agreed upon by the partners.
a. Partnership with a fixed term
c. Partnership at will
d. De facto partnership
15. It is one where it will exist until the purpose is accomplished.

d. De facto partnership
36
CHAPTERZ
OBLIGATIONS OF THE PARTNERS
KINDS OF PARTNERS
1. As to contribution
a. Capitalist partners
Those who contribute money or property or both
money and property to the common fund.1
b. Industrial partners
Those who contribute only their industry or labor to the
common fund. 2
c. Capitalist-industrial partners
Those who contribute money or property and industry
or both money, property and industry to the common fund.
2. As to liability
a. General partners
Those who can be held liable to third persons for
partnership obligations even to the extent of their separate
property. 3
b. Limited partners
Those who cannot be held liable to third persons for
partnership obligations. 4
3. As to management
a. Managing partners
Those who manage actively the business or affairs of
the partnership.s
b. Silent partners
Those who do not take active part in the business or
affairs of the partnership though they share in the profits or
losses.
c. Liquidating partners
Those who take charge of the winding up or liquidation
of the partnership affairs after dissolution. 6
4. As to third persons
a. Ostensible partners
Those who take active part and known to the public as a
partner in the partnership.
1 Art. 1767, NCC.

2 Art. 1767, NCC.
3 Art. 1816, NCC.
• Art. 1843, NCC.
5 Art. 1800, NCC.
6 Art. 1836, NCC.
37
CHAPTER 2 - OBLIGATIONS OF THE PARTNERS
b. Secret partners
Those whose connection with the partnership is
known to the public. n~
c. Dormant partners
Those who do not take active part in the business
are not knovvn to the public as partners. Thus, they are bann
secret and silent partners. ou
5. As to membership
a. Real partners
Those partners in an existing legal partnership.
b. Partners by Estoppel
Those who are not really partners but represent
themselves, or consent to another or others representing the~•
to anyone as partners in an existing partnership or in one that u
fictitious or apparent.
6. As to continuation of the business affairs after dissolution

a. Continuing partners
Those v,rho continue the partnership business after the.
dissolution of the partnership. 7
b. Discontinuing partners
Those who do not continue the partnership businesS'.
after the dissolution of the partnership. '
7. As to the nature of membership

a. Original partners
Those who are members of the partnership from the '.
time of its constitution. ·
b. Incoming partners
Those who became members of the partnership after its
establishment. 8
c. Retiring partners
Those who withdraw from the partnership.9
8. As to state of survivorship
a. Surviving partners
Those who continue the partnership after its ·
dissolution by reason of death of a partner.
7
Art 1840, NCC.
8
Art 1826, NCC.
9
Art 1840-1841, NCC.
b. Deceased partners
Those who died while being a member of the
partnership.1°
9. As to the effect of expulsion

a. Expelled partners
Those who are expelled from the partnership by the
other partners for a valid cause.
b. Expelling partners
Those who caused the expulsion of a partner for a valid
cause.
10. As to the value of the contribution

a. Majority partners
Those whose contribution to the partnership represents
the majority or controlling interest.
b. Nominal partners
Those whose contribution to the partnership represents
the minority interest.
SECTION 1.
Obligations of the Partners Among Themselves
Problem:
Y Co., a general partnership duly registered under the laws of
the Philippines, purchased from X Inc. a motor vehicle on installment
basis and for this purpose executed a promissory note for P9,440,
payable in 12 equal monthly installments of P786.63, the first
installment payable on or before May 22, 1961 and the subsequent
installments on the 22nd day of every month thereafter, until fully paid,
with the condition that failure to pay any of said installments as they fall
due would render the whole unpaid balance immediately due and
demandable.
,Having failed to receive the installment due, X Inc. sued Y Co. for
the unpaid balance amounting to P7,119. A, B, C, D, and E were included
as co-defendants in their capacity as general partners.
Subsequently, on motion of X Inc., the complaint was dismissed
insofar as partner E is concerned.
B and C claimed that since there are 5 general partners, the joint
and subsidiary liability of each partner should not exceed one-fifth
(1/5) of the obligations ofY Co.
10 Art 1840, NCC.

. Does the dismissal of the complaint in favor of partner E

increases the joint and subsidiary liability of each of the remainin
partners for the obligations of the partnership? g
Answer:
In the instant case, there were 5 general pa~tners when the
promissory note in question was executed for and m behalf of th
partnership. Since the liability of the partners is pro rata. the liability 0~
partner C shall be limited to only one-fifth (1/5) of the obligations ofy
Co. The fact that the complaint aliainst partner Ewas dismissed does~
unmake E as a ~eneral partner in YCo, In so moving to dismiss the ·
complaint, X Inc. merely condoned E's individual liability. 11
Legal relations created by a contract of partnership

1. Relations benveen partners;
2. Relations betvveen the partners on one hand and the partnership on the
other hand;
3. Relations ben,veen the partners on one hand and third persons on the
other hand; and
4. Relations between the partnership and the third persons.
Example:
A and B entered into a partnership named AB Partnership. A and
B are both managing partners who at one time entered into a contract
with Cand D. The relations created are the following:
1. Relations between A and B;
2. Relations between A and B on one hand and AB Partnership on the
other hand;
3. Relations between A and B on one hand and C and D on the other
hand; and
4. Relations between AB Partnership and Cand D.
ations and ri
To
1. give their promised 1. Right to associate with another .
contribution 12 erson in their share13
2. Not to convert partnership money 2. Right to have access to and inspect.
to their own use 14 and co artnershi bookslS
3. To account and hold as trustee for 3. Right to demand a formal account17
any profits derived without the
consent of the other artners.1 6
11
see Island Sales Inc., vs. United Pioneers General Construction Company, eta!., G.R. No. L-22 493 J
12 Art 1786, NCC. 1
I u y 3 1, 1975.
13
Art 1804, NCC.
14 Art 1788, NCC.
IS Art 1805, NCC.

16
Art 1807, NCC.
17
Art 1809, NCC.
40
4. Not to engage in any business 4. Right to ask for the dissolution of

which is of the kind in which the the partnership at the proper
partnership is engaged.is time 19
5. Obligation of managing partners 5. Property rights of partners 21
to credit to the partnership the a. Rights in specific partnership
payment made by a debtor who property
owes them and the partnership. 20 b. Interest in the partnership
c. Right to participate in the
management
6. Obligation to share with the other Note:
partners the share of the Limited partners have no
partnership credit which they right to participate in the
have received from an insolvent management
partnership debtor. 22
7. Pay for damages suffered by the
partnership through their fault. 23
Art. 1784. A partnership begins from the moment of the execution of

the contract, unless it is otherwise stipulated. (1679)
General Rule:
A partnership begins from the moment of the execution of the
contract.
Example:
X and Y entered into a contract of partnership on July 2, 2020.
Here, the life of their partnership begins on July 2, 2020, when the parties
executed their ~on tract of partnership.
Exception:
The partners can agree on some other date for the start of the
partnership.
Example:
X and Y entered into a contract of partnership on July 2, 2020.
However, X and Y agreed that the commencement of their contract of
partnership will be on September 1, 2020. Here, the life of their
partnership begins on September 1, 2020 as agreed upon and not on July
2, 2020.
18 Art. 1808, NCC.

19 Art. 1830-1831, NCC.
20 Art. 1792, NCC.
21 Art, 1810, NCC.
22 Art. 1793, NCC.
23 Art 1794, NCC.
41
CHAPTER 2 ~ OBLIGATIONS OF THE PARTNERS
Note:
As of July 2, 2020, the partnership to be formed by X and y i
future ?artnership which has no juridical existence yet. Consequen:J a
there 1s no partnership yet from July 2, 2020 to August 30, 2 ry,
02
Therefore, there is 110 obligation nor right to speak of o.
Art. 1785. When a partnership for a fixed term or partic
undertaking is continued after the termination of such terniu.1at
particular undertaking without any express agreement, the rights 0t
duties of the partners remain the same as they were at s:n:
termination, so far as is consistent with a partnership at will. c
A continuation of_the b~siness by the ~artners or such of thell\.

as habitually acted therem durmg the term, without any settlement 0
liquidation of the partnership affairs, is prima faci e evidence of~·
continuation of the partnership. (n)
Partnership with a fixed term

It is one where the life or period of existence of the partnership has ·
been agreed upon by the partners.
Partnership for a particular undertaking

It is one ,vhere it ·will exist until the purpose is accomplished.
Partnership at will
A partnership that does not fix its term is a partnership at will. 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 :
associate himself is the very foundation and essence of that partnership.24
Example of partnership for a fixed term

A and B entered into a contract of partnership for a period of 1 O
years. As a rule, after the expiration of 10 years the partnership ofA and
B will be dissolved. However, if after 10 years and the partnership of A
and B continued the operation of their partnership without any express
agreement then the rights and obligations of A and B will remain the
same.
For example, the right to participate in the management. Hence

if A is the managing partner then he will still be the managing partne;
despite the lapse of 10 years.
24 Gregorio F. Ortega, eta!. vs. CA, G.R No. 109248, July 3, 1995.
42
Example of a partnership for a particular undertaking

A, B, and C entered into a contract of partnership for the
manufacture of 1,000 tables for a certain school. As a rule, after the
1,000 tables were manufactured, the partnership will be dissolved.
However, if after the 1,000 tables were manufactured, and the
partnership of A, B, and C continued the operations of their business
without any express agreement, then the rights and obligations of A, B
and C will remain the same.
For example, the right to participate in the management. Hence,

if A is the managing partner then he will still be the managing partner
despite the termination of the initial particular undertaking, that is, the
manufacture of 1,000 tables.
Problem:
Sometime in March 1946, V and T together with F entered into a
partnership for the purpose of engaging in the printing business. Later,
V obtained a personal loan from F in the amount of Pl,100. Upon the
request of V, T paid the said amount to F and this time V used his share
in the partnership as guarantee for T's payment. On June 3, 1946, F sold
his share of the partnership to T and who by virtue thereof became 2/3
owner of the business. Subsequently, T asked V to settle his account,
but due to his failure to do so, T assumed full ownership of the business.
T allegedly never rendered any accounting of the business operations,
or paid the share of V in the profits.
It is an incontrovertible fact that V had filed this action against T
on February 10, 1961, nearly ten years after the expiration of the
contract of partnership.
T, in defense, alleged that the whole business of the partnership
became his alone in 194 7 after he had acquired by purchase the share of
F and had taken over the share of V, since the latter failed to pay the
Pl,100 V had requested T to pay to F, as security for the payment of
which, he had pledge his said share to T. Since 1947, T had always been
operating openly and publicly the said printing business from 1947
without any intervention or participation of V and without said V
making any claim of any kind in connection therewith until the filing of
the complaint on February 10, 1961, hence, all the claims and causes of
action of V had already prescribed.
Is Article 1785 applicable in the present case?
Answer:
Under these circumstances, it would be giving premium to
inaction and indifference to still hold that V could sue T only a little
short of ten years after the expiration of the stipulated term of
partnership. His claims for salaries accrued after each month they were
unpaid. Whether we assume that these claims lost basis in 194 7 when T
43
too_k over the businesses of the printing press, by ~II standards, the
claims had already prescribed when the present SUit was filed. A .s.
inasmuch as the longest period in the chapter on prescription fa 11-
0
Civil Code is ten years, it is evident that V's action for accountin ~
already barred. gt
The provisions of Article 1785 to the effect that:
Mlhen a partnership for a fixed term or particu/ .

undertaking is continued after the termination of such term Q
particular undertaking without any express agreement, the rights a:
duties of the partners remain the same as they were at su6
termination, so far as is consistent with a partnership at will.
A continuation of the business by the partners or such of the~
as habitually acted therein during the term, without any settlemento-
liquidation of the partnership affairs, is prima facie evidence of,
continuation of the partnership.
and Article 1829 thus:
On dissolution, the partnership is not terminated, hll

continues until the winding up of partnership affairs is completed.
are clearly inapplicable here, for the simple reason that those artic_m:
are premised on a continuation of the partnership as such, which is ll[
our case. because here T repudiated the partnership as early as 194i
with either actual or presumed knowledge of V. By analogy, at least-
\-Vith the rule as to a co-ownership, which a partnership essentially j~'
prescription does not run in favor of any of the co -owners only as lonr
as the co-owner claiming against the others "expressly or impliedlJ
recognizes the co-ownership," a circumstance irreconcilablr-
inconsistent with T's conduct of transferring the place of business_
changing its name and not paying V any of the salaries agreed upon k
the articles of partnership. 25
Art 1786. Every partner is a debtor of the partnership for whatever hr

may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction wiU

regard to specific and determinate things which h e may havr
contributed to the partnership, in the same cases and in the samr
manner as the vendor is bound with respect to the vendee. He shall
also be liable for the fruits thereof from the time they should have
been delivered, without the need of any demand. (1681a)
25
see Vicente Dira vs. Pablo D. Taiiega, G.R. No. L-13232, June 17, 1970.
44
......... _
. .. . --- -------
. - --------- - . -.
Obligation of every partner

1. The obligation to contribute what had been promised;
The mutual contribution to a common fund is the first test in
order to have a contract of partnership.
The failure to contribute is to make the partner a debtor of the
partnership even if there is no demand. This is an exception to the
general rule that there is no delay when there is no demand.
Consequently, in case of failure to deliver the promised
contribution, the remedy is specific performance with interest and
damages occasioned thereby and not rescission. 26
2. The obligation to deliver the fruits thereof; and

If property has been promised, the fruits thereof should also be
given. The fruits referred to are those arising from the time they should
have been delivered, without the need of any demand. If the partner is in
bad faith, he is liable not only for the fruits actually produced, but also for
those that could have been produced. 27
If money has been promised and that partner failed to do so, he

becomes a debtor for the interest and damages from the time he should
have complied with his obligation.20
3. The obligation to warrant

The warranty in case of eviction refers only to specific or
determinate things which a partner contributed to the partnership.
Art. 1787. When the capital or a part thereof which a partner is bound
to contribute consists of goods, their appraisal must be made in the
1 manner prescribed in the contract of partnership, and in the absence
of stipulation, it shall be made by experts chosen by the partners, and
according to current prices, the subsequent changes thereof being for
account of the partnership. (n)
Rationale:
In order to know the monetary value of the contribution of that
partner as of the date of contribution. This is useful in the future operation of
the partnership just like in the accounting of the share of profit or loss of
every partner. Under the law, in the absence of stipulation the share of each
partner in the profits and losses shall be in proportion to what he may have
contributed.29
26 Maximiliano Sancho vs. Severiano Lizarraga, G.R. No. L-33580, February 6, 1931.
27 11 Manresa 344.
28 Art. 1788, NCC.
29 Art. 1797, NCC.
45
Manner of appraisal:
1. By stipulation; or
2. In the absence of stipulation, by experts chosen by the Part
according to current prices. ne~
Art. 1788. A partner who has undertaken to contribute a sum of rn

and fails to do so becomes a debtor for the interest and damages
the time he should have complied with his obligation. 0
~
;n~
The same rule applies to any amount he may have taken fr
the partnership coffers, and his liability shall begin from the time oh~
converted the amount to his own use. (1682) '
Essence of Partnership
It is a settled rule that when a partner who has undertaken
4
contribute a sum of money fails to do so, he becomes a debtor of th
partnership for whatever he may have promised to contribute and ro:
interests and damages from the time he should have complied with hu
obligation. Being a contract of partnership, each partner must share in thi
profits and losses of the venture. That is the essence of a partnership.3o
Cases covered of the liability for damages and interest

1. Money promised by a partner is not given on time; and
2. Money of the partnership is converted to partners' own use.
Demand is not necessary

This case is an exception to the general principle in the law ot
obligation which states: "there is no default, if there is no demand."
1. In the case of contribution, because time is of the essence, 2
partnership is formed precisely to make use of the contributions, anc
this use should start from its formation, unless a different period ha!
been set; otherwise the firm is necessarily deprived of the benefi~
thereof. Thus, injury is constant. 31
2. In the case of conversion, demand is also not necessary, even if m
actual injury results, the liability exists, because the Article h
absolute. 32
Art. 1789. An industrial partner cannot engage in business for himsel(

unless the partnership expressly permits him to do so; and if he shou1~
do so, the capitalist partners may either exclude him from the firm or
avail themselves of the benefits which he may have obtained in
violation of this provision, with a right to damages in either case. (n)
30
Eufracio D. Rojas vs. Constancio B. Maglana, G.R. No. 30616, December 10, 1990.
31
11 Manresa 332-335.
32
11 Manresa 335-336.
46
Capitalist partners
Those who contribute money or property or both money and
property to the common fund.
Industrial partners
Those who contribute only their industry or labor to the common
fund.
Capitalist-industrial partners
Those who contribute money or property and industry or both
money, property and industry to the common fund.
CAPITALIST PARTNER VS. INDUSTRIAL PARTNER .-

0
...,.;.
• ,cL-,,
_Capitalist partner _lnd-ustf)al partner
Contribution
Contributes money or property33 Contributes his industry3 4
'· ~ Prohibition to en2a ~e in other business
General rule: cannot engage in the General rule: cannot engage in
same kind of business in which the business for himself
partnership is engaged Exception: If the partnership
Exception: stipulation authorizing expressly permits him to do so36
him 35
Profits
Shares in the profits according to Shares in the profits according to
agreement; if there is no agreement, agreement; if there is no agreement,
in proportion to his contribution37 he shall receive such share as may
be just and equitable under the
\~' - •. . ·,<itl\-4 • ,.,, -
circumstances. ,
. . ;W)~H '>,
~d: .... ~-· , _..,. ·. ·; ., ~ Losses
General rule: the agreement as to General rule: the agreement as to
losses; if any. However, if there is no losses; if any.
agreement, then the agreement as to
profits Exception: in the absence of
Exception: in the absence of agreement, the industrial partner
agreement as to profits and losses, shall not be liable for losses.
in proportion to his contribution.
33 Art. 1767, NCC.

34 Art. 1767, NCC.
35 Art. 1808, NCC.
36 Art 1789, NCC.
37
Art 1797, NCC.
47
Remedies of capitalist partners against an industrial partner Wh,

engaged in business for himself
1. The capitalist partners may exclude the industrial partner from th,
partnership plus damages; or
2. The capitalist partners may avail themselves of the benefits which tht
industrial partner may have obtained plus damages.
Note:
An action for specific performance to compel the partner to
perform the promised industry is not available as a remedy because this
will lead to the prohibition on involuntary servitude under the Philippine
Constitution.
Example:
A and B formed a partnership to engage in the repair of
computers. Partner A contributed ?100,000 while B contributed his
industry. Adjacent the stall of the repair shop, A opened a coffee shop. At
the other side, B opened a store for selling computer parts. May A and B
engage in separate businesses?
A may engage in the coffee shop business as it is not of the same

kind as the business of the partnership. While B, may not -engage in any
kind of business, without the consent of A, because as an industrial
partner he must devote his full time to the partnership.
Art. 1790. Unless there is a stipulation to the contrary, the partnen

shall contribute equal shares to the capital of the partnership. (n)
Example:
A and B entered into a contract of partnership having an initial
capital of ?300,000. How much is the contribution of B?
Obviously, the facts of the case did not mention the separate
contribution of partners A and B. Hence, using the disputable
presumption mentioned in the above-stated article, B contributed
?150,000 (?300,000/2 = ?150,000).
Art. 1791. If there is no agreement to the contrary, in case of ai

imminent loss of the business of the partnership, any partner wbf
refuses to contribute an additional share to the capital, except al
industrial partner, to save the venture, shall be o bliged to sell ht
interest to the other partners. (n)
Obligation of capitalist partners to contribute additional

capital
General rule:
Capitalist partners are not bound to contribute additional capital.
Exceptions:
1. Stipulation; and
2. In case of imminent loss of the business of the partnership to save the
venture. If the capitalist partners refuse to contribute additional capital
they shall be obliged to sell their interest to the other capitalist partners
who are willing to contribute additional capital.
Note:
Contract of partnership is governed by the principle of
fiduciary relationship, that is trust and confidence, so that if a
capitalist partner is not willing to make additional contribution, then
there is no more fiduciary relationship to speak of Of course, the
above-article presumes that the capitalist partners are solvent
Additionally, the above-stated article is not applicable to

industrial partners because they are already giving their entire
industry.
Art. 1792. If a partner authorized to manage collects a demandable

sum which was owed to him in his own name, from a person who owed
the partnership another sum also demandable, the sum thus collected
shall be applied to the two credits in proportion to their amounts, even
though he may have given a receipt for his own credit only; but should
he have given it for the account of the partnership credit, the amount
shall be fully applied to the latter.
The provisions of this article are understood to be without

prejudice to the right granted to the debtor by Article 1252, but only if
the personal credit of the partner should be more onerous to him.
(1684)
r Rationale:
To prevent furtherance of the partner's personal interest to the detriment
of the partnership. The above-stated article is not applicable to a partner who is
not a managing partner because there is no basis for the suspicion that the
partner is in bad faith. 38
38 11 Manresa 351.
49
Example:
A and B entered into a contract of partnership. Who is th
manager? Clearly, the_Jacts of th_e case di~ not state who is _the manage;
so that the law provides that if there 1s no partner designated as
manager in a contract of partnership, then all (A and BJ the partners ar:
managers. 39
Obligation of a managing partner who collects debt

Requisites:
1. The existence of at least 2 debts (one where the managing partner is t~
creditor and the other where the partnership is the creditor); and '
2. Both sums are dernandable.
Example:
A and B formed AB partnership. They agreed that partner A
w,ll be the manager. Subsequently, in a contract, partner A had a
receiFable against X in the amount of Pl 00,000 due on August 1, 2020.
In another transaction, AB partnership had a receivable against X in
the amount of P300,000 due also on August 1, 2020. On September 1,
2020, X paid A the amount of PB0,000. Should A collect the entire
amount? ft depends.
a. If A issued a receipt for his own credit, then the PB0,000 should be
applied proportionately, that is, P 20,000 (100,000/400,000 x
PB0,000) will be applied to his own credit and the balance of
P60,000 (300,000/400,000 x PB0,000) will be applied to the credit
of the partnership.
b. If A issued a receipt for the credit of the partnership, then the
entire PB0,000 will be applied to the credit of the partnership.
What if in the above problem, the debt ofX to A has an interest

or that X delivered a car as a security in the form of pledge or chattel
mortgage? In this case, the law allows partner A to apply the entire
payment of PB0,000 to his credit as this is more onerous to X
Art. 1793. A partner who has received, in whole or in part, his share d.
a partnership credit, when the other partners have not collecte~
theirs, shall be obliged, if the debtor should thereafter beco011
insolvent, to bring to the partnership capital what he received evet
though he may have given receipt for his share only. (1 685a)
Rationale:
Equity demands proportionate share in the benefits an d losses. 40
39 Art 1803, NCC.

40 11 Manresa 353.
so
Article 1792 vs. Article 1793
As to the number of credits

There are two distinct credits, There is only one credit, that is,
that is, one in favor of the in favor of the partnership
partnership and another in favor
of the mana in artner
ies only if the partner is a Applies to any partner

artner
As to debtor's it1solven.
The debtor is not insolvent The debtor has become insolvent
Example:
A and B entered into a contract of partnership. Subsequently, X
owed the partnership the amount of PS00,000. Thereafter, partner A
collected P200,000 from X Later, X turned insolvent so that B could not
collect from X
In this case, the law provides that partner A should give the
share of Bin the amount of P100,000.
Note:
The above-stated article applies whether the partner has
received his share in whole or in part.
Art. 1794. Every partner is responsible to the partnership for damages

suffered by it through his fault, and he cannot compensate them with
the profits and benefits which he may have earned for the partnership
· by his industry. However, the courts may equitably lessen this
responsibility if through the partner's extraordinary efforts in other
activities of the partnership, unusual profits have been realized.
(1686a)
Rule:
Damages suffered by the partnership through the fault or
negligence of a partner are not generally subject to set-off with the profits
and benefits which that partner may have earned for the partnership by his
' industry.
Rationale:
It is the obligation of a partner to earn benefits and profits for
the partnership and it is also his obligation not to cause damages through
negligence for the partnership. These are two distinct obligations that
cannot be set-off. Moreover, in the law on obligation, only a right and an
obligation are required to be compensated or set-off.
51
Mitigation of liability by the courts

In_ case of a partner's extraordinary e~forts in ?ther actiVities of
partnership, unusual profits have been realized. This principle rests th!
equity. Ori
Art. 179 5. The risk of specific and determinate things, which are
fungible, contributed to the partnership so that only their use not
fruits may be for the common benefit, shall be borne by the
who owns them.
pa~:~
If the things contributed are fungible, or cannot be ke
without deteriorating, or if they were contributed t o be sold, the Ii p~
shall be borne by the partnership. In the absence of stipulation, t~
risk of the things brought and appraised in the inventory, shall also bt
borne by the partnership, and in such case the claim shall be limited t:
the value at which they were appraised. (1687)
Risk of loss
1. Specific and determinate things which are not fungible
What was contributed here is only the use of the object.
Fo r example, a partner contributes only the use of his
delivery truck. Hence, it is the partner who bears the risk of loss
because the partner did not transfer the ownership to the
partnership.
2. Fungible things
It is the partnership who bears the risk of loss as there wa1•
transfer of ovvnership after delivery of the fungible things.
3. Things contributed to be sold
It is the partnership who bears the risk of loss as there wai
transfer of ownership after delivery of the things that were contribute~,
to be sold.
4. Things brought and appraised in the inventory
It is the partnership who bears the risk of loss as there was·
transfer of ownership after delivery of the things brought and apprais~
in the inventory.
Art. 1796. The partnership shall be responsible to every partner for

the amounts he may have disbursed on behalf of the partnership anf
for the corresponding interest, from the time the expenses are made; ii
shall also answer to each partner for the obligations he may havf
contracted in good faith in the interest of the partnership business.
and for risks in consequence of its management. (1688a)
Obligation of the partnership to every partner

1. To refund the amounts a partner may have disbursed on behalf of tht
partnership plus the interest from the time the expenses were made.
52
Example:
A and B formed AB partnership. Subsequently B purchased
office supplies in the amount of P20,000 out of his own money with the
consent ofA on August 1, 2020.
In this case, AB partnership must reimburse the amount of
P20,000.
What ifAB partnership reimbursed B only on October 1, 2020?
In this case, AB partnership must also be liable for legal interest for two
months (from August 1, 2020 to October 1, 2020).
~-. To answer to each partner for obligations, he may have contracted into
in good faith in the interest of the partnership, and for the risks in
consequence of its management.
Example:
A and B formed AB partnership to engage in car repair shop.
Subsequently B purchased, on credit, car accessories from X Corp. in the
amount of P400,000. In this case, AB partnership is answerable to X
Corp. for its accounts payable amounting to P400,000.
Art. 1797. The losses and profits shall be distributed in conformity

with the agreement. If only the share of each partner in the profits has
been agreed upon, the share of each in the losses shall be in the same
proportion.
In the absence of stipulation, the share of each partner in the

profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner shall receive such
share as may be just and equitable under the circumstances. If besides
his services he has contributed capital, he shall also receive a share in
the profits in proportion to his capital. (1689a)
Being a contract of partnership, each partner must share in the

pi::ofits and losses of the venture. That is the essence of a partnership. 41
RULES FOR DISTRIBUTION OF PROFITS AND LOSSES OF A

PARTNERSHIP
1. DISTRIBUTION OF PROFITS
a. According to agreement
The profits shall be distributed in conformity with the
agreement.
41 lsabelo Moran, Jr. vs. Court of Appeals and Mariano E. Pecson, G.R. No. L-59956, October 31, 1984.
53
b. If there is no agreement
1. Capitalist partners - in proportion to what he ma h
contributed to the common fund. Y av,
2. Industrial partners - that which is just and equitable und
circumstances. er the
Example:
A, B, C and D entered into a contract of partnership. A
contributed PS,000,000 in cash while B contributed his only car
with a market value of Pl,000,000. C also contributed his only
parcel of land with a market value of P2,000,000 while D his
industry as a managing partner. They agreed to share in the profit
as follows: A= 40%; B =10%; C= 30%; and D 20%. After their first
year of operation, the partnership realized a net profit of P200,000.
How much is the share of every partner in the profit?
Since there is an agreement, their profit sharing will be

as follows:
1. A will receive PB0,000 (P200,000 x 40%);
2. B will receive P20,000 (P200, 000 x 10%);
3. Cwill receive P60,000 (P200,000 x 30%); and
4. Dwill receive ?40,000 (P200, 000 x 20%).
vVhat 1f there is no agreement? The sharing of the profit will be

based on capital contribution. However, in the present case, there is an
industrial partner so that his just and equitable share must first be
given. For example, if it was agreed upon by a II of the partners that the
just and equitable share of D, the industrial partner, is P20,000 then the
capitalist partners will share in the remaining Pl B0,000 {P200,000 -
P20,000).
Their profit sharing will be as follows:

1. A will receive P112, 500 (P5,000,000/PB,OOO,OOO x PlB0,000);
2. B will receive P22, 500 (Pl,000,000/PB,OOO,OOOx PlB0,000);
3, Cwill receive P45, 000 (P2,000,000/PB, OOO,OOOx PlB0,000); and
4. D, will receive P20,000 (agreed upon by the partners as his just and
equitable share)
What if aside from the fact that D is an industrial partner, he

also contributed cash in the amount of P2,000,000? This is a case
where D is a capitalist-industrial partner. Based on the same
assumption that the just and equitable share of D as an industrial
partner is P20,000. Their profit sharing will be as follows:
1. A will receive P90, 000 (P5,000,000/P1 0,000,000 x P180 000)-

2. B will receive P18, 000 (Pl,000,000/Pl O,OOO,OOO x P180,000/
54
3. C will receive P36, 000 (P2,000,000/P10,000,000 x PlB0,000);

and
4. D, will receive P 36,000 (P2,000,000/P10,000,000 x PlB0,000)
plus P20,000 ( agreed upon by the partners as his just and
equitable share)
2. DISTRIBUTION OF LOSSES
a. According to agreement
The losses shall be distributed in conformity with the
agreement. If the only agreement pertains to the share of each
partner in the profits, the share of each in the losses shall be in the
same proportion. However, the industrial partner shall not be liable
for the losses.
b. If there is no agreement:
1. Capitalist partners - in proportion to what they may have
contributed to the common fund.
2. Industrial partners - not liable for losses.
Example:
A, B, C _a nd D entered into a contract of partnership. A
contributed P5,000,000 in cash while B contributed his only car with a
market value of Pl,000,000. C also contributed his only parcel of land
with a market value of P2,000,000 while D his industry as a managing
partner. They agreed to share in the profit as well as losses as follows:
A =40%; B = 10%; C =30%; and D 20%. After their first year of
operation, the partnership incurred a net loss of Pl 00,000. How much
is the share of every partner in the loss?
Since there is an agreement, their loss sharing will be as follows:

1. A will share P40,000 (Pl00,000 x 40%);
2. B will share Pl0,000 (Pl00,000 x 10%);
3. C will share P30,000 (Pl 00,000 x 30%); and
4. D will share P20,000 (Pl00,000 x 20%).
Note:
As a rule, an industrial partner is not liable for losses; however,
in the instant case, D agreed to shoulder 20% in case of loss. Such kind
of agreement is valid. It is a waiver of right on the part of partner D.
What if there is no agreement? The sharing of the losses will be

based on capital contribution. In the present case, there is an industrial
partner so that as a rule an industrial is not liable for losses.
Their loss sharing will be as follows:

1. A will share P62, 500 (P5,000,000/PB,000,000 x P100,000);
2. B will share P12, 500 (P1,000,000/PB,000,000 x P100,000);
55
3. Cwill share P25, 000 (P2,000,000/PB,000,00O x P1 00,000J; and

4. D, an industrial partner, is not liable.
W!wt if aside Jr:om the fact that D is an industrial partner, he

also contnbuted cash 111 the amount of P2, 000,000? This is a cas
where D is a capitalist-industrial partner. Their loss sh aring will be a:
follows:
1. A will share PS0, 000 (PS,000,000/P1 0,000,000 x P1 00,000J;
2. B will share Pl 0, 000 (Pl,000,000/Pl 0,000,000 x P1 00,000);
3. Cwill share P20, 000 (P2,000,000/P1 0,000,000 x P1 00,000); and
4. D, will share ?20,000 (P2,000,000/P1 0,000,000 x P1 00,000).
Note:
The above-stated article excludes an industrial partner trAro loss~
but he is not exempted from liability insofar as third persons are
concerned. He may, howeve~ recover what he has given to third persons
from the other partners because as to him and his partners, that will now
be treated as a loss.
Consequently, liability refers to the obligation towards third

persons and losses refers to obligation as among the partners.
Problem:
M, Inc. and G, Inc. entered into a Joint Venture Agreement OVA)
for the construction and development of an office building on a land
owned by M, Inc. in Makati City.
The joint venture engaged the services of X, Inc. to provide
subsurface soil exploration, laboratory testing, seismic study and
geotechnical engineering for the project.
X, Inc. then billed the joint venture for P284,553 representing ,
the cost of partial subsurface soil exploration; and for P25O,800
representing the cost of the completed seismic study.
Despite repeated demands from X, Inc., the joint venture failed ·
to pay its obligations.
Meanwhile, due to unfavorable economic conditions at the time, .
the joint venture was cut short and the planned building project was :
eventually abandoned.
X, Inc. subsequently filed a complaint for collection of sum of :
money against M, Inc. and G, Inc.
Which between joint venturers M, Inc. and G, Inc. bears the
liability to pay X, Inc. its unpaid claims?
Answer:
ioint venture
M, Inc. and G, Inc. are jointly liable to X, Inc. A
bein&! a form of partnership, is to be &!0verned by the laws on ·
partnership. Article 1797 of the Civil Code provides:
56
Art 1797. The losses and profits shall be distributed in

conformity with the agreement If only the share of each partner in
the profits has been agreed upon, the share of each in the losses shall
be in the same proportion.
In the absence of stipulation, the share of each in the profits
and losses shall be in proportion to what he may have contributed,
but the industrial partner shall not be liable for the losses. As for the
profits, the industrial partner shall receive such share as may be just
and equitable under the circumstances. If besides his services he has
contributed capital, he shall also receive a share in the profits in
proportion to his capital.
In the JVA, M, Inc. and G, Inc. agreed on a 50-50 ratio on the
proceeds of the project. They did not provide for the splitting of losses,
however. Applying the above-quoted provision of Article 1797 then, the
same ratio applies in splitting the P535,353 obligation-loss of the joint
venture. 42
Art. 1798. If the partners have agreed to intrust to a third person the
designation of the share of each one in the profits and losses, such
designation may be impugned only when it is manifestly inequitable.
In no case may a partner who has begun to execute the decision of the
third person, or who has not impugned the same within a period of
three months from the time he had knowledge thereof, complain of
such decision.
The designation of losses and profits cannot be intrusted to one
of the partners. (1690)
Third Person Designating the Share of Partners in the Profits

and Losses
General rule:
It is valid.
Exception:
It is not valid and it may be questioned if it is manifestly ineguitable:
unless:
1. A partner began to execute the decision of the third person; or
2. A partner has not questioned the said decision of the third person
within a period of 3 months from the time he had knowledge thereof.
Art. 1799. A stipulation which excludes one or more partners from any
share in the profits or losses is void. (1691)
42 see Marsman Drysdale Land, Inc., vs. Philippine Geoanalytics, Inc. and Gotesco Properties, Inc., G.R. No. 183374,
June 29, 2010.
57
General rule:
A stipulation excluding one or more partners from any share int~
profits and losses is void. Take note that what is void is the stipulation on~
and not the contract of partnership. Hence, the profits and losses shall ht
distributed as if there was no agreement as discussed in the preceding
article.
Also, let it be noted that one of the tests in order to have a

partnership is the intent of the contracting parties to divide the profi~
among themselves.
Exception:
An industrial partner is not liable for losses unless he waived thu·
right.
Rationale: Why an Industrial Partner is not liable for losses?

