WEEK 1

PARTNERSHIP (ART. 1767-1867) It has a special name or designation in our law. The
contract is called Partnership.
PARTNERSHIP
(3) Bilateral
It is a contract whereby two or more persons It is entered into by two or more persons and the rights
bind themselves to contribute money, property, or and obligations arising there from are always reciprocal.
industry to a common fund, with the intention of dividing
the profits among themselves, or in order to exercise a (4) Onerous
profession. It is also a status and a fiduciary relation
subsisting between persons carrying on a business in Each of the parties aspires to procure for himself a
benefit through the giving of something
common with a view on profit (1767).
(5) Commutative
PROFESSION
The undertaking of each of the partners is considered as
A profession has been defined as “a group of men the equivalent of that of the others
pursuing a learned art as a common calling in the spirit
of public service – no less a public service because it (6) Principal
may incidentally be a means of livelihood” [In the Matter It does not depend for its existence or validity upon
of the Petition for Authority to Continue Use of Firm some other contracts; and
name “Sycip, Salazar, etc.”/“Ozaeta, Romulo, etc.”
(1979)]. (7) Preparatory
It is entered into as a means to an end, i.e., to engage in
business or specific venture for the realization of profits
Strictly speaking, the practice of a profession is not a with the view of dividing them among the contracting
business or an enterprise for profi t. However, the law parties.
allows the joint pursuit thereof by two or more persons
as partners. In such case, it is the individual partners,
and not the partnership, who engage in the practice of
the profession and are responsible for their own acts as
Essential features of partnership.
such.
The following are the essential features of a partnership
Fernando Santos v. Sps. Arsenio & Nieves Reyes GR contract:
135813, Oct. 25, 2001
(1) There must be a valid contract;
FACTS: The “Articles of Agreement” stipulated that the
signatories shall share the profits of the business in a 70- a) Partnership relation fundamentally contractual
15-15 manner, with petitioner getting the lion’s share.
Partnership is a voluntary relation created by agreement
Issue: Was there a partnership established? of the parties. It excludes from its concept all other
associations which do not have their origin in a contract,
HELD: The stipulation clearly proved the establishment express or implied. There is no such thing as a
of a partnership. By the contract of partnership, two or partnership created by law or by operation or implication
of law alone.
more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention Obviously, a person cannot enter into a contract of
of dividing the profits among themselves. partnership solely with himself; there must be at least
two competent parties. As in other cases of contracts, in
Characteristic elements of partnership order to make an agreement for a partnership valid,
there must be a valid consideration existing as between
The contract of partnership is: the partners.
(1) Consensual

It is perfected by mere consent, that is, upon the b) Partnership relation fiduciary in nature.
express or implied agreement of two or more persons.
There is perfected contract upon consent of both parties. Partnership is a form of voluntary association entered
(2) Nominate into by the associates. It is a personal relation, in which
the element of delectus personae (Trust and confidence)
exists between the partners. The term is to be understood as referring to currency
which is legal tender in the Philippines. Legal tender is
b.1) Right to choose co-partners the currency which in a given jurisdiction can be used in
the payment of debts.
Unless otherwise provided in the partnership agreement,
no one can become a member of the partnership (a.2) Property
association without the consent of all the other
associates. The fiduciary nature of the partnership The property contributed may be real or personal,
relation and the liability of each partner for the acts of the corporeal or incorporeal. Real Properties are immovable
others within the scope of the partnership business (Art. things such as land, buildings and construction adhered
1818.) require that each person be granted the right to to the land. Personal Properties are those properties
choose with whom he will be associated in the firm. other than real properties. Corporeal are those tangible
things such as bikes, lands, cars while incorporeal are
b.2) Power to dissolve partnership. those intangibles such as copyright and patents

Neither would the presence of a period for its specific (a.3) Industry
duration or the statement of a particular purpose for its
creation prevent the dissolution of any partnership by an In the absence of money or property, or in concurrence
act or will of a partner with these two, the law permits the contribution of
industry. The word “industry” has been interpreted to
mean the active cooperation, the work of the party
(2) The parties (two or more persons) must have associated, which may be either personal manual efforts
legal capacity to enter into the contract or intellectual, and for which he receives a share in the
profits of the business
(4) The object must be lawful;
General Rule: Any person capacitated to contract may
enter into a contract of partnership. Article 1770 (1). A partnership must have a lawful
object or purpose, and must be established for the
The following persons CANNOT enter into a contract of common benefit or interest of the partners.
partnership:
The object is unlawful when it is contrary to law, morals,
(1) Those suffering from civil interdiction; good customs, public order, or public policy.
(2) Minors; If there is no lawful purpose, then the partnership
(3) Insane or demented persons; agreement is void ab initio (void from the very
(4) Deaf-mutes who do not know how to write; beginning). Contracts whose purpose is contrary to law
(5) Incompetents who are under guardianship. are void from the beginning. [Art1409 (1)].

Although a corporation cannot enter into a partnership (5) The primary purpose must be to obtain profits
contract, it may, however, engage in a joint venture with and to divide the same among the parties.
others [Aurbach vs. Sanitary Wares Manufacturing Corp,
G.R. No. 75875 (1989)] A partnership is formed to carry on a business. The idea
of obtaining pecuniary (estimated) profit or gain directly
On the other hand, there is no prohibition against a through or as a result of the business to be carried on is
partnership being a partner in another partnership [De the very reason for the existence of a partnership.
Leon (2010)].
Sharing Profits
(3) There must be a mutual contribution of money,
property, or industry to a common fund; A partnership is essentially a business enterprise
established for profit.
(a) Existence of proprietary interest.
Since the partnership is engaged for the common benefit
The partners must have a proprietary interest in the or interest of the partners (Art. 1770.), it is necessary
business or undertaking, that is, they must contribute that there be an intention to divide the profits among the
capital which may be money or property, or their members, although not necessarily in equal shares. In
services, or both, to the common business. Without the the words of the Supreme Court, “there must be a joint
element of mutual contribution to a common fund there interest in the profi ts.” (Fernandez vs. De la Rosa,
can be no partnership supra.) Without this sharing of profits, it cannot be said
that an agreement of partnership has been entered into,
(a.1) Money. and exists. If all the other elements create a partnership,
a stipulation which excludes one or more partners from
any participation in the profits (or losses) is void. (Art. When the intent of the parties is clear, such intent shall
1799) govern.

Sharing of Losses When it does not clearly appear, the following rules
apply:
Under Article 1767 partnership define as “profit” only and
silent as to “losses”. The reason is that the object of
partnership is primarily the sharing of profits, while the (1) Persons who are not partners to each other are not
distribution of losses is but a possible consequence. partners as to third persons.

The right to share in the profits carries with it to Generally, if they are not partners as between
contribute to the losses if any. The essence of themselves they cannot be partners as to third person.
partnership is that the profits and losses arising from the Partnership is a matter of intention and where parties
undertaking will be shared between and among expressly declare they are not partners, this settles the
members question as between themselves. But where persons by
their act, consent or representations have misled third
person or parties into believing that the former are
(6) The partnership has a juridical personality partners in a non-existing partnership, such person shall
separate from individual partners [Article 1768].
become subject to liabilities of partners to all whom, in
good faith deal with them in their apparent relationship.
ART. 1768. The partnership has a juridical
personality separate and distinct from that of each of
the partners even in case of failure to comply with
the requirements of Article 1772, first paragraph. (2) Co-ownership or co-possession does not of itself
establish a partnership, even when there is sharing of
Art. 1772. Every contract of partnership having a profits in the use of the property.
capital of three thousand pesos or more, in money Co-ownership or co-possession exist when the
or property, shall appear in a public instrument, ownership of an undivided thing or right belongs to
which must be recorded in the Office of the different persons, as such, it does not create partnership
Securities and Exchange Commission. event there is a profit derived from it.

Partnership duly formed under the law is a juridical (3) Sharing of gross returns does not of itself establish a
person to which its juridical personality is SEPARATE
partnership, even when the parties have joint or common
and DISTINCT from that of each of the partners. (Thus,
in the partnership “Sundiang and Castillo,” there are interest in any property from which the returns are
three persons: Sundiang, Castillo, and the firm derived.
“Sundiang and Castillo”.)
The mere sharing of gross return alone does not indicate
a partnership , since in a partnership, the partners share
profits after satisfying all of the partnership liabilities. It is
not merely the sharing of profit but the sharing of them
as co-owner of the business that makes one a partner

The partnership can, in general: (4) The receipt by a person of a share in the profits of a
business is prima facie evidence that he is a partner. As
1) Acquire and possess property of all kinds (Art. 46, to the fourth, no such inference is drawn if the profits are
Civil Code);
received in payment:
2) Incur obligations (Art. 46, Civil Code);
(1) As a debt by installments or otherwise;
3) Bring civil or criminal actions (Art. 46, Civil Code); (2) As wages of an employee or rent to a
landlord;
4) Can be adjudged INSOLVENT even if the individual (3) As an annuity to a widow or representative
members be each financially solvent. (Campos Rueda of a deceased partner;
and Co. v. Pac. Com. Co., 44 Phil. 916). (4) As interest on a loan, though the amount of
payment vary with the profits of the business;
(5) As the consideration for the sale of a goodwill
ART. 1769. In determining whether a partnership of a business or other property by installments or
exists, these rules shall apply: otherwise
 Corporation Code or by
An agreement to share bot profits and losses tends its articles of
strongly establish the existence of a partnership, and incorporation, and such
conversely, the lack of such agreement tends strongly to as are necessary or
disprove the existence of partnership. incidental to the exercise
of such powers
PARTNERSHIP DISTINGUISH FROM CO-
When management is Management is vested in
OWNERSHIP
not agreed upon, every the board of directors or
PARTNERSHIP CO-OWNERSHIP
partner may act for the trustees
Generally created by either Generally created by law partnership
express or implied contract and may exist even Partners are generally Stockholders are liable
without a contract liable for partnership only to the extent of their
Has a separate juridical Has no separate juridical debts shares
personality personality May be dissolved at any May only be dissolved
Generally, the purpose is to The purpose is the time by one or all of the with the consent of the
obtain profits common enjoyment of a partners state
thing or right
Duration has no limitation An agreement to keep a
thing undivided for more
than ten years is not
allowed, but may be
extended
Death or incapacity of a partner Death or incapacity Of a
dissolves the partnership co-owner does not
dissolve the co-ownership PARTNERSHIP DISTINGUISH FROM COOPERATIVE
A partner cannot dispose of his A co-owner can dispose PARTNERSHIP COOPERATIVE
interest, so as to make the of his share without
assignee a partner, without consent of others PARTNERSHIP COOPERATIVE
consent of others Has juridical personality separate and distinct from
its individual members
Composed of an aggregate of individuals
PARTNERSHIP DISTINGUISH FROM Distributes its profits to those who contributed capital
CORPORATION to the business
Can only be organized where there is a law
PARTNERSHIP CORPORATION authorizing its organization
Has juridical personality separate and distinct from
its individual members Created by agreement Created by operation of
Composed of an aggregate of individuals law (Republic Act 6938
Distributes its profits to those who contributed capital or Cooperative Code)
to the business Personality commences Personality commences
Can only be organized where there is a law from the moment of from the issuance of
authorizing its organization execution of the contract certificate of
Created by agreement Created by operation of incorporation
law (B.P 68 as amended When management is Management Is govern
by R.A 11232) not agreed upon, every by democratic control
Involves at least two Can be one person or partner may act for the where the members in
persons without limit one incorporator with partnership primary cooperatives
maximum of 15 shall have equal voting
Personality commences Personality commences rights
from the moment of from the issuance of Organized for Profit Organized to provide
execution of the contract certificate of goods and service to its
members and enable
incorporation
them to attain increased
Can exercise any power Can exercise only income and savings,
authorized by partners powers conferred by the
 investment, productivity (b) An inventory of the property contributed must be
and purchasing power made, signed by the parties, and attached to the
public instrument.