While capitalist partners can withdraw their capital, the .
industrial partner cannot withdraw any labor or industry he had already
exerted. Moreover, in a certain sense, he already has shared in the losses
in that, if the partnership shows no profit, this means that he has labored
in vain. 43
Art. 1800. The partner who has been appointed manager in 'the articles'.
of partnership may execute all acts of administration despite the;
opposition of his partners, unless he should act in bad faith; and his•
power is irrevocable without just or lawful cause. The vote of ther
partners representing the controlling interest shall be necessary for;
such revocation of power. :
A power granted after the partnership has been constituted!
may be revoked at any time. (1692a) ·
Example of an act of administration

A managing partner of a partnership may execute all acts of
administration including the right to sue debtors of the partnership in
case of their failure to pay their obligation when it became due and
demandable.
Who shall manage the partnership?

Either one, some or all of the partners designated as managing.
partner/s either in the articles of partnership or after the contract ofl
partnership had already been constituted. If there is no agreementi
management is vested in all of the partners.
43 11 Manresa 377.
58
TWO MODES OF APPOINTMENT

1. Appointment as manager in the articles of partnership; or
2. Appointment as manager made in an instrument other than the articles
of partnership.
I. APPOINTMENT AS MANAGER IN THE ARTICLES OF PARTNERSHIP
General Rule:
Power is irrevocable without just or lawful cause.
Exception:
1. To remove him for just cause, vote of partners having controlling
interest is necessary;44
2. To remove him without just cause, there must be unanimity including
his own vote.
Reason:
This represents a change in the will of the parties; a change in the
terms of the contract; a novation; so to speak, requiring unanimity.45
Extent of power:
1. If he acts in good faith, he may do all acts of administration despite the
opposition of his partners.
2. If he acts in bad faith, he cannot do any act of administration. It must be
noted that the presumption in law is in favor of good faith.
II. APPOINTMENT AS MANAGER MADE IN AN INSTRUMENT OTHER

THAN THE ARTICLES OF PARTNERSHIP
Rule:
The power to act may be revoked at any time, with or without
just cause by the partners owning the controlling interest.
Reason:
Such appointment is a mere delegation of power; revocable at
any time. 46
Extent of power:
The manager can do all acts of administration.
Art. 1801. If two or more partners have been intrusted with the
management of the partnership without specification of their
44 Art. 1800, NCC.

•s 11 Manresa 382.
4611 Manresa 381.
59
respective duties, or without a stipulation that one of them shall not

act without the consent of all the others, each one may separately
execute all acts of administration, but if any of them shou!d oppose the
acts of the others, the decision of the majority shall ~revall. In case of a
tie, the matter shall be decided by the partners owning the controlling
interest. (1693a)
When Two or More Managing Partners have been Entrusted

with the Management
Requisites:
1. Two or more partners are managers;
2. There is no specification of respective duties; and
3. There is no stipulation requiri ng unanimity, that is, that one of them
shall not act vvithout the consent of all the others.
General rule:
Each one may separately execute all acts of administration.
Exceptions: If any of the managers should oppose:

1. The decision of the majority (per head) of th e managing partners shall.
prevail.
2. In case of a tie, the decision of the managing partners owning the·
controlling interest (more than 50%) shall prevail.
Note:
The right to oppose is not given to non-managers because in
appointing their other partners as managers, they have stripped
themselves of all participation in the administration. 47
Example:
A (15%J B (10%J C (35%J D (20%J E (10 %J and F {10%) are
partners in AF partnership. It was agreed upon that the managers are A,
B, C, and D. Afterwards, an issue arose on whether or not to enter into a
contract of lease with X Corp. Managers A B, and C agreed to enter into a
contract with X Corp. but D opposed the offer. In this case majority (per
head) prevails, that is, AF partnership will enter into a contract with x
Corp.
What if A and B want to enter into a contract with X Corp. but c

and D do not want t~ enter into a c_on tract? ~ince we have a tie per head
count, the next rule 1s to go to their controlling interest so that A and B
have a total of 25% (15% + 10%) in terest while C and D have a total of
47
11 Manresa 385.
60
55% (35% + 20%} interest, the latter shall prevail, that is AF partnership
will not enter into a contract with X Corp.
Take note that partners E and F do not participate in

management being non-managers; thus, as a rule, they have no power or
authority in all acts of administration.
Problem:
Xis the proprietor of X Construction and Trading (XCT). On May
24, 1999, X executed a Special Power of Attorney (SPA) authorizing Y to
participate in the bidding of a National Irrigation Administration (NIA)
project.
On September 29, 1999, Y, participated in the bidding of a
project and was awarded the construction of a road system with a
project cost of PS,613,591.
When W learned that Y is in need of heavy equipment for use in
the NIA project, he met up with Y, in an apartment where the latter was
holding office under an XCT signboard. A series of meetings followed in
said XCT office among W, X and Y.
On December 2 and 20, 1999, W and Y signed two
Agreements for the lease of W's dump trucks to XCT.
On April 27, 2000, X revoked the SPA he previously issued in
favor of Y; consequently, NIA refused to make payment to Y on her
billings. W, therefore, could not be paid for the rent of the equipment.
In a letter dated April 5, 2000, W demanded from Y and/or XCT

payment of the outstanding rentals which amounted to P726,000 as of
March 31, 2000.
Is there a partnership? If yes, can X or Y separately execute all acts
of administration?
Answer:
x (or, more appropriately, XCI) and Y had entered into a
partnership with regard to the NIA project. X's contribution thereto is
his contractor's license and expertise, while Y would provide and secure
the needed funds for labor, materials and services and deal with the
suppliers and sub-contractors. For this, X would receive as his share 3%
of the project cost while the rest of the profits shall go to Y. X admitted
this arrangement.
Evidence shows that when Y and W met and discussed (at the
XCT office) the lease of the latter's heavy equipment for use in the
project, X was present and interposed no objection to Y's actuations.
Quite the contrary, Y's actions were in accord with what she and X
originally agreed upon, as to division of labor and delineation of
functions within their partnership.
61
Under the Civil Code, eve,y partner is an agent of the part

for the purpose of its business; each one may separately execute all nersh;,
administration, unless a specification of their respective duties ha:c: ~
agreed upon, or else it is stipulated that any one of them shall not act With:~·
the consent of all the others. At any rate, X does not have any valid c lit
for opposition because his only ro~e in theyartnership is.to provid:~
contractor's license and expertise, while the sourcing of fu ~
materials, labor and equipment has been relegated to Y. n~
X should be made civilly liable for abandonfog the partnersh·
leaving Y to fend for her own, and for unduly revoking her authorit/t
collect payments from NIA, payments which were necessary for th
settlement of obligations contracted for and already owing to Iabore e
and suppliers of materials and equipment like W, not to mention t~
agreed profits to be derived from the venture that are owing to y b~
reason of their partnership agreement. 48 1
Art. 1802. In case it should have been stipulated that none of the
managing partners shall act without the consent of the others, the
concurrence of all shall be necessary for the validity of the acts, and
the absence or disability of any one of them cannot be alleged, unless·
there is imminent danger of grave or irreparable injury to the
partnership. (1694) '
Stipulation Requiring Unanimity of Action
General Rule:
Unanimous consent of all the managing partners ( even if ·one of the
managers is absent or incapacitated) shall be necessary for the validity o!
the acts and absence or disability of any managing partner cannot be
alleged.
Exception:
When there is an imminent danger of grave or irreparable injury to:
the partnership.
Art. 1802 NOT applicable to third person

The stipulation in the articles of partnership that a ny of the two:
managing partners may contract and sign in the name of t he partnership
with the consent of the other, undoubtedly creates an obligation between
the two partners, which consists in asking the other's consent before
contractin~ for the partnership. This o~li~ation of course is not imposed
upon a third person who contracts with the partnershig,. Neither it is
necessary for the third person to ascertain if the managing partner with
8
~ see Zenaida G. Mendoza vs. Engr. Eduardo Paule, et al., G.R. No. 175885, February 13,
2009
62 .
whom he contracts has previously obtained the consent of the other. Athird
person may and has a ri~ht to presume that the partner with whom he
contracts has, in the ordinary and natural course of business, the consent of
bis co-partner; for otherwise he would not enter into the contract, The third
person would naturally not presume that the partner with whom he enters
into the transaction is violating the articles of partnership, but on the
contrary is acting in accordance therewith. And this finds support in the
legal presumption that the ordinary course of business has been followed,
and that the law has been obeyed. This last presumption is equally
applicable to contracts which have the force of law between the parties.49
'
Art. 1803. When the manner of management has not been agreed
upon, the following rules shall be observed:
(1) All the partners shall be considered agents and whatever any one
of them may do alone shall bind the partnership, without
prejudice to the provisions of Article 1801;
(2) None of the partners may, without the consent of the others,
make any important alteration in the immovable property of the
partnership, even if it may be useful to the partnership. But if the
refusal of consent by the other partners is manifestly prejudicial
to the interest of the partnership, the court's intervention may be
sought. (1695a)
Rules When Manner o~ Management Has Not Been Agreed Upon

1. All the partners shall be considered as managers. Consequently, all
partners can do all acts of administration. If the acts of a partner are
opposed by the other partners, the majority (per head) shall prevail.
In case of tie (per head), then the vote of the partners representing the
controlling interest shall prevail.
Example:
A, B., C, and D formed ABCD partnership. In this case, it is
presumed that all of the partners are managers. Therefore, in case of
opposition in decision-making of one or some of the partners, we follow
the rules stated in Article 1801, that is, majority wins (per head] and in
case of tie, then it will be decided by the vote of the partners
representing the controlling interest
2. For important alterations in immovable property, unanimity is

required.
Note:
Paragraph 2 deals only with immovable property:
49
Antonio C. Goquiolay, etal. vs. Washington Z. Sycip, etal., G.R. No. L-11840
63
a. First, because of their comparative greater importance than

personalty.
b. Second, because, in a proper case, they should be returned to the
partners in the same condition as when they were delivered to the
partnershiJJ. so
Consent of the others may be expressed or implied (as When
the partners had knowledge of the alteration and no opposition Was
made lJ\' them). 51
Art. 1804. Every partner may associate ano~her p~rson with him in hh
share, but the associate shall not be admitted m to t~e partnershi
·without the consent of all the other partners, even if the Partn/
having an associate should be a manager. (1696) r
The above stated article refers to Contract of Sub-partnership, It

a contract of sub-partnership, the consent of the other partners is not
required. Hence, all partners can have an associate in his share or su~
partner
It 1s a rule that no one can become a partner in a partnershi~
'"11thout the consent of all of the partners. Consequently, an associate 01
sub-partner shall not be admitted into the partnership without the conseni
of all the other partners based on the followi ng reasons:
a. Mutual trust is the basis of partnership; and

b. A change in membership is a modification or novation of the
contract. 52
Example:
A, B, C, and D entered into a contract of partnership. By virtue of
a contract of loan, D borrowed PS0,000 from X and one of their
stipulations is that 50% of the share of partner D in the partnership
income will be applied or deducted from the obligation of D to X In the
first year of operation of the partnership, it earned a net income of
Pl00,000 and it was agreed that the share of D will be P25,000.
Therefore, P12,SOO (25,000 x 50%) will be applied or deducted from the
obligation of D to X
Art. 1805, The partnership books shall be kept, subject to any

agreement between the partners, at the principal place of business of
the partnership, and every partner shall at any reasonable hour have
access to and may inspect and copy any of them. (n)
5~ 11 Manresa 3'J3
51
11 Manresa 392.
52
11 Manresa 395.
64
A partner is given by law the right to have access to, inspect and
copy the partnership books for the purpose of enabling that partner to
obtain true and full information of all things affecting the partnership.
Partnership books is an example of partnership property and every partner
is a co-owner of specific partnership property.
What is reasonable hour?

The Supreme Court held that reasonable hour should be on
business days throughout the year, and not merely during some arbitrary
period of a few days chosen by the directors ( or managers as regards
partnershipJ. 53
Art. 1806. Partners shall render on demand true and full information
of all things affecting the partnership to any partner or the legal
representative of any deceased partner or of any partner under legal
disability. (n)
Violation of the above stated article is called concealment.
Who can demand true and full information?

1. Any partner;
2. Legal representative of any deceased partner; and
3. Legal representative of any partner under legal disability.
Art. 1807. Every partner must account to the partnership for any
benefit, and hold as trustee for it any profits derived by him without
the consent of the other partners from any transaction connected with
the formation, conduct, or liquidation of the partnership or from any
use by him of its property. (n)
Rationale:
The partners are governed by fiduciary relationship, that is,
mutual trust and confidence.
Note:
The above article refers only to any profits derived by a partner
without the consent of the other partners.
Problem:
X, Y and Z were partners in a business concern known as XYZ
Fishing Industry. Sometime in January of 1986, they decided to dissolve
their partnership and executed an agreement of partition and
distribution of the partnership properties among them, consequent to
Z's withdrawal from the partnership. Among the assets to be distributed
53 Antonio Pardo vs. The Hercules Lumber Co., Inc. and Ignacio Ferrer, G.R. No. L-22442, August 1, 1924.
65
vlere S fishing boats, 6 vehicles, 2 parcels of land, and cash deposits in a

local bank.
Throughout the existence of the partnership, and even after Y's
untimely demise in 1994, X failed to submit to Y's heirs any statement of
assets and liabilities of the partnership, and to render an accounting of
the partnerships finances. X also reneged on his promise to turn over to
Y's heirs the deceased's 1/3 share in the total assets of th e partnership,
amounting to P30,000,000 or the sum of Pl0,000,0 00 despite formal
demand for payment thereof.
Consequently, Y's heirs, filed against X an action for accounting,
pa 'Tilent of shares, division of assets and damages.
Did the heirs' cause of action prescribed 4 years after it accrued
in 1986?
Answer:
The 3 final stages of a partnership are: (1) dissolution; (2)
v,inding-up; and (3) termination. The partnership, although dissolved,
continues to exist and its legal personality is retained, at which time it
completes the winding up of its affairs, including the partitioning and
distribution of the net partnership assets to the partners. For as long as
the partnership exists, any of the partners may demand an accounting of
the partnership's business. Prescription of the said right starts to run
only upon the dissolution of the partnership when the final accounting
is done.
Applied in relation to Articles 1807 and 1809, which deal with
the duty to account, the above-cited provision states that the right to
demand an accounting accrues at the date of dissolution in the absence
of any agreement to the contrary. When a final accounting is made, it is
only then that prescription begins to run. In the case at bar, no final
accounting has been made, and that is precisely what Y's heirs are
seeking in their action before the trial court, since X has failed or
refused to render an accounting of the partnership's business and
assets. Hence, the said action is not barred by prescription.s4
Art. 1808. The capitalist partners cannot engage for their own account
in any operation which is of the kind of business in which the
partnership is engaged, unless there is a stipulation to the contrary.
Any capitalist partner violating this prohibition shall bring to
the common funds any profits accruing to him from his transactions,
and shall personally bear all the losses. (n)
Rationale:
The capitalist partner has already acquired knowledge of the
business secrets of the partnership; hence, it is unfair for him to engage in
54 see Emilio Emnace vs CA, et.al., GR. No . 126334, November 23, 2001.
66
a business which is of the kind of business in which the partnership is

engaged.
Effects of violation
1. The capitalist partner shall bring to the common fund any profits
accruing to him; and
2. The capitalist partner shall personally bear all the losses.
Art. 1809. Any partner shall have the right to a formal account as to
partnership affairs:
(1) If he is wrongfully excluded from the partnership business or
possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807; and
(4) Whenever other circumstances render it just and reasonable. (n)
General Rule:
No formal accounting is demandable until after the dissolution of
the partnership.
Exceptions:
1. If a partner is wrongfully excluded from the partnership business or
2. If the right to demand for accounting exists under the terms of any
agreement;
3. As provided by article 1807; and
4. Whenever other circumstances render it just and reasonable.
Problem 1:
The W Panciteria, a restaurant, was established sometime in
October, 1955. It was registered as a single proprietorship and its
licenses and permits were issued to and in favor of X as the sole
proprietor. Y adduced evidence during the trial of the case to show that
W Panciteria was actually a partnership and that he was one of the
partners having contributed P4,000 to its initial establishment.
Y's evidence is summarized as follows:
About the time the W Panciteria started to become operational,

Y gave P4,000 as his contribution to the partnership. This is evidenced by
a receipt wherein X acknowledged his acceptance of the P4,000 by
affixing his signature thereto. Y identified the signature on the receipt as
that of X because it was affixed by the latter in his presence. Witnesses B
and C corroborated Y's testimony to the effect that they were both
present when the receipt was signed by X
67
Furthermore, Y received fro m X the amount of P12,000 cov

by the latter's Check No. 012345 fro m the profits of the operation
0
;;;Q
restaurant for the year 1974. e
X denied having received from Y the amount of P4,000.

ls Y a partner of X in the establishment of W Panciteria? If y
does Y have a right to ask for an a~c~untin~ of his interests in
partnership? lf yes, what is the prescnpt1ve penod?
t~:
Answer:
.. The r~cords su~cie_ntly establi 7I~ that there was ~ partnecshill,.
1s a partner mW Panc1tena. The requlSltes of a partnership which are,
1) two or more persons bind themselves to contribute money, property, or
industry to a common fund; and 2) intention on the part of the partners to
d1\,1de the profits among themselves have been established.
As stated by Y, a partner shares not only in profits but also in
the losses of the firm. If excellent relations exist among the partners at
-che start of business and all the partners are more interested in seeing
the fi rm grov, 1 rather than get immediate returns, a deferment of sharing
1r. the profits 1s perfectly plausible. It would be incorrect to state that if a
oartner does not assert his rights anytime within ten years from the
star( of operatwns, such rights are irretrievably lost Y's cause of action
1s premised upon the failure of X to give him the agreed profits in the
operat10n of W Panciteria. In effect Y was askin~ for an accoµntine qf
h1s mterests in the partnership.
Regarding the prescriptive period within which the private
respondent may demand an accounting, Articles 1806, 1807, and
1809 show that the right to demand an accounting exists as long as the
partnership exists. Prescription begins to run only upon the dissolution
of the partnership when the final accounting is done.ss
Problem 2:
A co-partnership was formed under the name of "E & Co." Later.
the Articles of Co-partnership was amended as to include E 35
I I
industrial partner, with D, L and C, the original capitalist partne~
remaining in that capacity, with a contribution of Pl 7,500 each. Tht
amended Articles provided that "the contribution of E consists of her
industry being an industrial partner", and that the profits and loss~
"shall be divided and distributed among the partners ... in th<
proportion of 70% for the first three partners, D, C and L to be divideC
among them equally; and 30% for the fourth partner E."
Subsequently, E filed suit against the three other «
· h h. h d b · ·
allegmg that t e partners 1p a een paying dividends to th partnei:
xcept to l1er; an d t hat notw1.t hstand.mg her demands D L e partne~
d ·
, an C h3'
~~ ~ti: IJ,rn Fut Ltung v~ Hon. lnl<:1 mediate Appellate Court and Leung Yiu, G.R. No
68 · 70 9261 January 31, 1989
refused and continued to refuse to let her examine the partnership

books or to give her information regarding the partnership affairs to
pay her any share in the dividends declared by the partnership.
D, Land C denied ever having declared dividends or distributed
profits of the partnership; and they also denied E ever demanded that
she be allowed to examine the partnership books. D, L and C likewise
alleged that E was not an industrial partner and that her share of 30%
was to be based on the profits which might be realized by the
partnership only until full payment of the loan which it had obtained
from R Corp. in the sum of P30,000, for which E had signed a
promissory note as co-maker.
Is E an industrial partner as claimed by her or merely a profit
sharer entitled to 30% of the net profits that may be realized by the
partnership until the loan from R Corp. shall be fully paid, as claimed by
D, Land C?
Answer:
Even as E was and still a Judge of the City Court of Manila, she
has rendered services for D, L and C without which they would not have
had the wherewithal to operate the business for which E & Co. was
organized. Article 1767 of the New Civil Code which provides that "By
contract of partnership two or more persons bind themselves, to contribute
money, property, or industry to a common fund, with the intention of dividing
the profits among themselves, does not specify the kind of industry that a
partner may thus contribute, hence the said services may legitimately
be considered as E's contribution to the common fund.
E is an industrial partner of E & Co., with the ri~ht to demand for
a formal accountin~ and to receive her share in the net profit that may
result from such an accounting. Our said holding is based on the
following article of the New Civil Code:
ART.1809. Any partner shall have the right to a formal account

as to partnership affairs:
1) I/he is wrongfully excluded from the partnership business or
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807; and
(4) Whenever other circumstance render it just and reasonable.s6
56
see Evangelista and Co., et.al. vs. Estrella Abad Santos, G.R. No. L-31684, June 28, 1973.
69
INDUSTRIAL PARTNER CAPITALIST .P . ;_

PROHIBITION
ABSOLUTE PROHIBITION RELATIVE PROH IBITION
The industrial partner cannot The capitalist partner cannot
engage in business for himself, in the same kind of business enga~
unles s the partnership expressly of the partnership for hits t~
permits him to do so. 0
acco unt, unless there is a stipu]a ~11
to the contra . lj~
REMEDY
Capitalist partners may: Capitalist partner, who violated sh
1. Exclude him from the firm 1. Bring to the common fuall,
plus damages; and any profits accruing to h~·
2. A,·ail themselves of the fram sa1·ct transactions; and~
benefits ,-vhich he may have 2. Personally bears all losses,
obtamed.
70
SECTION 2.
Property Rights of a Partner
Art. 1810. The property rights of a partner are:

(1) His rights in specific partnership property;
(2) His interest in the partnership; and
(3) His right to participate in the management. (n)
Rights in specific partnership property
Example:
A, B, and Cformed ABC partnership. Partner A contributed cash
in the amount of PS00,000. Partner B contributed his only parcel of land.
Also, partner C contributed his only truck. In here, all the contributions
will be delivered to the ABC partnership and delivery will transfer
ownership. However, even if all of the contributions will be directly
owned by ABC partnership having a separate juridical personality,
partners A, B, and C have co-ownership over these properties for the
operation of the business of the partnership.
Interest in the partnership
Example:
A, B, and Cformed ABC partnership. Partner A contributed cash
in the amount of P200,000. Partner B contributed his only parcel of land
where the partners agreed that the value is PS00,000. Also, partner C
contributed his only truck where the partners agreed that the value is
P300,000. In sum, the total capital contribution to the partnership is
Pl,000,000 {P200,000 + PS00,000 + P300,000). In here, A has an interest
of 20% (P200,000/P1,000,000). B has an interest of 50%
(PS00,000/Pl,000,000). Chas an interest of 30% {P300,000/P1,000,000).
Right to participate in the management
Example:
A, Band Centered into a contract of partnership. In here, all are
managers since there is no stipulation on who will be the manager. Thus,
every partner can perform all acts of administration.
Art. 1811. A partner is co-owner with his partners of specific

partnership property.
The incidents of this co-ownership are such that:

(1) A partner, subject to the provisions of this Title and to any
agreement between the partners, has an equal right with his
partners to possess specific partnership property for partnership
71
purposes; but he has no right to possess such property for any

other purpose without the consent of his partners;
(2) A partner's right in specific partnership property is not
assignable except in connection with the assignment of rights of all
the partners in the same property;
(3) A partner's right in specific partnership property is not subject
to attachment or execution, except on a claim against the
partnership. When partnership property is attached for a
partnership debt the partners, or any of them, or the
representatives of a deceased partner, cannot claim any right
under the homestead or exemption laws;
(4) A partner's right in specific partnership property is not subject
to legal support under Article 291. (n)
1. A partner has an equal right with his partners to possess specific

partnership property for partnership purposes
Example:
A, B, and Centered into a contract of partnership. Partner A
contributed cash in the amount of ?200,000. Partner B contributed
his only parcel of land. Also, partner C contributed his only truck. All
of the contributions of the partners are now owned by the partnership
being a juridical person. In here A, B, or C can use the P200,000 for
partnership purposes like purchase of office supplies, but not for
personal purposes. Also, A, B, or C can use the parcel of land for
partnership purposes like for warehouse of the partnerships' goods.
Further, A, B, or C can use the truck for partnership purposes like for
hauling goods of the partnership but not for personal purposes.
2. A partner's right in specific partnership property is not

assignable
ASSIGNMENT
The transfer of rights or property. The rights or property so
transferred 57
Example:
contributed cash in the amount of P200,000. Partner B contributed
his only parcel ofland. Also, partner C contributed his only truck. A,
B, or C cannot assign their individual rights on any of their
contributions. Take note that these properties are now owned by the
partnership which has a separate juridical personality.
57 seep. 142, Black's Law Dictionary, Tenth Edition.

72
3. A partner's right in specific partnership property is not u je

to attachment or execution
Example:
his only parcel of land. Also, partner C contributed his only truck.
Their separate creditors cannot ask the court for attachment or
execution of these properties as these are now owned by the
partnership which has a separate juridical personality.
4. A partner's right in specific partnership property is not subject

to legal support
Example:
his only parcel of land. Also, partner C contributed his only truck. The
right of A, B, and C to their contribution is not subject to legal
support.
Problem:
P Inc. is a corporation organized and existing under the laws
of California, USA. P Inc. entered into an "Agreement" with
M. Pursuant to the said agreement, P Inc. will establish a
representative office in the Philippines, to be known as P lnc. -Phils,
and M will be its President.
The SEC granted the application of P Inc. for a license to
transact business in the Philippines under the name of P Inc.-
Phils. In its application, P Inc. proposed to establish its
representative office in the Philippines with the purpose of
monitoring and coordinating the market activities for pap er
products. It also designated M as its resident agent.
The Agreement was later amended where the salary of M
was increased to $78,000 per annum. Both agreements show th at
the operational expenses will be borne by the representative office
and funded by all parties "as equal partners," while the profi ts , nd
commissions will be shared among them.
In July 2000, M wrote P Inc., seeking confirmation of h 1
50% equity of P Inc. Phils. P Inc., through W, its President, re pli ed
that M is not a part-owner of P Inc.-Phils. because th e latter I\
merely P Inc.-USA's representative office and not an entity se parcttt·
and distinct from P Inc.-USA. "It's simply a 'theoret ica l co r 1p,rn y'
with the purpose of dividing the income 50-50." M pre •ti m.ihh,
knew of this arrangement from the start, having bee n th ,~ <Ht t• )
73
propose to P Inc. the setting up of a representative office, and "not a

branch office" in the Philippines to save on taxes.
M claimed that he was all along made to believe that he was
in a joint venture with them. Had he known that no joint venture
existed, he would not have allowed P Inc. to take the profitable
business of his own company, M Marketing Corp.
Subsequently, P Inc. likewise sent letters to its clients in the
Philippines, advising them not to deal with P Inc.-Phils.
M construed these directives as a severance of the
"unregistered partnership" between him and P Inc.
Is there partnership between M and P Inc. or an employer-
employee relationship?
Answer:
\~Te hold that M is an employee of P Inc. and that llQ
partnership or co-ovmership exists between the parties.
In a partnership, the members become co-owners of what is
contributed to the firms' capital and of all property that may be
acquired thereby and through the efforts of the members. The
property or stock of the partnership forms a community of goods, a
common fund, in which each party has a proprietary interest. ln
fact, the New Civil Code re~ards a partner as a co-owner of specific
partnership property. Each partner possesses a joint interest in the
whole of partnership property. If the relation does not have this
feature, it is not one of partnership. This essential element, the
community of interest, or co-ownership of, or joint interest in
partnership property is absent in the relations between M and P Inc.
M is not a part-owner of P Inc.-Phils. W, P Inc.'s President
established this fact when he said that P Inc.-Phils. is simply a
"theoretical company" for the purpose of dividing the income 50-50.
He stressed that M lmew of this arrangement from the very start,
having been the one to propose to P Inc. th~ setting up of a
representative office, and "not a branch office" in the Philippines to
save on taxes. Thus, the parties in this case, merely shared profits.
This alone does not make a partnership.
Besides. a corporation cannot become a member of a
partnership in the absence of express authorization by statute or
charter. This doctrine is based on the following considerations: (1)
that the mutual agency between the partners, whereby the
corporation would be bound by the acts of persons who are not its
duly appointed and authorized agents and officers, would be
inconsistent with the policy of the law that the corporation shall
manage its own affairs separately and exclusively; and, (2) that such
an arrangement would improperly allow corporate property to
become subject to risks not contemplated by the stockholders when
74
they originally invested in the corporation. No such authorization

has been proved in the case at bar.ss
Art. 1812. A partner's interest in the partnership is his share of the

profits and surplus. (n)
PROFIT
The excess of revenues over expenditures in a business
transaction. 59
SURPLUS
The excess of receipts over disbursements. Funds that remain
after a partnership has been dissolved and all its debts paid. 60
Under the preceding article, as a rule, a partner's right in specific

partnership property cannot be assigned, cannot be attached, and is not
subject to legal support. In the above stated article, it provides that a
partner's interest in the partnership (partners' share in the profits and
surplus), as a rule, can be assigned, can be attached, and can be subject to
legal support.
Example:
A, B, and C formed ABC partnership. Partner A contributed cash
in the amount of P200,000. Partner B contributed his only parcel of land
where the partners agreed that the value is PS00,000. Also, partner C
contributed his only truck where the partners agreed that the value is
?300,000. In sum, the total capital contribution to the partnership is
Pl,000,000 (P200,000 + PS00,000 + P300,000). In here, A has an interest
of 20% (P200,000/P1,000,000). B has an interest of 50%
(PS00,00 0/Pl,000,000). Chas an interest of 30% {P300,000/P1,000,000}.
The interest of 20% for A, 50% for B, and 30% for C can be assigned, can
be attached, and can be subject to legal support.
Art. 1813. A conveyance by a partner of his whole interest in the

partnership does not of itself dissolve the partnership, or, as against
the other partners in the absence of agreement, entitle the assignee,
during the continuance of the partnership, to interfere in the
management or administration of the partnership business or affair ,
or to require any information or account of partnership transaction ,
or to inspect the partnership books; but it merely entitles the assignee
to receive in accordance with his contract the profits to which th
assigning partner would otherwise be entitled. However, in case of
see Arsenio T. Mendiola vs. CA, eta!., G.R. No. 159333, July 31, 2006.
!-,
1
'.see p. 1404, Black's Law Dictionary, Tenth Edition.
w see p. 1672, Black's Law Dictionary, Tenth Edition.
75
CHAPTER 2 - OBLIGA
TIONS OF THE PARTNERS
fraud in the managem t f 1

himself of the u I en _o t te partnership, the assignee may avail
sua remedies.
.ti dint case of a dissolution of the partnership, the assignee .
en ti e o receive his • , . is
fr th assignor s mterest and may require an account
om e date only of the last account agreed to by all the partners. (n)
CONVEYANCE
The voluntary transfer of a right or of property.6 1
Effects of Conveyance by Partner of His Whole Interest in the

Partnership
1. If a partner conveys (assigns, sells, donates) his whole interest in the
P~rtnership, it may still subsist (this is the general rule) or it may be
dissolved ( this is an exception, for example, if the remaining partners do
not want to continue the operation of the business of the partnership).
2. The assignee:
a. Cannot interfere in the management of the partnership business;
b. Cannot require information or accounting of partnership
transactions; and
c. Cannot inspect partnership books.
Rights of the assignee

1. To receive the profits to which the assigning partner would otherwise
be entitled;
2. In case of fraud in the management of the partnership, the assignee may
avail himself of the usual remedies provided by law;
3. In case of dissolution, to receive the assignor's interest; and
4. In case of dissolution, the assignee may require an account from the
date only of the last account agreed to by all the partners.
Problem:
y entered into a Joint Venture Agreement with X for the
operation of an ice manufa~tu~ing business. With Y as the industrial
partner and X as the caprtahst partner. Subsequently, for and in
consideration of the sum of PS00,000, however, X subsequently
xecuted a Deed of Assignment, transferring all his rights and interests
~ the business in favor of W the wife of H. With X's eventual departure
;om the country, H and W caused their lawyer to send y a letter,
pprising her of their acquisition of X's share in the business and
:ormally demanding an accounting and inventory thereof as well as the
remittance of their portion of its profits.
61 seep. 4-07, Black's Law Dictionary, Tenth Edition.

76
r •
Faulting Y with unjustified failure to heed thei r d rnand , H , tH

W filed a Complaint against Y for specific performance, cco 1 t · ~.
examination, audit and inventory of assets and properties, d i olutit n o ·
the joint venture, appointment of a receiver and damages.
Does the transfer by X of his interest to W make W a p t r .
Answer:
Generally understood to mean an organization formed for - om '
temporary purpose, a ioint venture is likened to a particular partnership
or one which has for its object determinate things, their use or frui L, o
a specific undertaking, or the exercise of a profession or vocat' on . Th
rule is settled that ioint ventures are uoverned by the law un
partnerships which are, in turn, based on mutual agency or del ectt _.
personae.
The transfer by a partner of his partnership interest does nut
make the assignee of such interest a partner of tbe firm, nor entitle the
assignee to interfere in tbe management al the partnership business or to
receive anything except the assignees pra,fits, The assignment does no t
purport to transfer an interest in the partnership, but only a futu re
contingent right to a portion of the ultimate residue as the assignor m ay
become entitled to receive by virtue of his proportionate interest in th e
capital. Since a partners' interest in the partnership includes h~s share ~n
the profits, we find that the Spouses H and Ware entitled to X s sha r e m
the profits, despite Y's lack of consent to the assignment of X's interes t
in the joint venture. W did not become a partner as a consequence of
the assignment and/or acquire the right to require an accounting of
the partnership business. 62
Art. 1814. Without prejudice to the preferred rights of partners hip

creditors under Article 1827, on due application to a competent court
by any judgment creditor of a partner, the court which entere d the
judgment, or any other court, may charge the interest of the de bto
partner with payment of the unsatisfied amount of such judgme nt debt
with interest thereon; and may then or later appoint a receiver of hi.
share of the profits, and of any other money due or to fall due to him in
respect of the partnership, and make all other orders, directio s,
accounts and inquiries which the debtor partner might have made or 1
which the circumstances of the case may require.

The interest charged may be redeemed at any time
foreclosure, or in case of a sale being directed by the court,
purchased without thereby causing a dissolution:
(1) With separate property, by any one or more of the partne s; or
62
see Josefina P. Realubit vs. Prosencio D. Jaso and Eden G Jaso, G.R. No. 178782 Se pt h
, e rn t· 1 L t. ,, 1J I l
77
CHAPTER 2 - OBLIG
ATIONS OF THE PARTNERS
(2) With partner h 1·

with th s P property, by any one or more of the partners
Cha rge d or sold. of all the partners whose interests are not so
e consent
th
r· ht 1·rN° ing in this Title shall be held to deprive a partner of his
ig ' a~y, under the exemption laws as regards his interest in the
partnership. '
(n)
What is meant by a "charging order" upon a partner's interest in the

partnership?
A "charging order" upon a partner's interest in the partnership
refers to th: remedy available to a judgment creditor of a debtor-partner to
charge the interest of the latter in the partnership by means of a court order
for the purpose of satisfying the amount of the judgment. A receiver of the
debtor-partners' share of the profits may even be appointed. This charging
order, however, is always subject to the preferred rights or partnership
creditors.63
Charging the interest of a partner debtor
Example:
A and B are partners in a partnership named AB partnership. A, in
his personal capacity, entered into a contract of loan with X where A
borrowed Pl00,000 from X When A defaulted on his debt, X sued him/or
collection. The court rendered judgment in favor ofX which became final.
In here, X may go to court and ask that the interest ofA in AB partnership
be "charged" ( attached) for the payment of his credit together with the
interest
Note that the court will issue a charging order after the creditor (X
in the present case) obtained a favorable judgment from the court which
became final.
Appointment of a receiver
The court may then or later appoint a receiver of the partner-
debtors' share of the profits, and of any other money due or to fall due to
him in respect of the partnership, and make all other orders, directions, ,
accounts and inquiries which the debtor-partner might have made, or which
the circumstances of the case may require.
6J Desiden·0 p. Jurado , Civil Law Reviewer, 20tli edition, pp. 998-999.

78
Redemption of interest charged

1. Before foreclosure
The interest ch arge d may be redeemed at any time befo re
foreclosure.
2. After foreclosure
It may still be purchased without thereby causing a dissolution :
a. With separate property of a partner; or
b. With partnership property with the consent of all the partners
whose interests are not so charged or sold.
What is redemption?
Redemption means the extinguishment of the charge or
attachment on the partner's interest in the profits.64
Example:
A, B and C are partners in a partnership named ABC
partnership. A, in his personal capacity, entered into a contract of loan
with X where A borrowed Pl 00,000 from X When A defaulted on his
debt✓ X sued him for collection. The court rendered judgment in favor of X
which became final. X went to court and asked that the interest of A in
AB partnership be "charged" (attached) for the payment of his credit
together with the interest. The court granted the request of X In here,
the other partners, B or C or both of them may redeem the interest of A
with their separate properties or with the partnership property provided
that it is with the consent of all the partners whose interests are not so
charged or sold, that is, Band C.
Right of a partner under exemption laws

A partner shall not be deprived of his right under the exemption
laws, as regards his interest in the partnership.
However, a partner, cannot avail himself of the exemption laws

insofar as his right in specific partnership property is concerned. 65
!A Edgardo L. Paras, Civil Code of the Philippines, Volume V, 14 th edition, p. 607.

•.s Art 1811 & 1814, NCC.
79
SECTION 3.
Obligations of the Partners
With Regard to Third Persons
Art 1815. Every partnership shall operate under a firm name, which
may or may not include the name of one or more of the partners.
Those who, not being members of the partnership, include
their names in the firm name, shall be subject to the liability of a
partner. (n)
General Rule:
The partners may use any firm name desired and this will be the
name of that juridical person.
Exception:
The partnership cannot use an identical or deceptively confusingly
similar to that of any existing partnership or corporation or to any other
name already protected by law or is patently deceptive or contrary to
existing laws.
Note:
Persons who, not being partners, include their names in the firm
name shall be subject to the liability of a partner,. for example, the
subsidiary liability of a partner where he is liable up to the extent of his
separate property in favor of third persons who suffered damages
because of such misrepresentation. This is based on the principle of
estoppel. The purpose of the law is to protect innocent third persons from
being misled.
However, that person has no right as a partner because he is in fact

not a partner.
Art 1816. All partners, including industrial ones, shall be liable pro
rata with all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into in the
name and for the account of the partnership, under its signature and
by a person authorized to act for the partnership. However, any
partner may enter into a separate obligation to perform a partnership
contract. (n)
This provision clearly states that,first, the partners' obligation with

respect to the partnership liabilities is subsidiary in nature. It provides that
the partners shall only be liable with their property after all the partnership
assets have been exhausted. To say that one's liability is subsidiary ·means
that it merely becomes secondary and only arises if the one primarily liable
80
CHAPTER 2 - OBLIGATIO
NS OF THE PARTNERS
fails to sufficiently satisfy the obi. .

partner may be made onl ft igatio~. Resort to the properties of a
have failed or that such ; ~ er e~forts in exhausting partnership assets
entire obligation. The sub ~. nership assets are insufficient to cover the
partnership is one of the ~~I:~~ nature of t~e partners' liability wi~h the
·udgment
J directed to efenses against a premature executton of
a partner.
Second, Article 1816 •ct
. h provi es that the partners' obligation to th ird
persons wit respect to the p rt h" 1· · · ·
. . . h a ners Ip 1abihty Is pro rata or joint. Liability
IS 1omt w en a debtor is liabl e on IY f,or t h e payment of only a proport10nat
· e
Part of the debt. In . contrast, a so 1·d 1· b. · ·
1 ary Ia Ihty makes a debtor hable for the
pa~ent ?ft~~ entire debt. In the same vein, Article 1207 does not presume
sohdary habih~ unless: 1) the obli~ation expressly so states; or 2) the~
~r ~~ture requires solidarity. With regard to partnerships, ordinarily, the
hab1hty of the partners is not solidary. The joint liability of the partners is a
defense that can be raised by a partner impleaded in a complaint against the
partnership.
In other words, only in exceptional circumstances shall the
partners' liability be solidary in nature. Articles 1822, 1823 and 1824 of the
Civil Code provide for these exceptional conditions. 66
Example:
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held :
The partnership of Mr. Y and Mr. p was engaged in the operation

of a sugar esta.te. It was, therefore, a civil partnership as distinguished
from a mercantile partnership. Being a civil partnership, by the express
provisions of the Civil Code, the partners are llfil. liable each for the whole
debt of the partnership. The liability is oro rata and in this case, Mr. Y is
responsible to plaintiff for only one-half of the debt. The fact that the
other partner, Mr. P, had left the country cannot increase the liability of
Mr. Y.
Example:
In a case, there were 5 general partners when a promissory note
in question was executed for and in behalf of the partnership. Since the
liability of the partners is pro rata, the liability of the appellant Mr. B
shall be limited to only one-fifth (1/ S. J of the obligations of the defenda nt
company. 67
Liability for contractual obligations

The above article refers to liability and not to loss that is why even
an industrial partner is also liable as he is not liable only with respec to
66 Michael C. Guy vs. Atty. Glenn C. Gacott, G.R. No. 206147, January 13, 20 16.
67
Island Sales, Inc. vs. United Pioneers General Construction Co., et a!., G.R. No. L-22493, July 3 1, 197 5
81
loss. Hence, all partners including industrial partners' liability is pro rata
and subsidiary, unless otherwise stipulated.
PRO-RA TA VS. SUBSIDIARY
Pro-rata liability means equally or joint, while subsidiary means

that the partners' separate property may be held liable only after the
partnership creditors' exhausted the assets of the partnership.
Example:
A. B, C, D and E form ABCDE partnership. A, B, C, and D, who
contnbuted PS0,000 each, are the capitalist partners while E is the
industnal partner. Subsequently, the partnership obtained a contractual
liability in favor of X in the amount of PS00,000. What will be the remedy
ofX?
X can collect from the partnership assets amounting to

?200,000 (PS0,000 x 4). X's credit now has a balance of P300,000 so that
he can demand from all of the partners including E, the industrial partner
because an industrial partner is liable for liability. The individual
liability of every partner is P60,000 (P300,000/5). Consequently, after E
paid P60,000 to X, he can demand reimbursement from partners A, B, C,
and D their individual share of P15,000 (P60,000/4) because an
industrial partner is not liable for loss.
Note:
Liability= as to third persons
Losses = as between the partners
Separate obligation of a partner

If a partner, in his own name, enters into a contract with a third
person, then it is only that partner who is liable and not the partnership.
Art. 1817. Any stipulation against the liability laid down in the
preceding article shall be void, except as among the partners. (n)
Stipulation against liability

A stipulation against liability of all partners for the contracts
entered into in the name of the partnership is void as to third persons.
However, it is valid as among the partners.
Example:
A, B, C D and E form ABCDE partnership. A, B, C, and D, who
contributed PS0,000 each are the capitalist partners while E is the
industrial partner. Subsequently, the partnership obtained a con tractual
liability in favor of X in the amount of PS00,000. The partners stipulated
82
that partner A will not be liable beyond his contribution. What will be the
remedyofX?
X can collect from the partnership assets amounting to P200,000

(PS0,000 x 4). X's credit now has a balance of P300,000 so that he can still
demand from all of the partners including partner A ( despite their
agreement) because that agreement is void as to X. The individual
liability of every partner is P60,000 (P300,000/5) including the industrial
partner.
Even if the agreement is void as to X, such agreement is valid as

among the partners. Thus, partner A who paid P60,000 can ask
reimbursement of P20,000 each only from B, C, and D (excluding partner
E being an industrial partner as he is exempted from loss).
Moreover, partner E, as an industrial partner, can also ask

reimbursement of P20,000 each only from B, C, and D (excluding partner
A by virtue of the stipulation that he is exempt.
By way of analysis, it is only B, C, and D who are ultimately liable

in the amount of Pl00,000 each {P60,000 individual share + P20,000
absorbed share of partner A by virtue of stipulation + P20,000 share of E
being an industrial partner)
Art. 1818. Every partner is an agent of the partnership for the purpose
of its business, and the act of every partner, including the execution in
the partnership name of any instrument, for apparently carrying on in
the usual way the business of the partnership of which he is a member
binds the partnership, unless the partner so acting has in fact no
authority to act for the partnership in the particular matter, and the
person with whom he is dealing has knowledge of the fact that he has
no such authority.
An act of a partner which is not apparently for the carrying on
of business of the partnership in the usual way does not bind the
partnership unless authorized by the other partners.
Except when authorized by the other partners or unless they
have abandoned the business, one or more but less than all the
partners have no authority to:
( 1) Assign the partnership property in trust for creditors or on the
assignee's promise to pay the debts of the partnership;
(2) Dispose of the good-will of the business;
(3) Do any other act which would make it impossible to carry on the
ordinary business of a partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a partnership claim or
liability;
83
I
!
(6) Submit a partnership claim or liability to arbitration; and 1
(7) Renounce a claim of the partnership. i
No act of a partner in contravention of a restriction on
authority shall bind the partnership to persons having knowledge of
the restriction. (n)
Partner as agent of the partnership

It is the nature of a contract of partnership that it is fiduciary, that is,
trust and confidence governed the partners. Hence, every partner is an
agent of the other partners and the partnership.
I. Acts Apparently for Carrying on in the Usual Way the Business of the
Partnership
It binds the partnership unless:

a. The partner so acting has in fact no authority to act for the
partnership; and
b. The person with whom he is dealing has knowledge of the fact that
he has no such authority.
Example:
A, B, C and D are partners in ABCD partnership engaged in
the selling of tables, chairs and other furnitures. Subsequently, D sold
five tables to X. In this case, the sale is valid and binding to the
partnership ABCD which has now an obligation to deliver the said
five tables to X.
What if D is not authorized to sell and such fact is not known

to X? The sale is still binding to ABCD partnership because the act of
Din selling table is an act which is apparently for carrying on in the
usual way of the business of the partnership. Hence, it is not
necessary for X to ascertain if D has been authorized by A, B, and C to
sell him his table.
What if D is not authorized to sell and such fact is known to

X? The sale is no longer binding to ABCD partnership as both D and X
are in bad faith, that is, partner D knows that he has no authority,
and the third person X knows that Dhas no authority.
i
Note:
The stipulation in the articles of partnership that any of the two
managing partners may contract and sign in the name of the partnership
with the consent of the other, undoubtedly creates on obligation between
the two partners, which consists in asking the other's consent before
contracting for the partnership. This ohlir;ation of course is not imposed
upon a third person who contracts wi th th e partnership, Neither it ;s
84
necessary for th e tbial person to ascertqin if the managing partner with

whom be contracts has previously obtained the consent af the other.
A third person may and has a eight to presume that the partner with
whom be contracts has, iv the ordinary and natural course of
business, the consent 0£bis co-partner; For otherwise he would not enter
into the contract. The third person would naturally not presume that the
partner with whom he enters into the transaction is violating the articles
of partnership, but on the contrary is acting in accordance therewith. And
this finds support in the legal presumption that the ordinary course of
business has been followed, and that the law has been obeyed. This last
presumption is equally applicable to contracts which have the force of
law between the parties.
It is next urged that the widow, even as a partner, had no

authority to sell the real estate of the firm. This argument is lamentably
superficial because it fails to differentiate between real estate acquired
and held as stock-in-trade and real estate held merely as business site for
the partnership. Where the partnership business is to deal in merchandise
and goods, i.e., movable property, the sale of its real property
(immovables) is not within the ordinary powers of a partner, because it is
not in line with the normal business of the firm. But where the express
and avowed purpose of the partnership is to buy and sell real estate, the
immovables thus acquired by the firm form part of its stock-in-trade, and
the sale thereof is in pursuance of partnership purposes, hence within the
ordinary powers of the partner.
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406, it was held:
A partnership to deal in real estate may be created and either

partner has the legal right to sell the firm's real estate.
In Chester vs. Dickers_on, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real

estate, one partner has ample power, as a general agent of the firm, to
enter into an executory contract for the sale of real estate.
And in Revelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St. Rep.
83:
If the several partners engaged in the business of buying and

selling real estate cannot bind the firm by purchases or sales of such
property made in the regular course of business, then they are
incapable of exercising the essential rights and powers of general
85
partners and their association is not really a partnership at all, but a

several agency.6R
II. Acts Not Apparently for the Carrying on in the Usual Way of
Business of the Partnership
It does not bind the partnership, unless authorized by the other

pa1tners.
Example:
A. B, C and D are partners in ABCD partnership engaged in the
selling of tables, chairs and other furniture. Subsequently, without·
authority from the other partners, Dsold some of the woods and lumbers
o( the pa rtnership to X. In this case, the sale is not valid and binding to
the ABCD partnership.
What if Dwas authorized to sell by the other partners? Then, the

sale 1s bindmg to ABCD.
III. Acts of Ov.rr1ership
Example:
A. B, and C are partners in ABC partnership engaged in the
selling of tables, chairs and other furniture. Subsequently, without
authority fro m the other partners, Csold the only truck of the partnership
to X In this case, the sale is not valid and binding to the ABC partnership.
What if C was authorized to sell by all of the other partners?

Then, the sale is binding to ABC. Take note that the authority here must
come from all {unanimous] of the other partners.
IV. Acts in contravention of a restriction on authority
The act is not binding to the partnership as to persons having

knowledge of the restriction.
Art. 1819. Where title to real property is in the partnership name, any 1
partner may convey title to such property by a conveyance executed in

the partnership name; but the partnership may recover such property
unless the partner's act binds the partnership under the provisions of
the first paragraph of article 1818, or unless such property has been
conveyed by the grantee or a person claiming through such grantee to
a bolder for value without knowledge that the partner, in making the
conveyance, has exceeded his authority.
i ~ Antoru o c Gooutolay, etal vs. Washington Z. Sycip, etal., G.R. No. L-11840.
. 86
Where title to real property is in the name of the partnership, a

conveyance executed by a partner, in his own name, passes the
equitable interest of the partnership, provided the act is one within
the authority of the partner under the provisions of the first paragraph
of Article 1818.
Where title to real property is in the name of one or more but

not all the partners, and the record does not disclose the right of the
partnership, the partners in whose name the title stands may convey
title to such property, but the partnership may recover such property
if the partners' act does not bind the partnership under the provisions
of the first paragraph of Article 1818, unless the purchaser or his
assignee, is a holder for value, without knowledge.
Where the title to real property is in the name of one or more

or all the partners, or in a third person in trust for the partnership, a
conveyance executed by a partner in the partnership name, or in his
own name, passes the equitable interest of the partnership, provided
the act is one within the authority of the partner under the provisions
of the first paragraph of Article 1818.
Where the title to real property is in the name of all the

partners a conveyance executed by all the partners passes all their
rights in such property. (n)
TITLE
Legal evidence of a person's ownership rights in property; an
instrument (such as deed) that constitutes such evidence. 69
EQUITABLE INTEREST
An interest held by virtue of an equitable title or claimed on
equitable grounds, such as the interest held by a trust beneficiary. 10
In the above-stated article, real property may be registered or

owned in the name of:
1. The partnership;
2. One or more or all the partners;
3. One or more or all the partners; or in a third person in trust for the
partnership; and
4. All the partners.
69
70
see p. 934, Black's Law Dictionary, Tenth Edition.
87
REAL PROPERTY REGISTERED OR OWNED IN THE NAME OF THE

PARTNERSHIP (PAR. 1)
The conveyance here was executed in the partnership name.
Example:
A, B, and C formed ABC partnership. Later~ C sold a specific
parcel of land in the name of ABC partnership to X. In here, the sale is
valid and binding to the partnership.
What if C has no authority to convey said land? Then ABC

partnership can recover the land. Howeve,~ ABC partnership cannot
recover the land if the selling of the land by Cis in line with the operations
of their business which is real esta te business. Also, ABC partnership
cannot recover the land if X is in good faith, meaning he has no
knowledge on the lack of authority of C.
REAL PROPERTY REGISTERED OR OWNED IN THE NAME OF THE

PARTNERSHIP (PAR. Z)
The conveyance here was executed in the partners' name.
Example:
A, B, and C formed ABC partnership to engage in real estate
business. Later, C was authorized by the other partners to sell a specific
parcel of land registered in the name of ABC partnership to X using his
own name as the seller. In here, the sale is valid and binding to the
partnership. However, it is only the equitable interest which will be
transferred to X The remedy of X is to ask for the reformation of their
contract of sale so as to change the name of the seller from C to ABC
partnership.
Equitable interest will not be transferred to X if ABC partnership

is not engaged in real estate business or if C has no authority and X has
knowledge of C's lack of authority although the sale was made in the
usual course of business.
TITLE TO REAL PROPERTY IS IN THE NAME OF ONE OR MORE BUT NOT

ALL THE PARTNERS (PAR.3)
The partners in whose name the title stands convey the title to such
property.
Example:
business. Later, C sold a specific parcel of land of the partnership that
was registered in his name to X. In here, the sale is valid and binding to
the partnership.
88
What if C has no authority to convey said land? ABC partnership

cannot recover the land if X is in good faith, meaning he has no
k nowledge of the lack of authority of C; otherwise, it can.
TITLE TO REAL PROPERTY IS IN THE NAME OF ONE OR MORE OR ALL

THE PARTNERS, OR IN A THIRD PERSON IN TRUST FOR THE
PARTNERSHIP (PAR.4)
Conveyance was executed by a partner in the partnership name, or
in his own name.
Example:
business. Later, C was authorized by the other partners to sell a specific
parcel of land registered in the name of C in trust for ABC partnership to
X using either ABC partnership as the seller or C's name as the seller. In
both cases, regardless of whose name the seller is, what passes only to Xis
the equitable interest of the partnership.
Again, the remedy of X is to ask for the reformation of their
co ntract of sale so as to clearly state the intent of the contracting parties.
Equitable interest will not be transferred to X if ABC partnership

is not engaged in real estate business or if C has no authority and X has
knowledge of C's lack of authority although the sale was made in the
usual course of business.
TITLE TO REAL PROPERTY IS IN THE NAME OF ALL THE PARTNERS

(PAR. 5)
Conveyance executed by all the partners passes all their rights in
such property.
Example:
business. Later, A, B, and C sold a specific parcel of land registered in
their names (not in the name of ABC partnership) to X. In here, the sale is
valid and binding to the partnership.
Art. 1820. An admission or representation made by any partner

concerning partnership affairs within the scope of his authority in
accordance with this Title is evidence against the partnership. (n)
ADMISSION
A statement in which someone admits that something is true or that
he or she has done something wrong. 71
71
89
An admission by any partner is evi dence against the partnership if:

1. The admission must concern partnership affairs; and
2. The admission must be withi n the scope of his authority.
Note:
An admission by a former partner, made after he has retired from
the partnership, is not evidence against the jinn.
Art._ 1821. Notice to any partner of any matter r~lati?g to partnershfp ·

affairs, and the knowledge of the partner actmg 1n the particular ,
matter, acquired while a partner or then present to his mind, and the j'
knowledge of any other partner who reasonably could and should
have communicated it to the acting partner, operate as notice to or !
knowledge of the partnership, except in the case of fraud on the
partnership, committed by or with the consent of that partner. (n)
The general rule is that notice to a partner is notice to the

partnership.
I
f
Example:
A, B, and C are partners in ABC partnership. Later, X sent a
demand letter to ABC partnership which was received by partner B. In
I
this case, when B received the demand lette0 by operation of IawJ ABC
partnership also received the demand letter.
Instances where knowledge of a partner is considered knowledge of

the partnership:
1. Knowledge of the partner acting in the particular matter acquired while 1
a partner;
2. Knowledge of the partner acting in the particular matter then present I
to his mind; and · 1
3. Knowledge of any other partner who reasonably could and should have
communicated it to the acting partner.
Exception;
In the case of fraud on the partnership, committed by or with the
consent of that partner.
Article 1821 of the Civil Code does not state that there is no need
to implead a partner in order to be bound by the partnership liability. It
provides that:
Notice to any partner of any matter relating to partnership

affairs, and the knowledge of the partner acting in the particular
matter, acquired while a partner or then present to his mindJ and the
90
knowledge of any other partner who reasonably could and should have
communicated it to the acting partner, operate as notice to or
knowledge of the partnership. except in the case of fraud on the
partnership, committed by or with the consent of that partner.
A careful reading of the provision shows that notice to any partner,

under certain circumstances, operates as notice to or knowledge to the
partnership only. Evidently, it does not provide for the reverse sjtuation, or
that notice to the partnership is notice to the partners. Unless there is an
unequivocal law which states that a partner is automatically charged in a
complaint against the partnership, the constitutional right to due process
takes precedence and a partner must first be impleaded before he can be
considered as a judgment debtor. To rule otherwise would be a dangerous
precedent, harping in favor of the deprivation of property without ample
notice and hearing, which the Court certainly cannot countenance. 72
Art. 1822. Where, by any wrongful act or omission of any partner

acting in the ordinary course of the business of the partnership or with
the authority of co-partners, loss or injury is caused to any person, not
being a partner in the partnership, or any penalty is incurred, the
partnership is liable therefor to the same extent as the partner so
acting or omitting to act. (n)
Wrongful act or omission
Example:
A, B, and C formed a partnership. One day, while C was
negligently driving the truck of the partnership to deliver goods to X one
of their customers, C bumped the gateway of X causing damages to the
latter. In this case, the other partners and the partnership are solidary
liable with C. However, the partners or the partnership can recover from
C.
Art.1823. The partnership is bound to make good the loss:

(1) Where one partner acting within the scope of his apparent
authority receives money or property of a third person and
misapplies it; and
(2) Where the partnership in the course of its business receives
money or property of a third person and the money or property so
received is misapplied by any partner while it is in the custody of
the partnership. (n)
2 Michael C. Guy vs. Atty. Glenn C. Gacott, G.R No. 206147, January 13, 2016.
91
CHAPTER2
- OBLIGATIONS OF THE PARTNERS
Liability of p t .
ar nersh1p fo r misappropriation
Example 1:
A, B, . and C formed ABC partnership engaged in leasing of
apartment umts. Subsequently, C received from customer X a deposit in
th e amount of P20,000. If C misapplied the amount, then partners A, B
and the partnership ABC are so/idarily liable to X Of course, A, Band the
partnership ABC can recoverfrom C.
Example 2:
A. B, and Cformed ABC partnership engaged in the business of
buy and sell of second hand cars. Xis a customer who bought a particular
car on installment X paid PS0,000 as down payment to the cashier of
ABC partnership. Subsequent6 1, C misapplied the PS0,000. In this case I
the partners A, B and the partnership ABC are solidarily liable to X OJ
course. A. Band the partnership ABC can recover/ram C.
A PARTNER MAY BE HELD LIABLE FOR ESTAFA

In Liwanag v. Court of Appeals, three individuals entered into a
contract of partnership for the business . of buying and selling
cigarettes. They agreed that one would contribute money to buy the
cigarettes while the other n,vo would act as agents in selling. When the
capitalist partner demanded from the industrial partners her monetary
:ontribution because they stopped informing her of business updates, this
me, this Court held the industrial partners liable for estafa.
In Liwanag, the Supreme Court held:

Thus, even assuming that a contract of partnership was indeed
entered into by and between the parties. we have ruled that when money ac
property had been received av a partner for a specific purpose and he later
misappropriated it such partner is guilty qfestgfa. 73
Art. 1824. All partners are liable solidarily with the partnership for
everything chargeable to the partnership under Articles 1822 and
1823. {n)
Under Article 1824 of the Civil Code of the Philippines, all partners
ar€ solidarily liable with the partnership for everything chargeable to the
partnership, including loss or injury caused to a third person or penalties
incurred due to any wrongful act or omission of any partner acting in the
ordinary course of the business of the partnership or with the authority of
his co-partners. Whether innocent or guilty, all the partners are solidarily
liable with the partnership itself.74
73
Priscilla Z. Orbe vs. Leonora 0. Miaral, G.R. No. 21 7777, August 16, 2017.
74
J. Tiosejo Investment Corp. vs. Spouses Benjamin and Eleanor Ang, etal., G.R. No. 174149, September 8, 2010.
92
In essence, 1822, 1823, and 1824, articulate that it is the act of a

partner which caused loss or injury to a third person that makes all other
partners solidarily liable with the partnership because of the words "any
wrongful act or omission of any partner acting in the ordinary course of the
business," "one partner acting within the scope of his apparent
authorit;y" and "misapplied by any partner while it is in the custody of the
partnership." The obligation is solidary because the law protects the third
person, who in good faith relied upon the authority of a partner, whether
such authority is real or apparent.
A third person who transacted with said partnership can hold the
partners solidarily liable for the whole obligation if the case of the third
person falls under Articles 1822 or 1823. 75
Problem:
X in behalf of the partnership of "X and Y" as Contractor entered
into a written contract with T, Inc. for remodelling T, Inc. 's Cebu branch
building. A total amount of P25,000 was to be paid under the contract
for the entire services of the Contractor.
The first payment made by T, Inc. was in the form of a check for
P7,000 in the name of X. X, however, indorsed the check in favor of Y to
enable the latter to deposit it in the bank and pay for the materials and
labor used in the project.
X alleged that Y spent P6,183 out of the P7,000 for his personal
use so that when the second check in the amount of P6,000 came and Y
asked X to indorse it again, X refused. Since Y informed T, Inc. that there
was a "misunderstanding" between him and X. T, Inc. changed the name
of the payee in the second check from X to "Y and Associates" which was
the duly registered name of the partnership between X and Y and under
which name a permit to do construction business was issued. This
enabled Y to encash the second check.
The two remaining checks, each in the amount of P6,000.00,
were subsequently given to X alone with the last check being given
pursuant to a court order.
X filed a complaint for payment of sum of money against T, Inc.
seeking to recover the following: the amounts covered by the first and
second checks which fell into the hands of Y and the additional expenses
that X incurred in the construction.
C Hardware Company was allowed to intervene having legal
interest in the matter in litigation.
1. Does a partnership exist between X and Y; and
2. Is the payment made by T, Inc. to Y valid?
Answer:
1ichael C. Guy vs. Atty. Glenn C. Gacott, G.R. No. 206147, January 13, 2016.
93
CHAPTER2
- OBLIGATIONS OF THE PARTNERS
P? ~en X received the first payment of T, .Inc. in the arnou