Art. 1771. A partnership may be constituted in An inventory is required only “whenever immovable
any form, except where immovable property or property is contributed.” Hence, Article 1773 does not
real rights are contributed thereto, in which case apply in the case of immovable property which may be
a public instrument shall be necessary possessed or even owned by the partnership but not
contributed by any of the partners
General rule: The contract may be constituted in
any form [Article 1771].

Exceptions:

(1) Where immovable property or real rights are

contributed:
ART. 1774. Any immovable property or an interest
therein may be acquired in the partnership name.
(a) The contract must appear in a public instrument; Title so acquired can be conveyed only in the
and partnership name.

(b) Attached to such instrument must be an Since a partnership has juridical personality separate
inventory, signed by the parties, of the property from and independent of that of the persons or members
contributed [Articles 1771 and 1773]; composing it (Art. 1768.), it is but logical and natural that
immovable property may be acquired in the partnership
(2) Where the capital is at least P3,000, in money name. Title so acquired can, therefore, be conveyed only
or property: in the partnership name.

(a) The contract must appear in a public instrument; ART. 1775. Associations and societies, whose
and articles are kept secret among the members, and
wherein any one of the members may contract in his
(b) It must be recorded in the Office of the Securities own name with third persons, shall have no juridical
and Exchange Commission (SEC). personality, and shall be governed by the provisions
relating to co-ownership.
As to the second, failure to comply with these
requirements, however, does NOT affect the liability Associations whose articles or agreements are kept
of the partnership and the partners to third persons secret among the members (i.e., known to some
members only but withheld from the rest) and wherein
[Articles 1768 and 1772]
anyone of them may contract in his own name with third
persons are, by this article, deprived of juridical
personality for evidently such associations are not
Art. 1773. A contract of partnership is void, partnerships. As among themselves, they shall be
whenever immovable property is contributed governed by the provisions relating to co-ownership.
thereto, if an inventory of said property is not
made, signed by the parties, and attached to the ART. 1776. As to its object, a partnership is either
public instrument universal or particular. As regards the liability of the
partners, a partnership may be general or limited.
Where immovable property, regardless of its value, is
contributed by any of the partners, the failure to comply Classifications of partnership
with the forgoing requirements will render the partnership
void in so far as the contracting parties are concerned: (1) As to the extent of its subject matter

(a) The contract must be in a public instrument (Art. (a) Universal partnership or one which refers to all
1771.); and the present property or to all profits. (Art. 1777.)

There are thus two kinds of universal partnership, to wit:

 (a) Ordinary or real partnership or one which actually
(1) Universal partnership of all present property. This is exists among the partners and also as to third persons;
defined in Article 1778; and or
(b) Ostensible partnership or partnership by estoppel or
(2) Universal partnership of profits. This is defined in one which in reality is not a partnership, but is
Article 1780; considered a partnership only in relation to those who,
by their conduct or admission, are precluded to deny or
disprove its existence.
(b) Particular partnership. — This is defined in
Article 1783.
6) As to publicity
(2) As to liability of the partners
(a) Secret partnership or one wherein the existence of
(a) General partnership or one consisting of general certain persons as partners is not avowed or made
partners who are liable pro rata and subsidiarity (Art. known to the public by any of the partners; or
1816.) and sometimes solidarity (Arts. 1822-1824.) with
their separate property for partnership debts; or (b) Open or notorious partnership or one whose
existence is avowed or made known to the public by the
(b) Limited partnership or one formed by two or more members of the fi rm.
persons having as members one or more general
partners and one or more limited partners, the latter not (7) As to purpose
being personally liable for the obligations of the
partnership. (Art. 1843.) (a) Commercial or trading partnership or one formed for
the transaction of business (Art. 1767.); or
(3) As to its duration.
(b) Professional or non-trading partnership or one
(a) Partnership at will or one in which no time is specified formed for the exercise of a profession.
and is not formed for a particular undertaking or venture
and which may be terminated at anytime by mutual Kinds of partners
agreement of the partners, or by the will of any one
partner alone; or one for a fixed term or particular (1) Capitalist partner, whose contribution is money or
undertaking which is continued by the partners after the property;
termination of such term or particular undertaking without (2) Industrial partner, contribution is only his industry;
express agreement (see Art. 1785.); or (3) General partner, whose liability to third persons
extends to his separate property;
(b) Partnership with a fixed term or one in which the term (4) Limited partner, whose liability to third persons is
for which the partnership is to exist is fixed or agreed limited to his capital contribution;
upon or one formed for a particular undertaking, and (5) Managing partner, who was designated to manage
upon the expiration of the term or completion of the the affairs or business of the partnership;
particular enterprise, the partnership is dissolved, unless (6) Liquidating partner, who takes charge of the winding
continued by the partners. up of partnership affairs;
(7) Partner by estoppel, who is not really a partner but is
(4) As to the legality of its existence liable as such for the protection of innocent third
persons;
(a) De jure partnership or one which has complied with (8) Continuing partner, who continues the business after
all the legal requirements for its establishment (see Arts. dissolution of the partnership by admission of a new
1772, par. 2; 1773.); or partner, or retirement, death or expulsion of existing
(b) De facto partnership or one which has failed to partners;
comply with all the legal requirements for its (9) Surviving partner, who remains a partner after
establishment dissolution by death of any partner;
(10) Subpartner, who is not a member of the partnership
but contracts with a partner with regard to the share of
(5) As to representation to others the latter in the partnership;
(11) Ostensible partner, who takes active part in the
business of the partnership and is known by the public;
(12) Secret partner, who takes active part in the the same between themselves, as well as the profits to
business, but is unknown to the third persons as a be derived therefrom. A contributed all his properties
partner; consisting of two big parcels of agricultural land and a
(13) Silent partner, who does not take active part in the tractor. B contributed also his properties consisting of
business, but may be known to be a partner by third P100,000.00 cash and farm implements.
persons;
(14)Dormant partner, who does not take active part in The partnership formed by the contract of A and B is a
the business and is not known or held out as a partner; universal partnership of all present property.
(15)Original partner, who has been a partner since the
constitution of the partnership;
(16) Incoming partner, who is about to be taken as a Future Property
member into an existing partnership;
(17) Retiring partner, who is withdrawing from the General Rule:
partnership
Future (by inheritance, legacy, donation) property
cannot be included in the stipulation regarding the
ART. 1777. A universal partnership may refer to all universal partnership of all present property because
the present property or to all the profits.
of the following:
(a) First, as a rule, contracts regarding successional
ART. 1778. A partnership of all present property is
rights cannot be made.
that in which the partners contribute all the property
(b) Secondly, a partnership demands that the
which actually belongs to them to a common fund,
with the intention of dividing the same among contributed things be determinate, known, and
themselves, as well as all the profits they may certain.
acquire therewith. (c) Thirdly, a universal partnership of all present
properties really implies a donation, and it is well-
ART. 1779. In a universal partnership of all present known that generally, future property cannot be
property, the property which belongs to each of the donated. (See 11 Manresa, pp. 304-314 and Art.
partners at the time of the constitution of the 751, Civil Code)
partnership, becomes the common property of all
the partners, as well as all the profits which they Exception:
may acquire therewith. A stipulation for the common When there is a stipulation that profits from other
enjoyment of any other profits may also be made; sources will become common property.
but the property which the partners may acquire
subsequently by inheritance, legacy or donation
cannot be included in such stipulation, except the Example:
fruits thereof.
1. A and B entered into a universal partnership of all
A universal partnership of all present property is one in present property. No stipulation was made regarding
which the partners contribute all the properties which other properties. Subsequently, A received a parcel of
actually belong to each of them at the time of the land by inheritance from his father; and another parcel of
constitution of the partnership to a common fund, with land from the San Beda College as remuneration for A’s
the intention of dividing the same among themselves as work as professor therein Are the two parcels of land
well as profit which they may acquire. and their fruits to be enjoyed by the partnership?

In universal partnership of all present property, Property Answer:

which belongs to each of the partners at the time of the No, the two parcels of land and their fruits is not part of
constitution of partnership and the profits which may partnership.
acquire from the property contributed becomes a
common property of partners. Under the law, future properties or their fruit cannot form
part of universal partnership of all present properties
EXAMPLE: except when there is a stipulation.
A and B are partners in a partnership known as X & Co.
They agreed that they would contribute all their
properties to a common fund for the purpose of dividing
In the present case, since there was no stipulation 1. In a universal partnership of profits, A contributed
between A and B regarding inheritance or future the use of his car. At the end of the partnership,
properties thus it shall not belong to the partnership. should the car be returned to him?

Answer:
ART. 1780. A universal partnership of profits
comprises all that the partners may acquire by their Yes, the car should be returned to A.
industry or work during the existence of the
partnership. Movable or immovable property which
Under the law, the universal partnership of profit
each of the partners may possess at the time of the
Movable property which each of the partners at the
celebration of the contract shall continue to pertain
time of celebration of contract will be used as
exclusively to each, only the usufruct passing to the
usufruct only and the ownership shall be the partner
partnership.
whom contributed the same.
Universal partnership of profits is one which comprises
In the present case, since the ownership of the car is
all that the partners may acquire by their industry or work
always been with A and the use is only usufruct thus
during the existence of the partnership and the usufruct
at the end of partnership the car should be returned
of movable or immovable property which each of the
to A.
partners may possess at the time of the celebration of
the contract.