,OOO Wlth a check made out in his name, he mdorsed the ch nt <:
favor of Y. T, Inc. therefore, had every right to presume that X eek i;
were t:rue partners. If they were not partners as X claims, then ha nd ~.
only himself to blame for making the relationship appear otherwise h4:
only to T, Inc. but to their other creditors as well. The Pavment~
to the partnership were, therefore, valid payments.
The payment made by T, Inc. to Y was a good payment Wh·
binds both Y and X. Since the two were partners when the debts 1ct
incurred, they, are also both liable to third p~rsons w~o extended c~~.t
to their partnership. In the case of George Litton v. Hill and Ceron ~
{67 Ph;/ 513, 514), the Supreme Court ruled: , et a/
There rs a aeneraf presumption that each individual na11nei:.

zs an authonzed agent for the fim1 an~ that be b~s authority to billlJ
the liun w cam'inq on the partnershw transactwns. rums vs. Rtuoie, 112
The presumption is sufficient to permit third persons to hold

..he ffrm !rable on transactions entered into by one of members of the
f 1'77i acmg apparently in its behalf and within the scope of his
authontJ . (,.,c Ro, ,s Johnson 7 U.S (lowed), 391.)
The Supreme Court, hO\vever, take exception to the ruling oft~
appeli ate co rt that the trial court's ordering X and Y to pay the credi~
of CHard\~·2re ·Jointly and severally" is plain error since the liability (f.f
p~ers under the law to third persons for contracts executed ir
col'!nection v,ith partnership business is only pro rata under Art. 1s1 f
6
of 1e Ci\il Code.
• 1~ ile it is true that under Article 1816 of the Civil Code, "
p rtners, including industrial ones, shall be liable prorata with all th ~

property and after all the partnership assets have been exhauste<t for tfti
am 'Octs which may be entered into the name and for the account of th
partners p, under its signature and by a person authorized to act for th
partners p, ... ~ This provision should be construed together with Articlt
1824 - h provides that ''All partners are liable solidarily with tht
partnership for everything chargeable to the partnership under Articies 1
1822 and 1823," In short, while the liability of the partners are meretr
jo~ t · transactions entered into by the partnership, a third person wh,
transacte i said partnership can hold the partners solidariJy Jiablt
for Cle w le obligation if tbe case of the third person falls under
k ·c tS "822 or 1823.
Artie es" 822 and 1823 of the Civil Code provide:
Art 1822, Where, by any wrongful act or omission of anJ

partner acting in the ordinary course of the business of tht
partnership or with the authority of his co-partners, loss or inju~
i~ caused to any person not being a partner in the partnership o
94
any penalty is incurred, the partnership is liable therefor to the

same extent as the partner so acting or omitting to act.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his apparent
authority receives money or property of a third person and
misapplies it; and
(2) Where the partnership in the course of its business receives
money or property of a third person and the money or property so
received is misapplied by any partner while it is in the custody of
the partnership.
The obligation is solidary, because the law protects him, who in

good faith relied upon the authority of a partner, whether such
authority is real or apparent. That is why under Article 1824 of the
Civil Code, all partners, whether innocent or guilty, as well as the
legal entity which is the partnership, are solidarily liable.
In the case at bar T, Inc. had every reason to believe that a
partnership existed between X and Y and no fault or error can be
imputed against it for making payments to "Y and Associates" and
delivering the same to Y because as far as it was concerned, Y was a true
partner with real authority to transact on behalf of the partnership with
which it was dealing. This is even more true in the case of C Hardware
who supplied materials on credit to the partnership. Thus, it is but fair
that the consequences of any wrongful act committed by any of the
partners therein should be answered solidarily by all the partners and
the partnership as a whole.
However, as between the partners X and Y, justice also dictates
that X be reimbursed by Y for the payments made by the former
representing the liability of their partnership to C Hardware, as it was
satisfactorily established that Y acted in bad faith in his dealings with X
as a partner.
Art. 1825. When a person, by words spoken or written or by conduct,

represents himself, or consents to another representing him to
anyone, as a partner in an existing partnership or with one or more
persons not actual partners, he is liable to any such persons to whom
such representation has been made, who has, on the faith of such
representation, given credit to the actual or apparent partnership, and
if he has made such representation or consented to its being made in a
. public manner he is liable to such person, whether the representation
has or has not been made or communicated to such person so giving
credit by or with the knowledge of the apparent partner making the
representation or consenting to its being made:
(1) When a partnership liability results, he is liable as though he
were an actual member of the partnership;
95
(2) When no partnership liability results, he is liable pro rata With

the other per ons, if any, so consenting to the contract or
representation as to incur liability, otherwise separately.
When a person has been thus represented to be a partner in an
existing partnership, or with one or more persons not actual partners
he is an agent of the persons consenting to such representation to bind
them to the same e~1:ent and in the same manner as though he were a
partne in fact, with respect to persons who rely upon the
representation. ,~'hen all the members of the existing partnership
consent to the representation, a partnership act or obligation results; l
but i all other cases it is the joint act or obligation of the person acting J
and t e persons consenting to the representation. (n)
Partnership by estoppel
Anses 1f all the partners consented to the misrepresentation of a
th1 ci person wh o is not a real partner. This creates a partnership
obligat10n
Example:
it B, and C formed ABC partnership. Their common friend D
represented to X that they are all partners in the said partnership. A, B,
and C consented to such representation. Consequently, by virtue of the
misrepresentation, X lent credit to D. In this case, a partnership
obligation results. Hence, X can go after the net assets of the partnership.
This is a case of partnership by estoppel because all of the

partners consented to the misrepresentation. Take note that A, B, C and
Dare all in bad faith.
Note:
In the above example, A, B, C, and Dare all partners by estoppel.
Note:
Still in the same example, assuming that Y is the legitimate
creditor of ABC partnership, who will be preferred in the net assets of the
partnership, X or Y? It will be Y because Y is the legitimate creditor of
ABC partnership.
Partner by estoppel
A person who represents himself, or consents to another or others
representing him to any one, as a partner either in an existing partnership
or in one that is fictitious or apparent.
Example:
A, B, and c formed ABC partners~ip. Th~ir common friend D
represented to x that they are all partners m the smd partnership. Only A
96
and B consented to such representation. Consequently, X Jent credit to D.

In this case, there is no partnership by estoppel but there are partners by
estoppel, that is, A, B, and D. They are liable jointly or pro rata to X
What if A, B, and C did not consent? Then, there are no partners

by estoppel as only Dis liable.
What if A, B, and Care not partners but D represented to X that

they are partners? In this case, all of them are liable pro rata to X
because they are still partners by estoppel.
Note:
Partnership by estoppel does not apply when the third person is
not deceived. Thus, it is the third person who has the burden of proving
the existence of a partner by estoppel or partnership by estoppel.
Problem:
S partnership is a partnership formed by C and G. This
partnership was denied registration in the Securities and Exchange
Commission.
S partnership had a loan for which the corresponding
promissory 'joint note non-negotiable' was executed on June 3, 1949, by
C for and in the name of S partnership, C and G. This promissory note
was secured on June 7, 1949, by a chattel mortgage executed by C,
General Partner for and in the name of S partnership, alleged to be a
duly registered Philippine partnership. The chattels mortgaged were
Fargo truck, Plymouth Sedan automobile, and Fargo Pick-Up.
The mortgage deed was fully registered by the mortgagee on
June 11, 1949, in the Office of the Register of Deeds.
On June 7, 1949, the same day of the execution of the chattel
mortgage aforementioned, C and G executed an agreement to convey
and transfer all their rights in S partnership to X.
While the said loan was still unpaid and the chattel mortgage
subsisting, S partnership, through C and G transferred to M the Fargo
truck and Plymouth sedan or: June 24, 1949. The Fargo pickup was also
sold on June 28, 1949, by X to t
On or about July 19, 1944, M, in turn transferred the Fargo truck
and the Plymouth sedan to Z.
N Bank, upon learning of the transfers made by S partnership to
F, from the latter to M, and from M to Z, of the vehicles previously
pledged by S partnership to N Bank, filed an action against S partnership
and its alleged partners C and G, as well as M and Z.
Is there a partnership formed? If yes, what kind of partnership?
Answer:
97
While an unregistered commercial partnership has no juridt

personality, .nev~r~heless, where two or more persons atte~pt to ere:
a partnership fa1lmg to comply with all the legal formalities, the la
considers them as partners and the association is a partnership in so f: ~,
as it is a favorable to third persons, by reason of th: equitable prjg~
of estoppel. In Jo Chung Chang vs. Pacific Commercial Co., 4S Phil., 14s
it was held "that although the partnership with the firm name of 'Teck Sein '
and ~o. Ltd.,' cou/.d not be regarded as a partnersh~p d~jure, yet with respei
to th1rd persons 1t will be considered a partnership with all the consequent ,
obligations for the purpose of enforcing the rights of such third persons.'' C
and G cannot deny that they are partners of S partnership, because in all;
their transactions ,,vith N Bank they represented themselves as such. M
cannot disclaim knm,vledge of S partnership because he dealt with said
entity in purchasing nvo of the vehicles in question through C and G. As
,vas held in Behn Meyer & Co. vs. Rosatzin, 5 Phil., 660, where 0
partnership not duly organized has been recognized as such in its dealings
with certain persons, it shall be considered as "partnership by estoppel" and
the persons dealing ,,vith it are estopped from denying its partnership
e>..istence.76
Art. 1826. A person admitted as a partner into an existing partnership

is liable for all the obligations of the partnership arising before his
admission as though he had been a partner when such obligations
were incurred, except that this liability shall be satisfied only out or
partnership property, unless there is a stipulation to the contrary. (n)
Example:
On January 2, 2020 A, B, and Cformed ABC partnership with a
capital contribution of ?200,000 each. On July 15, 2020, X was admitted
as a new partner with a contribution of ?100,000. Meanwhile, ABC
incurred a loan of?900,000 in favor of Yon June 30, 2020.
In this case, the remedy of X is to go against the partnership

capital of ?700,000 [(P200,000 x 3) + Pl00,000}. Thereafter, X can go
against the separate property of A, B, and Cfor the balance of P200,000
(P900,00-700,00).
Note:
After X exhausted the net assets of the partnership, he cannot go
after the separate property of the newly admitted partner as the loan was
incurred before the date of admission.
What if in the above example, the loan of P900,00 in favor of y

was incurred on August 1, 2020. Then, in this case, after Y exhausted the
76 see Paul MacDonal, etal., vs. The National City Bank of New York, G.R. No. L-7991, May 21, 19S 6 .
98
net assets of the partnership in the amount of P700,000, he can go

against the separate property of A, B, C and X, the new{y admitted partner
as the loan was incurred after the date of admission.
Art 1827. The creditors of the partnership shall be preferred to those

of each partner as regards the partnership property. Without
prejudice to this right, the private creditors of each partner may ask
the attachment and public sale of the share of the latter in the
partnership assets. (n)
Take note that the creditors of the partnership contracted with the
partnership which is a juridical person having a separate juridical
personality from the partners.
Example:
A (30%), B {40%), C (30%) entered into a contract of
partnership. The firm name is ABC partnership. The total contribution of
the partners is P330,000. Subsequently, D is a creditor of the firm in the
amount of P300,000. X is the private creditor of A in the amount of
P200,000. Y is also a private creditor of B in the amount of P300,000.
Further, Z is a private creditor of C in the amount of Pl 00,000.
In this case, D has preference over the P330,000 net assets of the
partnership. The remedy of X, Y, and Z is to attach the share of partners
A, B, and C in the partnership.
99
CHAPTER 2 - OBLIGATIONS OF THE PARTNERS I
I
TRUE OR FALSE PART I
1. Being a contract of partnership, each partner must share in the profits j
I
and losses of the venture. That is the essence of a partnership. 1
2. An in dustrial partner can engage in business for himself, unless the

partnership expressly permits him to do so.
3. The partners shall contribute equal shares to the capital of the
partnership, unless there is a stipulation to the contrary.
4. The risk of specific and determinate things contributed to th e
partnership so that only their use and fruits may be for the common
benefit, shall be borne by the partner who owns them.
S. If the things contribute are fungible or if they were contributed to b e
sold, the risk shall be borne by the partnership.
6. A stipulation which excludes one or more partners from any share in the
profits or losses is voidable.
1. A partnership begins from the moment of meeting of the minds.
8. Limited partners have absolute right to participate in the management
9 The birth and life of a partnership at will is predicated on the mutual
desire and consent of the partners.
10. The nght to choose with whom a person wishes to associate himself is
the very foundation and essence of that partnership.
11. Every partner is a creditor of the partnership for whatever he may have
promised to contribute thereto.
12 The mutual contribution to a common fund is the first test in order to
have a contract of partnership.
13 Capitalist partners are not bound to contribute additional capital.
14. Every partner is responsible to the partnership for damages suffered by
1t through his fault
15. A partner who has received his share of a partnership credit, when the
other partners have not collected theirs, shall be obliged, if _the debtor
should thereafter become insolvent, to bring to the partnership capital
what he received even though he may have given receipt for his share
only.
TRUE ORFALSE PART II

1. Partners shall render on demand true and full information of �II things
affecting the partnership to any partner.
2. The partners are governed by fiduciary relationship, that is, mutual trust
and confidence.
3. As a rule, the capitalist partners can engage for their own account in any
operation which is of the kind of business in which the partnership is
engaged.
4. A conveyance by a partner of his whole interest in the partnership
dissolves the partnership.
100
5. In case of a dissolution of the partnership, the assignee is entitled to

receive his assignor's interest and may require an account from the date
only of the last account agreed to by all the partners.
6. Every partnership shall operate under a firm name, which may or may
not include the name of one or more of the partners.
7. The act of every partner, including the execution in the partnership
name of any instrument, for apparently carrying on in the usual way
the business of the partnership of which he is a member binds the
partnership.
8. The partner who has been appointed manager in the articles of
partnership may execute all acts of ownership.
9. If two or more partners have been intrusted with the management of the
partnership without specification of their respective duties each one
may separately execute all acts of administration.
1 O. In case it should have been stipulated that none of the managing partners
shall act without the consent of the others, the concurrence of the
majority shall be necessary for the validity of the acts.
11. Every partner may associate another person with him in his share, and
the associate shall be admitted into the partnership without the consent
of all the other partners.
12. The partnership books shall be kept at the principal place of business of
the partnership, and every partner shall at any reasonable hour have
access to and may inspect and copy any of them.
13. Partnership books are examples of partnership property and every
partner is a co-owner of specific partnership property.
14. The partnership cannot use an identical or deceptively confusingly
similar to that of any existing partnership or corporation or to any other
name already protected by law.
15. All partners shall be liable pro rata with all their property and after all
the partnership assets have been exhausted, for the contracts which may
be entered into in the name and for the account of the partnership.
MULTIPLE CHOICE PART I

1. A, B and C are partners contributed the following: A - P6, 000.00; B - P4,
000.00; and C - industry. They agreed that the profits and losses shall be
distributed as follows to wit: A - 35%; B- 25% and C - 40%. How shall
the loss of P10, 000 be distributed?
a. A - P6, 000; B - P4, 000; C - none
b. A - P3, 500; B - P2, 500; C - P4, 000
c. A- P3, 333; B - P3, 333; C - P3, 333
d. A - PS, 000; B - P2, 500; C - none
2. In the same problem in the preceding number, suppose it is a profit of

P10, 000, how shall it be distributed?
a. A - PS, 000; B - PS, 000; C - none
101
CHAPTER 2 - OBLIGA TIO S OF THE PARTNERS
b. A - P3. 333; B - P3, 333; C - P3, 333

c. - P3, 500; B - P2, 500; C - P4, 000
d. - P6, 00; B - P4, 000; C- none
3. ho cannot be held liable to third persons for partnership

o l ga . s.
a. L.mi <l partner
Cap1t.a1L partner
c. I ·a1 partner
Ge eral partner
1s managing partner of A and B partnership.Xis indebted to A for

2... , 000 and e partner-ship for P75, 000. When both debts mature, X
pays P 0, 000 and the latter issues a receipt for his personal credit
paym for PlO, 000 shall be applied:
o e ole debt owing to A
. ¼ · fav r of A and ¾ in favor of partnership.
c. ... O\' · g to the partnership.
½ i fa-vo of A and½ in favour of the partnership.
manage actively the business or affairs of the partnership.

pa er
Sib e partner
. ana partner
- partner
e following is not a requisite prescribed by law in order that

UJ' .,. , ,..,.. of
t ;>a iers ip may be held liable to a third party for the acts of one of '
e partner::.
a • t pa ers bind the partnership by consenting for obligations he
may ruwe contracted in good faith.
e partner must have the authority to bind the partnership.
L e ex tract must be in the name of the partnership.
t: artner must act on behalf of the partnership.
7 t1 ~ who not tar~ active part in the business or affairs of the

;:ra!'tr:Je ., Jp though they share in the profits or losses.
i . . ;.an.aging partner
1:en · le partner
uTnant partntr
it partrier
8, · nr;-(..f: •:/J ,; tAke' active part and known to the public as a partner in the
part!itr~ 1ip.
a. ( ~-w. si l~ partner
b. ~er~ part tr
c f,,' q do ,r g partner
102
d. Dormant partner
9. Those whose connection with the partnership is not known to the

public.
a. Ostensible partner
b. Liquidating partner
c. Secret partner
d. Dormant partner
10. Those who does not take active part in the business and is not known
to the public as partner. Thus, they are both a secret and silent partner.
a. Dormant partner
b . Ostensible partner
c. Secret partner
d. Liquidating partner
11. Those partner in an existing legal partnership.

a. Secret partner
b. Partner by estoppel
c. De facto partner
d. Real partner
12. Those who are not really partners but represent themselves, or consent
to another or others representing them to anyone as partners in an
existing partnership or in one that is fictitious or apparent.
a. Real partner
c. Secret partner
d. De facto partner
13. X, Y, and Z are partners who contributed Pl0,000 each to the capital of
the partnership. D owes the partnership P3, 000. Z collected from D Pl,
000 before X and Y could receive anything from D, who later became
insolvent and therefore, they could not collect their shares.
a. Z cannot be required to share what he already received from D.
b. X and Y should first exhaust all remedies to collect from D.
c. Z shall share the Pl, 000 with his co-partners X and Y.
d. X and Y can automatically deduct from the capital contribution of z
in the partnership their respective shares of P333.33.
14. Those who became members of the partnership after its establishment
a. Secret partner
c. De facto partner
d. Incoming partner
103
15. The following are the legal relations created by a contract of

partnership, except:
a. Relations between third persons.
b. Relations between the partners on one hand and the partnership on
the other hand.
c. Relations between the partners on one hand and third persons on
the other hand.
d. Relations between the partnership and the third persons.
16. Those who contribute money or property or both money and property
to the common fund.
a. Industrial partner
b. Capitalist partner
c. General partner
d. Limited partner
17. A, B, C, and D organized a general partnership with A and Bas industrial

partners and C and Das capitalist partners. C contributed PB00,000 and
D contributed P600,00 to the common fund. A and B were appointed
managing partners. J applied as office assistant and K applied as
accountant of the partnership. The hiring ofJ was decided upon by A and
B but was opposed by C and D. Whose decision shall prevail?
a. The decision of A and B shall prevail because they are the managers.
b. The decision of C and D shall prevail because they are the capitalist
partners.
c. The decision of C and D because they have the controlling interest
d. The decision of A and B because it is an act of ownership.
18. In the preceding problem, suppose the hiring of Kwas decided upon by
A and D, but was opposed by Band C, whose decision shall prevail? I
a The decision of A and D because A is the managing partner and the
hiring is an act of administration.
b. That of A and D because D is also a capitalist partner.
c. The decision of B and C because in case of tie in the decision of
managing partners, that of the controlling interest shall prevail.
The decision of Aand B because they are the managing partners.
9. ose who contribute money or property and industry or both money,

p c,perty and industry to the common fund.
a IndustriaJ partner
Capitalist partner
c. General-limited partner
d. C.apitalist-industrial partner
20. Y. and Yv~r ally agretd to form a contract of partnership 18 months

from v.: day, each one to contribute Pl 5, 000. At the arrival of the said
104
date, if one refuses to go ahead with the agreement, can the other
enforce the agreement?
a. Yes, since the agreement is to be enforced after one year from the
making thereof, the same should be in writing to be enforceable.
b. Yes, because the prior agreement was voluntarily made.
c. No, because the agreement was merely verbal.
d. Yes, because the contract of partnership is not governed by the
Statute of Frauds.
21. Those who contribute only their industry or labor to the common fund.
a. Capitalist partner
b. General partner
c. Industrial partner
d. Limited partner
22. Those who takes charge of the winding up or liquidation of the
partnership affairs after dissolution.
a. Ostensible partner
b. Liquidating partner
c. Secret partner
d. Dormant partner
23. A, B, and C formed a partnership. They contributed PZS0,000 each. They

also agreed on equal distribution of profit. After 5 years of operation
however, C conveys her whole interest in the partnership to D, without
knowledge and consent of A and B. Is the partnership dissolved?
a. The partnership is not dissolved because the assignment made by C
of his whole interest was without the knowledge and consent of A
andB.
b. The partnership was dissolved because the assignee, D
automatically becomes a new partner.
c. It is dissolved since C has ceased to be a partner because of the
assignment of his whole interest to D.
d. The partnership is not dissolved because the conveyance of a
partner's interest in the partnership does not of itself dissolve the
partnership.
24. Based on the preceding problem:

a. D can participate in the management of the partnership.
b. D can inspect the books because he is a partner and therefore there
is a fiduciary relationship.
c. D cannot inspect the books.
d. D can take part in the control of the business.
25. Still based on the said problem:

a. If A and B want to dissolve the partnership, C as a partner need not
consent thereto because he had assigned his interest to D.
105
b. ~ may ~sk the court for its dissolution being the assignee of C's
mterest m the partnership.
c. A, Band C may dissolve the partnership even without the consent of
D.
d. A, Band C can ask for judicial dissolution of the partnership.
MULTIPLE CHOICE PART II

1. A, B, C and E are partners. They contributed to the capital as follows: A
- PSO, 000; B - PlOO, 000; C - PlSO, 000; and E as the industrial
partner, his services. The partnership obligation to outsiders exceeds
the total net assets by P200, 000.Who and by how much will the
partners be liable for the payment of the PZ00,000?
a. A- zero; B - zero; C- zero; E - zero
b. A - P33, 333; B - P 66, 666; C- P100, 000; E - zero
c. A - P45, 000; B - P 45, 000; C- PSS, 000; E - 55,000
d. A- PS0,000; B - P 50,000; C- PS0, 500; E PSO, 000
2. A is a capitalist partner and B the industrial one. A engaged personally in

the same kind of business as that of the partnership:
a. If there are losses, the partnership will bear the losses.
b. If there are profits, they will be shared by A and the partnership.
c. If there are profits, A shall give them to the partnership.
d. A may be excluded from the partnership with liability for damages.
3. Suppose in the preceding problem, B engages in business on his own

acco t but different from that of the partnership.
a. If there are profits, B and the partnership shall share equally.
b. B may be excluded from the partnership with damages.
(. If there are losses, B and the partnership shall equally share.
B may be excluded from the partnership but without damages.
4. ost who contribute money or property and industry or both money,

property and industry to the common fund.
a Industrial partners
b. General partners
c. Limited partners
d.. Capita ist,industrial partners
..,, T Owho contribute only their industry or labor to the common fund.
t
r.L Jnd ;trial partners
o. u,_pitaJ' st-industrial partners
c. Gentra partners
d. Limired partntrs
6. A " d B are capH:alist partners while C is an industrial partner. Both A

and B equally contributxd P50, 000. A contractual liability in favor of X
106
was incurred in the amount of PlS0, 000. After exhausting partnership

assets, there is a balance recoverable from:
a. A and 8 only
b. A, Band C
c. A, 8 and C and C can get reimbursement from A and B.
d. 8 and C only.
7. The following are the remedies of capitalist partners against an

industrial partner who engaged in business for himself:
I. The capitalist partners may exclude the industrial partner from the
partnership plus damages.
II. The capitalist partners may avail themselves of the benefits which the
industrial partner may have obtained plus damages.
a. Only I is correct
b. Only II is correct
c. Both are true
d. Both are false
8. A, B and C are partners in a partnership with each contributing P100,

000 each.Dis admitted as a new partner with a contribution of PS0, 000.
At the time of his admission, the partnership has a pre-existing
obligation to E in the amount of PlS0, 000.
a. D is not liable to E for this obligation incurred when he was not yet
a partner.
b. D is liable up to PS0, 000.
c. D is liable up to P25, 000.
d. Dis liable up to P16, 667.
9. Who can demand true and full information?

a. Any partner
b. Legal representative of any deceased partner
c. Legal representative of any partner under legal disability
d. All of the above
10. A and Bare capitalist partners while C is an industrial partner. There is

no agreement as to the profits and losses. The partnership realized profit
in the amount of PlS0, 000. The share of C in the profits shall be:
a. A and B will determine C's share in the profits.
b. Just and equitable under the circumstances.
c. C's share shall be PlS0, 000.
d. Pro rata to his contributed capital.
11. Suppose instead of profit, the partnership suffered loss in the same
amount of PlS0,000, the share of the capitalist partners in the loss shall
be:
a. In accordance to their profit sharing agreement.
b. In accordance with their loss sharing agreement
107
c. In proportion to their capital contribution.

d. Equally among them.
12. With still the same facts, as industrial partner, the share of C in the los,
shall be:
a. Just and equitable under the circumstances.
b. As agreed upon by the partners before the loss was realized.
c. In proportion to his capital contribution.
d. None, he being an industrial partner.
13. The following are the rights of an assignee, except:

a. To receive the profits to which the assigning partner would
otherwise be entitled;
b. In case of dissolution, the assignee may require an account from the
date of liquidation.
c. In case of fraud in the management of the partnership, the assignee
may avail himself of the usual remedies provided by law;
d. In case of dissolution, to receive the assignor's interest; and
14. A and Bare partners with A as the managing partner.Cowes A PlOO, 000
and the partnership P300, 000 which are now both due. A issued a
receipt for the payment of C in the amount of PlOO, 000 in his own name.
The payment shall be applied to:
a. The partnership credit totally.
b. The credit of A only since the receipt is in his name.
c. The payments shall be applied proportionately to both credits.
d. The payment shall be applied equally in both credits.
15. Arises if all the partners consented to the misrepresentation of a third

person who is not a real partner. This creates a partnership obligation.
a General partnership
b. Limited partnership
c. Partnership by estoppel
ci None of the above
16. This is the order of priority in general partnership liabilities:

a. Outside creditors, creditor partner, partner's capital, partner's
I
profit.
b. Outside creditors, creditor partner, partner's profit, partner's
capital.
c. Creditor partner, Outside creditor, partner's profit, partner's capital. .
d. Creditor partner, Outside creditor, partner's capital, partner's profit
17. The following are obligations of partners, except:

a. To give their promised contribution.
b. To account and hold as trustee for any profits derived without the
consent of the other partners.
108
C. To engage in any business which is of the kind in which the

partnership is engaged.
d. Not to convert partnership money to their own use.
18. The following are obligations of partners, except:

a. Obligation to share with the other partners the share of the
partnership credit which they have received from an insolvent
partnership debtor. .
b. Obligation of a managing partner to credit to the partnership the
payment made by a debtor who owes them and the partnership.
c. Not to engage in any business which is of the kind in which the
partnership is engaged.
d. Pay for damages suffered by the partnership without their fault.
19. The following are the rights of partners, except:

a. Right to ask for the dissolution of the partnership at the proper time.
b. Right to have access to and inspect and copy partnership books on
Sundays and holidays.
c. Right to demand a formal account.
d. Right to associate with another person in their share.
20. The following are the rights 0-f partners, except:

a. Appraisal right
b. Rights in specific partnership property
c. Interest in the partnership
d. Right to participate in the management
21. A, B and C formed a commercial partnership. D represented himself as a

partner in the partnership to E who, on the belief of such representation,
extended credit of PSO, 000 to the partnership. Assuming only B and C
consented to such representation, who shall be liable to E?
a. B, C and D are partners by estoppels and thus, are liable to E.
b. Only partners A, B and C are liable to E for the benefit extended to
them.
c. Only D who made the representation is liable to E.
d. All of A, B, C, and D are liable because of partnership liability for the
credit extended to the partnership by E.
22. A, B and C are general partners in ABC partnership.Xis a debtor to the

partnership in the amount of P180, 000. A received from the debtor X
the sum of P60, 000 and issued a receipt identifying the amount
collected as P60, 000.
a. A cannot be compelled to share the P60, 000 with B and C.
b. A can be compelled to share with B and C their P60, 000.
c. B and C should automatically sue X to collect the P120, 000.
d. B and C can deduct from the capital of A their share of P60, 000.
109
23. It is one where it will exist until the purpose is accomplished.

b. Partnership at will
c. Partnership for a particular undertaking
24. Three of the following are property rights of a partner. Which is not?
a. Right to specific pa1tnership property.
b. Right to participate in the management.
c. Right to demand formal accounting of partnership affairs.
d. Interest of the partner in the partnership
25. A partnership that does not fix its term.

110
CHAPTER3
DISSOLUTION AND WINDING UP
In Villareal v. Ramirez, the Court held that since a partnership is a

separate juridical entity, the shares to be paid out to the partners is
necessarily limited only to its total resources, to wit:
Since it is the partnership, as a separate and distinct entity, that

must refund the shares of the partners, the amount to be refunded is
necessarily limited to its total resources. In other words, it can only pay
out what it has in its coffers, which consists of all its assets. However,
before the cmrtners can be uaid their shares. the creditors af the
vartnershit2 must first be compensated. After all the creditors have been
paid, whatever is left of the partnership assets becomes available for the
payment of the partners shares. 1
Art. 1828. The dissolution of a partnership is the change in the relation

of the partners caused by any partner ceasing to be associated in the
carrying on as distinguished from the winding up of the business. (n)
WHAT IS DISSOLUTION?
The dissolution of a partnership is the change in the relation of the
parties caused by any partner ceasing to be associated in the carrying on, as
might be distinguished from the winding up of, the business. Upon its
dissolution. the vartnersbtv continues and its le"al personality is retained
until the complete winding up of its business culminating in its
termination. 2
DISSOLUTION VS. WINDING UP VS. PARTITION OR DISTRIBUTION

The dissolution of the partnership did not mean that the juridical
entity was immediately terminated and that the distribution of the assets to
its partners should perfunctorily follow. On the contrary, the dissolution
simply effected a change in the relationship among the partners. The
partnership, although dissolved, continues to exist until its termination, at
which time the winding up of its affairs should have been completed and
the net partnership assets are partitioned and distributed to the partners.3
THREE FINAL STAGES OF A PARTNERSHIP

Even if partners had agreed to dissolve the partnership, such
agreement will not automatically put an end to the partnership, since the
partners still had to sell the goods on hand and collect the receivables from
~ ~ederi~o Jarantilla, Jr. vs. Antonieta Jarantilla, G.R. No. 154486, December 1, 2010.
3
I regono F. Ortega, et.al. vs. CA, G.R. No. 109248, July 3, 1995.
esus Sy, et.al. vs. CA, et.al., G.R. No. 94285, August 31, 1999.
111
...
CHAPTER 3 - DISSOLUTION AND WINDINGUP
debtors. In short, the partners will still undergo the p r ocess of winding u
the affairs of the partnership. ·
Under the Civil Code, the thite fi nal stages of a partnersh ip are (1)
dissolution; (2) winding-up; an d (3) termination. These stages are
distinguished, to wit:
1. Dis olution, Defined
Dis olution is the change in the relation of the partners caused
b a ~r partner ceasing to be associated in the carrying on of the
b iness (A."'t. 1s2s). It is that point of time the partners cease to carry on
the bu iness together.
2. 1ndi g Up, Defined
Winding up is the process of settling business affairs after
issolution.
Examples of winding up:

The paying of previous obligations; the collecting of assets
previously demandable; even the contracting for new business if
needed to wind up, such as the contracting with a demolition company
for the demolition of the garage used in a "used car" partnership.
3. Termination, Defined
Termination is the point in time after all the partnership
affairs have been wound up.
These final stages in the life of a partnership are recognized under

the Civi Code that explicitly declares that upon dissolution, the partnership
is not terminated, to \Nit:
Art 1828. The dissolution of a partnership is the change in the relation of

the partners caused by any partner ceasing to be associated in the
carrying on as distinguished from the winding up of the business.
Art 1829. On dissolution the partnership is not terminated, but

continues umt[ the winding up a(partnership affairs is completed,
Some of the best evidence of the existence of the partnership, which
was not yet terminated (though in the winding up stage), were the u nsold
goods and uncollected receivables. Since the partnership has not b een
terminated, the partners rema ined as co-partners. 4
uople of tlit: Phil1ppint~. G.R No 110782, September 25, 1998.

4 - and P...
Irma Id os v~ rA
112
CHAPTER 3 - DISSOLUTION AND WINDING UP
IS THE AGREEMENT OF THE PARTNERS AFFECTING LIQUIDATION

VALID?
The liquidation of the assets of the partnership following its
dissolution is governed by various provisions of the Civil Code; however, an
agreement of the partners, like any other contract, is bindin~ amon~ thei;o
and normally takes precedence to the extent applicable over the Code s
~eneral provisions. 5
WHAT IS THE MEANING OF "RETIREMENT" IN DISSOLUTION?
The term "retirement" in a generic sense means the dissociation by
a partner, inclusive of resignation or withdrawal, from the partnership that
thereby dissolves it. 6
Problem:
X was formerly the Assistant General Manager of the marble
quarrying and export business with the firm name of "Mountain". The
partnership was originally organized with L and R as general partners
and A, B and C, as limited partners.
X actually received only half of his stipulated monthly salary,
since he had accepted the promise of the partners that the balance
would be paid when the firm shall have secured additional operating
funds from abroad. X actually managed the operations and finances of
the business.
Without the knowledge of X, L and R sold their interests in the
partnership to W and Z. C, a limited partner, also sold his interest in the
partnership to W. The partnership now constituted solely by W and Z
who continued to use the old firm name of "Mountain". All the
employees of the partnership continued working in the business, all,
save X.
Subsequently, X was informed by W that the latter had bought
the business from the original partners and that it was for him to decide
whether or not he was responsible for the obligations of the old
partnership, including X's unpaid salaries. X was in fact not allowed to
work anymore in the "Mountain" business enterprise. His unpaid
salaries remained unpaid.
Consequently, X filed a complaint for recovery of unpaid salaries
against "Mountain" and W. The partnership and W denied X's charges,
contending in the main that X was never hired as an employee by the
present partnership.
1. Was the partnership which had hired X extinguished and replaced by a

new partnerships composed of Wand Z?
SG
6
G~egor~o F. Ortega, et.al. vs. CA, G.R. No. 109 248, July 3, 1995.
egono F. Ortega, e t.al. vs. CA, G.R. No. 109 248, July 3, 1995.
113
2. If indeed a new partnership had come into existence, can X nonetheless

assert his rights under his employment contract as against the new
partnership?
Answer:
In respect of the first issue, the legal effect of the changes in the
e be hip of the partnership was the dissolution of the old
rtne hip v.rhich had hired X and the emergence of a new finn
ed of \ and Z.
de 1828 of the Civil Code provides as follows:
1828. The dissolution of a partnership is the change in the relation

"- e rtners caused by any partner ceasing to be associated in the
_·1 g on as distinguished from the winding up of the business.
.. · e 1830 of the same Code must also be noted:
1830. issolution is caused:

(_ wi... out 'iolation of the agreement between the partners;
xxxxxxxxx
J ~- e express will of any partner, who must act in good faith,
whe o definite term or particular undertaking is specified;
xxxxxxxxx
(2-' z co travention of the agreement between the partners, where
e circumstances do not permit a dissolution under any other
o ·isio of this article, by the express will of any partner at any
e;
xxxxxxxxx
the case at bar, all of the partners had sold their partnership
~~ ...e ests ( amo ting to 82 % of the total partnership interest) to W and
z. e record does not show what happened to the remaining 18% of
riginal partnership interest The acquisition of 82% of the
ers ip interest by new partners, coupled with the retirement or
• dra a of the partners who had originally owned such 82%
~ . h
-e est, as eno gh to constitute a new partners ip.
T e occ rrence of events which precipitate the legal
conse ue nce of di:solution .of ~ partnership do not, however,
a tomaticaHy result m the terrnm~~on of the legal personality of the old
artnership. Article 18~9 of the C1VIl Code_ ~tes that:
P on dissolut10n, the partnership 1s not terminated, but
continues until the winding up of partnership affairs is completed. •
In the ordinary c_o urse of ev~n~, the legal personality of the
expiring partnership persists for the _limited purpose of winding up and
cosing of the affai rs of the partnersh1~. In the case at bar, it is important
to underscore the fact that the business of the old partnership was
114
simply continued by the new partners, without the old partnership

undergoing the procedures relating to dissolution and winding up of its
business affairs. In other words, the new partnership simply took over
the business enterprise owned by the preceding partnership, and
continued using the old name of "Mountain", without winding up the
business affairs of the old partnership, paying off its debts, liquidating
and distributing its net assets, and then re-assembling the said assets or
most of them and opening a new business enterprise.
What is important for present purposes is that, under the above
described situation, not only the retirin~ partners but also the new
partnership itself which continued the business of the old. dissolved
one. are liable for the debts of the precedin~ partnership. In Singson, et
al. v. lsabela Saw Mill, et al, the Court held that under facts very similar to
those in the case at bar, a withdrawing partner remains liable to a third
vactx creditor of the old partnership. The liability of the new partnership,
upon the other hand, in the set of circumstances obtaining in the case at
bar, is established in Article 1840 of the Civil Code which reads as
follows:
Art. 1840. In the following cases, creditors of the dissolved partnership

are also creditors of the person or partnership continuing the business:
1. When any new partner is admitted into an existing partnership, or
when any partner retires and assigns {or the representative of the
deceased partner assigns) his rights in partnership property to two
or more of the partners, or to one or more of the partners and one or
more third persons, if the business is continued without liquidation of
the partnership affairs;
2. When all but one partner retire and assign {or the representative of
a deceased partner assigns) their rights in partnership property to
the remaining partner, who continues the business without
liquidation of partnership affairs, either alone or with others;
3. When any partner retires or dies and the business of the dissolved
partnership is continued as set forth in Nos. 1 and 2 of this Article,
with the consent of the retired partners or the representative of the
deceased partner, but without any assignment of his right in
partnership property;
4. When all the partners or their representatives assign their rights in
partnership property to one or more third persons who promise to
pay the debts and who continue the business of the dissolved
partnership;
5. When any partner wrongfully causes a dissolution and remaining
partners continue the business under the provisions of article 1837,
second paragraph, No. 2, either alone or with others, and without
liquidation of the partnership affairs;
115
2. If indc d a new partnership had come into existence, can X nonetheless

assert his rights under his employment contract as against the new
partn r. hip?
An wer:
In re. pect of the first issue, the legal effect of the changes in the
m mt ership of the partnership was the dissolution of the old
partnership '" hirh had hired X and the emergence of a new firm
composed of Vv and Z.
Arti l 1828 of the Civil Code provides as follows :
A 1828. The d;ssolution of a partnership is the change in the relation

of the partners caused ~y any partner ceasing to be associated in the
ca ,ying on as distinguished from the winding up of the business.
Article 1830 of the same Code must also be noted:
Art 1830. Dissolution is caused:

(1 Jwithout violation of the agreement between the partners;
XXX XXXXXX
(bJ by the express will of any partner, who must act in good faith,
when no definite term or particular undertaking is specified;
xxxxxxxxx
(2) in contravention of the agreement between the partners, where
the circumstances do not permit a dissolution under any other
provision of this article, by the express will of any partner at any
time;
xxxxxxxxx
In the case at bar, all of the partners had sold their partnership
mterests (amounting to 82% of the total partnership interest) to Wand
z The record does not show what happened to the remaining 18% of
t original partnership interest The acquisition of 82% of the
partnership interest by new partners, coupled with the retirement or
withdrawal of the partners who had originally owned such 82%
interest, was enough to constitute a new partnership.
The occurrence of events which precipitate the legal
consequence of dissolution of a partnership do not, however,
automatically result in the termination of the legal personality of the old
partnership. Article 1829 of the Civil Code states that:
On dissolution, the partnership is not terminated, but
continues until the winding up of partnership affairs is completed. '
In the ordinary course of events, the legal personality of the
expiring partnership persists for the limited purpose of winding up and
closing of the affairs of the partnership. In the case at bar, it is important
114

business affairs. In other words, the new partnership simply took over
the business enterprise owned by the preceding partnership, and
continued using the old name of "Mountain", without winding up the
business affairs of the old partnership, paying off its debts, liquidating
and distributing its net assets, and then re~assembling the said assets or
most of them and opening a new business enterprise.
described situation, not only the retirin~ Dartners but also the new
partnership itself which continued the business of the old, dissolved
one. are liable for the debts of the Dfecedin~ DartnershiD. In Singson, et
al. v. Jsabe/a Saw Mill, et al, the Court held that under facts very similar to
those in the case at bar, a withdrawin" oartner remains liable to a third
12arty creditor al the old oartnership. The liability of the new partnership,
bar, is established in Article 1840 of the Civil Code which reads as
follows:
Art. 1840. In the following cases, creditors of the dissolved partnership

are also creditors of the person or partnership continuing the business:
1. When any new partner is admitted into an existing partnership, or
when any partner retires and assigns (or the representative of the
deceased partner assigns) his rights in partnership property to two
or more of the partners, or to one or more of the partners and one or
more third persons, if the business is continued without liquidation of
the partnership affairs;
2. When all but one partner retire and assign (or the representative of
a deceased partner assigns) their rights in partnership property to
the remaining partner, who continues the business without
liquidation of partnership affairs, either alone or with others;
3. When any partner retires or dies and the business of the dissolved
partnership is continued as set forth in Nos. 1 and 2 of this Article,
with the consent of the retired partners or the representative of the
deceased partner, but without any assignment of his right in
partnership property;
4. When all the partners or their representatives assign their rights in
partnership property to one or more third persons who promise to
pay the debts and who continue the business of the dissolved
partnership;
5. When any partner wrongfully causes a dissolution and remaining
partners continue the business under the provisions of article 1837,
second paragraph, No. 2, either alone or with others, and without
liquidation of the partnership affairs;
115
6. When a partner is expelled and the remaining partners conu

the business either alone or with others without liquidation o/:~f
partnership affairs; r
The liability of a third person becoming a partner in th
partnership continuing the business, under this article, to thE:
creditors of the dissolved partnership shall be satisfied out of th:
partnership property only, unless there is a stipulation to the
contrary.
When the business of a partnership after dissolution is
continued under any conditions set forth in this article, the creditors
of the retiring or deceased partner or the representative of the
deceased partner, have a prior right to any claim of the retired
partner or the representative of the deceased partner against the
person or partnership continuing the business on account of the .
retired or deceased partner's interest in the dissolved partnership or
on account of any consideration promised for such interest or for his
right in partnership property.
Nothing in this article shall be held to modify any right of
creditors to set assignment on the ground offraud.
XXX
Under Article 1840 above, creditors Qf the old "Mountain,, are

also creditors Q(the new "Mountain,, which continued the business of the
old one without liquidation of the partnership affairs. Indeed, a creditor
of the old "Mountain", like X in respect of his claim for unpaid wages, is
entitled to priority vis-a-vis any claim of any retired or previous partner
insofar as such retired partner's interest in the dissolved partnership is
concerned. It is not necessary for the Court to determine under which
one or more of the above 6 paragraphs, the case at bar would fall, if only
because the facts on record are not detailed with sufficient precision to
permit such determination. It is, however, clear to the Court that under
x
Article 1840 above, is entitled to enforce his claim for unpaid salaries,
as well as other claims relatin~ to his employment with the previous
11
partnership, against the new "Mountain .7
Art. 1829. On dissolution the partnership is not terminated, but

continues until the winding up of partnership affairs is completed. (n)
Note:
After dissolution, all the transactions of the partnership should
only pertain to liquidation or winding up which will happen over a period
of time. For example, the partnership will sell its non-cash assets,
1 set Beniamin Yu vs. NLRC, tLaL, G.R. No . 97212, Junt 30, 1993.
116
collects its receivables, pay the partnership creditors and thereafter

distribute the remainder to the partners.
Problem:
That sometime in March 1946, V and T together with F entered
into a partnership for the purpose of engaging in the printing business
and that the terms of the said partnership was for a period of 5 years
from the organization thereof; that this fact was admitted by T in his
answer; that, in the articles of co-partnership, V was designated as
President and his salary as such was P150 a month, that, during his
incumbency as President until the expiration of the period, T who was
the manager-treasurer of the partnership never paid him his salary; that
at the time V was also the editor of the press and in accordance with
their Articles of Partnership, Vas editor was to receive a salary of Pl00
a month; that this salary and the accrued amount therein was not also
paid by T, who was the business manager of the enterprise; that the
capital of the said partnership was PS,000 equally divided among the
partners; that this amount was used by the partnership to purchase
printing equipment; that, before the purchase by the three of them of
the printing equipment, V obtained a personal loan from F in the
amount of Pl,100 and he pledged his share in the said equipment to pay
the same; that upon the request of V, T paid the said amount to F and
this time V used his share in the partnership as guarantee for T's
payment; that on June 3, 1946, F sold his share of the partnership to T
and who by virtue thereof became 2/3 owner of the business; that T
presented a document which purports to be a letter of demand to V
asking him to settle his account, but due to his failure to do so, T
assumed full ownership of the business, he changed the business name;
that from the time the partnership was organized and went into
business, T as Manager-Treasurer never rendered any accounting of the
business operations, or paid the share of V in the profits; and that the
present action of partnership accounting and sum of money was only
filed in Court by V against Ton February 10, 1961, that is after a lapse of
9 years, 10 months and 11 days after the expiration of the contract of
partnership. Is V correct?
Answer:
Untenable is V's reliance on the theory that as a member of the
partnership, T continued as a trustee even after 194 7, when said T took
the business for himself and even after 19 51, the expiry date of the
agreements. The provisions of Article 1785 to the effect that:
When a partnership for a fixed term or particular
undertaking is continued after the termination of such term or
particular undertaking without any express agreement, the rights
117
and duties of the partners remain the same as they were at such
termination, so far as is consistent with a partnership at will.
A continuation of the business by the partners or such of thern
as habitually acted therein during the term, without any settlement or
liquidation of the partnership affairs, is prima facie evidence of a
continuation of the partnership.
and Article 1829 thus:
On dissolution the partnership is not terminated, but

are clearly inapplicable here.

for the simple reason that those articles
are premised on a continuation of the partnership as such, which is not
our case, because here I repudiated the partnership as early as 1947
with either actual or presumed knowledge of V. By analogy, at least,
with the rule as to a co-ownership, which a partnership essentially is, ·
prescription does not run in favor of any of the co-owners only as long
as the co-ovvner claiming against the others "expressly or impliedly
recognizes the co-ownership," a circumstance irreconcilably
inconsistent with T's conduct of transferring the place of business,
changing its name and not paying V any of the salaries agreed upon in
the articles of partnership.a
Art. 1830. Dissolution is caused:

(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular
undertaldng specified in the agreement;
(b) By the express will of any partner, who must act in good
faith, when no definite term or particular undertaking is
specified;
(c) By the express will of all the partners who have not
assigned their interests or suffered them to be charged for
their separate debts, either before or after the termination of
any specified term or particular undertaking;
( d) By the expulsion of any partner from the business bona fide
in accordance with such a power conferred by the agreement
between the partners;
(Z) In contravention of the agreement between the partners, where the
circumstances do not permit a dissolution under any other
time;
-
e see Vicente o·1ra- vs. Pablo D· Tafiega G.R. No. L-13232, June 17, 1970.
1
118
(3) By any event which makes it unlawful for the business of the
partnership to be carried on or for the members to carry it on in
partnership;
( 4) When a specific thing which a partner had promised to contribute
to the partnership, perishes before the delivery; in any case by the
loss of the thing, when the partner who contributed it having
reserved the ownership thereof, has only transferred to the
partnership the use or enjoyment of the same; but the partnership
shall not be dissolved by the loss of the thing when it occurs after
the partnership has acquired the ownership thereof;
(5) By the death of any partner;
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article. (1700a and 1701a)
KINDS OF DISSOLUTION
Extrajudicial dissolution
These are nos. 1 to 7 of the above-stated article.
Judicial dissolution
These refers to no. 8 of the above-stated article in relation to Art.
1831 of the New Civil Code.
I. Without yiolation of the aereement between the partners;

(a) By the termination of the definite term or particular undertaking
specified in the agreement;
Partnership with a fixed term

It is one where the life or period of existence of the partnership
has been agreed upon by the partners.
Example:
A and B entered into a contract of partnership for a period
of 5 years. As a rule, after the expiration of 5 years, the partnership
ofA and B will be dissolved.
Partnership for a particular undertaking

It is one where it will exist until the purpose is accomplished.
Example:
A, B, and C entered into a contract of partnership for the
construction of a building. As a rule, after the completion of the
building, the partnership will be dissolved.
Cb) By the express will of any partner, who must act in good faith,
119
Partnership at will
A partnership that does not fix its term is a partnership at Will
The birth and life of a partnership at will is predicated on the mutuai
desire and consent of the partners. The right to choose with whom a
person wishes to associate himself is the very foundation and essence of
that partnership.9
Example: '
A and B entered into a contl~act of partnership. If either A or
B wants to discontinue the operation of the partnership for any
reason, then the partnership is dissolved. Take note that the reason
for dissolution must be in good faith.
Problem:
X was formerly the Assistant General Manager of the marble
quarrying and export business with the firm name of "Mountain". The
and A B and C, as limited partners. The partnership had its main office
in Makati.
X was hired as Assistant General Manager with a monthly salary
of P4,000. According to X, however, he actually received only half of his
stipulated monthly salary, since he had accepted the promise of the
partners that the balance would be paid when the firm shall have
sec red additional operating funds from abroad.
Sometime in 1988, without the knowledge of X, L and R sold
their interests in the partnership to W and Z. C, a limited partner, also
sold his interest in the partnership to W. W acquired the great bulk of
the partnership interest The partnership now constituted solely by W
and z continued to use the old firm name of "Mountain", though they
moved the firm 's main office from Makati to Mandaluyong. All the
employees of the partnership continued working in the business, all,
saveX.
Consequently, X filed a complaint for illegal dismissal and
rtcovtry of unpaid salaries against "Mountain" and W. The partnership
and Vv denied X's charges, contending in the main that X was never
hirtd a ~n tmpJoyee by the present partnership.
1. Vva~ tht partnership which had hired X as Assistant General
Mon.ager ex ingui hed and replaced by a new partnership
u.,mpo ed of Wand Z'I
2. If ind,:td a ntw partn rship had come into existence, can X
fl(Jn~th Jc.c,~ cJS, '.;rt. his rights under his employment contract as
0 ~air,,,t th(! n w partncrshi p'I
An wer~
•, (,rt•Y,,1.Jf ,,, 1' ,, 1 II ,,,
u M
,
111 I' (
·•
f, (,J' ,. ,, l
• ,
,,,,1. 4iJ, J1Jly \ J ')')', .
membership of the partnership was the dissolution of the old
partnership which had hired X and the emergence of a new firm
composed of Wand Z.
Article 1828 of the Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the

relation of the partners caused by any partner ceasing to be associated in
the carrying on as distinguished from the winding up of the business.
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;

XXX
(b) by the express will of any partner, who must act in good faith,
XXX
(2) in contravention of the agreement between the partners, where
the circumstances do not permit a dissolution under any other
time;
XXX
In the case at bar, just about all of the partners had sold their
partnership interests (amounting to 82% of the total partnership interest) to
W and Z. The record does not show what happened to the remaining
18% of the original partnership interest. The acquisition of 82% of the
partnership. Article 1829 of the Civil Code states that:
On dissolution the partnership is not terminated, but
to underscore the fact that the business af the old vartnersbtv was simply
continued bv the new partners, without the old vartnership undeawtn"
the vrocedures relatin'1 to dissolution and winding uv of its business
affairs. In other words, the new vartnershtv stmvlv took over the business
enterprise owned bv the vrecedin" vartnershtp, and continued usin'1 the
old name of "Mountain", without win din" up the business a,[fairs Qf the old
121
partnership. paying off its debts, liquidating and distributing its n~

assets, and then re-assembling the said assets or most of thern an~
opening a new business enterprise.
What is important for present purposes is that, under the
above described situation, not only the retiring partners but also the
new partnership itself which continued the business of the old
dis olved one, are liable for the debts of the preceding partnership:
In Singson, et al. v. lsabela Saw Mill, et al., the Court held that under facts
very imilar to those in the case at bar, a withdrawing partner remains
liable to a third-party creditor of the old partnership. The liability of the
new partnership, upon the other hand, in the set of circumstances
obtaining in the case at bar, is established in Article 1840 of the Civl\
Code.
Under Article 1840, creditors Qf the old "Mountain" are al~
creditors Q(the new "Mountain" which continued the business of the old
o e without liquidation of the partnership affairs. Indeed, a creditor of
the old "Mountain", like X in respect of his claim for unpaid wages, is
insofa as such retired partner's interest in the dissolved partnership is
concerned. It is clear to the Court that under Article 1840 above, Xis
entitled to enforce his claim for unpaid salaries, as well as other claims
elating to his employment with the previous partnership, against the
new "Mountain". 10
(c) By the express will of all the partners who have not assigned their
interests or suffered them to be charged for their separate debts,
either before or after the termination of any specified term or
particular undertaking;
Example:
A and B entered into a contract of partnership. If both A and
B want to discontinue the operation of the partnership for any
reason, then the partnership is dissolved. Take note that A and B
must be in good faith in dissolving the partnership.
( ) By the expulsion of any partner from the business bona fide in

accordance with such a power conferred by the agreement
een the partners;
Example:
A, B, C and D entered into a contract of partnership. One of
their stipulations in the contract, among others, is the expulsion of
a ry partner ,1;ho incurred 10 absences in a month without official
122
leave (AWOL). If partner D violated this agreement, then he can be

expelled. Again, expulsion must be in good faith.
n. In contravention of the agreement between the partners, where th e

circumstances do not permit a dissolution under any 0th er
time;
Example:
A and B entered into a contract of partnership for a period of 5
years. If on the 3 rd year of the operation of the business of the
partnership, partner B does not want to continue the business without
any valid reason, then the partnership is dissolved.
In this case, Bis liable for damages because of breach of contract.
Problem:
X and Y executed their Articles of Co-Partnership called WWW
with only the two of them as partners. The partnership with an
indefinite term of existence was duly registered with the Securities and
Exchange Commission.
Under the said Articles of Co-Partnership, X shall manage the
business affairs of the partnership, including marketing and handling of
cash and is authorized to sign all papers and instruments relating to the
partnership, while Y shall be the logging superintendent and shall
manage the logging operations of the partnership. It is also provided in
the said articles of co-partnership that all profits and losses of the
partnership shall be divided share and share alike between the
partners.
Because of the difficulties encountered, X and Y decided to avail
of the services of Z as industrial partner.
X, Y and Z executed their Articles of Co-Partnership under the
firm name WWW. Aside from the slight difference in the purpose of the
second partnership and the term of the second partnership which is
fixed to 3 0 years, everything else is the same.
The partnership formed by X, Y and Z started operation and was
able to ship logs and realize profits. An income was derived from the
proceeds of the logs in the sum of P643,633.
Subsequently, X, Y and Z agreed among themselves that X and Y
shall purchase the interest of Z which is assessed in the amount of
P31,501. It was also agreed in the said instrument that after payment of
the sum of P31,501 to Z, X and Y shall become the owners of all
equipment contributed by Zand WWW be dissolved. Z was paid.
After the withdrawal of Z, the partnership was continued by X
and Y without the benefit of any written agreement.
123
Afterwards, Yentered into a management contract with another

logging enterprise, the W Corp. Later, Y left and abandoned the
partnership. Y withdrew his equipment from the partnership. The
equipment withdrawn were his supposed contributions to the first
partnership and was transferred to W Corp. by way of chattel mortgage.
Later, X wrote Y reminding the latter of his obligation to
contribute, either in cash or in equipment, to the capital investments of
the partnership as well as his obligation to perform his duties as logging
superintendent. Y told X that he will not be able to comply with the
promised contributions and he will not work as logging superintendent
X then told Y that the latter's share will just be 20% of the net profits.
Such was the sharing from 1957 to 1959 without complaint or dispute.
Subsequently, in a letter, X notified Ythat he dissolved the partnership.
'What is the nature of the partnership and legal relationship of X
and Yafter Z retired from the second partnership? and,
Can Xunilaterally dissolve the partnership in the case at bar?
Answer:
After a careful study of the records as against the conflicting 1
claims of X and Y, it appears evident that it was not the intention of the
partners to dissolve the first partnership, upon the constitution of the
second one, which they unmistakably called an "Additional Agreement". '
Except for the fact that they took in one industrial partner; gave him an
equal share in the profits and fixed the term of the second partnership
to 30 years, everything else was the same. Thus, they adopted the same
name, WWW, they pursued the same purposes and the capital
contributions of X and Y as stipulated in both partnerships call for the
same amounts. To all intents and purposes therefore, the First Articles Q{
Partnership were only amended. in the form of Supplementary Articles of
Co-Partnership which was never registered. Otherwise stated, even
during the existence of the second partnership, all business transactions
were carried out under the duly registered articles. As found by the trial
court, it is an admitted fact that even up to now, there are still subsisting
obligations and contracts of the latter. No rights and obligations accrued
in the name of the second partnership except in favor of Z which was
fully paid by the duly registered partnership.
On the other hand, there is no dispute that the second
partnership was dissolved by common consent. Said dissolution did not
affect the first partnership which continued to exist.
Under the circumstances, the relationship of X and Y after the
withdrawal of z can neither be considered as a De Facto Partnership,
nor a Partnership at Wilt for as stressed, there is an existing
partnership, duly registered.
As to the (JUestion atwhe th er or notX can unilaterally dissolve the.
partnership in the case at bae, the answer is in the affirmative.
124
Hence, as there arc only two parties when X notified Y that he

dissolved the partnership, it is in effect a notice of withdrawal.
Under Article 1830, par, 2 of the Civil Code, even if there is a
specified term, one partner can cause its dissolution by expressly
withdrawing even before the expiration of the period, with or without
justifiable cause. Of course, if the cause is not justified or no cause was
given, the withdrawing partner is liable for damages but in no case can
he be compelled to remain in the firm. With his withdrawal, the number
of members is decreased, hence, the dissolution. And in whatever way
he may view the situation, the conclusion is inevitable that X and Y shall
be guided in the liquidation of the partnership by the provisions of its
duly registered Articles of Co-Partnership; that is, all profits and losses
of the partnership shall be divided "share and share alike" between the
p artners. 11
111. By any event which makes it unlawful for the business of the
partnership to be carried on or for the members to carry it on in
partnership;
Example:
A, B, and Centered into a contract of partnership for the selling
of cigarettes in fron t of a school. Subsequently, the Tobacco Regulation
Act of 2003 was enacted absolutely prohibiting the selling of cigarettes
near a school. Hence, their partnership business became unlawful.
IV. When a specific thing which a partner had promised to contribute

to the partnership, perishes before the delivery; in any case by the
loss of the thing, when the partner who contributed it havine
reserved the ownership thereof, has only transferred to the
partnership the use or enjoyment of the same; but the partnership
shall not be dissolved by the loss of the thing when it occurs after
the partnership has acquired the ownership thereof;
Example:
A, B, and C entered into a contract of partnership. They agreed
that the term will be 10 years after which they will dissolve it
1. If B con tributed the use or enjoyment only of his only truck for the
10-year period and thereafter the truck was lost before delivery to
the partnership, then the partnership is dissolved. This is on the
presumption that B cannot contribute other specific things.
2. If B contributed the use or enjoyment only of his only truck for the
10-year period and thereafter the truck was lost after delivery to the
11
see Eufr ac10
· o. R01as
· vs. Constancio 8. Maglana, G.R. No. 30616, December 10, 1990.
125
partnership, then the partnership is dissolved. This is on the

presumption that B cannot contribute other specific things.
Note:
What was transferred in example no. 1 and 2 were only use or
enjoyment; thus, the ownership remained with partner B so that the
owner bears the risk of loss.
1. If B contributed the ownership of his only truck and thereafter the

truck was lost before delivery to the partnership, then the
partnership is dissolved. This is on the presumption that B cannot
contribute other specific things.
2. If B contributed the ownership of his only truck and thereafter the
truck was lost after delivery to the partnership, then the partnership
is not dissolved.
Note:
In example no. 3, the ownership remained with partner B while in
example no. 4, the ownership was transferred to the partnership. In both
cases, the principle is the owner bears the risk of loss.
v. By the death of any partner;

Problem:
X filed a complaint against V and Y, daughter and wife,
respectively, of the deceased Z, for Winding Up of Partnership Affairs
and Accounting.
X alleged that in 1977, he verbally entered into a partnership
with Z in the distribution of LPG in Manila. For business convenience, X
and Z allegedly agreed to register the business name of their
partnership under the name of Z as a sole proprietorship. The
partnership allegedly had Z as manager. As compensation, Z would
receive a manager's fee of 10% of the gross profit.
Allegedly, from the time that their business opened for business
on July 8, 1977, its business operation went quite and was profitable.
Upon Z's death in the later part of 1989, his surviving wife, Y
and particularly his daughter, V, took over the management without X's
consent Despite X's repeated demands upon Y and V for accounting and
winding up of the partnership, Y and V failed to comply.
Did X and the late Z have a partnership? If yes, was it dissolved?
Answer:
With regard to Y . and_ V's i?sist~nce that laches and/ or
prescription should have extmgu1shed X s c!a1m, we agree with the trial
court and the Court of Appeals that the_ a~t1on for accounting filed by X
three years after Z's death was well w1thm the prescribed period. The
126
Civil Code provides that an action to enforce an oral contract prescribes

in 6 years while the right to demand an accounting for a partner's
interest as against the person continuing the business accrues at the
date of dissolution, in the absence of any contrary
agreement. Considering that the death QJ a partner results ia the,
dissolution of the partnersbtv. in this case, it was Z's death that X as the
surviving partner had the right to an account of his interest as against Y
and V. It bears stressing that while Z's death dissolved the partnership,
the dissolution did not immediately terminate the partnership. The Civil
Code expressly provides that upon dissolution, the partnership continues
and its legal personality is retained until the complete winding up of its
business, culminating in its termination.
partnership between X and Z, Y and V maintain that said partnership
that had initial capital of PZ00,000 should have been registered with the
Securities and Exchange Commission (SEC) since registration is
mandated by the Civil Code, True, Article 1772 of the Civil Code requires
that partnerships with a capital of P3,000 or more must register with the
SEC, however, this registration requirement is not mandatory. Article
1768 of the Civil Code explicitly provides that the partnership retains its
juridical personality even if it fails to register. The failure to register the
contract of partnership does not invalidate the same as among the
partners, so long as the contract has the essential requisites, because the
main purpose of registration is to give notice to third parties, and it can
be assumed that the members themselves knew of the contents of their
contract. In the case at bar, non-compliance with this directory
provision of the law will not invalidate the partnership considering that
the totality of the evidence proves that X and Z indeed forged the
partnership in question.12
VI. By the insolvency of any partner or of the partnership;

Insolvency here means that the liabilities are greater than the assets.
VII. By the ciyil interdiction of any partnefi

What is civil interdiction?
Civil interdiction deprives the offender during the time of his
sentence of the right to manage his property and dispose of such property
by any act or any conveyance inter vivos.13
Art. 1831. On application by or for a partner the court shall decree a

dissolution whenever:
:: see Lilibeth Sunga-Chan and Cecilia Sunga vs. Lamberto T. Chua, G.R. No. 143340, August 15, 2001
Art. 34, Revised Penal Code.
127
... .
(1) A partner has been declared insane in any judicial proceeding 0

is shown to be of unsound mind; t
(2) A partner becomes in any other way incapable of performing ht
part of the partnership contract; s
(3) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business;
( 4) A partner wilfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in
matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership
with him;
(5) The business of the partnership can only be carried on at a loss;
(6) Other circumstances render a dissolution equitable.
On the application of the purchaser of a partner's interest
under Article 1813 or 1814:
(1) After the termination of the specified term or particular
undertaking;
(2) At any time if the partnership was a partnership at will when the
interest was assigned or when the charging order was issued. (n)
Who can sue for judicial dissolution?