(1) Ownership of present and future property. — It is ART. 1781. Articles of universal partnership, entered
to be noted that in this class of partnership, the partners into without specification of its nature, only
retain their ownership over their present and future constitute a universal partnership of profits.
property. What passes to the partnership are the profits
or income and the use or usufruct of the same. Presumption in favor of universal partnership of
Consequently, upon the dissolution of the partnership, profits.
such property is returned to the partners who own it.
Where the articles of partnership do not specify the
(2) Profits acquired through chance. — Since the law nature of the partnership, whether it is one of “present
speaks only of profits which the partners may acquire by property” or of “profits” only, it will be presumed that the
their industry or work, it follows that profits acquired by parties intended merely a partnership of profits. The
the partners through chance, such as lottery or by reason for this presumption is that a universal
lucrative title without employment of any physical or partnership of profits imposes less obligations on the
intellectual efforts, are not included. partners, since they preserve the ownership of their
separate property.
(3) Fruits of property subsequently acquired. — In
view of paragraph 2, fruits of property subsequently ART. 1782. Persons who are prohibited from giving
acquired by the partners do not belong to the each other any donation or advantage cannot enter
partnership. Such profits may, however, be included by into a universal partnership.
express stipulation. But profits which the partners may
acquire by their industry or work during the existence of Persons Who Together Cannot Form a Universal
the partnership as well as the usufruct of their present Partnership
properties belong to the partnership as a matter of right. (a) Husband and wife — as a rule. (Art. 133, Civil Code).
An express stipulation is necessary to exclude any of (b) Those guilty of adultery or concubinage. (Art. 739,
them. Civil Code).
(c) Those guilty of the same criminal offense, if the
partnership was entered into in consideration of the
same. (Art. 739, Civil Code)

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
Example: vocation.
The above article defines a particular partnership. In (g) To share with the other partners the share of the
other words, it is a partnership which is neither a partnership credit which he has received from an
universal partnership of present property nor a universal insolvent firm debtor. (Art. 1743, Civil Code).
partnership of profits.
Art. 1784. A partnership begins from the moment of
Examples of particular partnerships are those formed for the execution of the contract, unless it is otherwise
the acquisition of an immovable property for the purpose stipulated.
of reselling it at a profit or for the common enjoyment of
its use and the benefits derived therefrom, or those General Rule:
established for the purpose of carrying out a specific
enterprise such as the construction of a building, or Partnership begin from the moment of the execution of
those formed for the practice of a profession or vocation. the contract

Example: Exception:
To construct a building; to buy and sell real estate; to
practice the law profession. Here in a sense, it is as if all When there is a contrary stipulation.
Art. 1783 CIVIL CODE OF THE PHILIPPINES, the
members are industrial partners. The Article presupposes that there can be a future
partnership which at the moment has no juridical
OBLIGATION OF PARTNERSHIP existence yet.

Different Relationships The agreement for a future partnership does not of itself
result in a partnership. The intent must later on be
When two persons, A and B, form a partnership, different actualized by the formation of the intended partnership.
relations may arise: (See Limuco v. Calinao, C.A., L-10099-R, Sept. 30,
1953)
(a) Relations between A and B;
Art. 1785. When a partnership for a fixed term or
(b) Relations between A and B on the one hand, and the particular undertaking is continued after the
partnership on the other hand; termination of such term or particular undertaking
without any express agreement, the rights and
(c) Relations between A and B on the one hand, and
duties of the partners remain the same as they were
third persons on the other hand;
at such termination, so far as is consistent with a
(d) Relations between the partnership and the third partnership at will. A continuation of the business by
persons. the partners or such of them as habitually acted
therein during the term, without any settlement or
Some Obligations of a Partner liquidation of the partnership affairs, is prima facie
evidence of a continuation of the partnership.
(a) To give his contribution. (Arts. 1786, 1788, Civil
Code).

(b) Not to convert firm money or property for his own

use. (Art. 1788, Civil Code).
Duration of a Partnership
(c) Not to engage in unfair competition with his own firm.
(Art. 1808, Civil Code). A partnership is unlimited as to its duration in the sense
that no time limit is fixed by law. The duration may be
(d) To account for and hold as trustee, unauthorized
agreed upon.
personal profits. (Art. 1807, Civil Code).

(e) Pay for damages caused by his fault. (Art. 1794, Civil a. expressly (as when there is a definite period)
Code).
b. impliedly (as when a particular enterprise is
(f) Duty to credit to the firm, payment made by a debtor undertaken it being understood that the firm ends as
who owes him and the firm. (Art. 1792, Civil Code). soon as its purpose has been achieved)
 3. To pay for the agreed or legal interest, if he fails to
1786. Every partner is a debtor of the partnership for pay his contribution on time or in case he takes any
whatever he may have promised to contribute amount from the common fund and converts it to his own
thereto. use

He shall also be bound for warranty in case of 4. To indemnify the partnership for the damages caused
eviction with regard to specific and determinate to it by the delay in the contribution or conversion of any
things which he may have contributed to the
sum for his personal benefits
partnership, in the same cases and in the same
manner as the vendor is bound with respect to the
vendee. He shall also be liable for the fruits thereof
from the time they should have been delivered,
without the need of any demand. A partner who has undertaken to contribute a sum of
money and fails to do so becomes a debtor for the
The Article speaks of three things: interest and damages from the time he should have
complied with his obligation. (1788)
(a) the duty to contribute what had been promised;
The same rule applies to any amount he may have taken
(b) the duty to deliver the fruits of what should have been from the partnership coffers, and his liability shall begin
delivered; and from the time he converted the amount to his own use.

(c) the duty to warrant. Unless there is a stipulation to the contrary, the
partners shall contribute equal shares to the capital
Effect of failure to contribute property promised: of the partnership. (1790)

1. Partners becomes ipso jure a debtor of the Amount of Contribution

partnership even in the absence of any demand
(a) It is permissible to contribute unequal shares, if there
2. Remedy of the other partner is not rescission but is a stipulation to this effect.
specific performance with damages from defaulting (b) In the absence of proof, the shares are presumed
partner equal.

Obligation with Respect to contribution of Property: The rule applies to capitalist partners apparently;
however, the share of the industrial partner is
1. To contribute at the beginning of partnership or at the undoubtedly also the rule applies to capitalist partners
stipulated time, the money, property or industry which he apparently; however, the share of the industrial partner is
undoubtedly also available, for his industry may be worth
may have compromised to contribute thereto.
even more than the entire capital contributed.
2. To answer for eviction in case the partnership is
deprived of the property contributed. Art. 1791 – If there is no agreement to the contrary,
3. To answer to the partnership for the fruits of the in case of an imminent loss of the business of the
property, the contribution of which he delayed, from the partnership, any partner who refuses to contribute
date they should have promised to contribute. an additional share to the capital,except an industrial
4. To preserve said property with the diligence of a good partner, to save the venture, shall he obliged to sell
father of family pending delivery to partnership. his interest to the other partners.
5. To indemnify partnership for any damage caused by
the delay in its contribution. When a Capitalist Partner Is Obliged to Sell His
Interest to the Other Partners
Obligations with respect to contribution of money
and money converted to personal use (a) If there is imminent loss of the business of the
partnership;
1. To contribute on the date fixed the amount he has
undertaken to contribute to the partnership (b) and he refuses (deliberately and not because of
poverty, otherwise this would be unjust) to contribute an
2. To reimburse any amount he may have taken from the additional share to the capital;
partnership coffers and converted to his own use
(c) and provided further that there is no agreement to the
contrary.
Rule for the Industrial Partners Art. 1792 does not apply if the partner collecting is not a
managing partner. Here there is no basis for the
Note that the industrial partner is exempted. suspicion that the partner is in BAD FAITH.

Reason: He is already giving his entire industry.

Art. 1793 – A partner who has received, in whole or
in part, his share of a partnership credit, when the
Art. 1792 – If any partner authorized to manage other partnership credit, when the other partners
collects a demandable sum which was owed to him have not collected theirs, shall be obliged, if the
in his own name, from a person who owed the debtor should there after become insolvent, to bring
partnership another sum also demandable, the sum to the partnership capital what he received even
thus collected shall be applied to the two credits in though he may have given receipt for his share only.
proportion to their amounts, even though he may
have given a receipt for his own credit only, but Art. 1792 Compared With Art. 1793 (Where a Partner
should he have given it for the account of the Receives His Share of a Partnership Credit)
partnership credit, the amount shall be fully applied
to the latter.
Art. 1792 Art. 1793
The provisions of this article are understood to be (a) two debts (a) one debt only (firm
without prejudice to the right granted to the other credit)
debtor by article 1252 (Application for payment), but (b) applies only to (b) applies to any
only if the personal credit of the partner should be managing partner partner
more onerous to him.

Rule if Managing Partner Collects a Credit

For this Article to apply the following requisites must

concur: Example
(a) The existence of at least 2 debts (one where the firm
is the creditor; the other, where the partner is the X owes a firm P1 million. P, a partner, was given his
creditor). share of P500,000, there being only two partners. Later
(b) Both sums are demandable. X
(c) The collecting partner is a managing partner. becomes insolvent. Must P share the P500,000 with the
other partner?
Example
ANS.: Yes, even if P had given a receipt for his share
P, a managing partner, is X’s creditor to the amount of only.
P1 million, already demandable. X also owes the
partnership P1 million, also demandable. P collects P1 Reason for the law: Equity demands proportionate share
million. in the benefits and losses. (See 11 Manresa 353).

(a) If P gives a receipt for the firm, it is the firm’s credit Note that Art. 1793 applies whether the partner has
that has been collected. received HIS SHARE wholly or in part. (See Art. 1793).

(b) If P gives a receipt for his own credit only, P500,000 Every partner is responsible to the partnership for
will be given to him; the other P500,000, to the firm. damages suffered by it through his fault, and he
(Note the use of the word “proportion.”) cannot compensate them with the profits and
benefits which he may have earned for the
Exception: partnership by his industry. However, the courts
may equitably lessen this responsibility if through
X may decide that he is paying only P’s credit in the partner’s extraordinary efforts in other activities
accordance with his right of “application of payment.”
of the partnership, unusual profits have been
(Art. 1262, Civil Code). This is all right; BUT only if the
realized. (1794)
personal credit of P is more onerous to X (Art. 1792, Civil
Code).
The risk of specific and determinate things, which
When Article Does Not Apply are not fungible, contributed to the partnership so
that only their use and fruits may be for the common
benefit, shall be borne by the partners who own contributed capital, he shall also receive a share in
them. the profits in proportion to his capital.
If the things contribute are fungible, or cannot be
kept without deteriorating, or if they were RULES FOR DISTRIBUTION OF PROFITS AND
contributed to be sold, the risk shall be borne by the LOSSES
partnership. In the absence of stipulation, the risk of
The distribution of profits and losses shall be in
the things brought and appraised in the inventory,
accordance with the following rules:
shall also be borne by the partnership, and in such
case the claim shall be limited to the value at which (1) They shall be distributed in conformity with the
they were appraised. (1795) agreement.

Risk of Loss (2) If only the share in profits has been stipulated, the
share in the losses shall be in the same proportion.
(a) Specific and determinate things (NOT fungible) —
whose usufruct is enjoyed by a firm — like a car — (3) In the absence of any stipulation:
partner who owns it bears loss for ownership was never
transferred to the firm. (a) The share in the profits of the capitalist partners shall
be in proportion to their contributions.
(b) Fungible or Deteriorable — Firm bears loss for
evidently, ownership was being transferred; otherwise, (b) The losses shall be borne by the capitalist partners,
use is impossible. also in proportion to the contributions.

(c) Things Contributed to be Sold — Firm bears loss for The share of the industrial partners in the profits is that
evidently, firm was intended to be the owner; otherwise, share as may be just and equitable. If he also
a sale could not be made. contributed capital, he will receive a share of the profits
in proportion to his contribution; and
(d) Contributed under Appraisal — Firm bears loss
because this has the effect of an implied sale. (d) The industrial partner, who did not contribute capital,
is not liable for losses [Article 1797].

The partnership shall be responsible to every Example:

partner for the amounts he may have disbursed on
behalf of the partnership and for the corresponding A, B and C formed a partnership, whereby each of them
interest, from the time the expense are made; it shall contributed 30,000.00. They agreed that should the
also answer to each partner for the obligations he partnership realize profits, the same shall be distributed
may have contracted in good faith in the interest of in the following proportions:
the partnership business, and for risks in
A, as managing partner – 40%
consequence of its Management. (1796)
B, as managing partner – 30%
C, as managing partner- 30%
Responsibility of Firm
In this case, the partners shall share the profits in
(a) To refund amounts disbursed on behalf of firm plus conformity of the agreement. If there is not agreement
interest (legal) from the time expenses were made (and with respect to the share of each partner, then, they shall
not from demand, since after all, a partner is an agent, share the profits equally.
and the rule on agency applies to him).

Art. 1798. If the partners have agreed to intrust to a

Art. 1797. The losses and profits shall be distributed third person the designation of the share of each
in conformity with the agreement. If only the share of one in the profits and losses, such designation may
each partner in the profits has been agreed upon, be impugned only when it is manifestly inequitable.
the share of each in the losses shall be in the same In no case may a partner who has begun to execute
proportion. In the absence of stipulation, the share the decision of the third person, or who has not
of each partner in the profits and losses shall be in impugned the same within a period of three months
proportion to what he may have contributed, but the from the time he had knowledge thereof, complain of
industrial partner shall not be liable for the losses. such decision. The designation of losses and profits
As for the profits, the industrial partner shall receive cannot be intrusted to one of the partners.
such share as may be just and equitable under the
circumstances. If besides his services he has
Designation by Third Person of Shares in Profits and a)
Losses
Yes, the stipulation is valid.
(a) The Article speaks of a “third person,” not a partner.
Under the law, the industrial partner is exempted from
loss and as to industrial partner share it should be fair.
(b) When designation by 3rd party may be impugned —
“when it is MANIFESTLY INEQUITABLE.” In the present case, since A as industrial partner and his
profit share of 1/3 is fair thus the said stipulation is valid.
(c) When designation by third party cannot be impugned
even if manifestly inequitable:
b).
1) if the aggrieved partner has already begun to execute
the decision; A will get only 1/3 of P1.5 million.

2) or if he has not impugned the same within a period of Under the law even the industrial partner does not share
three months from the time he had knowledge thereof the loss it does not mean he is exempted from the net
(not from the time of making). loss. Also, it is understood that he share in the losses
insofar as these can be accommodated in the profits. It
is but fair to compute all the various transactions in
Art. 1799. A stipulation which excludes one or more determining the net profits or losses.
partners from any share in the profits or losses is
void. In the present case, since during the 2 year operation of
partnership they had a profit of 3 million and loss of 1.5
Stipulation Excluding a Partner from Profits or Million, hence the actual profit is only 1.5 Million because
Losses it incurred a loss of 1.5 Million, does A will only get 1/3 of
1.5M.
(a) The general rule is that a stipulation excluding one or
more partners from any share in the profits or losses is
void. Art. 1800. The partner who has been appointed
manager the articles of partnership may execute all
Reason: The partnership is for COMMON BENEFIT. acts of administration despite the opposition of his
partners, unless he should act in bad faith; and his
(b) One exception is in the case of the industrial partner power is irrevocable without just or lawful cause.
whom the law itself excludes from losses. (Art. 1797, The vote of the partners representing the controlling
par.2). interest shall be necessary for such revocation of
If the law itself does this, a stipulation exempting the power.
industrial partner from losses is naturally valid. (Of
course, it is permissible to stipulate that even the Appointment of Manager
industrial partner shall be liable for losses.)
Art. 1800 speaks of two modes of appointment:

Example: (a) appointment as manager in the articles of

partnership;
A, B, and C were partners, the first one being an
industrial partner. During the first year of operation, the (b) appointment as manager made in an instrument
firm made a profit of P3 million. During the second year, other than the articles of partnership or made orally.
a loss of P1.5 million was sustained. Thus, the net profit
for the two years of operation was only P1.5 million. In Appointment in Articles of Partnership
the articles of partnership it was stipulated that A, the
industrial partner would get 1/3 of the profits, but would (a) Power is irrevocable without just or lawful cause.
not participate in the losses. THEREFORE:

(a) Is the stipulation valid? Why? 1) To remove him for JUST cause, the controlling
partners (controlling financial interest) should vote to
(b) How much will A get: 1/3 of P3 million or 1/3 of P1.5 OUST HIM. (See Art. 1800, par. 1)
million? Why?
2) To remove him WITHOUT CAUSE, or FOR AN
Answer: UNJUST CAUSE, there must be UNANIMITY
(including his own vote).
 In case there is a stipulation that none of the managing
Extent of power: partners shall act without the consent of others, the
concurrence of all is necessary for the validity of the
1) If he acts in GOOD faith, he may do all acts of acts. The absence or disability of one cannot be alleged,
ADMINISTRATION (not ownership) despite the unless there is imminent danger of grave or irreparable
opposition of his partners. injury to the partnership [Article 1802].

2) if in BAD faith, he cannot (however, he is presumed to Two or more partners have been intrusted with the
be acting in good faith; moreover, if he really is in bad management
faith the controlling interest should remove him.)
Art. 1801 Article 1802
Power to act may be revoked at any time, with or without
Without specification of
just cause.
their respective duties
Without a stipulation that There is stipulated that
Art. 1801. If two or more partners have been one of them shall not act none of the managing
intrusted with the management of the partnership without the consent of all partners shall act without
without specification of their respective duties, or the others the consent of the others
without a stipulation that one of them shall not act Rule: Rule:
without the consent of all the others, each one may a. Each one may a. The concurrence of all
separately execute all acts of administration, but if separately execute all shall be necessary for
any of them should oppose the acts of the others, acts of administration the validity of the acts.
the decision of the majority shall prevail. In case of a b. But if any of them b. The absence or
tie, the matter shall be decided by the partners should oppose the acts disability of any one of
owning the controlling interest. of the others, the them cannot be
decision of the majority alleged, unless there is
Rule When There Are Two or More Managers shall prevail. imminent danger of
c. In case of a tie, the grave or irreparable
Art. 1801 applies when: matter shall be decided injury to the
(a) Two or more partners are managers; by the partners owning partnership.
(b) There is NO specification of respective duties; the controlling
(c) There is no stipulation requiring unanimity. interest.

Art. 1803. When the manner of management has not

been agreed upon, the following rules shall be
MANAGEMENT BY TWO OR MORE PARTNERS
observed:
When there are two or more managing partners
(1) All the partners shall be considered agents and
appointed, without specification of their duties or without
whatever any one of them may do alone shall bind
a stipulation on how each one will act:
the partnership, without prejudice to the provisions
of Article 1801.
(1) Each one may separately execute all acts of
administration.
(2) None of the partners may, without the consent of
(2) If any of them opposes the acts of the others, the
the others, make any important alteration in the
decision of the majority prevails.
immovable property of the partnership, even if it may
(3) In case of a tie, the partners owning the interest will
be useful to the partnership. But if the refusal of
decide [Article 1801]
consent by the other partners is manifestly
prejudicial to the interest of the partnership, the
court’s intervention may be sought.
Art. 1802. In case it should have been stipulated that
none of the managing partners shall act without the
General rule:
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 When the manner of management has not been
alleged, unless there is imminent danger of grave or agreed upon, all the partners shall be considered
irreparable injury to the partnership. agents and whatever any one of them may do alone
shall bind the partnership, without prejudice to the
STIPULATION OF UNANIMITY provisions of article 1801. However, none of the partners
may, without the consent of the others, make any
important alteration in the immovable property of the Associate of Partner
partnership, even if it may be useful to the partnership.
But if the refusal of consent by the other partners is (a) For a partner to have an associate in his share,
manifestly prejudicial to the interest of the partnership, consent of the other partners is not required.
the court’s intervention may be sought. (1803)
(b) For the associate to become a partner, ALL must
consent (whether the partner having the associate is a
An act of a partner which is not apparently for the
manager or not).
carrying on of business of the partnership in the usual
way does not bind the partnership unless authorized by Reasons:
the other partners.
1) Mutual trust is the basis of partnership;
Except when authorized by the other partners or unless
they have abandoned the business, one or more but less 2) Change in membership is a modification or novation
than all the partners have no authority to of the contract.

1. Assign the partnership property in trust for

creditors or on the assignee’s promise to pay
the debts of the partnership;
2. Dispose of the goodwill of the business;
Art. 1805. The partnership books shall be kept,
3. Do any other act which would make it subject to any agreement between the partners, at
impossible to carry on the ordinary business the principal place of business of the partnership,
of a partnership; and every partner shall at any reasonable hour have
4. Confess a judgement, access to and may inspect and copy any of them.
5. Enter into a compromise concerning a
partnership claim or liability, Partnership Books
6. Submit a partnership claim or liability to
(a) The right in this Article is granted to enable the
arbitration; partner to obtain true and full information of the
7. Renounce a claim of the partnership. partnership affairs (Art. 1806), for after all, he is a co-
owner of the properties, including the books. (Art. 1811).
Rule on Alterations
(b) However, the Article presupposes a “going
(a) Par. 2 deals with “important alterations” in partnership,” not one pending dissolution, for here the
“immovable property of the partnership.” right depends on the court’s discretion nor to one already
dissolved, for here, although the books belong to all the
(b) “Alteration” here contemplates useful expenses, not partners (in the absence of a contrary agreement), still
necessary ones. no single partner is duty bound to continue the place of
business for the benefit of the others. Neither is a
(c) Consent of the others may be express or implied (as purchaser of the firm’s goodwill duty-bound to keep the
when the partners had knowledge of the alteration and books for the inspection of the former partners.
no opposition was made by them). (Sanderson v. Cooke, supra).