1. A partner or any of the 1 to 6 grounds for judicial dissolution in the first 1
paragraph.
2. The purchaser of a partner's interest in the partnership under Art. 1813
or 1814 after the termination of the specified term or particular
undertaking or if the partnership is at will when the interest was
assigned or when the charging order was issued.
I. 0 APPLICATION BY OR FORA PARTNER

1. A partner has been declared insane in any judicial proceeding or
is shown to be of unsound mind;
The presumption is in favor of sanity that is why the insanity
here must be duly proven in court. Take note that insanity will make a
person incapacitated to enter into a contract like a contract of
partnership.
2. A partner becomes in any other way incapable of performing his
part of the partnership contract;
Example:
A, B, and C formed ABC partnership to engage in the private
practice of Jaw. Subsequently, C applied_ and was appointed as a
government legal officer and C was _not given the authority by their
head of office to engage i~ the practice of law. !hus, in this case, c is
incapable of performing his part of the partnership contract.
128
3. A partner has been guilty of such conduct as tends to affect

4. A partner wilfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in
matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership
with him;
Example:
A, B, and C formed ABC partnership. Subsequently, C became
regularly drunk with liquor that causes his habitual tardiness and
absences from their office despite warnings from A and B.
5. The business of the partnership can only be carried on at a loss;

Take note that the intention and essence of every business
partnership is to divide the profits among themselves.
6. Other circumstances render a dissolution equitable.
This is a catch-all provision for other grounds of judicial
dissolution not mentioned above so long as this can be proven in court.
Note:
There can be a judicial dissolution if the continuation of the
partnership has become inequitable.
Problem:
About the time the W Panciteria started to become operational,
Y gave P4,000 as his contribution to the partnership. This is evidenced
by a receipt wherein X acknowledged his acceptance of the P4,000 by
present when the receipt was signed by X. An examination was
conducted by the PNP Crime Laboratory on orders of the trial court of
certain documentary exhibits. The signatures when compared to the
signature of X appearing in the pay envelopes of employees of the
restaurant showed that the signatures in the two receipts were indeed
the signatures of X.
Furthermore, Y received from X the amount of P12,000 covered
by the latter's Check No. 012345 from the profits of the operation of the
restaurant for the year 197 4.
X denied having received from Y the amount of P4,000.
Is Y a partner of X in the establishment of W Panciteria? If yes,
can the Court decree a dissolution?
Answer:
129
The records sufficiently establish that there was a partnership

Yis a partner in WPanciteria. The requisites of a partnership which are·
1) two or more persons bind themselves to contribute money, property·
or industry to a common fund; and 2) intention on the part of th;
partners to divide the profits among themselves have been established,
As stated by Y, a partner shares not only in profits but also In
the losses of the firm. If excellent relations exist among the partners at
the start of business and all the partners are more interested in seeing
the firm grow rather than get immediate returns, a deferment of sharing
in the profits is perfectly plausible. It would be incorrect to state that if a
partner does not assert his rights anytime within ten years from the
start of operations, such rights are irretrievably lost. Y's cause of action
is premised upon the failure of X to give him the agreed profits in the
operation of W Panciteria. In effect Y was asking for an accounting of his
interests in the partnership.
Considering the facts of this case, the Court may decree a
dissolution of the partnership under Article 1831 of the Civil Code
which, in part, provides:
Art 1831. On application by or for a partner the court shall

decree a dissolution whenever:
XXX
(3) A partner has been guilty of such conduct as tends to affect
(4J A partner willfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in matters
relating to the partnership business that it is not reasonably
practicable to carry on the business in partnership with him;
XXX
(6) Other circumstances render a dissolution equitable.
XXX
There shall be a liquidation and winding up of partnership

affairs, return of capital, and other incidents of dissolution because the
continuation of the partnership has become ineguitable.
II. 0 THE APPLICATION OF THE PURCHASER OF A PARTNER'S

I TEREST
The purchaser of a partner's interest in the partnership under Art
1813 or 1814 after the termination of the specified term or particular
undertaking or if the partnershi~ is at will when the interest was assigned
or when the charging order was issued.
130
Example:
A, B, and C, with equal contribution, formed ABC partnership for
the construction of a specific building. During the pendency of the
construction, C sold his interest to X. Thus, X, by purchasing the interest
of C became an assignee. In here, ABC partnership is not dissolved.
However, if after the construction of the building is completed and the
partnership is not dissolved, then X can ask the court to dissolve the
partnership.
Problem:
Y entered into a Joint Venture Agreement with X for the
operation of an ice manufacturing business with Y as the industrial
partner and X as the capitalist partner. Subsequently, for and in
consideration of the sum of PS00,000, however, X subsequently
executed a Deed of Assignment, transferring all his rights and interests
in the business in favor of W the wife of H. With X's eventual departure
from the country, the Spouses H and W caused their lawyer to send Y a
letter, apprising her of their acquisition of X's share in the business and
formally demanding an accounting and inventory thereof as well as the
remittance of their portion of its profits.
Faulting Y with unjustified failure to heed their demand,
Spouses H and W filed a Complaint against Y, for specific performance,
accounting, examination, audit and inventory of assets and properties,
dissolution of the joint venture, appointment of a receiver and
damages. H and W filed their Answer specifically denying the material
allegations of the complaint.
Does the purchaser of a partners' interest have the right to ask
for dissolution?
Answer:
Generally understood to mean an organization formed for some
temporary purpose, a joint venture is likened to a particular partnership
or one which has for its object determinate things, their use or fruits, or
a specific undertaking, or the exercise of a profession or vocation. The
rule is settled that joint ventures are governed by the law on
partnerships which are, in turn, based on mutual agency or delectus
personae.
The transfer by a partner of his partnership interest does not
make the assignee of such interest a partner of the firm, nor entitle the
assignee to interfere in the management of the partnership business or
to receive anything except the assignee's profits. The assignment does
not purport to transfer an interest in the partnership, but only a future
contingent right to a portion of the ultimate residue as the assignor may
become entitled to receive by virtue of his proportionate interest in the
capital. Since a partner's interest in the partnership includes his share in
131
the profit , we find that the Comi of Appeals (CA) committed no

rever ible error in ruling that the Spouses H and W are entitled to
'ssh re in the profits, despite Y's lack of consent to the assignment ol
ns inter st in tl1e joint venture. Although W did not, moreover, becotne
a partner a~ a consequence of the assignment and/or acquire the right
to require an arrounting of the partnership business, the CA correctly
granted her prayer for dissolution of the joint venture conformably With
the right granted to the purchaser of a partner's interest under
Artid e 1831 of tl1e avil Code.
Art. 1832. Except so far as may be necessary to wind up partnership

affairs or to complete transactions begun but not then finished,
dissolution terminates all authority of any partner to act for the
partnership:
(1) 1th respect to the partners:
(a) 7hen the dissolution is not by the act, insolvency or death of a
partner; or
(b) en the dissolution is by such act, insolvency or death of a
partner, in cases where article 1833 so requires;
(Z} 1th respect to persons not partners, as declared in article 1834.
(n)
As a rule, when a partnership is dissolved, any of the partners

ot b · d the partnership.
Exceptions are those provide in Articles 1833 and 1834.
Example:
A, B, and C formed a partnership. If today the partnership is
dissolved, then any of the partners must not enter into a contract because
it is no longer binding to the partnership, except if the transaction is for
the purpose of liquidation.
Art. 1833 . Where the dissolution is caused by the act, death or

insolvency of a partner, each partner is liable to his co-partners for his
share of any liability created by any partner acting for the partnership
as if the partnership had not been dissolved unless:
(1) The dissolution being by act of any pa~er, th~ partner acting for
the partnership had knowledge of the d1ssolut1on; or
(Z) The dissolution being by the de~th or insolvency of a partner, the
partner acting for the partnership had knowledge or notice of the
death or insolvency.
132
Example:
A, B, and C formed a partnership. After two years, partner A
withdraw from the partnership. In this case, the partnership is
dissolved. Hence, any transactions entered into by B and C without
their knowledge of the withdrawal by partner A is valid and binding to
the partnership.
What if B has knowledge about the withdrawal of A, however

he transacted with X who has no knowledge about the withdrawal of B.
This transaction created a liability. Then, the transaction between B
and Xis still valid and binding to the partnership. Take note that X the
third person, is in good faith. Nevertheless, if after the payment of C of
his share of the liability to X, C can ask reimbursement from B.
What if the cause of dissolution is the death or insolvency of

partner A? Thereafter, B who has knowledge of the death of partner A
entered into a contract with Y who does not know about the death of
partner A and this transaction resulted into a liability. This liability is
binding to the partnership so that B and C are both liable. However,
after C paid his share of the liability to Y, he can ask reimbursement
from B.
Art. 1834. After dissolution, a partner can bind the partnership, except
as provided in the third paragraph of this article:
(1) By any act appropriate for winding up partnership affairs or
completing transactions unfinished at dissolution;
(2) By any transaction which would bind the partnership if
dissolution had not taken place, provided the other party to the
transaction:
(a) Had extended credit to the partnership prior to dissolution
and had no knowledge or notice of the dissolution; or
(b) Though he had not so extended credit, had nevertheless
known of the partnership prior to dissolution, and, having
no knowledge or notice of dissolution, the fact of dissolution
had not been advertised in a newspaper of general
circulation in the place ( or in each place if more than one) at
which the partnership business was regularly carried on.
The liability of a partner under the first paragraph, No. 2, shall

be satisfied out of partnership assets alone when such partner had
been prior to dissolution:
(1) Unknown as a partner to the person with whom the contract is
made; and
133
(Z) So far unknown and inactive in partnership affairs that the

business reputation of the partnership could not be said to have
been in any degree due to his connection with it.
The partnership is in no case bound by any act of a partner

after dissolution:
(1) Where the partnership is dissolved because it is unlawful to carry l
on the business, unless the act is appropriate for winding up
partnership affairs; or
(2) Where the partner has become insolvent; or
(3) Where the partner has no authority to wind up partnership ~
affairs; except by a transaction with one who:
(a) Had extended credit to the partnership prior to dissolution
and had no knowledge or notice of his want of authority; or
(b) Had not extended credit to the partnership prior to
dissolution, and, having no knowledge or notice of his want of
authority, the fact of his want of authority has not been
advertised in the manner provided for advertising the fact of
dissolution in the first paragraph, No. 2 (b ).
Nothing in this article shall affect the liability under Article

1825 of any person who, after dissolution, represents himself or
consents to another representing him as a partner in a partnership
engaged in carrying business. (n)
I. PARTNERSHIP IS LIABLE
L Act appropriate for winding up partnership affairs;
Example:
The partnership of A B, and C was dissolved. Thereafter, B
sold the non-cash assets of the partnership like remaining goods or
inventories as well as properties and equipment. In this case, the
transaction of Bis binding to the partnership.
2. Act for completing transactions unfinished at dissolution.
Example:
The partnership of A and B was dissolved. Thereafter, B
transported to X, a client, the undelivered goods and inventories by
virtue of a previous contract of sale prior to dissolution.
3 • Any transaction which would bind the partnership if dissolution

had not taken place provided the other party to the transaction:
134
a. Had extended credit to the partnership prior to dissolution

and had no knowledge or notice of the dissolution;
Example:
The partnership of A, B, and C was dissolved. Prior to
dissolution, B entered into a contract of sale with X by buying
goods of the latter on credit which is not connected with the
dissolution.
In this case, Xis in good faith as he has no knowledge about
the dissolution. Therefore, the partnership is liable to the contract
of sale.
b. Though he had not so extended credit, had nevertheless

known of the partnership prior to dissolution, and, having no
knowledge or notice of dissolution, the fact of dissolution had
not been advertised in a newspaper of general circulation in
the place at which the partnership was regularly carried on.
Example:
The partnership of A, B, and C was dissolved. Xis the supplier
of the partnership even prior to dissolution. After dissolution, C
entered into a contract of sale with X by buying goods of the latter
on credit which is not connected with the dissolution.
In this case, X is in good faith as he has no knowledge about

the dissolution. Therefore, the partnership is liable to the contract
of sale. However, if the fact of dissolution had been advertised in a
newspaper ofgeneral circulation, then the partnership is not liable.
II. PARTNERSHIP IS N.Q.I LIABLE

1. Where the partnership was dissolved because it was UNLAWFUL
to carry on the business, unless the act is appropriate for winding
up partnership affairs.
Example:
The partnership of A, B, and C was dissolved because the
alleged herbal medicine they were selling was declared unlawful by
the Department of Health. Thereafter, B sold some of these to X In
this case, the partnership is not liable.
2. Where the partner has become insolvent.
Example:
The partnership of A, B, and C was dissolved because C
turned insolvent. Thereafter, Centered into a contract with X In this
135
case, th partnrrship is not liable. Take note that it was C, the

insolv nt partn ,~ who entered int.a a contract with X.
3. Where the partner had no authority to wind up partnership

affair ; e ·cept by a transaction with a third person who is In
good faitll.
Bxample:
The partnership of A, B, and C was dissolved. B is the only
liquidating partn r. As a general rule, any transaction entered into
~\ A and B aft r the dissolution is not binding to the partnership,·
h nc , th partnership is not liable.
What if X is the supplier of the partnership even prior to

di olution. Ajte.r dissolution, Centered into a contract of sale with X
~}' b10 iT19 goods of the latter on credit which is not connected with
th dissolution. Take note that the only liquidating partner is
partner B.
In this case, X is in good faith as he has no knowled9e

about the dissolution. Therefore, the partnership is liable to the
contract of sale as an exception. However, if the fact of dissolution
had been advertised in a newspaper of general circulation, then the
partnership is not liable.
Art. 183 5. The dissolution of the partnership does not of itself

discharge the existing liability of any partner.
A partner is discharged from any existing liability upon

dissolution of the partnership by an agreement to that effect between
himself, the partnership creditor and the person or partnership
continuing the business; and such agreement may be inferred from the
course of dealing between the creditor having knowledge of the
dissolution and the person or partnership continuing the business.
The individual property of a deceased partner shall be liable

for all obligations of the partnership incurred while he was a partner,
but subject to the prior payment of his separate debts. (n)
General Rule:
The dissolution of the partnership does not of itself discharge the
existing liability of any partner.
136
Partner's liability is discharged

In order for the liability of a partner to be discharged, the following
must agree:
1. The partner;
2. The other partners; and
3. The creditors.
Property of a deceased partner
Example:
The partnership of A, B, and C was dissolved due to the death
of C. Xis a partnership creditor prior to dissolution, while Y is the private
creditor of C. Is the separate property of C liable to X?
Yes, however the separate liability to Y must first be paid and
thereafter, any remaining property of C will be available to satisfy his
share in the partnership liability to X that was incurred prior to
dissolution.
Art. 1836. Unless otherwise agreed, the partners who have not
wrongfully dissolved the partnership or the legal representative of the
last surviving partner, not insolvent, has the right to wind up the
partnership affairs, provided, however, that any partner, his legal
representative or his assignee, upon cause shown, may obtain winding
up by tht- court. (n)
Kinds of Winding-Up or Liquidation

I. Extrajudicial
Liquidation is done without the intervention of the court.
Who will wind-up?

1. The liquidating partner or partners as agreed upon by all of the partners.
2. The partners who have not wrongfully dissolved the partnership.
3. The legal representative of the last surviving partner who is not insolvent
II. Judicial
Liquidation is done under the control and direction of the court,
upon proper cause that is shown to the court.
Who will wind-up?

The person appointed by the court.
Art. 183 7. When dissolution is caused in any way, except in

contravention of the partnership agreement, each partner, as against
his co-partners and all persons claiming through them in respect of
their interests in the partnership, unless otherwise agreed, may have
137
the partnership property applied to discharge its liabilities, and th

surplus applied to pay in cash the net amount owing to the respecttve
partners. But if dissolution is caused by expulsion of a partner, hone
fide under the partnership agreement and if the expelled partner 1:
discharged from all partnership liabilities, either by payment or
agreement under the second paragraph of Article 1835, he shall
receive in cash only the net amount due him from the partnership.
When dissolution is caused in contravention of the partnership

agreement the rights of the partners shall be as follows:
(1) Each partner who has not caused dissolution wrongfully shall
have:
(a) All the rights specified in the first paragraph of this article,
and
{b) The right, as against each partner who has caused the
dissolution wrongfully, to damages for breach of the
agreement
(2) The partners who have not caused the dissolution wrongfully, if
they all desire to continue the business in the same name either ,
by themselves or jointly with others, may do so, during the
agreed term for the partnership and for that purpose may
possess the partnership property, provided they secure the
payment by bond approved by the court, or pay any partner who
has caused the dissolution wrongfully, the value of his interest in
the partnership at the dissolution, less any damages recoverable
under the second paragraph, No. 1 (b) of this article, and in like
manner indemnify him against all present or future partnership
liabilities.
{3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the
second paragraph, No. 2, all the rights of a partner under the
first paragraph, subject to liability for damages in the second
paragraph, No. 1 (b ), of this article.
(b) If the business is continued under the second paragraph, No.
z, of this article, the right as against his co-partners and all
claiming through them in respect of their interests in the
partnership, to have the value of his interest in the
partnership, less any damage caused to his co-partners by the
dissolution, ascertained and paid to him in cash, or the
payment secured b~ a _hon~ a~~~oved by the court, and to be
released from all eXIsting hab1ht1es of the partnership; but in
ascertaining the value of the partner's interest the value of
the goodwill of the business shall not be considered. (n)
138
RIGHT OF PARTNERS IN CASE OF LIQUIDATION CAUSED BY VIOLATION

OR NON-VIOLATION OF THE PARTNERSHIP CONTRACT
I. Without Contravention or Violation of the Partnership Aereement

1. To have the partnership property applied to discharge the liabilities of
the partnership; and
2. To have the surplus, if any, applied to pay in cash the net amount owing
to the respective partners.
Example:
A, B, and C formed a partnership for a term of 5 years. After 5
years, they decided to dissolve the partnership and to wind up. X is a
creditor of the partnership prior to dissolution and partner C also loaned
a sum of money to the partnership. During liquidation the non-cash
assets of the partnership must be converted into cash, like selling the
properties of the partnership, to pay the creditors (e.g. X) of the
partnership. Thereafter, if there is remaining cash, then it will be
distributed to the partner-creditor ( e.g. CJ of the partnership.
Note:
If dissolution is caused by expulsion of a partner, bona fide (good
faith) under _the partnership agreement and if the expelled partner is
discharged from all partnership liabilities, either by payment or
agreement between him, the other partners, and the partnership
creditors, he shall receive in cash only the net amount due him from the
partnership.
II. In Contravention or Violation of the Partnership Agreement

1. Rights of partner who has not caused dissolution wrongfully
a. To have the partnership property applied to discharge the
liabilities of the partnership;
b. To have the surplus, if any, applied to pay in cash the net amount
owing to the respective partners;
c. To be indemnified for damages caused by the partner who caused
the dissolution wrongfully; and
d. To continue the business in the same name either by themselves
or jointly with others during the agreed term of the partnership
and for that purpose may possess the partnership property.
2. Rights of partner who wrongfully caused the dissolution

a. If the business is not continued by the other partners.
To have the partnership property applied to discharge the
liabilities of the partnership and to receive in cash his share of the
surplus less dama'1es caused by his wrongful dissolution.
b. If the business is continued by the other partners.
139
(a) To have the value of his interest in the partnership,~

damaue caused to his co-partners by the dissolutior
ascertained and paid to him in cash, or the payment secur~.:·
by a bond approved by the court; and ·
(b) To be released from all existing liabilities of th,
partnership. '
Note:
In ascertaining the value of the partner's interest who wrongfully
caused the dissolution of the partnership, the value of the goodwill of the
business shall not be considered.
Example:
A, B, and Cformed a partnership for a term of 5 years. On the 3rd
year, B, in bad faith, decided to dissolve the partnership. In this case, it is
B who wrongfully caused the dissolution of the partnership.
During liquidation, the non-cash assets of the partnership must

be converted into cash, like selling the equipment and other properties of
the partnership, to pay its creditors. After paying the creditors of the
partnership, the partnership will pay the partner-creditor of the
partnership, if any.
At this juncture, the damages to be paid by B must be

determined. For example, if the damages was ascertained to be Pl 0,000,
this amount will be deducted from his interest and this will be given as an
addition to the interest ofA and C.
Problem:
V, X, Y and Z and P Corp., entered into a Joint Venture \
Agreement UVA) for the development of a property into a residential
subdivision. Under the agreement, V, X, Y and Z obliged themselves to
contribute the two parcels of land as their share in the joint venture. For
its part, P Corp. undertook to contribute money, labor, personnel,
machineries, equipment, contractor's pool, marketing activities,
managerial expertise and other needed resources to develop the
property and construct therein the units for sale to the public.
They also agreed to share in the profits from the joint venture, P
Corp. shall be entitled to 60% of the net profit and V, X, Y and Z shall be
entitled to 40%. Subsequently, V, X, Y and Z filed a complaint for
rescission.
v, x, y and Z alleged, among others, that, despite the lapse of
almost 4 years from the execution of the JVA, the land development
aspect of the project had not yet been completed. V, X, y and z also
140
alleged that defendants had completely disregard ed previously agreed

accounting and auditing procedures.
V, X, Y and Z also claimed that in a sales -income-costs projection
prepared and submitted by P Corp., V, X, y and z stood to receive the
amount of P70,218,296 as their net share in the joint venture project; to
date, however, after almost 4 years and despite the undertaking in the
JVA that V, X, Y and Z shall initially get 20% of the agreed net revenue
during the first 2 years (on the basis of the 60%-40% sharing) and their
full 40% share thereafter, P Corp. had yet to deliver these shares to V, X,
Y and Z which by estimate would amount to no less than P40,000,000.
Answer:
P Corp. and V, X, Y and Z entered into a joint venture as
evidenced by their JVA which is a form of partnership, and as such is to
be governed by the laws on partnership.
When the JVA was rescinded based on the evidence on record
that P Corp. willfully and persistently committed a breach of the JVA, the
court thereby dissolved/ cancelled the partnership. With the rescission
of the JVA on account of P Corp.s' fraudulent acts, all authority of any
partner to act for the partnership is terminated except so far as may be
necessary to wind up the partnership affairs or to complete transactions
begun but not yet finished. On dissolution, the partnership is not
terminated but continues until the winding up of partnership affairs is
completed. Winding up means the administration of the assets of the
partnership for the purpose of terminating the business and discharging
the obligations of the partnership.
The transfer of the possession of the parcels of land and the
improvements thereon to V, X, Y and Z was only for a specific purpose:
the winding up of partnership affairs, and the partition and distribution
of the net partnership assets as provided by law. After all, Article 1836
of the New Civil Code provides that unless otherwise agreed by the
parties in their JVA, V, X, Y and Z have the right to wind up the
partnership affairs.
It must be stressed, too, that although V, X, Y and Z acquired
possession of the lands and the improvements thereon, the said lands
and improvements remained partnership property, subject to the rights
and obligations of the parties, inter se, of the creditors and of third
parties under Articles 1837 and 1838 of the New Civil Code, and
subject to the outcome of the settlement of the accounts between the
parties as provided in Article 1839 of the New Civil Code, absent any
agreement of the parties in their JVA to the contrary. Until the
partnership accounts are determined, it cannot be ascertained how
much any of the parties is entitled to, if at all.
141
. .It was, thus premature, for P Corp. to be demanding that it }

mdemmfied for the value of the improvements on the parcels of lar.
owned by the joint venture/partnership. 14
Art. 1838. Where a partnership contract is rescinded on the ground Ol

the _fraud or misrepresentation of one of the parties thereto, the Patt)
entitled to rescind is, without prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the
partnership property after satisfying the partnership liabilities
to third persons for any sum of money paid by him for the
purchase of an interest in the partnership and for any capital
or advances contributed by him;
(2) To stand, after all liabilities to third persons have been
satisfied, in the place of the creditors of the partnership for any
payments made by him in respect of the partnership liabilities;
and
(3) To be indemnified by the person guilty of the fraud or making
the representation against all debts and liabilities of the
partnership. (n)
Three rights of a partner who is entitled to rescind

1. Right of lien or right of retention;
2. Right ofsubrogation;and
3. Right of indemnification.
Art 1839. In settling accounts between the partners after dissolution,

the following rules shall be observed, subject to any agreement to the
contrary:
(1) The assets of the partnership are:
{a) The partnership property,
(b) The contributions of the partners necessary for the payment
of all the liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment,
as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
( c) Those owing to partners in respect of capital,
{d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No.
1 of this article to the satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the
amount necessary to satisfy the liabilities.
H !,.t:e pn,nelu1Y l'rLJpc_ru ~~ t1nd lkveloprntnl Corp, and Rafaelllo W. Lopez vs, Ma. Clarlla T. Lazalfn -Magal, eLal .,
G.R- ffo, H , 7~79, Jun t 7, 2006.
142
(5) An assignee for the benefit of creditors or any person appointed

by the court shall have the right to enforce the contributions
specified in the preceding number.
(6) Any partner or his legal representative shall have the right to
enforce the contributions specified in No. 4, to the extent of the
amount which he has paid in excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for
the contributions specified in No. 4.
(8) When partnership property and the individual properties of the
partners are in possession of a court for distribution,
partnership creditors shall have priority on partnership
property and separate creditors on individual property, saving
the rights of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent,
the claims against his separate property shall rank in the
following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
( c) Those owing to partners by way of contribution~ (n)
Assets of the partnership

a. Partnership property; and
b. Contributions of the partners necessary for the payment of all liabilities.
Liabilities of the partnership shall rank in order of payment

a. Those owing to partnership creditors other than partners;
b. Those owing to partners (e.g., the partner or partners who gave a loan to
the partnership);
c. Those owing to partners in respect of capital; and
Note:
An industrial partner is not entitled to participate in the capital
because he did not contribute money or property or both.
d. Those owing to partners in respect of profits.
Note:
An industrial partner is entitled to participate in the profits.
Example:
A, B, and C formed a partnership with an agreement of equal
profit-sharing. Their contributions were Pl00,000, P200,000 and
P300,000, respectively. Thereafter, they decided to dissolved their
partnership. At the time of dissolution, they have total assets amounting
to Pl,000,000. Moreover, at the date of dissolution, the partnership owes
143
X the amount of PS0,000, Y the amount of Pl 00,000, and partner C the

amount of Pl 00,000.
Following the order of payment, X and Y have preference beinB
outside creditors. After payment of the liabilities to X and Y, the balance
is PBS0,000 (Pl,OOO,OOO-PS0,000-PlOO,OOO).
Afterwards, C, as an inside creditor, will be paid leaving a
balance of P750,000 (PBS0,000-100,000).
Thereafter, partners A, B, and C will be paid as to their capital
leaving a balance of PlS0,000 (P750,000-P100,000-P200,000-P300,000).
The remaining PlS0,000 will be divided by the partners A, B, and
C based on their profit-sharing agreement, if any. If there is no profit-
sharing agreemen~ then it will be based on their capital contribution.
Therefore, since they have an equal profit-sharing agreement, each of the
partners wi11 share PS0,000 each.
Problem:
X and Y formed a partnership with a capital of P75O,OO0 for
the operation of a restaurant and catering business under the name
"Food House.n X was appointed general manager and Y, operations
manager.
D joined as a partner in the business. His capital contribution
of P250,000 was paid by his parents, Hand W.
Later, X and Y closed down the restaurant, without prior
knowledge of D, Hand W, allegedly because of increased rental. The
restaurant furniture and equipment were deposited in D, H and W's
house for storage.
Then, H and W wrote X and Y, saying that they were no longer
interested in continuing their partnership or in reopening the
restaurant, and that they were accepting the latter's offer to return
their capital contribution.
Subsequently, W wrote another letter informing X and Y of the
deterioration of the restaurant furniture and equipment stored in
their house. She also reiterated the request for the return of their one·
third share in the equity of the partnership. The repeated oral and
written requests were, however, left unheeded.
D, H and W subsequently filed a Complaint for the collection
of a sum of money from Xand Y.
Are X and Y liable to D, H and W for the latter's share in the
partnership?
Answer:
o, H and W have no right to demand from X and y the return
of their equity share. Exc~pt as ~anagers of the partnership, X and y
did not personall~ hold its eqmty 0 ~ a~sets. "The partnership has a
juridical personality separate and distinct from that of each of the
partners." Since the capital was contributed to the partnership, not to
144
X and Y, it is the partnershic, that must refund the equity af the retiring
partner£
Since it is the partnership, as a separate and distinct entity,
that must refund the shares of the partners, the amount to be
refunded is necessarily limited to its total resources. In other words, it
can only pay out what it has in its coffers, which consists of all its
assets. However, before the partners can be paid their shares, the
creditors of the partnership must first be compensated. After all the
creditors have been paid, whatever is left of the partnership assets
becomes available for the payment of the partners' shares.
Evidently, in the present case, the exact amount of refund
equivalent to D, H and W's one-third share in the partnership cannot
be determin ed until all the partnership assets will have been
liquidated - in other words, sold and converted to cash - and all
partnership creditors, if any, paid.
Generally, in the pursuit of a partnership business, its capital
is either increased by profits earned or decreased by losses sustained.
It does not remain static and unaffected by the changing fortunes of
the business. In the present case, the financial statements presented
before the trial court showed that the business had made meager
profits. However, notable therefrom is the omission of any provision
for the depreciation of the furniture and the equipment. The
amortization of the goodwill (initially valued at PS00,000) is not
reflected either. Properly taking these non-cash items into account
will show that the partnership was actually sustaining substantial
losses, which consequently decreased the capital of the partnership.1 5
Required new contribution

If the partnership assets were exhausted, the partners shall
contribute the amount necessary to satisfy the liabilities.
Who can enforce?