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.
Art. 1804. Every partner may associate another
Duty of Partners to Give Information
person with him in his share, but the associate shall
not be admitted in the partnership without the
Reason for the law:
consent of all the other partners, even if the partner
having an associate should be a manager.
There must be no concealment between partners in all
matters affecting the firm’s interest. This is required by
good faith. Thus, this duty to give on demand “true and Subsequently, A filed a petition for cancelation of the old
full information.” title of the partnership and the issuance of another title in
his name alone.
[NOTE: Even without the demand, honesty demands the
giving of vital information, the refraining from all kinds of Issue: Did A become absolute owner of the property?
concealment. (See Poss v. Gottlieb, 1922, 18 Misc. 318).
Ruling:
Errors in the Books
No, in this case, when A redeemed the property in
If partnership books contain errors, but said errors have question, he became a trustee for the benefit of his co-
not been alleged, the books must be considered entirely partner, B, subject to his right to demand from the latter
correct insofar as the keeper of said books of account is his contribution to the price of redemption plus legal
concerned. (Ternate v. Aniversario, 8 Phil. 292). interest (Catalan vs. Gatchalian, 1959)

Who Can Demand Information Art. 1808. The capitalist partners cannot engage for
their own account in any operation which is of the
Note that under Art. 1806, the following are entitled to kind of business in which the partnership is
true and full information: engaged, unless there is a stipulation to the
(a) Any partner contrary. Any capitalist partner violating this
(b) Legal representative of a dead partner prohibition shall bring to the common funds any
(c) Legal representative of any partner under legal profits accruing to him from his transactions, and
disability shall personally bear all the losses.

Art. 1807. Every partner must account to the Business Prohibition on Capitalist Partners
partnership for any benefit, and hold as trustee for it
any profits derived by him without the consent of the While the industrial partner is prohibited from engaging
other partners from any transaction connected with “in business for himself” (any business), the capitalist
the formation, conduct, or liquidation of the partner is prohibited from engaging for his own account
partnership or from any use by him of its property. in any operation “which is of the kind of business in
which the partnership is engaged” (same or similar
(1) Duty to Account business that may result in competition). The competition
may become unfair in view of the knowledge by the
(a) Reason for the law: The fiduciary relations between capitalist partner of the firm’s business secrets.
the partners are relationships of trust and confidence
which must not be abused (Pang Lim & Galvez v. Lo
Seng, 42 Phil. 282) or used to personal advantage.
(Einsweiler v. Einsweiler, 1945, 390 Ill. 286). Instances When There Is No Prohibition
(b) The trust relations exist only during the life of the (a) When it is expressly stipulated that the capitalist
partnership, not before, nor after. Hence, fiduciary partner can so engage himself. (Art. 1808, par. 1).
relations do not exist between the persons still
negotiating for the formation of partnership. (Walker v. (b) When the other partners expressly allow him to do
Patterson, 1926, 166 Minn. 215). so.
The trust relations end with the death of the partnership (c) When the other partners impliedly allow him to do so.
(Bayer v. Bayer, 1926, 214 N.Y.S. 322) unless the
foundation for the breach of trust took place even during Example: When ALL of them are likewise violating the
the existence of the fi rm. (See Hanlon v. Haussermann article.
and Beam, 40 Phil. 796).
(d) When the company ceases to be engaged in
business (hence during the period of liquidation and
Example: winding up, the article no longer applies, even if the
“engaging” partner is himself the “liquidating partner”).
Facts: The reason is clear: there can possibly be no unfair
competition.
A and B are partners in the operation of a cinema
business. The theater was mortgaged to C, who (e) When the general-capitalist partner becomes merely
foreclosed the mortgaged debt. A, in his own behalf, a limited partner in a competitive enterprise for after all, a
redeemed the property with his own private funds. limited partner does not manage.
 (c) Note that the right to participate in the management is
Effect of Violation a very valuable property right

1. The violator shall bring to the partnership all the profits

illegally obtained

2. But he shall personally bear all the losses

Art. 1811. A partner is co-owner with his partners of
specific partnership property. The incidents of this
co-ownership are such that:
Art. 1809. Any partner shall have the right to a formal
account as to partnership affairs: (1) A partner, subject to the provisions of this Title
and to any agreement between the partners, has an
(1) If he is wrongfully excluded from the partnership equal right with his partners to possess specific
business or possession of its property by his co- partnership property for partnership purposes; but
partners; he has no right to possess such property for any
(2) If the right exists under the terms of any other purpose without the consent of his partners;
agreement; (2) A partner’s right in specific partnership property
(3) As provided by Article 1807; is not assignable except in connection with the
(4) Whenever other circumstances render it just and assignment of rights of all the partners in the same
reasonable. property;
(3) A partner’s right in specific partnership property
is not subject to attachment or execution, except on
Right to Demand a Formal Account a claim against the partnership. When partnership
property is attached for a partnership debt the
(a) Generally, no formal accounting is demandable till partners, or any of them, or the representatives of a
after dissolution. deceased partner cannot claim any right under the
homestead or exemption laws;
Reason: After all there is access to the books. (Art. (4) A partner’s right in specific partnership property
1805). is not subject to legal support under Article 291.

(b) However, in the instances enumerated in Art. 1809, it

Partners right in specific partnership property
is evident that the formal accounting can properly and
justifiably be asked for thus:
1. Equal right with his partners to possess specific
partnership property for partnership purposes but not for
In No. 1 — he may have access to the books
any other purpose without the consent for his partners
In No. 2 — there is no express stipulation
2. Not assignable except in connection with the
In No. 3 — it is unfair if other partners can take undue
assignment of rights of all the partners in the same
advantage of partnership funds or partnership
property.
transactions. (See Art. 1807).
3. Not subject to attachment or execution except on a
In No. 4 — as when one partner has been travelling for a
claim against the partnership. But partnership property
long period of time on a business involving the fi rm.
can be attached for the partnership debt.
4. Not subject to legal support.

Art. 1812. A partner’s interest in the partnership is

PROPERTY RIGHTS OF A PARTNER
his share of the profits and surplus.

Art. 1810. The property rights of a partner are: Partners right in interest and surplus
(1) His rights in specific partnership property;
(2) His interest in the partnership; and While in general, a partner’s interest in specific
(3) His right to participate in the management partnership property cannot be assigned, cannot be
attached, and is not subject to legal support, a partner’s
(a) Example of “specific partnership property”: A and B interest in the partnership (his share in the profits and
each contributed a car for the partnership. The two cars surplus) can in general be assigned, be attached, be
are specific partnership property. subject to legal support
(b) Example of “interest in the partnership” — the
partner’s share of the profits and losses (without Art. 1813.
mentioning any particular or specific property).
This article permits the conveyance by a partner of his directed by the court, may be purchased without
whole interest in the partnership (e.g., sale, donation, as thereby causing a dissolution:
collateral security for a loan) without causing dissolution.
However, such assignment does not grant the assignee (1) With separate property, by any one or more of the
the right: partners; or
(a) To interfere in the management; (2) With partnership property, by any one or more of
(b) To require any information or account; or the partners with the consent of all the partners
(c) To inspect any of the partnership books whose interests are not so charged or sold.
The only rights of the transferee or assignee are as
follows: Nothing in this Title shall be held to deprive a
(1) To receive in accordance with his contract the profits partner of his right, if any, under the exemption laws,
accruing to the assigning partner (Machuca vs. Chuidian, as regards his interest in the partnership.
2 Phil. 210 [1903].)
(2) To avail himself of the usual remedies provided by
law in the event of fraud in the management;
(3) To receive the assignor’s interest in case of CHARGING OF INTEREST BY PERSONAL
dissolution; and CREDITORS
(4) To require an account of partnership affairs, but only
in case the partnership is dissolved, and such account General rule: Partnership creditors are preferred over the
shall cover the period from the date only of the last personal creditors of the partners as regards partnership
account agreed to by all the partners property.

EXAMPLE: Exception: On due application by any judgment creditor

of a partner, a competent court may:
A, a partner, mortgaged his interest in partnership X
then worth P500,000.00 to B, a bank, for P300,000.00. (1) Charge the interest of the partner for the satisfaction
Subsequently, the partnership suffered losses, wiping of the judgment debt;
out A’s interest.
(2) Appoint a receiver of the share of the profits and of
Answer: any other money due or to fall due to the partner; and
B has no legal claim against the partnership to the extent (3) Make all other orders, directions, accounts and
of P300,000.00. Under Article 1813, the mortgage inquiries, which the debtor partner might have made, or
merely entitles it to receive in accordance with its which the circumstances may require.
contract the profits to which A would otherwise be
entitled. In this case, since A’s interest was wipe out thus The interest charged may be redeemed before
B has no claim toward X partnership. foreclosure or, in case of sale directed by the court, may
be purchased without causing dissolution:

ART. 1814. Without prejudice to the preferred rights (1) With separate property, by one or more of the
of partnership creditors under article 1827, on due partners; or
application to a competent court by any judgment
creditor of a partner, the court which entered the (2) With partnership property, by one or more of the
judgment, or any other court, may charge the partners, will consent of all, except the debtor partner.
interest of the debtor partner with payment of the
unsatisfied amount of such judgment debt with
interest thereon; and may then or later appoint a OBLIGATIONS OF THE PARTNERS WITH REGARD
receiver of his share of the profits, and of any other TO THIRD PERSONS
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 ART. 1815. Every partnership shall operate under a
might have made, or which circumstances of the firm name, which may or may not include the name
case may require. of one or more of the partners.

The interest charged may be redeemed at any time Those who, not being members of the partnership,
before foreclosure, or in case of a sale being include their names in the firm name, shall be
subject to the liability of a partner.
General rule:

The partners may adopt any firm name desired.

Exceptions: ACTS NOT APPARENTLY FOR CARRYING ON

OF THE USUAL BUSINESS
(1) They cannot use a name which is “identical or
deceptively or confusingly similar to an existing or General rule: Acts of a partner which is not
corporation [or partnership] or to any other name apparently for carrying on of the usual business
already protected by law or is patently deceptive, does not bind the partnership.
confusing or contrary to existing laws” [Section 18,
Corporation Code]. Exception: The partnership is bound if the other
partners authorized him to do the act [Article 1818,
(2) Use of names of deceased partner in law firms is 2nd par.].
“permissible provided that the firm indicates in all its
communications that said partner is deceased” [Rule ACTS OF STRICT DOMINION
3.02, Code of Professional Responsibility]
General rule: One or some of the partners have no
Liability of Strangers Who Include Their Names authority to do the following acts of strict dominion:
Strangers (those not members of the partnership) (1) Assign the partnership property in trust for
who include their names in the firm are liable as creditors or on the assignee’s promise to pay the
partners because of estoppel (Art. 1815, par. 2) but debts of the partnership;
do not have the rights of partners for after all, they (2) Dispose of the goodwill of the business;
had not entered into any partnership contract. The (3) Do any other act which makes it impossible to
purpose of the law is to protect customers from carry on the ordinary business of the partnership;
being misled as to whom they are dealing with. (4) Confess a judgment;
(Sagal v. Fylar, 89 Conn. 293). (5) Enter into a compromise concerning a
partnership claim or liability;
NOTE: If a person misrepresents himself as a (6) Submit a partnership claim or liability to
partner, and as a consequence thereof, a stranger is arbitration;
misled, the deceiver is liable as a partner (without (7) Renounce a claim of the partnership.
the rights of a partner) and this is true, even if he did
not include his name in the firm name.] Exceptions: They may do so if:

(1) Authorized by all the partners; or

LIABILITY OF PARTNERS FOR PARTNERSHIP (2) The other partners have abandoned the business
CONTRACTS [Article 1818, 3rd par.].

ACTS APPARENTLY FOR THE CARRYING ON ACTS IN CONTRAVENTION OF A RESTRICTION

OF USUAL BUSINESS
Any act of a partner in contravention of a restriction
General rule: Any act of a partner which is on authority does not bind the partnership to persons
apparently for the carrying on of the usual business having knowledge of the restriction [Article 1818, 4th
of the partnership binds the latter, including the par.]
execution of any instrument in the partnership name.

Exception: The partnership is not bound when the

following concur:
(1) The partner has in fact no authority to act; and
(2) The person with whom he deals has knowledge
of such fact [Article 1818 (1)]
 CONVEYANCE OF PARTNERSHIP REAL with this Title is evidence against the
PROPERTY (1819) partnership.

TITLE IN PARTNERSHIP NAME Admission or Representation Made By a Partner

Any partner may convey the real property in the Generally, an admission by a partner is an
name of the partnership. The partnership can admission against the partnership under the
recover it, conditions given:

Except when: (a) The admission must concern partnership affairs

(b) Within the scope of his authority
(1) The act of the partner binds the partnership,
when he has authority to carry out the usual Restrictions on the Rule
business of the partnership, under Article 1818, 1st
par.; or (a) Admissions made BEFORE dissolution are
(2) If not so authorized, the property has been binding only when the partner has authority to act on
conveyed by the grantee, or a person claiming under the particular matter.
him, to a holder for value and without knowledge that
the partner exceeded his authority [Article 1819, 1st (b) Admissions made AFTER dissolution are binding
par.] only if the admissions were necessary to WIND UP
the business.
A partner authorized to carry out the usual business
may convey, in his own name, the equitable interest Art. 1821. Notice to any partner of any matter relating
of the partnership [Article 1819, 2nd par.] to partnership affairs, and the knowledge of the
partner acting in the particular matter, acquired
TITLE IN THE NAME OF OTHER PERSONS while a partner or then present to his mind, and the
knowledge of any other partner who reasonably
Where the title is in the name of one or more but not could and should have communicated it to the
all the partners, and the record does not disclose the acting partner, operate as notice to or knowledge of
right of the partnership: the partnership, except in the case of a fraud on the
partnership, committed by or with the consent of
that partner.
(1) The partners having title may convey title.
(2) The partnership may recover it when the partners
conveying title have no authority to carry on the
Notice to, or knowledge of, a partner of matter
usual business of the partnership, unless the
affecting partnership affairs.
purchaser or his assignee is:
(a) A holder for value; and
Like the law of agency, the law of partnership
(b) Without knowledge that the act exceeded
imputes notice to, or knowledge of, any partner of
authority [Article 1819, 3rd par.].
any matter relating to partnership affairs to the
partnership except in case of fraud. The reason is
Where the title is in the name of one or more or all the
that members of a partnership stand in a fiduciary
partners, or in a third person in trust for the partnership a
partner authorized to carry on the usual business may relationship to one another, and it is presumed that
convey equitable title in the partnership name or in his the partners disclose to one another all relevant
own name [Article 1819, 4th par.]. information concerning partnership business.
Where the title is in the names of all the partners, a
conveyance executed by all of them passes all the rights A third person desiring to give notice to a partnership
to the property [Article 1819, 5th par.] of some matter pertaining to the partnership
business need not communicate with all the
ART. 1820. An admission or representation made partners. If notice is delivered to a partner, that is an
by any partner concerning partnership affairs effective communication to the partnership
within the scope of his authority in accordance notwithstanding the failure of the partner to
 communicate such notice or knowledge to his co- [1] represents himself as a partner or
partners. [2] consents to another representing him to anyone
as a partner:
Cases of knowledge of a partner. (1) In an existing partnership; or
(2) With one or more persons not actual partners
Article 1821 speaks of three cases of knowledge, [Article 1825, 1st par.].
namely:
(1) Knowledge of the partner acting in the particular LIABILITY OF A PARTNER BY ESTOPPEL
matter acquired while a partner;
(2) Knowledge of the partner acting in the particular I. PERSONAL REPRESENTATION
matter then present to his mind; and
(3) Knowledge of any other partner who reasonably A partner by estoppel is liable to any such persons:
could and should have communicated it to the acting
(1) To whom such representation has been made; and
partner.
(2) Who has, on the faith of such representation, given
credit to the actual or apparent partnership [Article 1825,
Art. 1822. Where, by any wrongful act or
1st par.]
omission of any partner acting in the ordinary
course of the business of the partnership or with
the authority of his co-partners, loss or injury is II. PUBLIC REPRESENTATION
caused to any person, not being a partner in the
partnership, or any penalty is incurred, the If he has made such representation or consented to its
partnership is liable therefor to the same extent being made in a public manner, whether the
as the partner so acting or omitting to act. representation has or has not been [personally] made or
communicated to such persons so giving credit by or
Art. 1823. The partnership is bound to make with his knowledge, and:
good the loss:
(1) Partnership liability results, he is liable as though he
(1) Where one partner acting within the scope of were an actual member of the partnership.
(2) No partnership liability results, he is liable pro rata
his apparent authority receives money or
with the other persons, if any, so consenting to the
property of a third person and misapplies it; and
contract or representation.
(3) When there are no such other persons, he is
(2) Where the partnership in the course of its separately liable [Article 1825, 1st par.].
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.

EFFECT ON EXISTING PARTNERSHIP OR OTHER

Liability of Partnership for Misappropriation The PERSONS NOT ACTUAL PARTNERS
difference between par. 1 and par. 2 is that in the former
the misappropriation is made by the receiving partner, (1) When a person has been represented to be a partner
while in the latter, the culprit may be any partner. The (a) in an existing partnership, or (b) with one or more
effect however is the same in both cases, as can be persons not actual partners, he is an agent of the
seen from Art. 1824 persons consenting to such representation to bind them
to the same extent and in the same manner as though
LIABILITY IN CASE OF PARTNERSHIP BY he were a partner in fact, with respect to persons who
ESTOPPEL rely upon the representation.
(2) When all the members of the existing partnership
PARTNER BY ESTOPPEL consent to the representation, a partnership act or
obligation results.
A partner by estoppel is a person who, by words spoken (3) In all other cases, it is the joint act or obligation of the
or written or by conduct person acting and the persons consenting to the
representation [Article 1825, 2nd par.]
 ART. 1827. The creditors of the partnership shall be
preferred to those of each partner as regards the
NATURE OF LIABILITY partnership property. Without prejudice to this right,
the private creditors of each partner may ask the
Summarizing Article 1825, a partner by estoppel is liable attachment and public sale of the share of the latter
in the following manner: in the partnership assets.

(1) He is liable as though he were a partner when: Reason for the Preference of Partnership Creditors
(a) There is an existing partnership;
b) All the partners consented to the representation; After all, the partnership is a juridical person with whom
and the creditors have contracted. Moreover, the assets of
(c) A partnership liability results. the partnership must first be exhausted.

(2) He is liable jointly and pro rata as though he were a Reason Why Individual Creditors May Still Attach the
partner in fact with those who consented to the Partner’s Share
representation when:
(a) There is an existing partnership but not all the After all, the remainder (after paying partnership
partners consented; or obligations) really belongs to the partnership.
(b) There is no existing partnership and all those
represented as partners consented to the representation. Sale by a Partner of His Share to a Third Party

(3) He is liable separately when: If a partner sells his share to a third party, but the firm
(a) There is an existing partnership but none of the itself still remains solvent, creditors of the partnership
partners consented; or cannot assail the validity of the sale by alleging that it is
(b) There is no existing partnership and not all of made in fraud of them, since they have not really been
those represented as partners consented to the prejudiced. (Walch v. Lim & Chay Seng, 58 Phil. 13)
representation.

Article 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
ART. 1826. A person admitted as a partner into business.
an existing partnership is liable for all the
obligations of the partnership arising before his Article 1829. On dissolution the partnership is not
admission as though he had been a partner when terminated, but continues until the winding up of
such obligations were incurred, except that this partnership affairs is completed.
liability shall be satisfied only out of partnership
property, unless there is a stipulation to the Dissolution – the change in the relation of the partners
contrary. caused by any partner ceasing to be associated in the
carrying on of the business. It is different from the
winding-up of the business [Article 1828]. It does not
LIABILITY OF AN INCOMING PARTNER
terminate the partnership, which continues until the
winding up of partnership affairs is completed [Article
A person admitted as a partner is liable: 1829].