1. An assignee for the benefit of creditors or any person appointed by the
court shall have the right to enforce the contributions.
2. Any partner or his legal representative shall have the right to
implement the said enforced contributions, to the extent of the amount
which he has paid in excess of his share of the liability.
Individual property of a deceased partner

The individual property of a deceased partner shall be liable for his
share of the partnership liability incurred while he was a partner. Take note
that his separate creditors have preference over these individual properties.
15
see Luzviminda J. Villareal, et.al. vs. Donaldo Efren C. Ramirez, eta!., G.R. No. 144214, July 14, 2003.
145
Preference with respect to properties in possession of the court

When partnership property and the individual properties of th,
partners are in possession of a court for distribution, partnership erg~
shall have priority on partnership property and separate creditor.4
individual propezty. saving the rights of lien or secured creditors.
Preference of claims against the separate property of an insolvent
partner
Where a partner has become insolvent or his estate is insolvent, the
claims against his separate property shall rank in the following order:
1. Those owing to separate creditors;
2. Those owing to partnership creditors:
3. Those owing to partners kY wqy Qf contribuoon.
Not.e:
Insolvency means that the assets are less than the liabilities.
Art. 1840.1n the following cases, creditors of the dissolved partnership ,

are also creditors of the person or partnership continuing the
business:
1) When any new partner is admitted into an existing partnership, 1
or when any partner retires and assigns (or the representative of
the deceased partner assigns) his rights in partnership property
to two or more of the partners, or to one or more of the partners
and one or more third persons, if the business is continued
without liquidation of the partnership affairs;
{Z) When all but one partner retire and assign (or the representative
of a deceased partner assigns) their rights in partnership
property to the remaining partner, who continues the business
without liquidation of partnership affairs, either alone or with
others;
(3) When any partner retires or dies and the business of the
dissolved partnership is continued as set forth in Nos. 1 and 2 of
tins article, with the consent of the retired partners or the
representative of the deceased partner, but without any
assignment of his right in partnership property;
{4) When all the partners or their representatives assign their rights
in partnership property to one or more third persons who
promise to pay the debts and who continue the business of the
dissolved partnership;
{S) When any partner wrongfully causes a dissolution and the
rP-maining partners continue the business under the pr · ions
of article 1837, second paragraph, No. 2, either alon OVJSwith
others, and without liquidation of the partnership affair:; or
146
( 6) When a partner is expelled and the remaining partners continue

the business either alone or with others without liquidation of
the partnership affairs.
The liability of a third person becoming a partner in the
partnership continuing the business, under this article, to the
creditors of the dissolved partnership shall be satisfied out of the
partnership property only, unless there is a stipulation to the contrary.
When the business of a partnership after dissolution is
continued under any conditions set forth in this article the creditors of
the dissolved partnership, as against the separate creditors of the
retiring or deceased partner or the representative of the deceased
partner, have a prior right to any claim of the retired partner or the
representative of the deceased partner against the person or
partnership continuing the business, on account of the retired or
deceased partner's interest in the dissolved partnership or on account
of any consideration promised for such interest or for his right in
partnership property.
Nothing in this article shall be held to modify any right of
creditors to set aside any assignment on the ground of fraud.
The use by the person or partnership continuing the business
of the partnership name, or the name of a deceased partner as part
thereof, shall not of itself make the individual property of the deceased
partner liable for any debts contracted by such person or partnership.
(n)
Rationale:
The Article primarily deals with the exemption from liability in
cases of a dissolved partnership, of the individual property of the
deceased partner for debts contracted by the person or partnership which
continues the business using the partnership name or the name of the
deceased partner as part thereof What the law contemplates therein is a
hold-over situation preparatory to formal reorganization.
Secondly, Article 1840 treats more of a commercial partnership

with a goodwill to protect rather than of a professional partnership, with
no saleable goodwill but whose reputation depends on the personal
qualifications of its individual members. Thus, it has been held that a
saleable goodwill can exist only in a commercial partnership and cannot
arise in a professional partnership consisting of lawyers.
As a general rule, upon the dissolution of a commercial

partnership the succeeding partners or parties have the right to carry on
the business under the old name, in the absence of a stipulation forbidding
it, since the name of a commercial partnership is a partnership asset
inseparable from the goodwill of the firm ...
147
CHAPTER 3 • DISSOLUTION AND WINDING UP
On the other hand,
..~ a professional partnership the reputation of which depends 1,.

the individual skill of the members, such as partnerships of attorneys ~:
physicians, has no goodwill to be distributed as a firm asset on itt
dissolution, however intrinsically valuable such skill and reputation maybt
especiaUy where there is no provision in the partnership agreement relatin~
to good will as an asset ...16 ~
Problem:
X was formerly the Assistant General Manager of the marb\e
quarrying and export business with the firm name "Mountain". The
and J, F and C, as limited partners. The partnership had its main office in
Makati.
X was hired as Assistant General Manager with a monthly salary
of P4,000. According to X, however, he actually received only half of his
stipulated monthly salary, since he had accepted the promise of the
partners that the balance would be paid when the firm shall have
secured additional operating funds from abroad. X actually managed the
operations and finances of the business.
Sometime in 1988, without the knowledge of X, L and R sold
their interests in the partnership to W and Z. C, a limited partner, also
sold his interest in the partnership to W. Between Z and himself, W
acquired the great bulk of the partnership interest. The partnership now
constituted solely by W and Z continued to use the old firm name of
"Mountain", though they moved the firm's main office from Makati to
Mandaluyong. The actual operations of the business enterprise
continued as before. All the employees of the partnership continued
working in the business, all, save X. X was in fact not allowed to work
anymore in the "Mountain" business enterprise. His unpaid salaries
remained unpaid.
Consequently, X filed a complaint for illegal dismissal and
recovery of unpaid salaries against "Mountain" and W. The partnership
and W denied X's charges, contending in the main that X was never
hired as an employee by the present partnership.
1. Was the partnership which had hired X as Assistant Genera\
Manager extinguished and replaced by a new partnership composed
ofW andZ?
2. If indeed, a new partnership had come into existence, can X
nonetheless .assert his rights under his employment contract as
against the new partnership?
'.,~ t o r lwthurity w wutinlJ.(! Uu: of the ~Inn Nc:1roc ~synp, 6c1laz.ar, Pcllcianc,, lforna nd cz & C:ai,tillo ,
148
Answer:
membership of the partnership was the dissolution of the old partnership
which had hired X and the emergence ofa newfirm composed ofW and Z.
In the case at bar, just about all of the partners had sold their
partnership interests (amounting to 82% of the total partnership interest)
to W and Z. The record does not show what happened to the remaining
18% of the original partnership interest. The acquisition of 82% of the
partnership.
business affairs. In other words. the new partnershtv simvlY took over the
business enter12rise owned by the 12receding vartnershiv. and continued
using the old name Qf "Mountain". without winding uv the business a/fairs
of the old 12artnership. paying off its debts, liquidating and distributing
its net assets, and then re-assembling the said assets or most of them
and opening a new business enterprise.
described situation, not only the retiring iwrtners but also the new
vartnershi12 itself which continued the business Q.f the old. dissolved, one,
are liable for the debts a,f the vreceding vartnershiv. In Singson, et al. v.
Isabela Saw Mill, et al., the Court held that under facts very similar to
those in the case at bar, a withdrawing vartner remains liable to a third-
party creditor a,f the old vartnershiQ. The liability of the new partnership,
bar, is established in Article 1840 of the Civil Code.
Under Article 1840 above, creditors Qf the old '?v!ountain" are
also creditors Qf the new "Mountain" which continued the business of the
old one without liquidation of the partnership affairs. Indeed, a creditor
of the old "Mountain", like X in respect of his claim for unpaid wages, is
insofar as such retired partner's interest in the dissolved partnership is
concerned. It is clear to the Court that under Article 1840 above, Xis
entitled to enforce his claim for unpaid salaries, as well as other claims
149
CHAPTER 3 - DISSOLUTION AND WINDIN , UP
c&lotfng to his emi,lQl'Went with the ureviousvartncrsbiu, against t~

.,Mounm;n .,.1' ·
1~ Wh n any partner retires or dies, and the business

n nu . under ny of the conditions set forth in the precedi~.
~d r n Article 1837, second paragraph, No. 2, without a,
nt of accounts as between him or his estate and the persont
ership -continuing the business, unless otherwise agreed, he n,
legal representative as against such person or partnership tn3'
e value of his interest at the date of dissolution ascertained, an~
shall receive as an ordinary creditor an amount equal to the value rJ.
· · terest in e dissolved partnership with interest, or, at his optiot
at option of his legal representative, in lieu of interest, tht
--.a.;::·t s attributable to the use of his right in the property of tht
CllS.soll¥ed artnersbip; provided that the creditors of the dissolv~
rtnersliip as against the separate creditors, or the representative ol
retired or deceased partner, shall have priority on any clai
arising under this article, as provided by Article 1840, third
paragraph.{
Partner who Retires or Dies and the Business is Continued

RQ!,its ,of a
'Without Any Settlement of Accounts
1. To have the alue of his interest at the date of dissolution ascertained
an
2. To recei e as an o dinary creditor an amount equal to the value of lus
interest m the dissolved partnership with interest, or, at his option or
at the option of h.is legal representative, in lieu of interest, the profits
attributable to e use of his right in the property of the d issolve 11
partnership.
to an account of bis interest shall accrue to an ·

1egaJ representative as against the winding up partnen
gi:rv1V11Jt2 partaers r the person or partnership continuing the:
date of dissol ·on, in the absence of any agreement t..
mmrarv. ( )
aero t of his interest?

~,.,,u..s,t f L inte t ;t shall accrue to any partn er, r.. •
·eruier ao account?
CHAPTER 3 - DISSOI...UTION AND WINDING UP
2. Surviving partners; or
3. The person or partnership continuing the business.
When to render an account?

At the date of dissolution, except of there is a stipulation to the
contrary.
Problem:
X, Y and Z were partners in a business concern known as XYZ
Fishing Company. Sometime in January of 1986, they decided to
dissolve their partnership and executed an agreement of partition and
distribution of the partnership properties among them, consequent to
Z's withdrawal from the partnership. Among the assets to be distributed
were 5 fishing boats, 6 vehicles, 2 parcels of land, and cash deposits in a
local bank.
Throughout the existence of the partnership, and even after Y's
untimely demise in 1994, X failed to submit to Y's heirs any statement of
assets and liabilities of the partnership, and to render an accounting of
the partnership's finances. X also reneged on his promise to turn over to
Y's heirs the deceased's 1/3 share in the total assets of the partnership,
amounting to P30,000,000, or the sum of Pl0,000,000, despite formal
demand for payment thereof.
Consequently, Y's heirs, filed against X an action for accounting,
payment of shares, division of assets and damages.
Did the heirs' cause of action prescribe 4 years after it accrued
in 1986?
Answer:
The three (3) final stages of a partnership are: (1) dissolution; (2)
winding-up; and (3) termination. The partnership, although dissolved,
continues to exist and its legal personality is retained, at which time it
completes the winding up of its affairs, including the partitioning and
distribution of the net partnership assets to the partners. For as long as
the partnership exists, any of the partners may demand an accounting of
the partnership's business. Prescription of the said right starts to run
onLv upon the dissolution al the partnership when the final accounting is
done,
Contrary to X's protestations that Y's heirs right to inquire into the
business affairs of the partnership accrued in 1986, prescribing 4 years
thereafter, prescription had not even begun to run in the absence al a
final accounting. Article 1842 of the Civil Code provides:
The right to an account of his interest shall accrue to any
partnerl or his legal representative as against the winding up
partners or the surviving partners or the person or partnership
15 t
continuing the business, at the date of dissolution. in the absence of

any agreement to the contrary.
Problem:
This case originated from a complaint filed by Y to recover the.
sum equivalent to 22% of the annual profits derived from the operation '
ofW Panciteria since October, 1955 from X.
W Pandteria, a restaurant, was established sometime in
October, 1955. It was registered as a single proprietorship and its
licenses and permits were issued to and in favor of X as the sole
proprietor. Y adduced evidence during the trial of the case to show that
W Panciteria was actually a partnership and that he was one of the I
partners having contributed P4,000 to its initial establishment. X denied
having received from Y the amount of P4,000.
About the time the W Panciteria started to become operational, \
Y gave P4,000 as his contribution to the partnership. This is evidenced '
by a receipt wherein X aclmowledged his acceptance of the P4,000 by
present when the receipt was signed by X.
Furthermore, Y received from Xthe amount of P12,000 covered
by the latter's Check No. 012345 from the profits of the operation of the
restaurant for the year 197 4.
ls Ya partner of X in the establishment of W Panciteria? If yes,
when does the right to account accrue?
Answer:
If excellent relations exist among the partners at the start of ,
business and all the partners are more interested in seeing the firm
grow rather than get immediate returns, a deferment of sharing in the
profits is perfectly plausible. It would be incorrect to state that if a
partner does not assert his rights anytime within ten years from the
start of operations, such rights are irretrievably lost Y's cause of action
is premised upon the failure of X to give him the agreed profits in the
operation of W Panciteria In effect Y was asking for an accounting of his
interests in the partnership.
It is Article 1842 of the Civil Code in conjunction with Articles
1144 and 1155 which is applicable. Article 1842 states:
The right to an account of his interest shall accrue to any partner 1
or his legal representative as against the winding up partners or

the surviving partners or the person or partnership continuing
the business, at the date af dissolution. in the absence of any
agreement to the contrary.
152
Y may demand an accounting as long as the partnership exists.

Pr~ription begins to run only upon the dissolution of the partnership
when the final accounting is done.
Considering the facts of this case, the Court may decree a
dissolution of the partnership under Article 1831 of the Civil Code.
There shall be a liquidation and winding up of partnership
affairs, return of capital, and other incidents of dissolution because the
continuation of the partnership has become inequitable.1 8
UJ see Dan Fue Leung vs. Hon. Intermediate Appellate Court and Leung Yiu, G.R. No. 70926, January 31, 1989.
153
NIN
rtn hip
lfri d n t a lo s.
unla ul.
fhi...rt.n rs hip inter st does not make th

rtn r of the firm, nor entitle the assignee to
ment of the partnership business or to receive
·1mee profits.
un erstood to mean an organization formed for some
telllUKl►raJ:V mllmt.\Se.. a· ointventure is likened to a particular partnership.
rrect:
~
a rule, ,hen a partnership is dissolved, any of the partners can bind

ershi~
ere the dissolution is caused by the act, death or insolvency of a
partner: each partner is liable to his co-partners for his share of any
· · created by any partner acting for the partnership as if the
ership had not been dissolved.
a. Onl I is correct
. Only n is correct
c. Both are true
d. Both are false
4. L The dissolution of the partnership discharges the existing liability of

any partner.
IL The individual property of a deceased partner shall be liable for all
obligations of the partnership incurred while he was a partner, but
subject to the prior payment of his separate debts.
a Only I is correct
c. Both are true
d. Both are false
5. In extra-judicial liquidation, the following will wind-up the partnership,

except:
a The managing partner who has the controlling interest.
b. The liquidating partner or partners as agreed upon by all of the
partners.
c. The partners who hav~ not wrongfully dissolved the partnership.
d. The legal representative of the last surviving partner who is not
insolvent
154
CH PTER 3 - DISSOLUTION ANO WINDING UP
The following an' rights or partner who has not caused dissolution
vrongfully. Pxccpt:
To have the partnership property applied to discharge the liabilities
, of the partnership.
b. \ To have the surplus, if any, applied to pay in cash the net amount
{\wing to the respective partners.
c. To continue the business in the same name either by themselves or
jointly with others during the agreed term of the partnership and for
that purpose may possess the partnership property.
d. To be indemnified for damages caused by the partner who did not
caused the dissolution wrongfully.
7. If a partner is insolvent, the first in the order of preference in the

distribution of his assets is:
a. Partnership creditors
b. Partner's contribution to the partnership
c. Separate creditors of the partner-debtor
d. Pro-rata between the separate creditors and the partnership
creditors.
8. I. The dissolution of the partnership means that the juridical entity was
immediately terminated and that the distribution of the assets to its
partners should perfunctorily follow.
II. The partnership, although dissolved, continues to exist until its
termination, at which time the winding up of its affairs should have been
completed and the net partnership assets are partitioned and
distributed to the partners.
c. Both are true
d. Both are false
9. The three final stages of a partnership are the following, except:

a. Dissolution
b. Winding-up
c. Termination
10. I. A universal partnership of present property shall include the profits

which the partners may acquire therewith such as properties to be
acquired through legacy, donation or inheritance.
II. After dissolution, the partners may still enter into contracts in the
name of the dissolved partnership if it is for the purpose of winding up.
c. Both are true
d. Both are false
155
1. It me n the di o i tion by partn r, inclusiv of r signalion

i Q'
withdr wal, from th p rtn ~rship that th r by di solves it.
, Di olutton
b. Liquid tion
c. Termination
d. R tir ment
12. L Th legal p r"onality of the expiring partnership persists for the

limited purpose of winding up and closing of the affairs of the
partnership.
II. After dissolution, all th transactions of the partnership should only
pertain to liquidation which will happen over a period of time.
a. Only l is correct
b. Only 11 is correct
c. Both are true
d. Both are false
13. Where a partnership contract is rescinded on the ground of fraud or

misrepresentation of one of the parties thereto, the party entitled to
rescind is entitled to, except:
a. Right oflien or right of retention
b. Right of dissolution
c. Right of subrogation
d. Right of indemnification
14. I. Since it is the partnership, as a separate and distinct entity, that must
refund the shares of the partners, the amount to be refunded is
necessarily limited to its total resources.
II. In other words, the partnership can only pay out what it has in its
coffers, which consists of all its assets.
c. Both are true
d. Both are false
15. I. Generally, in the pursuit of a partnership business, its capital is either

increased by profits earned or decreased by losses sustained.
II. As a general rule, upon the dissolution of a commercial
partnership the succeeding partners or parties have the right to carry on
the business under the old name.
c. Both are true
d. Both are false
156
CHAPTER 3 - DISSOLUTION AND WINDIN(. UP
1>6. I. In th e ordinary rourst' of ('V<:nts, th<· lt•g,11 personality of th<· l'Xpiri11g

partnership persists for till' limit Pd purpos<' ol'winding up ;111d dosing of
t h affairs of the part 11 •rship.
It. a withdr,1wing partner is no longer liable lo ,1 third party cn~dilor of'
t he o ld partnership.
a. Qn ly I is correct
c. Bo h ar' true
d. Both are false
17. I. Th e use by the person or partnership continuing the business of the

pa r tnership name, or the name of a deceased partner as part LhereoC
s h a ll ma ke the individual properly of the deceased partner liable for any
d eb ts co n tracted by such person or partnership.
[I. The li ab ili ty of a lhird person hecorning a partner in the partnership
con t inuing th e business lo the creditors of the dissolved p.lrlncrship
shall b e satisfied out of the partnership property only, unless there is a
s tipulatio n to the contrary.
a . Only I is correct
c. Both are tr ue
d. Both are fa lse
18. I. A partnershi p is a separate juridical entity, the shares to be paid out to

the partne r s is n ecessarily limited only to its total resources.
II. A partne r s hi p m ust refund the shares of the partners, the amount to
be refunded is n ecessarily limited to its total resources.
Ill. Before t he p artners can be paid their shares, the creditors of the
partnership must first be compensated. After all, the creditors have been
paid, whatever is left of the partnership assets becomes available for the
payment of th e p artners shares.
b. Only II is co r r ect
c. All are true
d. All are false
19. The change in t h e relation of the parties caused by any partner ceasing
to be associa t e d in the carrying on, as might be distinguished from the
winding up o f, th e business.
a. Liquida tio n
b. Terminat ion
c. Winding up
d. Dissolut io n
20. A, Band C are p artners in ABC partnership. A and B contributed PlO, 000
each while C contributed his service. After payment of the partnership
157
liabilities to creditors, only P15, 000 remains. In the absence 0

stipulation to the contrary the share of Cshall be:
a. Zero
b. PS, 000
C. p 10,000
d. PS, 000
158
CHAPTER4
LIMITED PARTNERSHIP
Art. 1843. A limited partnership is one formed by two or more persons

under the provisions of the following article, having as members one
or more general partners and one or more limited partners. The
limited partners as such shall not be bound by the obligations of the
partnership.
Example:
A, B, and Cformed a limited partnership. The partners agreed that A
and B are general partners while C is the limited partner. In here, general
partners A and B are liable up to the extent of their separate property while
limited partner C is liable up to the extent of his contribution only.
Characteristics of limited partnership

1. It is formed by compliance in good faith with the statutory
requirements;
2. One or more general partners control the business and are personally
liable to creditors;
3. One or more limited partners (also known as special partner/s)
contribute to the capital and share in the profits but do not participate
in the management of the business;
4. The limited partners are not personally liable for partnership
obligations beyond their capital contributions;
5. The limited partners may ask for the return of their capital
contributions; and
6. The partnership debts are paid out of the common fund and the
separate properties of the general partners.
Problem:
A limited partnership, named "WJG Ltd.," was formed with Was
the general partner, and J and G, as the limited partners. The partners
contributed, respectively, P20,000, P18,000 and P2,000 to the
partnership. The limited partnership was registered with the Securities
and Exchange Commission. The firm engaged, among other activities, in
the importation, marketing, distribution and operation of radios,
television sets and amusement machines, their parts and accessories. It
had an office and held itself out as a limited partnership, handling and
carrying merchandise.
Subsequently, general partner W and limited partner J got
married and, thereafter, limited partner G sold his share in the
partnership to Wand his wife.
159
CRAPTER4-LIMITED PAR . ERSHIP
The limi ed partnership had been filing its income tax retu rnc; :"j·
a corporation, withou objection by the Commissioner of In tern;;,
Revenue (CIR). Later, an as essment of the CIR resulted in ~
detennination of a deficiency income tax against W.
pro ested the asse sment, and requested itc; cancellation an d
withdra al, as not in accordance 'th law, but his request was denied.
as the partnership dissolved after the marriage of the
partners, and J, and the subsequent sale to them by the remaining
partner, G, of hi participation of P2,000 in the partnership?
Answer:
The CIR has evidently failed to observe the fact that WJG, Ltd.
was not a universal partnership, but a particular one.
universal partnership r equires either that the object of the association
be all the present property of the partners, as contributed by them to
the common fund, or else "all that the partners may acquire by
their industry or work during the existence of the partnership". W)G
Ltd was not such a universal partnership, since the contributions of the
partners were fixed sums of money, PZ0,000 by Wand P18,000 by Jand
neither one of them was an industrial partner. It follows that WJG, Ltd.
was not a partnership that spouses were forbidden to enter.
or could the subsequent marriage of the partners operate to
dissolve it, such marriage not being one of the causes provided for that
purpose. 1
Art. 1844. Two or more persons desiring to form a limited partnership

shall:
(1) Sign and swear to a certificate, which shall state -
(a) The name of the partnership, adding thereto the word
nLimitedn;
(b) The character of the business;
(c} The location of the principal place of business;
( d) The name and place of residence of each member, general
and limited partners being respectively designated;
(e) The term for which the partnership is to exist;
(f) The amount of cash and a d~scription of and the agreed value
of the other property contributed by each limited partner;
(g) The additional contributions, if any, to be made by each
limited partner and the times at which or events on the
happening of which they shall be made;
(h) The time, if a~eed upon, when the contribution of each
limited partner 1s to be returned;
n.al Revenue vs. William). Suter and CA, G.R, No. L-255JZ F b
1 see Commissioner of Inter 160 ' e ruary 28, 1969.
CHAPTER 4 - LIMJTED PARTNERSHIP
(i) The share of the profits or the other compensation by way of

income which each limited partner shall receive by reason of
bis contribution;
O) The right, if given, of a limited partner to substitute an
assignee as contributor in his place, and the terms and
conditions of the substitution;
(k) The right, if given, of the partners to admit additional limited
p a rtners;
OJ The right, if given, of one or more of the limited partners to
priority over other limited partners, as to contributions or as
to compensation by way of income, and the nature of such
p rio rity;
(m) The right, if given, of the remaining general partner or
partne rs to continue the business on the death, retirement,
civil interdiction, insanity or insolvency of a general partner;
and
(n) The right, if given, of a limited partner to demand and receive
property other than cash in return for his contribution.
(2) File for r e cord the certificate in the Office of the Securities and
Exchange Commission.
A limited partnership is formed if there has been substantial

compliance in good faith with the foregoing requirements.
ESSENTIAL REQUISITES IN THE FORMATION OF A LIMITED

PARTNERSHIP
1. The certificate of lim ited partnership
It must be signed and sworn to. It must contain all the
enumerated items in the above-stated article.
2. The certificate of limited partnership must be filed in the Office of the

Securities and Exchange Commission.
Note:
As compared to general partnership which can be verbal, a limited
partnership must always be in writing (certificate of limited partnership).
There is no limited partnership in case of non-compliance with the above-
requirements. However, there can be a general partnership.
Presumption in favor of a general partnership

A partnership transacting business with third persons is disputably
presumed to be a general partnership.
161
CHAPl'Ell4 •UM1T£D PARTNER.ffllP
Art. 184S. The contributions of a limited partner may be Cclj hr

property, but not servJcas,
Contribution of a Umtte4 partner

AUmi ed p rtner can contribute only money or property or both
Co,nse1ruently, an industrial partner can only become a general partner.
mple:
A, B, and Cformed a limited partnership, The partners agreed that A
(contributed PI,000,000 cash) and B (contributed his only parcel of land and
his Industry) <Jre general partners while C {contributed P100,000) is the
lfmited partner.
ln here, Ccan only contribute money or property or both because he
is a limited partner. Thus, Ccannot contribute his industry or services,
Art 1846. The surname of a limited partner shall not appear in the
partnership name unless:
·{ t) It is also the surname of a general partner, or
(2) Prior to the time when the limited partner became such, the
business has been carried on under a name in which his surname
appeared.
A limited partner whose surname appears in a partnership
name contrary to the provisions of the first paragraph is liable as a
general partner to partnership creditors who extend credit to the
partnership without actual knowledge that he is not a general partner.
The surname of a limited partner shall not appear in the

partnership name
A limited partner violating this article is liable as a general partner
only to the partnership creditors who extend credit to the partnership
without actual knowledge that he is not a general partner.
The said limited partner; however, will not acquire the rights of a
general partner.
Example:
A, B, and C formed a limited partnership named ABC, Ltd. The
partners agreed that A and B are general partners while C is the limited
partner. Thinking that C is a general partner as his name appeared in the
firm name, X extended credit of PS,000,000 cash to the partnership. In this
case as to X, C is liable as a general partner meaning, he is liable to X up to
1
the extent ofhis separate property.
Art 1847. If the certificate contains a false statement, one who suffers
loss by reliance on such statement may hold liable any party to the
certificate who knew the statement to be false:
162
CHAPTER 4 - LIMITED PARTNERSHIP
(1) At the time he signed the <:ertificate, or

(2) Subsequently, hut within a sufficient time befon~ the statement
was relied upon to enable him to cancel or amend the certificat ,
or to file a petition for its cancellation or amendment as provided
in Article 1865.
Liability for a false statement in the certificate

The one who suffers lo ss by reliance on <;uch false slatr~mcnt may
hold liable any party in the certificate of limited partnership who i5 in bad
faith .
Art. 1848. A limited partner shall not become liable as a general

partner unless, in addition to the exercise of his rights and powers as a
limited partner, he takes part in the control of the business.
Liability of a limited partner who takes part in the control of the

business.
The limited partner will be liable as a general partner. However,
said limited partner does not acquire the rights of a general partner.
Art. 1849. After the formation of a limited partnership, additional

limited partners may be admitted upon filing an amendment to the
original certificate in accordance with the requirements of Article
1865.
Additional limited partners may be admitted after the formation

The only requirement is amendment of the original certificate of
limited partnership which must be signed and sworn to by all of the
partners, original partners and the newly admitted limited partners, and
filed with the Office of the Securities and Exchange Commission.
Art. 1850. A general partner shall have all the rights and powers and
be subject to all the restrictions and liabilities of a partner in a
partnership without limited partners. However, without the written
consent or ratification of the specific act by all the limited partners, a
general partner or all of the general partners have no authority to:
(1) Do any act in contravention of the certificate;
(2) Do any act which would make it impossible to carry on the
ordinary business of the partnership;
(3) Confess a judgment against the partnership;
( 4) Possess partnership property, or assign their rights in specific
partnership property, for other than a partnership purpose;
(5) Admit a person as a general partner;
( 6 ) Admit a person as a limited partner, unless the right to do so is
given in the certificate;
163
CHAPTER 4 .. LIMliED PARTNERSHIP
(7) Continue the business with partnership property on the death

retirement, insanity, civil interdiction or insolvency of a genera\
partner, unless the right to do so is given in the certificate.
Note:
As a rule, just like the general partners in a general partnership, tht
general partners in a limited partnership can do only acts of administration.
The above -enumerations pertain to acts of ownership. Thus, the general

partners must secure the written consent or ratification by all of the limited
partners.
Art. 1851. A limited partner shall have the same rights as a general
partner to!
{1) Have the partnership books kept at the principal place of
business of the partnership, and at a reasonable hour to inspect
and copy any of them;
(2) Have on demand true and full information of all things affecting
the partnership, and a formal account of partnership affairs
whenever circumstances render it just and reasonable; and
(3) Have dissolution and winding up by decree of court.
A limited partner shall have the right to receive a share of the
profits or other compensation by way of income, and to the return of
his contribution as provided in Articles 1856 and 185 7.
Rights of a limited partner

1. The right t o have the partnership books kept at the principal place of
business of the partnership, and at a reasonable hour to ins.12ect and
~ any of them;
2. The right to have on demand true and full information of all things
affecting the partnership, and a formal account of partnership affairs
whenever circumstances render it just and reasonable;
3. Toe right to have dissolution and winding up by decree of court;
4. The right to receive a share Q[ the prqfits or other compensation by way
qfincome; and
s. The right to receive return Q[ bis contribution if the partnership assets
are in excess of the partnership liabilities.
Art. 1852. Without prejudice to the provisions of Article 1848, a person

who bll contributed to the capital of a business conducted by a person
or partnership erroneously believing that he has become a limited
partner in a Umited partnership, is not, by reason of his exercise of the
rights of a limited partner, a general partner with the person or in the
partnership carrying on ~e business, or bound by the obligations of
such person or partnership, provided that on ascertaining the mistake
164
he promptly renounces his interest in the profits of the business, or

other compensation by way of income.
Contributor who erroneously believes that he has become a limited

partner
He is not liable as a ~eneral partner provided that:
1. On ascertaining the mistake, he promptly renounces hi s interest in
the profits of the business, or other compensation by way of income;
and
2. He does not take part in the control of the business.
Art. 1853. A person may be a general partner and a limited partner in

the same partnership at the same time, provided that this fact shall be
stated in the certificate provided for in Article 1844.
A person who is a general, and also at the same time a limited
partner, shall have all the rights and powers and be subject to all the
restrictions of a general partner; except that, in respect to his
contribution, he shall have the rights against the other members which
he would have had ifhe were not also a general partner.
General-Limited partner
A person may be a general partner and a limited partner in the same
partnership at the same time, provided that this fact shall be stated in the
certificate of limited partnership.
Rights of a general-limited partner

His rights are those of a general partner.
Liabilities of a general-limited partner

His liabilities are those of a general partner. Hence, as to
partnership creditors. he is liable up to the extent of his separate property.
Nevertheless, as regards his contribution, his rights are those of a
limited partner insofar as the other partners are concerned.
Art. 1854. A limited partner also may loan money to and transact other
business with the partnership, and, unless he is also a general partner,
receive on account of resulting claims against the partnership, with
general creditors, a pro rata share of the assets. No limited partner
shall in respect to any such claim:
(1) Receive or hold as collateral security and partnership property,
or
(2) Receive from a general partner or the partnership any payment,
conveyance, or release from liability if at the time the assets of
t~e . ~artnership are not sufficient to discharge partnership
hab1hties to persons not claiming as general or limited partners.
165
CHAPTER 4 • LlMITED PARTNERSHIP
The receiving of collateral security, or payment, conveyance, or

relea1e in violation of the foregoing provisions is a fraud on the
,creditors of the partnership.
Allowable business transactions of a limited partner with the

partnership
1. To lend money to the partnership;
2~ To transact business with the partnership; and
3. To receive on account of resulting claims against the partnership, with
general creditors, a pro rata share of the assets.
Prohibited business transactions of a limited partner with the

partnership
1. Receive or hold as collateral security and partnership property;
2. Receive from a general partner or the partnership any paymen~
.conveyance, or release from liability if at the time the assets of the
partnership are not sufficient to discharge partnership liabilities to
persons not claiming as general or limited partners.
Rationale:
To prevent illegal competition between the limited partner and
partnership creditors for the assets of the partnership.
Note:
Violation of the prohibition, as enumerated, will give rise to the
disputable presumption offraud on the creditors of the partnership.
Art. 185S. Where there are several limited partners the members may
agree that one or more of the limited partners shall have a priority
over other limited partners as to the return of their contributions, as
to their compensation by way of income, or as to any other matter. If
such an agreement is made it shall be stated in the certificate, and in
the absence of such a statement all the limited partners shall stand
upon equal footing.
Preference to some limited partners

Preference may be given to some limited partners over other
limited partners as to:
1. Return of their contributions;
z. Their compensation by way of income; or
3. Any other matter.
Art. 1856. A limited partner may re~eive from the partnership the
share of the profits or the c~mpensation by way of income stipulated
for in the certificate; proVJded that after such payment is made,
166
whether from property of the partnership or that of a general partner,

the partnership assets are in excess of all liabilities of the partnership
except liabilities to limited partners on account of their contributions
and to general partners.
Share of the profits or compensation by way of income of a limited

partner
The requirement here is that the partnership assets are in excess of
all liabilities of the partnership to third persons after payment of the profits
or compensation by way of income of a limited partner.
Art. 185 7. A limited partner shall not receive from a general partner or
out of partnership property any part of his contributions until:
(1) All liabilities of the partnership, except liabilities to general
partners and to limited partners on account of their
contributions, have been paid or there remains property of the
partnership sufficient to pay them;
(2) The consent of all members is had, unless the return of the
contribution may be rightfully demanded under the provisions
of the second paragraph; and
(3) The certificate is cancelled or so amended as to set forth the
withdrawal or reduction.
Subject to the provisions of the first paragraph, a limited
partner may rightfully demand the return of his contribution:
(1) On the dissolution of a partnership; or
(2) When the date specified in the certificate for its return has
arrived, or
(3) After he has given six months' notice in writing to all other
members, if no time is specified in the certificate, either for the
return of the contribution or for the dissolution of the
partnership.
In the absence of any statement in the certificate to the
contrary or the consent of all members, a limited partner, irrespective
of the nature of his contribution, has only the right to demand and
receive cash in return for his contribution.
A limited partner may have the partnership dissolved and its
affairs wound up when:
(1) He rightfully but unsuccessfully demands the return of his
contribution, or
(2) The other liabilities of the partnership have not been paid, or the
partnership property is insufficient for their payment as
required by the first paragraph, No. 1, and the limited partner
would otherwise be entitled to the return of his contribution.
167
CHAPTER 4 .. LIMITED PARTNERSHIP
R ulsites for the teturn of contributions of a lilnited partner

.Uliabiliti of the partnership, except liabilities to general partne
·d to limited partners on account of their contributions, have been
id r thet remain prop rty of the partnership sufficient to pay
th m;
, Th ons nt of all member, (g .neral and limited partne rs) is ha~
th return of the contribution may be rightfully demanded; and
c 'fi te is cancelled or so amended as to set forth the
'thdra l or reduction of the contribution.
n the ntributions of a limited partner be returned?

n the ' lution of a partnership;
n th d • specified in the certificate for its return has arrived; or
h has given si ' months' notice in writing to all other members,
if time i specified in the certificate, either for the return of the
ntri ution or for the dissolution of the partnership.
f limited partner to demand and receive cash in return for his

,rtHll'T"ibu · n
A rmited partner, irrespective of the nature of his contribution, has
., the right to demand and receive cash in return for his contribution.
e ceptions are:
l. Where there is stipulation to the contrary in the certifii.cate of limited
partnership; or
. rhere all the partners consent to the return of his contribution other
than in the form of cash.
ea y limited partner have the partnership dissolved and

ltQUklaled?
A limited partner may have tl1e partnership dissolved and its affairs
woundup en:
. H rightfully but unsuccessfully demands the return of his
contributioa or
z. The other liabilities of the partnership have not been paid, or the
partnership property is insufficient for their payment and the
li ited partner would otherwise be entitled to the return of h is
contribution.
Art. 1858. A limited partner is liable to the partnership:

(1) for the difference between his contribution as actually made and
lhat stated in the certificate as having been made; and
(2) For auy unpaid contribution which he agreed in the certificate to
make tn tbe future at the time and on the conditions stated in the
certificate.
Alimited partner bolds as trustee for the partnership:
168
(1) Specific property stated in the certificate as contributed by him,

but which was not contributed or which has been wrongfully
returned, and
(2) Money or other property wrongfully paid or conveyed to him on
account of his contribution.
The liabilities of a limited partner as set forth in this article can
be waived or compromised only by the consent of all members; but a
waiver or compromise shall not affect the right of a creditor of a
partnership who extended credit or whose claim arose after the filing
and before a cancellation or amendment of the certificate, to enforce
such liabilities.
When a contributor has rightfully received the return in whole
or in part of the capital of his contribution, he is nevertheless liable to
the parblership for any sum, not in excess of such return with interest,
necessary to discharge its liabilities to all creditors who extended
credit or whose claims arose before such return.
Liability of a limited partner for unpaid contribution to the

parmership
1. For the difference between his contribution as actually made and that
stated in the certificate as having been made; and
2. For any unpaid contribution which he agreed in the certificate to make
in the future at the time and on the conditions stated in the certificate.
Example:
A, B, C, and D are partners in a limited partnership. A and B are
general partners while C and D are limited partners. In the certificate of
limited partnership, it was stated that the contribution of C is Pl 00,000 while
D will make a contribution of PS0,000 at the time of the execution of the
certificate of limited partnership and another P150,000 six (6) months
thereafter. The actual contribution of C is P60,000 while D only paid PS0,000.
In this case, C should pay the difference of P40,000 and D should pay
the PlS0,000 after six months from execution of th e certificate of limited
partnership.
Liability of a limited partner as a trustee to the partnership

l. Sp~cific property stated in the certificate as contributed by him, but
which was not contributed or which has been wrongfully returned, and
2. Money or other property wrongfully paid or conveyed to him on
account of his contribution.
Liabilities of a limited partner may be waived

The requisites are:
1. With the consent of all the other partners; and
169
CHAPTER 4 · LIMITED PARTNERSHIP
2. The waiver or compromise shall not affect the right of partnersh;~

creditors who extended credit or whose claim arose after the filin g an:
before a cancellation or amendment of the certificate.
Uability of a limited partner despite return of his contribution

A limited partner is nevertheless liable to the partnership fo r ar.1
sum necessary to discharge its liabilities to all creditors who extendt-:
ctedit or whose claims arose before such return. However, the liability r✓• •
that limited partner is up to the extent of his contribution.
Emmple:
In the limited partnership of A, B, C, and D, C and D are the limi~
parmers. Subsequently, the partnership returned the contribution of D in tfa
amount of Pl00,000 in compliance with the agreement in the certificate r.,f
limited partnership.
Assumin9 that X became the creditor of the partnership prior w th~
receipt of D of his returned contribution. In this case, D may be held liable tr✓
thedaim o{X
Art. 1859. A limited partner's interest is assignable.