(1) For obligations incurred subsequent to his admission Winding up – the actual process of settling the
as the other partners are liable; partnership business or affairs after dissolution. It
(2) For obligations incurred before his admission, but will involves collection and distribution of partnership assets,
be satisfied only out of the partnership property, unless payment of debts, and determination of the value of the
otherwise stipulated that he fully assumes such interest of the partners in the partnership
obligations.
Termination – the point in time when all partnership (2) A partner becomes in any other way incapable of
affairs are completely wound up and finally settled. It performing his part of the partnership contract;
signifies the end of the partnership life [De Leon (2010)] (3) A partner has been guilty of such conduct as tends to
affect prejudicially the carrying on of the business;
WITHOUT VIOLATION OF THE AGREEMENT (4) A partner willfully or persistently commits a breach of
the partnership agreement, or otherwise so conducts
(1) By the termination of the definite term or particular himself in matters relating to the partnership business
undertaking specified in the agreement; that it is not reasonably practicable to carry on the
(2) By the express will of any partner, who must act in business in partnership with him;
good faith, when no definite term or particular is (5) The business of the partnership can only be carried
specified. on at a loss;
(3) By the express will of all the partners who have not (6) Other circumstances render dissolution equitable.
assigned their interests or suffered them to be charged
for their separate debts, either before or after the OTHER CAUSES
termination of any specified term or particular
undertaking; (1) When a new partner is admitted into an existing
(4) By the expulsion of any partner from the business partnership;
bona fide in accordance with such a power conferred by (2) When any partner retires;
the agreement between the partners [Article 1830(1)]. (3) When the other partners assign their rights to the
sole remaining partner;
IN CONTRAVENTION OF THE AGREEMENT (4) When all the partners assign their rights in the
partnership property to third persons [Article 1840].
Where circumstances do not permit dissolution under
any other provision of Article 1830, it may also be The statutory enumeration of the causes of dissolution is
dissolved by the express will of any partner at any time. exclusive [De Leon (2010)]

Thus, even if there is a specified term, one partner can EFFECTS OF DISSOLUTION (1832-1834)
cause its dissolution by expressly withdrawing even
before the expiration of the period, with or without
justifiable cause. If the cause is not justified or no cause General Rule:
was given, the withdrawing partner is liable for damages
but in no case can he be compelled to remain in the firm Dissolution terminates all authority of any partner to act
[Rojas v. Maglana (1990)]. for the partnership

Exception:
BY OPERATION OF LAW
1. By any act appropriate for winding up partnership
(1) By any event which makes it unlawful for the affairs or completing transactions unfinished at
business of the partnership to be carried on or for the dissolution.
members to carry it on in partnership;
2. By any transaction which would bind the partnership
(2) When a specific thing which a partner had promised
dissolution had not taken place, provided the other party
to contribute, perishes before delivery, or by the loss of
to the transaction:
the thing, only the use or enjoyment of which has been
contributed; the loss of a specific thing, however, does
not dissolve the corporation after its ownership has a. Had extended credit to the partnership prior to
already been transferred to the partnership; dissolution and had no knowledge or notice of his want
(3) By the death of any partner; of authority; or
(4) By the insolvency of any partner or of the partnership;
(5) By the civil interdiction of any partner b. Though he had not extended credit nevertheless
known of the partnership prior to dissolution and having
no knowledge of notice of dissolution, the fact of
dissolution had not been advertised in a newspaper of
general circulation in place (or each place if more than
BY DECREE OF COURT one) at which the partnership business was regularly
carried on.
A partner may apply for dissolution in court when:
Liability of partner shall be satisfied out of partnership
(1) A partner has been declared insane in any judicial asset alone, when such partner had been prior to
proceeding or is shown to be of unsound mind; dissolution
1. Unknown as a partner to the person with whom the A partner is discharged from any existing liability
contract is made, and upon dissolution of the partnership by an agreement
to that effect between himself, the partnership
2. So far unknown and inactive in partnership affairs that creditor and the person or partnership continuing
the business reputation of the partnership could not be the business; and such agreement may be inferred
said to have been in any degree due to his connection from the course of dealing between the creditor
with it. having knowledge of the dissolution and the person
or partnership continuing the business.
With respect to the partners
The individual property of a deceased partner shall
be liable for all obligations of the partnership
1. When the dissolution is not by the act, insolvency or
incurred while he was a partner, but subject to the
death of partner, or
prior payment of his separate debts.
2. When the dissolution is by such act, insolvency or
death of a partner, each partner is liable to his co-
partners for this share of any liability created by any
partner acting for the partnership as if the partnership ON EXISTING LIABILITY OF PARTNERS
had not been dissolved unless:
General rule: Dissolution does not of itself discharge the
1. The dissolution being by act of any partner, existing liability of any partner.
the partner acting for the partnership had
knowledge of the dissolution, or Exception: A partner may be relieved when there is an
agreement to that effect between:
2. The dissolution being by the death or
insolvency of a partner, the partner acting for the (1) Himself;
partnership had knowledge or notice of the
death or insolvency. (2) The partnership creditor; and

With respect to persons not partners (3) The person or partnership continuing the business.

The partnership as in no case bound by any act of a Such agreement may be inferred from the course of
partner after dissolution towards person not partners in dealing between the creditor having knowledge of the
the following instances: dissolution and the person or partnership continuing the
business.
a. Where the partnership is dissolved because it is
unlawful to carry on the business, unless the act is In case of dissolution by death, the individual property of
appropriate for winding up partnership affairs or a deceased partner is liable for obligations of the
partnership incurred while he was a partner, after
b. Where the partner has become insolvent, or payment of his separate debts [Article 1835]

c. Where the partner has no authority to wind up Article 1836. Unless otherwise agreed, the partners
partnership affairs except by transactions with one who who have not wrongfully dissolved the partnership
or the legal representative of the last surviving
1. Had extended credit to the partnership prior to partner, not insolvent, has the right to wind up the
dissolution and had no knowledge or notice of partnership affairs, provided, however, that any
his want of authority, or partner, his legal representative or his assignee,
upon cause shown, may obtain winding up by the
court.
2. Had not extended credit to the partnership
prior to dissolution and had no knowledge or
notice of his want of authority, the fact of his WHO MAY WIND UP
want of authority has not been advertising the
fact of dissolution. The following partners have the right to wind up the
partnership affairs:
Article 1835. The dissolution of the partnership does
not of itself discharge the existing liability of any (1) Those designated in an agreement;
partner.
(2) Those who have not wrongfully dissolved the (c) During the agreed term for the partnership
partnership; or
For the purpose of continuing the business, the said
(3) The legal representative of the last surviving partner, partners may possess the partnership property provided:
who was not insolvent. Any partner or his legal
representative or assignee may obtain winding up by the (1) They secure the payment by bond approved by the
court, upon cause shown. court; or

(2) They pay any partner who has caused the dissolution
wrongfully the value of his interest in the partnership,
less any damages recoverable, and indemnity against all
present or future partnership liabilities [Article 1837(2)].
MANNER OF WINDING UP
PARTNER WHO CAUSED THE DISSOLUTION
The winding up of the dissolved partnership may be
done either: The partner who caused the dissolution wrongfully has
the following rights:
(1) Judicially, under the control and direction of the
proper court upon cause shown by any partner, his legal (1) If the business is not continued, all the rights Article
representative, or his assignee; or 1837, 1st par., subject to liability for damages;

(2) Extrajudicially, by the partners themselves without (2) If the business is continued, the right, as against his
intervention of the court. co-partners and all claiming through them, to:

RIGHTS OF PARTNERS IN CASE OF DISSOLUTION (a) Ascertainment, without considering the value of the
(1837) goodwill of the business, and payment to him in cash the
value of his partnership interest, less any damage, or
DISSOLUTION WITHOUT VIOLATION OF THE have the payment secured by a bond approved by the
AGREEMENT court; and

Each partner may have: (b) Be released from all existing liabilities of the
partnership [Article 1837(3)]
(1) The partnership property applied to discharge the
partnership liabilities; and

(2) The surplus applied in cash to the net amount owing RIGHTS OF PARTNERS IN CASE OF RESCISSION
to the respective partners. This is a right as against his
co-partners and all partners claiming through them in A partner, who is induced by fraud or misrepresentation
respect of their interests in the partnership. It cannot be to become such partner, may rescind the contract.
availed if there is an agreement to the contrary [Article Without prejudice to any other right, he is entitled:
1837 (1)].
(1) To a lien on, or right of retention of, the surplus of
DISSOLUTION IN CONTRAVENTION OF THE the partnership property after satisfying the partnership
AGREEMENT (1837) liabilities to third persons for any sum of money paid by
him for the purchase of an interest in the partnership and
The partners who did not cause the dissolution for any capital or advances contributed by him;
wrongfully has the following rights:
(1) To demand the right under Article 1837, 1st par.; 2) To stand, after all liabilities to third persons have been
may have the partnership property applied to discharge satisfied, in the place of the creditors of the partnership
its liabilities, and the surplus applied to pay in cash the for any payments made by him in respect of the
net amount owing to the respective partners partnership liabilities; and
(2) To be indemnified for damages for breach of the
agreement against the partner who caused the (3) To be indemnified by the person guilty of the fraud or
dissolution wrongfully [Article 1837(1)]; making the representation against all debts and liabilities
(3) To continue the business: of the partnership [Article 1838]
(a) In the same name;
(b) By themselves or jointly with others;
 The partnership liabilities shall rank, in order of payment,
as follows:
SETTLING OF ACCOUNTS BETWEEN PARTNERS
(1839) (1) Those owing to creditors other than partners;

Subject to any agreement to the contrary, the following (2) Those owing to partners other than for capital and
rules shall be observed in settling accounts between profits;
partners after dissolution.
(3) Those owing to partners in respect of capital;
COMPOSITION OF PARTNERSHIP ASSETS
(4) Those owing to partners in respect of profits [Article
(1) The partnership property; and 1839(2)]

(2) The contributions of the partners necessary for the DOCTRINE OF MARSHALING OF ASSETS
payment of all the liabilities [Article 1839(1)].
When partnership property and the individual properties
In accordance with the subsidiary liability of the partners, of the partners are in possession of a court for
the partnership property shall be applied first to satisfy distribution:
any liability of the partnership [Article 1839(3)].
(1) Partnership creditors have priority on partnership
AMOUNT OF CONTRIBUTION FOR LIABILITIES property;

The rules for distribution of losses shall determine the (2) Separate creditors have priority on individual
contributions of the partners [Article 1839(4)]. As such: property, saving the rights of lien of secured creditors.

(1) The contribution shall be in conformity with the (3) Anything left from either shall be applied to satisfy the
agreement. other [Article 1839(8)]

(2) If only the share in profits has been stipulated, the

contribution shall be in the same proportion.
LIMITED PARTNERSHIP
(3) In the absence of any stipulation, the contribution
shall be in proportion to the capital contribution [Article ELEMENTS OF LIMITED PARTNERSHIP
1797]
(1) A partnership;
ENFORCEMENT OF CONTRIBUTION (2) Formed by two or more persons;
(3) Having as members:
The following persons have the right to enforce the (a) One or more general partners; and
contributions: (b) One or more limited partners.