A substituted limited partner is a person admitted to all tht
righ of .a limited partner who has died or has assigned his interest in
a partnership.
An assignee, who does not become a substituted limited
partner, bas no right to require any information or account of the
p ~ transadions or to inspect the partnership books; he is
'tied to receive the share of the profits or other compensation
by way of in.come, or the return of bis contribution, to which his
ould otherwise be entitle<L
aBsignee shaJI have the rlght to become a substituted
on:rru:a partner if al1 the members consent thereto or jf the assignor,
eun:to empowered by the certificate, gives the assignee that
An a ignee be.come a ubstituted Hmited partner when the

cutifkate iJl appropraau:fy amended in accordance wJth Article 1865,
m ti~~·t ed I mtted partner ha$ all the rights and powers,
v, aH the remi.ctwn and UabHJties of his as ignor,
e,;c::ec,t Ulb~ 1abiU ~,. of wh.kb he was Jgnorant at the time he became
art~r and wh!ch ci,uld not be ascerta ned from the
i;.u1,u"tut14n of th~ al> ignet a a HmJted partner doe no t

, ·Jgnor lrllm Hab Uty to th partn r hip under Articles
JfJt'.ft
170
CHAPTER4- LIMITED PARTNERSHIP
Rights of an assignee of a limited partner

1. An assignee is only entitled to receive the share of the profits or other
compensation by way of income, or the return of his contribution, to
which his assignor would othetwise be entitled; and
2. An assignee acquires all the rights of the limited partner only when he
becomes a substituted limited partner.
Note:
An assignee, who does not become a substituted limited partner, has
no right to require any information or account of the partnership
transactions or to inspect the partnership books.
Who is a substituted limited partner?

A substituted limited partner is a person admitted to all the rights of a
limited partner who has died or has assigned his interest in a partnership.
Assignee become a substituted limited partner

The requisites are:
1. All the partners must consent or if the limited partner-assignor, being
empowered in the certificate of limited partnership, gives the assignee
that right;
2. The certificate of limited partnership must be amended; and
3. The certificate of limited partnership must be registered in the
Rights and liabilities of a substituted limited partner

1. The substituted limited partner has all the rights and powers, and is
subject to all the restrictions and liabilities of his assignor.
Exception:
Except those liabilities of which he was ignorant at the time
he became a limited partner and which could not be ascertained
from the certificate.
2, The substitution of the assignee as a limited partner does not re lease

the assignor from liability to persons who suffered damage by rel iance
on a false statement in the certificate of limited partn ership and to
creditors who extended credit or whose claims arose before the
·uh. titution.
Art. 1860. The retirement, death, insolvency, insanity or civil

1nterdictlon of a general partner dissolves the partnership, unless the
bu lne i continued by the remaining general partners:
(1) Under a right o to do stated in the certificate, or
(2) With the consent of all members.
171
Retirement, death, insolvency, insanity or civil interdiction of a

general partner
In these cases, the partnership is dissolved unless the business is
continued by the remaining general partners as stated in the certificate of
limited partnership or with the consent of all the partners.
Not.e:
The article speaks only of retirement, death, insolvency, insanity
or civil interdiction of a general partner and it did not include a limited
partner.
Example:
A. B, C, and Dformed a limited partnership where A and B are the
general partners and C and Dare the limited partners. Subsequently, A dies.
ln this case, the limited partnership is dissolved. Unless it is continued
with the consent of 8, C, and D or if the right to continue is stated in their
certificate of limited partnership.
Art 1861. On the death of a limited partner his executor or

administrator shall have all the rights of a limited partner for the
purpose of settling his estate, and such power as the deceased had to
constitute his assignee a substituted limited partner.
The estate of a deceased limited partner shall be liable for all
his liabilities as a limited partner.
Death of a limited partner

His executor or administrator shall have all the rights of a limited
partner for the purpose of settling his estate, and such power as the
deceased had to constitute his assignee a substituted limited partner.
Note:
The estate of a deceased limited partner shall be liable for all his
liabilities as a limited partner.
Art. 1862. On due application to a court of competent jurisdiction by

any creditor of a limited partner, the court may charge the interest of
the indebted limited partner with payment of the unsatisfied amount
of such claim, and may appoint a receiver, and make all other orders,
directions and inquiries which the circumstances of the case may 1
require.
The interest may be redeemed with the separate property of
any general partner, but may not be redeemed with partnership
property.
The remedies conferred by the first paragraph shall not be
deemed exclusive of others which may exist
172
Nothing in this Chapter shall be held to deprive a limited

partner of his statutory exemption.
Charging the interest of a limited partner

The court may charge the interest of the indebted limited partner
with payment of the unsatisfied amount of such claim, and may appoint a
receiver, and make all other orders, directions and inquiries which the
circumstances of the case may require.
Note:
The interest may be redeemed with the separate property of any
general partner, but may not be redeemed with partnership property.
Art. 1863. In settling accounts after dissolution the liabilities of the

partnership shall be entitled to payment in the following order:
(1) Those to creditors, in the order of priority as provided by law,
except those to limited partners on account of their
contributions, and to general partners;
(2) Those to limited partners in respect to their share of the profits
and other compensation by way of income on their
contributions;
(3) Those to limited partners in respect to the capital of their
contributions;
(4) Those to general partners other than for capital and profits;
(5) Those to general partners in respect to profits;
( 6) Those to general partners in respect to capital.
Subject to any statement in the certificate or to subsequent
agreement, limited partners share in the partnership assets in respect
to their claims for capital, and in respect to their claims for profits or
for compensation by way of income on their contribution respectively,
in proportion to the respective amounts of such claims.
The above article provides for the order of payment in case of

liquidation of a limited partnership.
Note:
Limited partners are given priority over general partners.
Moreover, profits are given priority over capital.
Art. 1864. The certificate shall be cancelled when the partnership is

dissolved or all limited partners cease to be such.
A certificate shall be amended when:

(1) There is a change in the name of the partnership or in the amount
or character of the contribution of any limited partner;
173
CHAPTER 4 • UMITED PARTNERSHIP
(2} A p . on t uhstlllltcd a. a llmlted partner;

(3) An ddlt1ona1 llmltcd partner I admitted;
(4) Ap r on is admitted as a general partner;
( A ner I partner rctlr s, die., becom s Insolvent or lnsatw, or h
· nt d to l\'tl Interdiction and the buslnc. s Is conllnau•~
und r Article 1860;
(6} 1' 1 hange In the charact r of th huslncs,; of th,-
tt11'""'"ri.'h Ip;
{7 fal e or erron ou Rtalf,mcnt In the ccrliflcate;
( ) a ch ng tn the time a~ . tated In the c:crllf <:ate for thr,
n of th p rtnenhlp or for the return of ~
~nl'l1h'it",tlon;
" d for th dt olutlon of th e parlncr~h p, or th"
·ntrlbu Ion, no Ume having hecn ~rwcJf (~d In th"
0 d Ire t.o mak • a change In any other ~t41t(~nwnt In

""n•inHcaf tn order that It. Hhall accurawly ,.cpre~en t th,:
aari~tient mong them.
••r-..,., ... oflhnlt d partner hip

NIH,· u1ttf•r hip l! dl ,!,"lv,:d; and
fl 1tr ,, d p· r1n, . ~,-a ,t; to h,: llrrilU·d pa t n •n;,
Tai · nlJtt that thfi tompo ,/l/or, of a 1/rn/l,ml part,m:r::/Jlp l tl,0 1
1 1
1
tltf-tt fmuld rH· tJt IN1 t tJn 11,mm11/ por/.11r!r and otJrw:Jl r,t1r! l/1n/1J:tl
1
pu 1,wt
ut :
lr1 (J/1 1Jtlw, tfJ ·'", 1,nly C1memlment of t,/w ,:,1rU//r:01J~ of llm/1.1:tl
par1t1 ,r .hl.p I rn,111/rrl/.
1
g to m •n ;:j • • Ufkat,· h,dl :

,4uh'•·m,~nt of Artkh~11144 a far af'4 n(~c,~~~ary
, , rly i· han~ • Jn th(~ c•~r lfl ·at-f~ which U, 1, d(~fjln!d
worn ·" by ,,JI m,!mh r,, and an arnendrn ent

a J n i -d p~ , e m rJddlug a I m t,"t or g(~rH!nd
U b ~ tgn d al ,,. by tu: m,!mh,H' to Jw uh, t, t ut.<!d or
wbnt a um, . (>arto., f lo tH! uh, l tuu~d, the
't,· lJ J tJ b • lgnttd by thf! a lgnlug I rnJt-'~d p ,u ·t ncr,
l
urr 1nt11,, , IJ ' l a a· tfka • halJ he IJ rH! d hy a II
t , ,·artt4:lhJUou or anwndn1ent of c.1

f,t1J d h h fl t and l!Cond pan ,,·aph~
- ' th
UM:itMll"- lt.,,u
w f(_,fu " to do I o, lnt:ty
''" "'~Jht on or ;1m,mdnwnt th 14 ,of.
171·
If the court finds that the petitioner has a right to have the
writing executed hy a person who refuses to do so, it shall order the
Office of the Securities and Exchange Commission where the certificate
I. recorded, to re ord the cancellation or amendment of the certificate;
and when the certificate is to he amended, the court shall also cause to
be flied for record In said ofOce a certified copy of it~ decree setting
forth the amendment.
A certificate Js amended or cancelled when there i~ filed for
record In the Office of the Securities and .Exchange f.ommi<;sion, where
the certificate Is recorded:
(1) A writing in accordance with the provisions of the fir<lt or
econd paragraph, or
(2) A certified copy of th(, order of th(! court Jn accordance wlth
the prov slons of the fourth paragraph;
(3) After the certlflcat,e Is duly amended in accordance with
this article, the amended certificate <;haJJ thereafter he for
all purpo,;es the Cf!rtlflcate provided for In thls Chap er.
Requirements for amendment

1, It mu the in writing a!; for ;Js ne,:e~;sr.1ry t,() ',f:t forth d~~;Jrfy t.h'-! cb;H1ge
In th<-! ce Ufl cat,: which it b dudn!d to rnak,:;
Z, ft mu t h<J .;ign<!d and Hworn t<> by alJ mernb,!r';, and ;Jn am 1:ndm,:nt
, uh,;tJtuting ,J Jirnit.<!d partrH!T' <>r ;Jd dlng a Jirni ,.:d <>r g,:n,:ral p;Jrtn<!r
shaJI b<: : Jgrwd aJf;o by th<; rn,~mber t<, b<: •;ub ,Ututcd or add,:d, ;Jnd
whcm ~ If rnlt,~d p,1rt nc:r it; t<, h,.: ~;ub•;t ltut:,!d, the arru:ndnumt, ';hall aJ,,o
he ~· Jgn,!d by th,: w;:,ignlng llrnltr.:d partrH:r; and
/Jxamp/e:
IJ, a llmlled purt,ner, U\'SIIJned hi': /nl,erw;I. l,o C In t,h1·, <:r1·;e
both fl and (,' a:1sl11nor und ossllJn,m; re~pecUve/y, mu·,1, •,i11n11rJ t.h11
am ended f:erU/lcot.r1 (JJ /lmlt.ed po rlner·:hlp.
:t Th· ccrUflc,J (! ()f I1mit.l!d part11cr<;hip, ,Vi am,.:ndt:d, mu •,t ~H: fil ed to
r<~ ord 1n th • Offlc:,! of the Sc:curi t iw; and Exc:hange C<,rnrn1 ',':.i<H1.
ftequlremen or cancellat on
1, It rnu , the ln writing;
2. ft mu. h<! ~;I ,w,d and <;worn lo by all nwrnberi;; and
'"i. It rnw;t h ! fll ·d for record in t.hc Office ot th · Sctuntit!\ and Exc..h ,.rnge
Cornrn ;,·Ion .
A 1066. A ontr bu tor, unless he Is a general partner, is not a proper

P Y > proce d n · by or against a partnership, except where the
obJ ct I to nforc a I m led partner's r ght again.st or I abHity to the
p· tncr hlp.
17',
General rule:
Alimited partner is not a proper party to proceedings by or agai "
a partnership because he does not take control nor participate in th~ ◄
management of the business of the partnership.
Exception:
Where the object is to enforce a limited partner's right against Oi
liability to the partnership.
Art. 1867. A limited partnership formed under the law prior to the
effectivity of this Code, may become a limited partnership under this
Chapter by complying with the provisions of Article 1844, provided the
certificate sets forth:
(1} The amount of the original contribution of each limited partner,
and the time when the contribution was made; and
-(2) That the property of the partnership exceeds the amount
sufficient to discharge its liabilities to persons not claiming as
general or limited partners by an amount greater than the sum
of the contributions of its limited partners.
A limited partnership formed under the law prior to t~e
effectivity of this Code, until or unless it becomes a limited partnership
under this Chapter, shall continue to be governed by the provisions of
the old law.
The above stated article is a transitional provision on limited

partnership.
GENERAL PARTNER/ PARTNERSHIP VS. LIMITED

PARTNER/PARTNERSHIP
,---------.....-_,,..,....~ f1,,df:r, / ff.,,~ "M'( ('l(E--If t::~t--~
~~~,; -~'-MJ ~ ;t~ ,- .. ,, ~-
Creation As a rule, it may be Created by the partners

constituted in any form. after compliance with
the re uirements of law.
Contribution The general partners The limited partners
contribute money, contribute cash or
property or industry. property or both. They
cannot contribute
indust or service.
Membership All are general partners. At least 1 general partner
and 1 limited artner.
Extent of liability The partners are liable The limited partners are
for partnership liable only to the extent
obligations. of their capital
contribution.
176
Management right All are managers unless Limited partner has no

there is a stipulation to participation in the
the contrary. management.
Prohibition to The capitalist partner No prohibition against
engage in other cannot engage for his engaging in business.
business own account in any
operation which is of the
kind of business in
which the partnership is
engaged, unless there is
a stipulation to the
contrary.
The industrial partner is
absolutely prohibited to
engage in other
business.
Assignment of Interest is not assignable Interest is assignable.
interest unless consented to by
all of the other partners.
Effect of death, It dissolves the As a rule, it will not
insolvency, partnership. dissolve the partnership.
retirement and
insanity of a
partner
Firm name It may or may not The firm name must be
include the name of one followed by the word
or more of the partners. "Limited". The surname
of a limited partner shall
not appear in the
partnership name.
177
ChAPTD 4 · LIMITED PARTNERSHIP
PARTNERSHIP vs. CORPORATION
eement of the
es.
'uridical Has juridical personality.
I
To divide the profits Depends on its articles of
amon artners. incor oration.
: No limitation. No limitation.
Two or more. 2 or more persons, but
not more than 15.
Commencement of From the execution of From the date of the
juridi~ the contract unless issuance of the
personality otherwise stipulated. certificate of
incor oration.
ransferalnlity of Partner may not dispose Stockholder has a right
~ ten!St of his interest unless to transfer his shares.
agreed upon by all of
the artners.
Management All partners are Management is vested
managers unless one or with the Board of
some are designated as Directors.
man ers.
Slectof eath Death of a partner Death of a stockholder or
results in dissolution of a board of director does
partnership. not dissolve a
co oration.
May be dissolved at any Can only be dissolved
time by the \,vill of any with the consent of the
or all of the artners. State.
178
TRUE OR FALSE
1. A partnership transacting business with third persons is disputably
presumed to be a limited partnership.
2. The contributions of a limited partner may be cash or property, but not
services.
3. A limited partner whose surname appears in a partnership name is
liable as a general partner to partnership creditors, as a rule.
4. A limited partner whose surname appears in a partnership shall
become a general partner, as a rule.
5. In a limited partnership, the general partners need not secure the
written consent or ratification by all of the limited partners.
6. A person may be a general partner and a limited partner in the same
partnership at the same time, provided that this fact shall be stated in
the certificate.
7. A person who is a general, and also at the same time a limited partner,
shall have all the rights and powers and be subject to all the restrictions
of a general partner.
8. A limited partner's interest is not assignable.
9. As a rule, the liability of that limited partner is up to the extent of his
contribution.
10. An assignee is only entitled to receive the share of the profits or other
compensation by way of income, or the return of his contribution, to
which his assignor would otherwise be entitled.
11. An assignee acquires all the rights of the limited partner regardless
when he becomes a substituted limited partner.
12. A corporation can enter into a partnership contract with natural
person.
13. A general partner is always the capitalist in a limited partnership.
14. A general partnership is dissolved by the insanity of a partner.
15. A limited partnership is dissolved by the insanity of a limited partner.
16. A universal partnership entered into without designation is considered
one of profits.
17. A limited partner's surname cannot appear in the partnership name, as
a rule.
18. After the formation of a limited partnership, additional limited partners
may be admitted upon filing an amendment to the original certificate.
19. In a limited partnership, a general partner shall have all the rights and
powers and be subject to all the restrictions and liabilities of a partner
in a partnership without limited partners.
20. As a rule, the general partners in a limited partnership can do only acts
of ownership.
MULTIPLE CHOICE
1. The certificate of limited partnership shall state the following, except:
a. The term for which the partnership is to exist
b. The amount of cash and a description of and the agreed value of the
other property contributed by each limited partner.
179
CHAPtER 4 - LIMITED PARTNERSHIP
c. The time, if agreed upon, when the contribution of each genera\

partner is to be returned.
d. The additional contributions, if any, to be made by each limited
partner and the times at which or events on the happening of which
they shall be made.
2. The certificate oflimited partnership shall state the following, except:

a. The rigbt, if given, of one or more of the general partners to priority
over other general partners, as to contributions or as to
compensation by way of income.
a, The share of the profits or the other compensation by way of income
which each limited partner shall receive by reason of his
contribution.
b. The right, if given, of a limited partner to substitute an assignee as
contributor in his place.
c. The right, if given, of the partners to admit additional limited
partners.
3. The certificate oflimited partnership shall state the following, except:

a. The right, if given, of the partners to admit additional limited
partners.
b. The right, if given, of a general partner to demand and receive
property other than cash in return for his contribution.
c. The right, if given, of one or more of the limited partners to priority
over other limited partners, as to contributions or as to
compensation by way ofincome, and the nature of such priority.
d. The right, if given, of the remaining general partner or partners to
continue the business on the death, retirement, civil interdiction,
insanity or insolvency of a general partner.
4. The essential requisites in the formation of a limited partnership are the

following:
L The certificate oflimited partnership
IL The certificate oflimited partnership must be filed in the Office of
the Securities and Exchange Commission.
a Only I is true
b. Only II is true
c. Both are true
d. Both are false
S. A limited partner shall be liable as general partner unless:

a. He takes part in the control of the business.
b. His surname appears in the firm name.
c. He renounces his share in the profits after knowledge of the error
that he was made a general partner.
d. His contribution is industry.
180
6. The surname of a limited partner shall not appear in the partnership

name unless:
I. It is also the surname of a limited partner.
11. Prior to the time when the limited partner became such, the business
has been carried on under a name in which his surname appeared.
a. Only I is true
b. Only II is true
c. Both are true
d. Both are false
7. The requisites for the return of contributions of a limited partner are the
following, except:
a. All liabilities of the partnership, except liabilities to general partners
and to limited partners on account of their contributions, have been
paid or there remains property of the partnership sufficient to pay
them.
b. The consent of all members, unless the return of the contribution
may be rightfully demanded.
c. The consent of only limited partners, unless the return of the
contribution may be rightfully demanded.
d. The certificate is cancelled or so amended as to set forth the
withdrawal or reduction of the contribution.
8. Is a person admitted to all the rights of a limited partner who has died or
has assigned his interest in a partnership.
a. Very special partner
b. Sub-partner
c. Ostensible partner
d. Substituted limited partner
9. The requisites for an assignee to become a substituted limited partner

are the following, except:
a. All the partners must consent or if the limited partner-assignor,
being empowered in the certificate of limited partnership, gives the
assignee that right.
b. The certificate of limited partnership must be registered in the
Department of Trade and Industry.
c. The certificate of limited partnership must be amended.
d. The certificate of limited partnership must be registered in the
10. A certificate shall be amended when, except:

a. There is a change in the name of the partnership or in the amount or
character of the contribution of any limited partner.
b. An additional limited partner is admitted.
c. A person is substituted as a general partner.
181
a
e i any o he sta e , e::~ !.: ·_:, ~

ra I represent he agr'=~;: ~, -
ro-rh h r->t-,e of limited partnership, E:1/.Cep~

fled
cease to be limited partners.
s or cancella ·o~ except

a.. to by only the limited partners.
~1t::0 an rom to by all members.

fo recor i the Office of the Securities and Excha ng~
r ~~ f'N•,r,;,rr• .:.w for amendment arf; the foJlovring, except:

be · ,mnng a fur as necessary t.o set forth clearly tl1 e::
change · the certificate 'Nhkh it is desired to make.
IL ft )., be ign-ed a l.d S'fl,/ rn to by all m~mbers, and an amendm~nt
sut~'tttti'nga rri .rted partner or adding a limited or general partner
be signed atw by the member to be substituted or added, and
when a imited partl'rer is to be sub ;titut:ed, the amendment need not
b€ igned by the as~gning Jimjted partner,
m. n>i! rertift<:ate oflimi~..d partner hip, a amended, must be
ftledfor record in the Office of the ecurities and Exchange
Comrni,. ion.
~.. Only J i trut
, Onfy J and JI are true
.,. , Only f and fH are tru.c
d. AJ are true
1• . Lone formed by two or more per ons having as members one or more
ge·neral partners and one or morn Hmited partners.
a~ Genera) partnership
b, Real partner ·hip
c Limited partnership
182
CHAPTER 4 - LI ITED PART ERSHIP
d. Partnership by estoppel
6. \ ·ch of the fo ll o\ving Is not correct7

a A- cash (Ltd.) ; B - cash rGen .); C - semce (Gen.)
b. A- property (L t d .) ; B - cas h (Gen .); C - serlice (Gen.)
c. A- cash (Ltd.) ; B - property (Gen .); C - ser.rice (Gen.)
cL A- service (L t d .}; B - cas h (Gen .); C - service (Gen.)
17. The following are characteri:tJcs of 3 limited partnership, exc':!pt

a. I is formed by compliance in good faith with the statutory
requirements.
b, One or more li mited partners contribute to the 0.:tpital and s :are in
the profi cs and participate i n the m3n3gement of the bus iness.
c. One or more general partni;rs control the business a d are
personally liable to creditors.
ci The limited partners are not personally liable for partnership
obligations beyond their capiraJ contribution.s.
18. ft is also kno~m as special partner,

a anagjng partner
b. Limited partner
c. Liquidating partner
d. General partn er
19. Spouses Hand W formed a limited partnersh ip to engage in real estate

business and H contributed PS00,000. Is the partnership between the
spouses valid?
a The partnership is not valid because the spouses cannot enter into a
limited partnership.
b. The partnership is va1id because spouses can enter into a
partnership, limited or general, universal or particular.
c. The partnership is valid because spouses are prohibited to enter into
a universal partnership only.
d. The partnership is not valid because spouses cannot enter into any
kind of partnership for business.
20. The following are characteristics of a limited partnership, except:

a. One or more special partners contribute to the capital and share in
the profits but do not participate in the management of the business.
b. The limited partners are not personally liable for partnership
obligations beyond their capital contributions.
c. The partnership debts are paid out of the common fund and the
separate properties of the limited partners.
d. The limited partners may ask for the return of their capital
contributions.
183
CHAPTER 4 L MITED PARTNERSHIP
2L The certificate of limited partnership. hall state the following, except:

a. The d1aracter of the bu. iness.
The locati,on o th~ flrincipal place ofbusines~.
. The ·n anre and plate of residence of each general and limited
arme ·.
d enatneofthe partnership, adding thereto the word "General" .
22. ·c m
e following tatements i not correct?
~ partne hip contract is not covered by the Statute of Frauds
li i partner hall not be bound by the obligations of the
partner hip .
. c. Al it,ed partner who t.akes part in the control of the business shall
iable as a general partner.
d. ulation wh·ch exdudes a partner from sharing in the profits or
toss i void.
2 . tunited .p artner shall have the same rights as a general partner to,
a~t:
a. Haw the partnershi:p books kept at the principal place of business
of the partne hip, and at a reasonable hour to inspect and copy any
of them.
ave on demand true and full information of all things affecting the
pa..-t"fteilr<'!h· ip, and a formal account of partnership affairs whenever
ircumstance. r~nder i just and reasonable.
c. H.av dissolu · n and winding up by decree of court.
-d. on of e abov .
24 . c1re the rjghts of a lim · ed partner, except:

right to manage th operation of the partnership.
n, h . . ti t have th partn rsh1p books kept at the principal place
o b in~ of the partnership, and at a reasonable hour to inspect
and copy any o1 them.
T · righ to hav<· o demand tru and full information of all thm
a.ffuctin th :,artnership, .and a formal ccount of partnership affa1 rs
when ver ci ~umsta c s r nder 1 ju and rea onable.
c. Th• right to tav d ' i,50 utio nd windi g up by decree of court
z~. . Wl ar ~ al uwa > b sm ua. 5ac ·on of limited partnt

artn !rsh11, exc pt ·
y l<J th : P' rt 1trs np.
t. I d~, co L nty d par ·hip prop rty.
U lllt'S!:. artn . .
, 0 ' a _:cow t res llln · gain t he partner p
w'Jtl lt r.:., a µro rata st art th
t6 rt fo ·uw1 • , rt- c1 owaul iJu 1w· ri:tn~at 10 o a Hmikd pa ~ t

w1.t:t, ) f artn •r. !· f ):.t µt.
1,
18
a. To lend money to the partnership.

b. Receive from a general partner or the partnership any payment,
conveyance, or release from liability if at the time the assets of the
partnership are not sufficient to discharge partnership liabilities to
persons not claiming as general or limited partners.
c. To transact business with the partnership.
d. To receive on account of resulting claims against the partnership,
with general creditors, a pro rata share of the assets.
27. When can the contributions of a limited partner be returned

a. On the dissolution of a partnership.
b. When the date specified in the certificate for its return has arrived.
c. After he has given six months' notice in writing to all other members,
if no time is specified in the certificate, either for the return of the
contribution or for the dissolution of the partnership.
d. After he has given nine months' notice in writing to al1 other
members, if no time is specified in the certificate, either for the
return of the contribution or for the dissolution of the partnersh ip.
L8S

1 Partnership

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PARTNERSHIP

Art. 1767. By the contract of partnership, two or more persons bind

Two or more persons may also form a partnership for the

A partnership exists when two or more persons agree to place their

Essential requisites of a contract of partnership

What are the two tests to determine the existence of a partnership?

PARTNERSHIP - A JURIDICAL PERSON

of the partners to divide the profits among themselves. It may be constituted

Characteristics of a contract of partnership

ART. 1767. By the contract of partnership two or more persons

Under the above-quoted Agreement, X and Y would contribute

subdivision of the land. z developed the roads, the curbs, a nd th e gutters

Partnership vs. Joint Venture

DOCTRINE OF DELECTUS PERSONAE

An unjustified dissolution by a partner can subject him to action for I

damages because by the mutual agency that arises in a partnership, the ,

Among partners, mutual agency arises and the doctrine of delectus

Delectus personarum ("choice of persons") or Delectus personae ("Choice

11 seep. 518, Black's Law Dictionary, Tenth Edition.

Is the purpose of the partnership, as stated in its Articles of

Best Evidence of The Existence of a Partnership

unin corporated asso~iation or ostensible corporation may lie in a person

Art. 17 68. The partnership has a judicial personality separate and

Under Art. 1768 of the Civil Code, a partnership "has a juridical ·

Article 1772 of the New Civil Code (NCC) states:

Art 1772. Every contract of partnership having a capital of three thousand

Failure to comply with the requirements of the preceding

ARTIFICIAL PERSON/ JURIDICAL PERSON

Thus/ ABC Partnership can:

Art.1768. The partnership has a juridical personality separate and distinct

X and Y_adm itt~d that Z had the expertise to engage in the

Art.1769. In determining whether a partnership exists, these rules shall

(3) The sharing of gross returns does not of itself establish

The exception is that ifX misrepresents to Z that they are partners

Rule 2: Co-ownership or co-possession does not of itself establish a :

Partnership vs. Co-owners 1p .. -~c, ,,

Rule 3: The sharing of gross returns does not of itself establish a

For example_, if the Gross Profit is PS0,000 and the Expenses is

Rule 4: The receipt by a person of a share of the profits of a business . ·

It is evident that an isolated transaction whereby two or more:

Persons who contribute property or funds for a common enterprise:

25 seep. 1382, Blacl<s Law Dictionary, Tenth Edition.

A joint purchase of land, by two, does not constitute a co-partnership

Where plaintiff, his brother, and another agreed to become owners of

In order to constitute a partnership inter se, there must be: ( a) An intent to

The common ownership of property does not itself create a

b. As wages of an employee or rent to a landlord

of the partnership. ls \! a partner? No, Vis an employee even though

c. As an annuity to a widow or representative of a deceased partner

e. As the consideration for the sale of a goodwill of a business or

purchased a truck to be used in the hauling and transport of lumber

aforementioned properties, which belonged to the estate of X,

Lawful object or purpose

Examples of Unlawful Partnership

3. A partnership formed to create illegal monopolies or combinations in

Effects of an unlawful partnership

2. The profits shall be confiscated in favor of the government;

Art. 17i1. A partnership may be constituted in any form, except where

FORM OF CONTRACT OF PARTNERSHIP

2& Art 1409, NCC.

A partnership may be constituted in any form

. tatect policy of SHELL and the understanding of the parties of havin

Art 1772. Every contract of partnership having a capital of three