(1) An assignee for the benefit of creditors; The limited partners as such shall not be bound by the
obligations of the partnership [Article 1843].
(2) Any person appointed by the court; or
Exception:
(3) To the extent of the amount which he has paid in
excess of his share of the partnership liability, any 1. The name of the partnership failed to add the
partner or his legal representative [Article 1839(5) and word “Limited or “Ltd”.
(6)].
2. Failure to file the article of co-partnership to SEC
3. The contributions of a limited partner may be cash
The individual property of a deceased partner shall be
or property, but not services (1845)
liable for the contributions [Article 1839(7)].
4. The surname of a limited partner appears in the
partnership name unless:
a) It is also the surname of a general partner or
ORDER OF APPLICATION OF ASSETS
 b) Prior to the time when the limited partner to the partnership
became such, the business has been carried on Effect of retirement, death, insanity or insolvency
under a name which his surname appeared (1845) Dissolves partnership Does not dissolve
5. A limited partner takes part in the control of the partnership; rights
transferred to executor or
business (1848)
administrator for selling his
estate
CHARACTERISTICS

(1) A limited partnership is formed by compliance with GENERAL AND LIMITED PARTNER AT THE SAME
the statutory requirements [Article 1844]. TIME
(2) The business is controlled or managed by one or
more general partners, who are personally liable to A person may be a general and a limited partner in the
creditors [Articles 1848 and 1850]. same partnership at the same time. This fact must be
(3) One or more limited partners contribute to the capital stated in the certificate. A person who is a general, and
and share in the profits but do not manage the business also at the same time a limited partner, shall have all the
and are not personally liable for partnership obligations rights and powers, and be subject to all the restrictions of
beyond their capital contributions [Articles 1845, 1848 a general partner, except that, in respect to his
and 1856]. (4) Obligations or debts are paid out of the contribution as a limited partner, he shall have the rights
partnership assets and the individual property of the against the other members which he would have had if
general partners [Article 1843]. he were not also a general partner [Article 1853].
(5) The limited partners may have their contributions
back subject to conditions prescribed by law [Articles MANAGEMENT
1844 and 1957].
Only general partners have the right to manage the
A limited partnership has the following advantages: partnership. If a limited partner takes part in the control
of the business, he becomes liable as a general partner
(1) For general partners, to secure capital from others [Article 1848]
while retaining control and supervision for the business;
OBLIGATIONS OF A LIMITED PARTNER
(2) For limited partners, to have a share in the profits
without risk of personal liability OBLIGATIONS RELATED TO CONTRIBUTION
The contributions of a limited partner may be cash or
other property, but not services [Article 1845].
GENERAL AND LIMITED PARTNERS
DISTINGUISHED A limited partner is liable for partnership obligations
when he contributes services instead of only money or
General partner Limited partner property to the partnership [De Leon (2010)].
Extent of liability
Personally, but Liable only to the extent of A limited partner is liable to the partnership:
subsidiarily, liable for his capital contributions
obligations of the
(1) For the difference between his actual contribution
partnership
and that stated in the certificate as having been made;
Right to participate in management
and
Unless otherwise agreed No right to participate in
upon, all general partners management (2) For any unpaid contribution which he agreed in the
have an equal right to certificate to make in the future at the time and on the
manage the partnership conditions stated in the certificate [Article 1858, 1st par.]
Nature of contribution
Cash, property or industry Cash or property only, not A person who has contributed capital to a partnership,
industry erroneously believing that he has become a limited
Proper party in proceedings by or against partnership partner, but his name appears in the certificate as a
Proper party Not proper party, unless general partner or he is not designated as a limited
[1] he is also a general partner, is not personally liable as a general partner by
partner; or reason of his exercise of the rights of a limited partner,
[2] where the object of the provided:
proceedings is to enforce
his right against or liability
(1) On ascertaining the mistake, he promptly renounces (6) To receive a share of the profits or other
his interest in the profits of the business or other compensation by way of income; and
compensation by way of income [Article 1852]; (7) To receive the return of his contribution provided the
(2) He does not participate in the management of the partnership assets are in excess of all its liabilities
business [Article 1848]; and [Article 1851]
(3) His surname does not appear in the partnership RIGHT TO TRANSACT BUSINESS WITH THE
name [Article 1846] PARTNERSHIP
A limited partner may:
He holds as trustee for the partnership: (1) Loan money to the partnership;
(2) Transact other business with the partnership; and
(1) Specific property stated in the certificate as (3) Receive a pro rata share of the partnership assets
contributed by him, but which was not contributed or with general creditors if he is not also a general partner
which has been wrongfully returned; and [Article 1854, 1st par.].
(2) Money or other property wrongfully paid or conveyed
to him on account of his contribution [Article 1858, 2nd LIMITATIONS
par.].
A limited partner, with respect to his transactions with
These liabilities can be waived or compromised only by the partnership, cannot:
the consent of all members. Such waiver or compromise, (1) Receive or hold as collateral security any partnership
however, shall not affect the right to enforce said property; or
liabilities of a creditor: (2) Receive any payment, conveyance, or release from
liability if it will prejudice the right of third persons [Article
(1) Who extended credit; or 1854, 1st par.].
(2) Whose claim arose, after the filing or before a
cancellation or amendment of the certificate, to enforce Violation of the prohibition is considered a fraud on the
such liabilities [Article 1858, 3rd par.] creditors of the partnership [Article 1854, 2nd par.]

LIABILITY TO PARTNERSHIP CREDITORS RIGHT TO SHARE IN PROFITS

General rule: A limited partner is not liable as a general A limited partner may receive from the partnership the
partner. His liability is limited to the extent of his share of the profits or the compensation by way of
contributions [Article 1843]. income stipulated for in the certificate.

Exceptions: The limited partner is liable as a general This right is subject to the condition that partnership
partner when: assets will still be in excess of partnership liabilities after
(1) His surname appears in the partnership name, with such payment [Article 1856]. The partnership liabilities
certain exceptions [Article 1846, 2nd par.]. being referred to exclude the liabilities to the limited and
(2) He takes part in the control of the business [Article general partners
1848]
RIGHT TO RETURN OF CONTRIBUTION
RIGHTS OF A LIMITED PARTNER
A limited partner may have his contributions withdrawn
IN GENERAL or reduced when:
(1) All the liabilities of the partnership, except liabilities to
A limited partner shall have the same rights as a general general partners and to limited partners on account of
partner to: their contributions, have been paid or there remains
(1) Require that the partnership books be kept at the property of the partnership sufficient to pay them;
principal place of business of the partnership; (2) The consent of all members is had, unless the return
(2) To inspect and copy any of them at a reasonable may be demanded as a matter of right; and
hour; (3) The certificate is cancelled or so amended as to set
(3) To demand true and full information of all things forth the withdrawal or reduction [Article 1857, 1st par.]
affecting the partnership;
(4) To demand a formal account of partnership affairs The return of his contributions may be demanded, as a
whenever circumstances render it just and reasonable; matter of right [i.e., even when not all the other partners
(5) To ask for dissolution and winding up by decree of consent], when (1) and (2) above are complied with:
court; (1) On the dissolution of the partnership;
(2) Upon the arrival of the date specified in the certificate return of contribution, to which the assignor would
for the return; or otherwise be entitled.
(3) After the expiration of a 6-month notice in writing
given by him to the other partners, if no time is fixed in He has no right:
the certificate for: (1) To require any information or account of the
(a) The return of the contribution; or partnership transactions;
(b) The dissolution of the partnership [Article 1857, 2nd (2) To inspect the partnership books [Article 1859, 3rd
par.] par.]

General rule: A limited partner, irrespective of the nature An assignee has the right to become a substituted
of his contribution has only the right to demand and limited partner if:
receive cash in return for his contribution. (1) All the partners consent thereto; or
(2) The assignor, being empowered to do so by the
certificate, gives him that right [Article 1859, 4th par.]

Exceptions: An assignee becomes a substituted limited partner when

He may receive his contribution in a form other than the certificate is appropriately amended [Article 1859, 5th
cash when: par.]
(1) There is a statement in the certificate to the contrary;
or
(2) All the members of the partnership consent [Article
1857, 3rd par.]

PREFERENCE OF LIMITED PARTNERS

RIGHT TO ASK FOR DISSOLUTION
General rule: The limited partners stand on equal
footing. A limited partner may have the partnership dissolved
and its affairs wound up when:
Exception: By an agreement of all the partners [general (1) He rightfully but unsuccessfully demands the
and limited] in the certificate, priority or preference may return of his contribution; or
be given to some limited partners over others with (2) He has a right to contribution but his contribution
respect to: is not paid because the partnership property is
(1) The return of contributions; insufficient to pay its liabilities [Article 1857, 4th par.]
(2) Their compensation by way of income; or
(3) Any other matter [Article 1855]
DISSOLUTION
RIGHT TO ASSIGN INTEREST
A limited partnership is dissolved in much the same way
The interest of a limited partner is assignable. and causes as an ordinary partnership [De Leon (2010)].

The assignee may become: General rule: The retirement, death, insolvency, insanity
(1) A substituted limited partner; or or civil interdiction of a general partner dissolves the
(2) A mere assignee partnership

A substituted limited partner is a person admitted to all Exception: It is not so dissolved when the business is
the rights of a limited partner who has died or has continued by the remaining general partners:
assigned his interest in a partnership. He has all the
rights and powers, and is subject to all the restrictions (1) Under a right to do so stated in the certificate; or
and liabilities of his assignor (2) With the consent of all members [Article 1860]
Except those liabilities which:
(1) The assignee was ignorant of; and Upon the death of a limited partner, his executor or
(2) Cannot be ascertained from the certificate [Article administrator shall have:
1859, 2nd and 6th par (1) All the rights of a limited partner for the purpose of
settling his estate; and
An assignee is only entitled to receive the share of the
profits or other compensation by way of income, or the
(2) The power to constitute an assignee as a substituted
limited partner, if the deceased was so empowered in
the certificate.

The estate of a deceased limited partner shall be liable

for all his liabilities as a limited partner [Article 1861].

SETTLEMENT OF ACCOUNTS

ORDER OF PAYMENT

In settling accounts after dissolution, the liabilities of the

partnership shall be entitled to payment in the following
order: (1) Those to creditors, including limited partners
except those on account of their contributions, in the
order of priority as provided by law;
(2) Those to limited partners in respect to their share of
the profits and other compensation by way of income in
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 [Article
1863, 1st par.].

REFERENCES:
 Agency, Trust, Partnership and Joint
Ventures by Cesar L. Villanueva and Teresa
S. Villanueva-Tiansay (2015)
 Civil Code of the Philippines IV Annotated by
Edgardo Parras (2013)
 Civil Law Reviewer by Desiderio P. Jurado
(2019)
 Agency, Partnership and Trust by Hector De
Leon (2005)
 Agency, Partnership and Trust by Hector De
Leon (2010)
 Civil Reviewer by UP LAW BAR Operation
Commission (2016)